Category Archives: Finance

Culture, Finance, Government

Poor People Choose To Stay Poor

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Poor people make poor choices. I suspect most of their poor choices are made because no one was or is there to help them make better choices. I believe that there needs to be help provided to instill common sense into their financial decision making. But as my MBA friend once said, “Common sense is not common”.

Here’s an example of what I mean.

I was watching TV and one of those “Make a low payment and own some piece of crap” commercial was on. The one that I’ll illustrate here was a woman saying “I bought a Playstation for my kids for only $15 a week!”. Let’s examine the STUPIDITY of buying from this lender to the poor.

I looked up on Amazon a Playstation 4 with some games and it’s $347.69. I also looked up the website, Flexshopper.com, that ran the TV ad.  It currently shows the SAME Playstation for $17 per week.

Now $17 dollars a week for a year is 52 payments which makes the total CASH outlay of $884!! That’s well North of double the price of the stupid toy.  If the woman just put aside that $17 every week she could buy the console in 20 weeks, just 5 months.  At the end of the year she’d have $544 extra dollars in her pocketbook.

Just for fun I did the calculations for $347.69 to figure out what interest rate a poor person is paying. It works out to annual rate of 226% !!!!

WTF?  226% is one heck of a return on investment for that predatory lender.  The best CD rate right now is 1.5%. Home loans are about 4%.  Used car loans are around 7%.  And they say used car salesmen are scum!  If we make an assumptions of 40% markup  to the cost of goods, $248.35 is the wholesale price for the $347.69 retail toy.  The actual annual rate of return is closer to 343%.  Not too bad in my book.  Can you say “Loan Shark”?  The “Easy Pay” sleazes are only one group of people that are financially RAPING the poor with predatory lending practices.

I’m a free market kind of guy and I’m not sure I would advocate legislating predatory lenders out of business.  But it does trouble me that there are people who are getting wealthy preying on the ill-informed.  I will say that Flexshopper is better than some other of these bottom feeders in that they do show in small type right below the payment amount, the total cost of the “loan”.  If someone chooses to buy from them, as Forrest Gump said, “Stupid is as stupid does”.  I looked up some other “easy payment” outfits that advertise heavily on TV, Rentacenter and Fingerhut, and it’s difficult to figure out their terms.  Rentacenter’s website makes you fill out an application before they’ll show the price which is total BS, in my opinion. Fingerhut buries the payment terms in their website.

What’s my solution?  There needs to be an educational focus on how to make wise financial decisions.  Sorry Hillary and Bernie but free college IS NOT the answer to the elimination of poverty,  There needs to be education to stop the financial enslavement of the poor.

Let’s play one more financial game.  Let’s say the young 25 year old mother took the EXTRA $544 a year and put it into an Individual Retirement Account, IRA, each year and worked until she was 70.  If the rate of return was 7% she would end up with $166,329 in her account.   If she didn’t buy the Playstation at all and put the full $884 per year into the IRA, she’d end up with over $270,000!!!  All of that money, well over a QUARTER MILLION DOLLAR$, can be hers for NOT making JUST ONE stupid purchase per year!

Why is there no outcry from EITHER PROGRESSIVES OR CONSERVATIVES to end this ENSLAVEMENT in poverty?

Business, Finance, Government

Stock Market Insanity, Part 1

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The Securities and Exchange Commission, SEC, needs to immediately get rid of “shorting” and “high frequency trading”.

Today in Part 1 I’ll go over why we need to get rid of stock shorting.

What is a short? Plain and simple, a short is a BET that a company’s stock price will go down.

Let’s take a look at how this works.  A gambler (I refuse to call them an investor) sells a stock which he doesn’t own at market price.  Let’s say $100 as an example.  If the stock goes down, let’s say to $80 in this example, he buys the shares and then gives the stock shares to the person who bought them for $100.  He makes $20 on the deal.  Winner!  Now the strange part in all this is that the short gambler never actually owns the shares that are traded.  He just makes profit on the share price drop.  How is it that he never owns the shares?  A short is done in cooperation with a brokerage house that “loans” him the shares on the initial sale (the $100 sale in our example).  The repurchase (at $80) which is done by the brokerage house is payback to cover the “loan”.  Notice the the gambler never touches the shares.  The brokerage firm (big Wall Street that Senator Sanders complains about) is supposed to have the shares which are in reality owned by their clients.  Again in an oddity of shorts the real owners of the shares never know that their shares have been sold (“loaned” for the bet) and will be restocked at some later date.  And in yet one more oddity, the shares sold may not exist at the brokerage firm when sold which is a naked short.  In a naked short the brokerage firm “bets” that the short gambler will cover the bet with “real” shares before they get called to actually deliver the shares.

Is this lunacy?  How is this investing?  This is just GAMBLING!

Okay, you’ll hear from the SEC as well as the stock gamblers, that shorts allow for market liquidity and efficiency.  Those are fancy terms that mean lots of ups and downs in share prices.  Gamblers want market swings because that’s where they make their money.  It’s not about “investing” money into well run companies.  It’s about making money on churning money.

The SEC is two-faced on their position about shorts.  They claim that in all their studies there is no relationship between shorts and market downturns.  Strangely they have a rule in place that limits downward slides when short sales contribute to a down movement of 10% or more which seems to be their threshold of pain for “no relationship”.  They also eliminated the “uptick” rule in 2007.  The uptick rule was that you could only short after and upward price movement of a stock.  What is significant about 2007?  Golly there was this meltdown of the market right after that in 2008.  The Great Recession as it’s been called.

Many analysts have concluded that shorts and margins were a couple of major factors that caused the Great Depression in 1929.  Hmmm…

The SEC has the power to stop this insanity but won’t.  And why not?  Money talks.  Follow the money.  Shorts are a mechanism to hedge your bet on market downturns. (Did I say hedge?  Hedge fund?  Any connection?)  Big traders, big brokerages, hedge funds all make money using shorts.

As I heard a stock broker at a large Wall Street firm  once say, “If it wasn’t for the fact that we wear $3000 suits, we’d all be arrested as bookies”.