Hauzes, Spauzes, and Aufzpringe
You just finished college[i],
got married, are planning to start a family: you bought a new house, your first
one, and a car. The car, which cost $20,000
is 100% mortgaged with a 60-month payback at 7% interest. The tiny house, which cost $150,000 is also 100%
mortgaged with a 30-year payback at 3.5% interest. You still have your $50,000 education debt to
cope with. You and your spouse start your
first real jobs.
Five years later the new car is paid off; but, it’s also
worn out, with 200,000 miles on the clock: so, you trade into a similar vehicle
for $28,000.[ii] In a few years you will need a second
vehicle, if you don’t already have one; and, oh yeah, either you or your spouse
will stop work, or work part time, to cope with that soccer thingy. The short version of this is that you now
have $20,000 to $48,000 or more invested in vehicle mortgages. You will continue this practice year after
year for at least the next 30 years, so your “purchase” value in vehicles will
amount to around $300,000 overall; your maintenance and fuel costs will run
right at $5000 per year, or another $150,000 gross; depending on how quickly
you pay down the mortgages, interest will add another $300,000 to $600,000 to
the overall vehicle cost.[iii] And, oh, by the way there is insurance, kid’s
cars, driver’s training, accident costs, and more. As the smoke clears away after 30 years you
will have purchased $300,000 worth of vehicles, the vehicle purchase value or
sticker sales price. You will have paid
$750,000 to $1,050,000 or more in costs, the vehicle cost value. You will end up owning a rusty piece of junk
that needs to be replaced, maybe it’s worth $5,000, if you’re lucky: this is
the vehicle true value.
As a capitalist, the proud owner of a $5,000 lump of rust;
reconsider the $300,000 purchase value, the nearly $1,000,000 cost value, and
the $5,000 true value and answer some hard-nosed business questions for
me. Was it a good investment? The bank pocketed $300,000 to $600,000 for
doing nothing and taking no risk. On a
ratio of 600/5 or 300/5, who is the real capital owner? Who took all the risks?
Similarly, the house, over the 30-year mortgage, will cost
$150,000 to $300,000 more in interest costs.
This assumes that you miss no payments, never risk foreclosure, or
decide that the spouse and two-kids need a bigger, newer house. Very many people have not been that lucky:
these have lost everything. The house
also requires maintenance costs (10% per year), energy costs (you name it), and
insurance (a small fortune. The purchase
value was $150,000, the cost value just topped $750,000 to $900,000, the
depreciated true value is lucky to be $75,000.
Was it a good investment? Who is
the real capital owner? Who took all the
risks?
This is the point where you decide to drop an additional $50,000
to $100,000 in remodeling to get the curb appeal and market value back up, you
hope to around $150,000.
Cheer up, it could have been worse. You could have rented, introducing another
middle man, for at least twice the price ($2,000,000) with less space and
quality. You could have fallen into a
floating interest predatory loan which is now running 14%. You could have been sucked into a second
mortgage, which makes your house virtually unsellable. Even now, after 30 years, you still have a
shot at a reverse mortgage which strips you of everything: but, hey, party on
dude, until the money runs out. Your
kids will inherit nothing. Or you could
become ill, and be placed in a nursing home, an which point the nursing home
will take everything that has not been shifted to others for at least three years,
plus all of your social security, and if any additional expenses can be
justified, they will also seize any retirement savings you might have. Or you could establish a living will or trust
and watch the lawyers take it all. In
any of these scenarios, your kids will inherit the clothes off your back and
the old beat-up furniture: banks, long term care facilities, and lawyers will
take everything of value.
This is capitalism in America. Your best case scenario is the proud
ownership of a house worth $75,000, a car worth $5,000, Social Security, and
Medicare. Where did your 401k, IRAs, or
other investments go? They were all eaten
by investment fraud, hidden fund fees, government fraud, federal level buyouts,
insider trading[iv],
Ponzi schemes, market churning[v],
and much, much more.
Who took the risks?
You did. Who holds the capital
purse, without risk or work? The bank
does.
[i]
Why not high school? Everybody’s
expectation nowadays is a college degree.
Still, a mountain of predatory education debt is no asset, and no
necessary preparation for a minimum wage job in retail. Many kids would be far better off trying to
get placement in a skilled trade, working their way up from apprentice to
master (skilled trades are going begging, you get paid while you work, you accrue
no debt, you should be licensed in four years, by that time you are already miles
ahead of the college grad and twice as employable). Other kids would benefit more by going in the
military. Still others could seek
employment in a company that offers on-the-job scholarships for ongoing
education. A college education is by no
means necessary, or even a career advantage.
American cannot be rebuilt on the premise of necessary college
education. College education fits some
kids; others it does not suit at all.
[ii]
Inflation has increased the cost of cars, but not their sizes or
capacities. No worries, you only have two
kids, so the compact still works. You’re
not quite a soccer dad/mom yet.
[iii]
Notice that the bank does no work and takes no real risk in this
investment. If you think that escape by
default is possible; you will learn a very painful lesson, when you discover
who wins in court.
[iv]
Insider trading is not illegal for members of Congress.
[v]
Churning can still be accomplished legally if you have enough money to seize
and freeze a commodity market, driving the cost up; then releasing it, driving
the cost back down: as when the Koch brothers attempted to corner the silver
market around 1980. Money is made on the
bull, and shorting makes money on the bear.
The cycle is simply repeated endlessly.
Churning can also be accomplished by forcing overproduction,
driving costs down; followed by the crash of failed producers, driving costs
back up again: as with the recent glut taking gas to around $1 per gallon, and
now back up above $2 per gallon.
Somebody made a lot of money at public expense, by convincing us that we
had to compete with foreign oil imports.
This particular churn put many dependent small businesses out of
business. When the price of oil dropped,
many people lost income, thus destroying the customer base for many dependent
small businesses. Is this capitalism, or
is this fraud?
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