Danny Tarkanian

I hear rumors that Danny Tarkanian may run for congress. 

In the primary he’ll face Cegavske and in the general he’ll face Horsford. 

Danny and I have different political and economic philosophies. But in spite of those differences I’ll be supporting Danny because his opponent in the primary, Barbara Cegavske, makes Michele Bachmann look like a Rhodes Scholar and his opponent in the general, Steven Horsford, is a windbag with no substance. Horsford’s philosophies change depending upon what he wants for himself and what will do the most good for his campaign.

Lending Institutions Won’t Suffer the Loss of Those Who Don’t Pay

Think of this – You are in the financial business.  Because of your strength you borrow money at 1-2% and you can lend it out at 25%.  That is one hell of a deal.

And because you have such a spread between what you pay for money and what you charge for it, you can take a lot of chances lending to those who ten years ago were called poor credit risks and therefore were not able to borrow money.

But now with no restrictions on what the credit card company charges, the company is able to lend anybody and everybody nearly any amount they want knowing that even if many people don’t pay, the institutions will still be profitable because their losses will be absorbed by those who do pay but are paying a 25% interest on the items they bought.

What is the end result of this financial scenario?  The lending institutions won’t suffer the loss of those who don’t pay.  Those who do pay will also pick up the tab for those who don’t pay.

(Week #49 on Twitter)

Sandoval & Perry

On Wednesday, September 21st, Thursday, September 22nd and Friday, September 23rd, I wrote tweets that dealt with my shock, surprise and disappointment that Governor Sandoval would make a decision to support Rick Perry for president before anyone in Nevada, or for that matter the whole United States, got to know anything about Governor Perry. If Sandoval supposedly knew wonderful things about Perry none of those attributes ever came out in Perry’s campaign which he has now abandoned. I questioned Sandoval’s judgment from the beginning of his governorship and this certainly goes a long way to confirm my belief that he is a good looking and charming guy with no substance.

The Credit Trap

During the next several weeks, I’m going to address some of the many financial pitfalls you can get yourself into without thinking of how you will destroy your entire financial future.

Let’s go back to the present cost of money to banks and other financial institutions.  Remember that yesterday I described the present low cost of money to all financial institutions.  I would think everyone would understand that if some commodity is cheap, you can sell it at a reasonable cost, make a reasonable profit and everyone will be happy.  Not so with the present structure of the credit card business that wants every last nickel it can get from its customers.

If the financial institution is paying 1% for money – if there are no usury laws, and if the American public never thinks of the cost of an item but only thinks of the amount of the monthly payment to purchase it,  the institution can create a financial scenario where the borrower will pay a monthly payment forever, regardless of the real cost of the item.

I have friends who have bought cars without caring about the price of the car, or the interest rate they would be charged on the amount of the car loan, as long as they could make the monthly payments, even if the monthly payments lasted forever.

Many people, possibly most people, have no understanding of money, especially the cost of money.  They get on the monthly-payment merry go round and they can’t get off.

If you tell yourself, so what – I’m not the one running up the credit card interest rates because I pay my balance in full every month, you failed to understand the problem.  When your neighbors have fully transferred all their wealth to the financial world, your world is also going to collapse.  The overextension of credit destroys an entire economy or at the very best, it transfers wealth to those who have money.

Usury Laws

What do you think the cost of money is these days?  The Federal Government borrows money at about 1%.  The banks borrow money and use the money of their depositors at a cost of a little over 1%.

Money today, even though not readily available, is cheap if you can get it.  The rich have access to money at a very low interest rate.

But if you are part of middle America, what we call the middle class, when you borrow money your cost is going to be very high.  And your cost is especially high if you use a credit card and don’t pay the entire balance due at the end of the month.

You won’t remember this but 30 years ago most states, including Nevada, had usury laws.  These laws were designed to keep financial predators from taking everything you owned or would ever own.

Nevada had a 12% maximum interest rate and financial institutions had to live with it.  One of the ways they kept their losses low and their profits high was to be careful with regard to the financial strength of those who borrowed from them.

But then all hell broke loose.  The economy went into the tank during the Carter administration and the financial world decided it could not lend money, take a chance on a borrower and make a profit, as long as the usury laws were in effect.

Therefore, usury laws were written off the books and the financial industry was given a blank check and total control of what it would charge borrowers.

At one time I had a business loan at 24% interest.  You can’t run fast enough and produce enough product to pay those kinds of interest rates.

Eventually the market corrected itself, competition was revived and interest rates dropped substantially.

But when interest rates dropped, there was no return of the usury laws.

The financial institutions were free to charge what they could charge and charge they did.

Credit Cards & America's Middle Class

Credit Cards – The financial opiate of Americans that will hammer one more nail into the middle class coffin.

Through eight years of college and graduate school I never had a credit card.  It never occurred to me to apply for one.

My wife taught school and was paid once a month.  We waited for the paycheck to have our once-a-month dinner at a restaurant and then we paid for things as we bought them.  When we ran out of cash, we stopped buying.

My memory may be a little flawed but I think I had practiced law nearly ten years before I applied for a credit card – my rule – no cash – no buy.

Over the next several weeks I’m going to take a look at what the credit card has done to enslave this country’s middle class into a lifetime of servitude to the financial world.  

Please follow along and give me your thoughts along with personal stories about your own involvement with credit cards.