As I sit here watching the Summer Olympics a commercial
comes on telling me how GM General Motors has had one of their best quarters
and sales of GM vehicles have been thru the roof. Funny because last week it
was reported that GM motors has a new finance company that are making car loans
to just about anybody walking thru the door and the majority of the loans are
made to those who are on the lower end of the credit rating scores.
Commentators were quick to point out the double benefit
of this practice being that GM is able to report increased sales of
automobiles, thus making a flashy commercial to broadcast during the Olympics,
and the resale of relatively “New” vehicles once they reposes them from those
who obviously could not afford them in the first place…
I am also reading for the second time “The Big Short” by
Michael Lewis which explains a lot of what went on with the subprime collapse
and it appears we are headed right back in the same direction as evident with
the GM financing to those who can’t afford the cars they are buying. Another
example is one provided in “The Big Short” regarding the practice of providing
“Free Checking” by the banks…
And
he explained that they avoided free checking because it was really a tax on
poor people—in the form of fines for overdrawing their checking accounts. And
that banks that used it were really just banking on being able to rip off poor
people even more than they could if they charged them for their checks.”
Lewis,
Michael (2010-05-12). The Big Short: Inside the Doomsday Machine (p. 20).
Norton. Kindle Edition.
So here you have it. Many have always made profit off of
lending money to those who need it or those who want it to improve their status.
The dangerous one is the guy who uses credit to “keep up with the Jones”, get
that new smartphone, or make that major purchase to have that house comparable
to what took generations before us decades to be able to afford…
But is it the fault of the person doing the lending or
the person spending by use of credit to make purchases that will take
months\years\decades to pay off? Many people get caught up in the experience
and rush of shopping and even justify this overspending by use of special
credit promotions that make it almost foolish not to take advantage of these
promotions. I have seen people walk around the store looking to spend another
$100 to put them over the $299 minimum required to get that 12 months no
interest offer. Seems like a good idea in taking advantage of “interest free
money” but already the consumer is in the hole for spending the unnecessary $100
to get the offer and if the total purchase is not paid off in the 12 month
period full interest is required. Fault of the “lender” or the “borrower”…
Many of my Liberal friends are quick to point out that
wages have not increased across the board for everybody as it “Should” in their
perfect world. First let me say that I look at CEO’s pulling down millions in
bonus as incentive programs are eliminated to temporally raise stock prices and
quarter bottom lines, but what happens to long term productivity? It has become
evident that many in the “Middle class” have dealt with little wage increases
by way of cheap credit to get the “Toys” they wanted before they could actually
afford them. With that many people have gotten themselves in trouble and never
really able to get ahead as they should.
Do people really need the new Smartphone that can do
more than what many computers could do just a short time ago? Technology is a
great thing and very valuable if you can make it work for you. I see friends
who can run their companies with these phones and make very nice money by being
smart with these phones. I take grief at work for being the guy still with a “flip-phone”
but without running a business with it all I need is a portable phone and the
smaller monthly phone bill…
More to come (?)…..
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