Latest / Words & Numbers / Episode 489: Better off a Loan

Transcript

Episode 489: Better off a Loan · Words & Numbers

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Coming up next on Words and Numbers, the Ford Motor Company
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Bees, Seattle. And what's alone?
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All this and more coming up next on Words and Numbers, a Civil
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original production. Check us out at civil.com.
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That's C ivl.com. Hi, I'm James.
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And I'm Anthony and. This is words and numbers.
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Ant. It's new and exciting in your
0:25
world. James, you're going to think
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this isn't true, and I wish it wasn't weren't, but here's the
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title. Or here's the headline from The
0:39
Guardian. Stingless bees from the Amazon
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granted legal rights in World First.
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Don't you want to say something or would you like me to go
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straight to what kind of rights do they have?
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Yes, let me do that. Take, take us.
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Take us to. The punchline because this is
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the dumbest thing I've heard all day.
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Specific protections granted by the Legal Rights Ordinance for
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Amazonian stingless bees. The right to exist and thrive as
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a species. The right to maintain healthy
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populations. The right to a healthy habitat
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free from pollution, The right to ecologically stable climate
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conditions. Oh, I could see a lot of.
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Mischief, can you there? Can you stop right now?
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Because I think that's a no. No, no, it gets better.
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The right to regenerate their natural cycles.
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I don't know that you need to. Well, nonetheless, here's the
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fun right to legal representation.
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The right, well, it does come with it.
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It comes qualified the right to equal representation when these
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other rights are threatened or harmed.
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All right. I have, as you might well
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imagine, a couple of questions. First, which box of European
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tools did this? This was not your this
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Amazonian. That's not a country.
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Stainless bees from the Amazon. Peruvian Amazon specifically.
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So Peru, This is Peru's fault? Seems to be per yes, passed in
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two Peruvian regions. These are not federal level,
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these are more province or local.
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Level to a lower level of jackassery than it's going to
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end up being. The obvious question here is, if
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bees or any other of God's multiple creatures have these
2:34
rights, who has the corresponding responsibility to
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facilitate them? Right.
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Because in my world, rights are negative.
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They're negative, and they're also political and legal, but
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they're primarily negative. They're freedoms that you enjoy
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at the expense of government power.
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And. This is this is exactly.
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Not that. Yeah, well, negative meaning
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that you have the right. Not to be infringed upon.
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Yeah, government cannot do the following Congress shall make
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way law dot dot dot, but this is that these are these are
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positive rights granted to. Non humans it but but notice
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notice the difference that a negative right would be of the
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form the right not to be swatted right.
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And we have similar things here. We have we we say that it's
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illegal to hunt certain species to kill certain species.
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You can't submit a dog. Yeah, well, in effect, that's a
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negative right. Yeah.
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But these are positive rights. They are this this is going to
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cost everybody a fortune. And what will be the end result?
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Nothing. Yeah.
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So, so just to underline, positive right means that now
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it's not a matter of being left alone, but rather somebody is be
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has to be forced to do something for you.
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In this case, you know one of them just to pick one right to
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ecologically stable climate conditions.
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Under that law, the government could step in and say, OK, we
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need to shut down all CO2 production here because you're
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violating the bees rights. To to this will boy clearly make
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the Peruvians rich beyond the wildest imagination.
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Yeah, yeah. What bothers me, what bothers me
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about this is this, this misuse of the word right in a positive
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sense. And we do this in this country.
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I think there's, there's so much, there's so much disconnect
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between conservatives and liberals when it comes to rights
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because they use the same word to mean different things.
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So you say you have a right to healthcare.
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Well, hang on, that's a positive claim.
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So if you say you have a right to healthcare, you're saying
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that the government has is right and proper for the government to
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come in and force somebody to provide you with healthcare.
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That's what a rich in healthcare means.
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Which ants in a former age we used to refer to as slavery.
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Right. Yeah.
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When you steal the wages of someone to do something for
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other people or yourself, that is the very definition of
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slavery. Now, you and I talk a lot about
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what we owe each other, right? This is an ongoing feature of
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words and numbers. And we buck the trench in a lot
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of ways because we never say the answer to that question is
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nothing. A lot of our listeners say that,
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but we never do. But this is just absurd.
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Now, I've, I've had conversations like this with
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people who have used the word right like that instead of your
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people have a right to healthcare.
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And I say this, look, you're saying that the government
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should come in and force people to provide you healthcare.
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And I make the argument you do that, that you follow that
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logic. It ends in slavery.
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And the response I often get back is, no, no, no one's saying
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that you have to be forced to provide healthcare.
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There are plenty of doctors. There are plenty of nurses.
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Just because there are plenty of doctors and nurses now doesn't
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mean there won't be later. And that's when it becomes a
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problem because at that point, you can say, according to this
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law, the government should force you, James, to go study
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medicine, to provide medical care for me because that's a
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reason. There's plenty of peanut butter
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at the Albertsons around the corner, but that doesn't mean I
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get to go there and take it for nothing.
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They expect to be paid for that right?
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And I do I have a right to buy it?
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Yes. Do I have a right to have it?
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No. This, this isn't that
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complicated. And what made all this nonsense
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complicated was the insistence and the starts.
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It starts earlier, but it it comes to full flower under
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Franklin Roosevelt when he gave us the economic Bill of Rights,
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which you've heard me talk about 1001 times by now.
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But when you say everybody has the right to good housing,
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you're not saying that. You're saying everybody has the
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responsibility to provide good housing to those who can't
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provide it for themselves or won't or whatever.
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Pick whatever verb you want. The real verb is force, and now
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the Peruvians are going to start forcing people to do expensive
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things on behalf of insects. Right, Good Lord.
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While we're on the topic, I want to take issue with another term
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that's become popular in the past couple years and that's
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access. You can say well.
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Like you don't have access. Right.
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And, and I think when people use it, what they mean is, is right,
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I, I should have access to healthcare, meaning I should
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have a right to healthcare as an economist, I don't hear that at
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all. I would say you already have
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access to healthcare. There's a hospital, there's a
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doctor. Don't talk to him.
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Now if you can't afford it, that doesn't mean you don't have
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access. It means you.
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Have access to all the peanut butter I can consume.
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Right. But I have to pay for all the
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peanut butter I do consume, right?
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And and, you know, people think, and this has been a problem in
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American politics for a very long time.
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They think you could just wave a magic wand and have everything
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for free. But nothing is free.
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And we don't even pay for what we consume as it is.
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We're way in the hole every year.
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A problem that will come back to bite us.
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You know it, I know it, and everybody else should know it
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because it's that obvious. But politicians going to give us
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free stuff. The American flag.
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We used to say this when I was in Graduate School in 1995.
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The American flag. We should replace the the
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Bluefield of stars in the top left corner with two
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outstretched hands in a cupping position.
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Give me more, all right. And well, I I can't even.
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I can't even. There, I've said it.
8:54
We're happy to announce this Civil members can join me in
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James for a new lecture series, Words and Numbers Live.
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9:39
I want to, I want to talk about cars for a minute because I, you
9:43
know, we talked to a lot of young people and we tell them
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there are all kinds of great careers that don't involve your
9:49
going to college. And auto mechanic is always one
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that I bring up. And the Ford Motor Company, I, I
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read this in, I believe it was in the Wall Street Journal
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today, the Ford Motor Company cannot attract enough mechanics
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to service Ford cars. You know how they do it right
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there. They'll put one central
10:11
character in the story to draw your attention in.
10:14
And the central character in this story is an unlikely
10:18
mechanic because he enjoys working on transmissions.
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And most mechanics don't, it's a pain in the ass job that most
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don't want to do. And I can't say that I blame
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them. It's expensive.
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Everybody hates you right it, But the the guy who they're
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featuring has figured out a way to do a 10 hour job in five
10:38
hours, and they always have a transmission in front of him.
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So he's like the Golden Boy at the Ford dealership where he
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works, where he makes $160,000 a year.
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Yeah, Yep. They can't fill that job Aunt
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and, and people are paying $200,000 in in loan debt.
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And we'll talk about loan debt right quick.
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They're paying a couple 100 grand in loan debt to go get a
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degree in medieval lesbian poetry.
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And then they, they moan and whine that they can't make a
11:14
living, let alone $160,000. This guy's got it all figured
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out. You you can make that kind of
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money if you're a young person, Learn how to wrench on cars.
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And and the response is going to be but I don't want to do that.
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Well then don't. But don't complain.
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Yeah, and, and this is the thing, a wage.
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A wage is not about what you want.
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A wage is about the value you're providing to other people.
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If others don't want the thing that you're producing, well,
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you're not going to get a big wage.
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Yeah, you're out of luck. You're a barista.
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And and I would, I would lay claim right now.
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I would claim that roughly 2/3 of all college majors are
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absolutely worthless. I mean, absolutely.
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Worthless. I'll I'll give you a data point
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on this. I may have said this to you the
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last episode. I can't recall Over the past
12:07
year the unemployment rate amongst college educated workers
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is up one percentage point, which one percentage point is
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pretty high because they're they're typically like 3%.
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So it gone from 3% to 4%. That's a 1/3 increase in in
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unemployment amongst college educated workers who gained high
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school educated workers. Unemployment rate is down for
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them. Workers with two year degrees is
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down a full percentage point. If I had it to do over again, I
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might become a welder. Oh yeah, yeah.
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Welder is a solid 6 figure job right now and so apparently is
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auto mechanic if you're any good at it at all.
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But at this brings us to the pollutions of the week and last
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week, you might recall or well, last time.
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I keep saying last week, but last time we went to the the
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great city of New York and today instead, I want to take us out
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West to the miserable city. I'm not even going to pretend of
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Seattle. Seattle has a problem and I
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don't know if you've been reading about this, but they've
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got a vacancy problem in their office buildings.
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They have the second highest vacancy rate in the United
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States. It's north of 20%.
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And in order to fix this problem, they're going to have a
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vacancy tax. Oh my God, it's.
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Literally the dumbest idea of all time.
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You're going to take a bunch of buildings that are generating no
13:44
capital whatsoever and tax them more because they're not
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generating any capital? That's astounding.
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What could possibly go wrong? I'm trying to think that it is.
13:58
That is so weird. It's going to take me a while to
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think through the unintended consequences here.
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So you've got. Oh, the unintended consequences
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are dilapidated abandoned buildings.
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Tax gets high enough, you're just going to cut bait and
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leave. Yeah, Yeah.
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Clearly you're going to. Yeah.
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What? Because what is the point of
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maintaining it? None.
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None whatsoever. They'll probably charge you with
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an exit tax as well, but you know.
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Right. Yeah.
14:27
When did reality ever get in the way of these people?
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So this is Seattle now, their neighboring city, Portland.
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You talked about them a few weeks ago and you said something
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about there was some tax or fine if you have an empty storefront
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and people were yes or something.
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I actually remember that. That's right, these.
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People are all. No, these people are all crazy.
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I mean, it's bad enough to tax things that are making money,
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but when you tax things that aren't making money, it's even
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worse. How?
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How do they expect? People to pay these taxes if
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they have capital expenses but no generation of capital.
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Right. And there it is.
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People misunderstand. Here's a segue for you.
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And people misunderstand how very simple things work in the
15:17
marketplace. You know, now I think about this
15:20
because I think they're parallels with housing.
15:24
Back in the housing crisis, there were situations where
15:28
people got people ended up owing more on the mortgage than the
15:32
house was worth and they just walked away and they said to the
15:36
bank, take it. It's cheaper for me for you to
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repossess it than it is to try. I bet you a similar thing
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happens with these buildings because the buildings aren't
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going to be owned outright. They're going to be leveraged so
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that they taking a loan to build the thing they're just going to
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want No I. I can't see a way that this
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works out well for Seattle. Like, I just can't.
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This, this is bone headed. It's so stupid.
15:57
Perhaps one of our listeners can forward this to the new mayor.
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She'll take a look. She'll take a listen.
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It's astounding to me, James, last episode we talked about New
16:07
York doing bone headed stuff with with rent control and you
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talked about Portland earlier. There's this.
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And I just, I can't help but wonder how is it that so many
16:18
politicians, and maybe they're maybe it's just a factor that
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we're seeing the ones that come to the fore in the news.
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I was going to say how, how can it be that so many politicians
16:26
rise to the levels they are with, with such a gross
16:31
misunderstanding of how economics works?
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Oh, and. This is a gross misunderstanding
16:36
of how human nature works. Sure, Right, Right.
16:40
Right, this is a misunderstanding top to bottom.
16:44
These people are legitimately stupid and they've figured out
16:48
how to keep getting elected. You just have to promise to take
16:51
it from all those rich people that we all hate and give it to
16:53
all these poor people who we all love and then everything goes
16:57
fine. But it doesn't.
16:59
People are leaving California, right?
17:01
All the all the high value citizens of California are are
17:05
contemplating leaving if they haven't already left.
17:09
And that's happening throughout New England.
17:12
My old home state, my original home state of Connecticut has
17:15
had outflows for years. New York, New Jersey, the same
17:18
story. Even eastern Pennsylvania, same
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damn thing no matter where you look and where they going to
17:25
lower tax jurisdictions. Doesn't take a genius to figure
17:29
out what's happening, but apparently a moron can't figure
17:33
it out to save her life. So you'll see capital outflow in
17:37
all of these places, which will only make matters worse.
17:41
Yeah. And and I think there's a
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there's an interesting mechanism in the background, which is what
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what you're describing, the outflow of the population, the
17:51
buildings being just abandoned, whatever that plays out over a
17:55
period of time that's longer than the typical politicians
17:58
term in office. That's right, Promises this
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stuff that's not going to work gets elected by the time, yeah,
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chickens come home to roost, the politicians gone.
18:10
Yep. And your state is in the toilet.
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Look, I wouldn't do business in a town like Seattle.
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I wouldn't open a company there. You'd have to be out of your
18:20
mind. It'd be just like opening one in
18:21
San Francisco. What?
18:23
What are you thinking? But hey, we're going to talk
18:26
about people who don't understand how markets work
18:29
pretty significantly coming up right now, I think.
18:32
Yeah. So from one to the next.
18:35
This episode comes about because for years now you and I have
18:40
seen things on Facebook or people send us stuff and we
18:43
talked about it in in on the episodes that involve
18:48
misunderstandings of savings of loans in in fact a
18:54
misunderstanding of of how finance works entirely and I
18:57
think. My favorite, my favorite lately
19:00
are these people who are taking to X, formerly Twitter, saying
19:05
I've made every payment on my student loan and I owe more now
19:09
than when I started paying it off.
19:12
Now. That's not possible.
19:13
That is not possible. The only answer to that set of
19:18
circumstances is that you're an idiot.
19:21
Well, I I had in a back and forth with a woman who actually
19:25
posted it was, she said this is my own experience that I've made
19:29
all the payments and yet I owe more than.
19:31
I did before tell you what happened before you even say
19:34
what happened. She took the ferments, yes,
19:38
there were long periods of time in which she made no payments
19:41
because she didn't have to, not realizing that the interest
19:44
keeps accruing. Yes, that's the.
19:48
Only reason that anybody is under underwater on a loan.
19:53
That's the only reason. If you've made every payment,
19:55
you should owe less now than you did the day you took the loan
19:58
out. Yeah, and and should is even the
20:01
wrong word. It's mathematically certain if
20:04
you have made, because that's the way the payments are
20:06
calculated, right? There's an equation.
20:07
We all know how it works. Well, then, we don't.
20:10
How much you borrowed, what your interest rate is, how much you
20:13
you borrow, the length of time it tells you what the payment
20:16
is. You make the payments every
20:17
time, on time, the thing goes down.
20:20
And if you've got a high percentage loan, like most
20:24
student loans are quite high comparatively speaking, people
20:28
don't realize that they can they can renegotiate the rates.
20:32
You can go take another loan out, pay off the first loan and
20:35
pay and then pay the second one overtime.
20:37
You can cut your interest rates considerably by doing that and
20:40
thus your payment. You could also, as I did when I
20:44
took out one student loan in my educational Odyssey.
20:51
I had the damn thing paid off by the end of the next semester.
20:54
Right. You could pay it off early, but
20:56
let me go back to your first one.
20:58
Because people complain about this, they see the they see the
21:02
variable rate that's lower and they take that not thinking
21:07
through variable means it can go up.
21:11
My son had this situation for he, he went to technical school,
21:16
which is not subject to the various loans that are available
21:21
for four year schools. And so he ended up having to
21:23
take out way more loans than the other kids did.
21:26
But we had this conversation and the variable rate was like I
21:29
think four, 4% and the fixed rate was 4.5.
21:33
And I said absolutely take the fixed rate because interest
21:37
rates are just going to go up in the future.
21:38
Yes, you're paying a little bit more now, but you're guaranteed
21:41
it stays there. And sure enough, the, you know,
21:43
interest rates now on, on student loans are, are, have
21:46
gone up. That's like locking.
21:47
On the mortgage, I mean it's, it's a simple consideration.
21:52
If you're taking out a 30 year mortgage and you get a better
21:55
deal with the variable rate, that rate will in fact vary over
22:01
30 years and it will end up at some point being a universe
22:05
higher than it is right now and you will have to pay that
22:09
because that's the deal you signed up.
22:11
For in in this is really important.
22:14
James, you said that's the deal you signed up for.
22:17
So many people say, well, I didn't understand what I was
22:20
signing. If you don't understand it,
22:22
don't sign it. That's the point of signing.
22:25
It's to indicate that you understand what you're what's
22:28
written. And I, I want to make a little
22:31
bit of the case for the people who get blindsided by their
22:35
student loans. No bank, and I mean no bank
22:40
would give an 18 year old kid with no cosigner $200,000 for a
22:44
business loan. Well, why on earth do we let
22:48
them take out education loans for that much?
22:50
And the answer is because the United States government backs
22:53
them, the taxpayer is forced to back them.
22:57
Yeah, that's right. And the taxpayer is not forced
23:03
to back a business loan, right? So the business loan market is
23:08
an actual functioning market. The student loan market has the
23:12
heavy hand of government all over it, and that's why it's
23:16
dysfunctional. So we've covered variable versus
23:21
fixed rates. I want to back up a little bit
23:25
because there's a disturbingly large percentage of adult
23:30
Americans who think that when they go to a bank and get a loan
23:35
that the bank is giving them money.
23:39
And, and their thinking is, well, you know, if I don't pay
23:43
this money back, it's just the bank and the greedy bankers and
23:47
they're out the money. And that's fine.
23:50
The bank is like a used car salesman.
23:54
It's not. The bank doesn't own the money,
23:57
it's simply sitting in the middle of a transaction between
24:01
the guy who does own the money, which are people who are saving,
24:04
usually saving for retirement. The bank is in the middle,
24:09
taking their money and loaning it to somebody else.
24:12
But more than that, at the bank doesn't own the loan.
24:14
After they give the loan they set, they turn around and sell
24:17
it right off. Right.
24:19
Their company should gobble up all the loans.
24:22
Yeah, they do. And then somebody else ends up
24:24
owning it. But the But nonetheless, the
24:26
fact is when you borrow money from any institution, it's not
24:31
the institution's money. It's people who have deposited
24:34
their money in that institution. That's who you're borrowing
24:38
from. Do do you think people don't
24:40
realize that? Oh yes, yes, a disturbingly
24:43
large fraction of people don't know that.
24:45
That's really boneheaded. Well, it it is and, and it shows
24:50
up when people justify just walking away from loans that,
24:55
well, it's just the bank's money.
24:56
It's not the bank's money, it's the bank's customers money.
25:00
Well, when you walk away from a mortgage, you lose your house.
25:04
When you stop making payments on your car, you lose your car.
25:08
When you stop making student loan payments, you don't give
25:11
back your degrees. Right, you don't go.
25:13
You can't give back the knowledge you you received.
25:18
So what the United States government did was the United
25:20
States government backed all these loans and then disallowed
25:24
anybody from discharging those loans under bankruptcy.
25:28
Yeah. And you know, now that you
25:30
mention it, James, I've, I've started to say that one way to
25:34
solve the tuition problem is to require that that the school's
25:40
cosign all of the loans of their own students.
25:44
It all will be some shit right there.
25:46
Will be very interested in the students being able to repay the
25:51
loans. But notice something interesting
25:52
if that happens. Suppose you got a student who
25:56
borrows money and the school has cosigned it and the student goes
25:59
off. He graduates and says I'm not
26:02
paying this back. Now the school cosigned, the
26:04
school's out the loan and you said you can't take the
26:10
education back, which you can't, but the school could refuse to
26:15
acknowledge. So when the employer goes to
26:17
check on the students credentials, the university can
26:20
say Nope, we don't know who this is.
26:22
There's a lot of interesting possibilities with this sort of
26:25
thing that the thing that gets me is the gall of people who
26:29
take out hundreds of thousands of dollars in loans and then as
26:33
a matter of principle won't pay them back.
26:35
Yeah. If you took the loan out, you
26:38
have to pay it back and you can't whine that this particular
26:42
loan is not dischargeable in bankruptcy.
26:44
You you just can't. You knew that walking in.
26:49
And let's let's hit a related thing, which is the cosigner.
26:54
When you cosign a loan, you aren't attesting to the
26:58
character of the borrower. No, you're putting your ass on
27:02
the lawn. Doesn't pay back, you will.
27:04
That's right. And when when my children
27:08
decided they wanted to go to college, I told them I was Co
27:11
signing the damn thing. Not going to do it.
27:16
It it, it's a racket. It's not worth it, right?
27:20
A $200,000 education is not worth $200,000.
27:25
And you and I taught long enough to know that down to our bones.
27:30
James and I are delighted to be working with Civil.
27:32
For years, we've been pushing people to think about how we can
27:35
make the world a better place. Civil's mission of upgrading
27:38
society fits exactly with what James and I have been talking
27:41
about for years. Civil helps us by allowing us to
27:43
do what we do best, which is researching topics that are
27:47
important and communicating these to our listeners in ways
27:50
that we hope they find enjoyable.
27:52
To see Civil's extensive list of content, including our podcast
27:55
Words and Numbers and our new lecture series, Words and
27:58
Numbers Live, visit Civil dot com.
28:00
That's civl.com. So what's the answer here?
28:06
And I, I think part of the answer just kind of happens
28:09
naturally. When enough people get enough
28:13
worthless degrees, word gets out.
28:17
People think this gender studies business probably not going to
28:21
yield me an income later on in life because, you know, who
28:26
wants to pay for gender studies nonsense?
28:28
No one, literally no one. Engineering on the other hand,
28:32
you probably run the risk of being well off, and if these are
28:37
your universe of choices, you should gravitate towards 1 and
28:40
away from the other. And I think people are starting
28:43
to come around to see college as the racket that it is, that
28:48
professors have an interest in filling their classes with as
28:53
many people as they can get, which means they give out higher
28:56
grades, their courses are easier, the topics are
29:00
nonsensical, and on and on and on.
29:03
Well. If that's what you're spending
29:05
all your money on, that's exactly what you're going to
29:07
get. Whereas if you get into a STEM
29:10
field or dare I say philosophy, you run the risk of making a
29:14
living for radically different reasons.
29:17
But there are degree paths that make perfect sense economically,
29:23
and if you're not doing one of them, then you're in school as a
29:27
hobbyist. And we used to have people like
29:30
this Once Upon a time. They were all extraordinarily
29:33
wealthy and they went to to college for four years and then
29:37
they moseied right on out. And it didn't matter that they
29:40
went to College in any real world application, it mattered
29:44
to them that they went to college.
29:47
But you know, people now I, I don't think we really think
29:51
about it in those terms at all. Everybody just naturally assumes
29:55
erroneously that if they go to school and get good grades, it
30:00
doesn't matter what in that they're owed a job somehow and
30:05
you're not owed shit. And that that's just how it is.
30:09
But let's switch gears for a minute and talk about credit
30:14
worthiness people get. I've noticed this with my own
30:18
kids. They get concerned about
30:21
building a credit history and what their credit rating is and
30:24
all this business. So I looked up some of the
30:26
details on this. When I was younger, we didn't
30:29
even pay attention to this. But now it's like on all your
30:31
your banking apps, it pops up and tells you what your credit
30:35
score is. I I looked into this once and it
30:37
was more Byzantine than I thought it could be.
30:40
Yeah, I'm, I just have like a high level thing, like four or
30:43
five things that that play into it.
30:46
And the big one is your payment history.
30:48
Have you made payments on time? That's that's it.
30:52
And to the extent that you know, you're late or, you know,
30:55
whatever and you could say things like, well, I was late on
30:58
my payment, but I made it up. That doesn't matter.
31:00
The fact is that you would leave that at one time.
31:03
Look who that excludes? Anybody who pays cash for
31:05
anything? Right.
31:07
Yeah, yeah. If you pay cash, you have
31:09
trouble not there's a problem with cash, but rather that
31:12
there's no there's no way to track.
31:13
No credit can't. Build a history.
31:15
Well, now what will help it? Well, yeah, you say cash.
31:18
What will help is for example, you have a rental agreement and
31:23
you're maybe you're writing a check each time or whatever, but
31:26
there isn't, there is something to track there.
31:29
So that becomes part of your payment history.
31:31
Credit utilization, How much credit are you using relative to
31:38
how much you have? So you know you've got a credit
31:42
card that has a limit of $10,000 and you've got 50 bucks on it.
31:46
That's good. You got $9000 on it.
31:49
That's not good. So the ratio of that and I
31:52
discovered something interesting here and this is relevant to
31:56
people who have multiple credit cards.
31:59
This credit utilization number, how much, how much is on the
32:03
card relative to to the maximum allowed.
32:07
They look at it two ways. One is all of your cards
32:11
together. So if all the cards added up,
32:13
I've got $50,000 credit limit and I'm using 1000, that's
32:19
really good. But they'll also look at the
32:22
cards individually. So if I've got 5 cards totalling
32:27
$50,000 in in line of credit, four of them I'm not using at
32:33
all, the fifth one has a $1000 limit and I'm all the way at the
32:37
top $1000, that's going to Ding me hard.
32:41
So they're going to look at not just your debt relative to the
32:46
maximum you're allowed, but in total, but for each individual
32:50
card as well, length of credit history, how far back can they
32:54
look? Interestingly, this is a smaller
32:58
item, credit mix, a diversity of credit types.
33:02
So mortgage counts as one type, student loan, another type, car
33:06
loan, another type, credit card debt another type.
33:10
And I, I asked, you know, what's, what are you getting
33:13
from this? And the answer came back, well,
33:15
we want to see that you're capable of managing different
33:18
types of debt, which I guess makes sense in, in some, in some
33:22
way. Someone who only has experience
33:25
writing a fixed rent check every single month may behave
33:29
differently if you give them a revolving line of credit with a
33:33
credit card. And then this last one, I got
33:36
hit with this recently. All of a sudden, you know,
33:40
'cause I, I get the thing as you do your credit ratings, whatever
33:44
it is, credit score has changed and you know, usually it's,
33:47
there's no change or it's plus or minus a couple points or
33:50
something. All of a sudden I get like a -,
33:52
15 points on my credit score. I mean, what the heck is going
33:55
on? I'm looking into this.
33:57
You know what happened? I bought a microwave for my
34:00
mother, just a couple $100 microwave, not a big deal.
34:04
It's at at Lowe's, and the guy at Lowe's says, hey, you can get
34:08
25 bucks off if you apply for a loose card and use it to buy the
34:12
microwave. He said you don't have to keep
34:14
the card. You can cancel it.
34:15
That's sure. Why not?
34:16
It's 25 bucks. So, you know, I take a little
34:18
bit of time, I fill out the thing and I get 25 bucks off the
34:21
microwave. When I filled that form out,
34:25
they ran a credit check. And every time there's a credit
34:28
check run on you, that Dings your score.
34:31
Fantastic. Yeah.
34:33
So be careful. The biggest hit I ever took on
34:37
my credit score was we paid off a car that we bought and the
34:43
dealership kept the loan on the books as open even though he
34:47
paid for it. And when they finally got around
34:50
to to closing it the way anybody would, I took a big hit then
34:58
because I had this massive line of credit that was open and
35:03
unused. Oh, I see.
35:06
And the minute I was taken out of the equation, my credit got
35:09
worse. OK.
35:11
So you had a certain amount of debt in a lot of leeway and that
35:18
leeway got reduced. Yeah.
35:20
So that ratio of how much have you borrowed relative to what
35:23
are you able or allowed to borrow when a that's very
35:26
interesting. Yeah, I mean, and it, it, it
35:28
seems so stupid to me that I just paid off a car.
35:32
I've just proven that I'm credit worthy and yet no, that's not
35:37
how it works. So the the take home message
35:39
there is for our listeners, if you've got a credit card that
35:43
you aren't using, you may not want to cancel it.
35:47
I'm assuming that you're not. You don't have any annual fee on
35:50
it or anything. All things equal, that might be
35:53
better off to keep it. Yeah.
35:55
Now I looked up some numbers. So I want to know, OK, so how
35:59
valuable is a a good credit score and I'm looking at?
36:03
And I can walk into any place and get anything I want, anytime
36:07
I want it. And this is true all the way up
36:10
to to mortgages. Are you getting?
36:13
Yeah, in terms of getting a loan, I'm looking at what kind
36:17
of interest rate do you pay. And this says for I'm looking at
36:22
credit card rates for, for the the highest tier of credit
36:27
score. So the excellent tier you're
36:29
talking circa 20% down to the lowest tier you're talking is
36:35
35% or higher. Oh my God.
36:40
Yeah. Award.
36:41
Yeah. And you get to that point, I
36:43
mean, you're going to have trouble ever paying the thing
36:45
off because the interest is going to compound well.
36:49
I mean, the rate where you started by saying that people
36:52
with the best credit get 20%, that should be enough to tell
36:56
everybody that they should never carry credit card debt.
37:00
Right. Yes, yes.
37:01
Debt at 20% is ridiculous. Absolutely insane.
37:05
You should be paying off your credit card every month.
37:08
Yeah. When I was young, but when I was
37:10
a student I was dirt poor, but I had a good record with credit
37:16
and every three months I would get another credit card with a
37:20
0% three month period and I would pay off the other credit
37:24
card with it. Oh yeah, I played that game,
37:27
yeah. I did it for three years.
37:30
Yeah, that was a thing back in the, I want to say late 90s,
37:35
early 2000s, there were some kind of competition going on
37:38
where, yeah, the, the banks will give you 0% for six months or a
37:42
year. Yeah, I I spent several years
37:45
just moving from card to card. And it it made perfect sense for
37:48
me to do it at the time, I wouldn't do it now.
37:51
But you know, credit is expensive if used incorrectly.
37:55
Yeah, Yeah, it is. And unfortunately, credit card
37:59
companies, you'll market, they start marketing at least as near
38:04
as I can tell at the college level.
38:07
Yeah, no, I would even go. Into the college classroom and
38:09
up on the wall, they've got stapled these credit card
38:12
applications. I I remember getting a credit
38:15
card just so I could get a Boston Celtics T-shirt.
38:18
Yep. Right.
38:20
Fill this out. We'll give you a T-shirt.
38:21
Yep, there you go. When I had a credit card that I
38:24
didn't really want or need or deserve, but.
38:26
They feel so particularly as as a student, it feels so
38:32
liberating. All of a sudden you can spend
38:34
$5000. Yeah, except those that's going
38:37
to tie your hands for years to come.
38:40
Yeah, yeah. Then you could pay back $7500.
38:44
And that's another thing that people complain about.
38:47
I think we need to to discuss, they'll say things like, you
38:52
know, I borrowed pick a number $100,000 and I paid back
38:58
$400,000. This is a scheme works.
39:02
That is how interest works. It it is.
39:04
And what they're missing is you borrowed 100,000, but you
39:09
borrowed 100,000 and got it today.
39:12
If you had saved instead of borrowing, it would have taken
39:16
you, let's say, 20 years. You get the 100,000.
39:20
You say I don't want to wait 20 years, I want the money now.
39:23
That's what you're paying for with the interest.
39:25
You're paying for the luxury of having the money now, as opposed
39:29
to waiting for it later. You're also paying for the
39:32
luxury of paying it back incrementally.
39:35
Yes, right in pieces rather than yeah.
39:38
We're not going to come and collect this from you next
39:41
August. You've got 30 years and people
39:45
don't seem to understand that there's not a in almost every
39:48
case. Not every case, but in almost
39:50
every case there's not some sort of prepayment penalty.
39:54
You could pay a loan off early anytime you want.
39:57
You just have to ask yourself, is it worth paying off?
40:01
So for example, I have a mortgage at 2.8%.
40:07
All the middle-aged men are grumbling right now.
40:10
It makes absolutely no sense for me to pay this off because I can
40:14
make more than that in a savings account.
40:17
Let alone any place else. And and that that raises a good
40:22
point because someone might say in response to this, look, I
40:26
borrowed $100,000 and OK, I paid it back after 20 years, but I
40:32
paid it back. I gave you back every single
40:35
penny that I borrowed. Why should I have to pay
40:39
interest? And the reason you have to pay
40:42
interest goes back to what we said earlier.
40:45
You're not borrowing from the bank.
40:46
The bank's just a middle man. You're borrowing from the people
40:49
who saved their money and put it into the bank.
40:53
And when you borrow $100,000 now to pay it back in 20 years,
40:58
there's somebody on the other side who can't use his $100,000
41:03
now. He has to wait 20 years to use
41:05
it because you've got it and he expects to become.
41:08
You have to give him some incentive.
41:10
Yeah, that's right. That's what the interest is.
41:13
And that's what you get when you open ACD when you have a savings
41:17
account, if you have interest bearing checking any bank
41:21
account that pays you interest of any time, that's where it
41:24
comes from. Yeah.
41:26
It's, I mean, look, we should just tell people to go watch the
41:28
last scene and It's a Wonderful Life.
41:31
Yes, yes, exactly right. Because that encapsulate that
41:36
one scene encapsulates everything about loans that
41:40
people just seem to miss. And, and, and I, I talk about a
41:45
lot about the time I spent in the Middle East because it was
41:48
very instructive. And I learned that you didn't
41:50
get mortgages there. You paid cash for things.
41:52
You want to buy a house? Pay cash?
41:55
OK. How well do you think?
41:58
That works, right? Yeah, all kinds of problems.
42:02
There are all kinds of problems, and you're allowed to succeed in
42:06
the West because your word is good for something.
42:10
And you say I will pay this back over time if you give it to me
42:13
now. And the idea of banking and
42:16
finance has made us all rich beyond our wildest dreams and
42:21
every place where it doesn't exist.
42:24
They are not rich beyond their wildest dreams.
42:27
Yeah, and the the way it is made us rich is by allowing us to
42:32
access our future. I can.
42:34
As a college student, when I borrow, I'm literally borrowing
42:39
from my future self because it's my future self, it's going to
42:42
pay back my future self. As a college student, my future
42:44
self has way more money than I do.
42:47
Yeah, well. Hopefully, yeah.
42:50
And and the financial system allows you to do that to move
42:52
money. Across time and the financial
42:56
system mitigates risk. Not everybody will have more
43:00
money later in life. Some people are going to die
43:02
when they're 20 and you know they're they're not going to pay
43:06
anything back. And that risk has to be absorbed
43:09
by the rest of us. That's the cost of doing
43:12
business for everybody. And the system does a marvelous
43:16
job of it. In that sense, it it acts a lot
43:19
like insurance does, where you pay in and you never get sick,
43:23
but what's happened is you paid for other people who did get
43:26
sick and paid in less than they needed.
43:29
And it it works to everyone's benefit all the time, except for
43:35
the people who refuse to learn the rules of the game that they
43:39
participate in. It's like, it's like a hockey
43:42
player showing up to a football stadium.
43:44
He's I'll equipped to win that game.
43:47
Yeah, and then complaining that he's not making.
43:50
Scores. Yes, that's what he would
43:53
complain about. Anthony's not working scores.
43:55
I tried to use the sports thing without sake.
43:59
Man and and on that not. Making the points he.
44:02
Doesn't he doesn't get the 48th down of the half with the oblong
44:10
object? God damn.
44:13
I I want. I want people to know what a
44:15
chore it is for me to deal with you in.
44:17
This. Respect year after bloody year
44:21
followed this nonsense and with the the Super Bowl coming soon,
44:27
I just sit here flinching at what's going to happen.
44:33
Are you going to come back and tell us Super Bowl stories?
44:35
Yeah. Of.
44:36
Course I am and I have AI have a terrible record of sports
44:42
betting. So I'm going to tell you my 2
44:45
best wagers for the week this week.
44:48
And if you had a brain in your head, you just rush right out
44:50
and do the exact opposite of what I'm doing because I lose
44:53
all the time. But I say take the Texans minus
44:58
the points against the your beloved Pittsburgh Steelers and
45:03
take Jacksonville against the Colts.
45:06
These are my two big predictions.
45:08
We'll see next time I'll how well I did.
45:10
This is my retirement plan right here, these two games and and
45:15
I'm that happy note. Let's remind everybody because
45:17
we were negligent last time. Let's let's remind everybody to
45:21
just take a minute. Remember, it's the Football
45:24
Playoff season and life is pretty good if you're still
45:27
breathing, and you should probably be nice to each other
45:30
just a little bit. By words and numbers, we spend a
45:33
lot of time talking about what's going on in the economy and the
45:36
government, but fundamentally, this all boils down to one
45:39
thing. The greatest threat facing
45:41
modern society is a lack of respect.
45:43
The people who disagree somehow find it difficult, if not
45:46
impossible, to discuss their differences in a civil manner.
45:50
We at Civil are interested in upgrading civilization by
45:53
encouraging people to engage with new ideas and ultimately to
45:57
engage civilly with each other. If you share our vision, please
46:00
join us by subscribing at civil.com.
46:03
That's civl.com.