Sunday, February 21, 2010
FICO
Anyone who has watched Suze knows that your FICO score is the most important number in you life. You should do everything you can to nurture it. It would be really scary not to be able to borrow as much as you "need." Right?
Right?
Right?
You didn't answer right way.
Surely, you agree with Suze that your ability to borrow money and pay interest to bankers is the very definition of success in your life, right? Everyone should borrow as much as they possibly can, that's just the way it is. The more you make, the more you should borrow from banks. Just be certain you can pay them back with all the interest due.
You should tip your banker 5% at Christmas, too, in case you didn't know that. That's what the Queen of England does.
Here's a clue for living easy in a banker-run world:
If your FICO score is 700+, then you're an idiot if you borrow money. If your FICO score is below 700, then you're an idiot if you borrow money.
If you "need" to think about your FICO score, you should never, EVER, borrow money from a bank. Not for a car. Not for a house. And certainly not for school. Never.
Pay yourself the same principal, interest, taxes, and insurance for 10 years, pay cash for a much nicer house, and you're set for life. If you can't wait, save the same payment for 7 years, put 80% down, and no one will care about FICO.
All debt is bad debt. Reject the stupidity.
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FDRAOA -
ReplyDeleteI'm a long time fan of Griffin and his hard money advocacy, but my opinions have changed with my readings of Ellen Brown and especially with the works of Bill Still. Still and Griffen disagree w/ each other over the role of governent and currency. Would you care to share your opinions and arguments for/against going totally US Treasury issued fiat notes with the 100% banking reserves to absorb the cash flush of Federal debt being paid off? (Sadly, I do not beleive this could ever happen happen w/out bloodshed)
I LOVE Andrew Jackson, but I beleive we've inflated so much that the common man would be crushed with a return to hard money, as all of our "money" has been replaced with FRN's...
Thanks for your writings... First thing I look at everyday!
Hi, Thanks.
ReplyDeleteYou have presented a false choice. Let the market decide what paper is worth holding. Only then, will some paper be worth holding.
The reason our Framers made the Federal Reserve expressly unconstitutional (and the Fed is still irrefutably illegal per Article I, Section 8) isn't that they didn't want private issue paper, it is that the Constitution forbids a monopoly.
We didn't have a single paper currency for most of our nation's history. And only since 1970 have FRNs had a total currency monopoly.
As late as 1929, we broadly traded at least 6 different forms of paper:
United States Notes
Gold Certificates
National Bank Notes
Silver Certificates
Federal Reserve Bank Notes
Federal Reserve Notes
And that was generally considered way too restrictive at the time. We use cards from all different banks now, anyway. Let them compete openly with FRNs and we'll find out which bank notes people want to hold (and it sure won't be the bank flooding the market with mountains un-backed counterfeit paper).
The US Mint must fulfill it's constitutional mandate and issue gold and silver coin denominated in dollars. Private bank paper has to deal with that benchmark.
We had that system from 1836 to 1913, and over that entire time period, when we industrialized the world, the price of gold soared from $20 an ounce to $20 an ounce.
Thanks for the reply,
ReplyDeleteStill argues that "the regulate the value thereof" clause WOULD apply to a fiat currency if congress and only congress could control the quantity, no Fractional Reserve banking expansion, only loans of existing money, I loan you $10 and do not have use of said $10 until repaid and may lose all or part of my $10 to risk of default...I do not think Still advocates Currency monopoly just debt free Government issued unbacked currency VS. Debt based, unbacked currency from the Fed. The argument is: We have inflation, debt, interest on the debt and taxes now, by going "Greenback" US treasury note issues we would have inflation only and could be controlled by reinging in spending (Yeah, I know, we have massive spending now that we have to borrow, imagine what would happen if we went Weimar and started printing).
The point is to get rid of the debt and the crushing interest payments with debt free paper spent directly into the economy.
On gold Standard:
ReplyDeleteThat the true wealth of the nation does not consist in the hoarded gold of the Bank of England, nor in the book-entries standing to the credit of merchant bankers. The wealth of the nation lies in its capacity to produce goods, and its capacity to consume goods, and its capacity to exchange its surplus goods for necessary importations from other countries. If the City of London, with its banks, its gold, banknotes, and its money, were suddenly to sink into the bowels of the earth and be no more, the country would go on, and, with incredible rapidity, would recover from the shock and build a new and perhaps a better City. But if the country vanished, the City of London would be dead for ever. In the last resort, production and consumption could continue without money; but money would be useless dross without production and consumption."
- Vincent Vickers
FDR,
ReplyDeleteI believe that you are right up to a certain point. High leverage is not good, but in my opinion credit is sometimes needed to fullfull and execute business ideas. I have personally known about successful businesses that have used credit at some point. Financial institutions are part of our capitalism, they are businesses too, their interest income is our cost of capital.
I can think of one instance where "All debt is bad debt" is not true.
ReplyDeleteWhen it is used to save one's life.
"High leverage is not good, but in my opinion credit is sometimes needed to fullfull and execute business ideas. I have personally known about successful businesses that have used credit at some point."
ReplyDeleteI'm talking individuals, above. But in general, business models that embrace debt will have great difficulty from now on. 1932 to 2008 was the greatest inflationary surge of all time. Inflationary periods erase debt.
Lots of business today, possibly most, are built upon nothing more that cultivating inflationary debt reduction, the business is an unrecognized front. Day-to-day operations are essentially a way to float money until liabilities are eroded by inflation.
From this point forward, the same float will be a sharp liability, not a cash flow producing asset, so debt-based businesses will fail.
"Financial institutions are part of our capitalism, they are businesses too, their interest income is our cost of capital."
Debt reduces capital.
"If you can't wait, save the same payment for 7 years, put 80% down, and no one will care about FICO. All debt is bad debt. Reject the stupidity".
ReplyDeleteFDR,
Let's say that I am a very young gentleman just out of college with zero debt, zero capital, and living with mom and dad. Next, I get a decent job, now I have the desire to buy a house, a new car, etc, etc. I follow your advise of saving and get to gather $80M. Then, I buy a house for $80M with cash, and I'm out of my parents house living by myself with zero liquidity, zero capital, and still working for money to pay for my bills. Finally, there is a market crash, the economy stumbles, I get laid off, my property's value goes south and then I find myself with nothing.
It would be excelent to live on a cash basis, that is the perfect scenario. But I believe that if any person gets to gather serious liquidity, the best thing would be to put that capital to work on a entrepeneurship, business venture or whathever idea one might have.
Finally, businesses are the engine of any economy, any capital saved should be placed on the market and circulate it. And you are right, any buiness should be managed with the least leverage posible so that whenever something like our current situation happens, it does not find itslef with high debt and undervalued assets.
Again, thanks for sharing your knowledge and opionions.
"Then, I buy a house for $80M with cash, and I'm out of my parents house living by myself with zero liquidity, zero capital, and still working for money to pay for my bills. Finally, there is a market crash, the economy stumbles, I get laid off, my property's value goes south and then I find myself with nothing."
ReplyDeletePlease be careful not to confuse price with value. In your scenario, prices fall, but the house value stays the same. It still trades for any other house. The price-value game is how the smart money enslaves you.
Let's say you borrowed 190K to get into a $200K house. After 5% down, you have about $5K equity after the bank's $5K in financing fees.
Now, the price goes south by half. Your home's VALUE doesn't change--it never changes--it always trades house-for-house.
But the PRICE of your debt note stays inflated in a now-deflated world. The VALUE of your payments to the bank soar. You are now paying the bank $400K at the original cost basis.
It is tempting to think you are only $95K underwater, but that's not even close. You are $190K under water, since $200K then, buys $100K now.
Loss: -$190K/$5K, or about -3,800%.
The cash buyer, on the other hand, can now trade up since taxes and insurance halve as well.
Gain: $40K, or about 20%
I am shooting for a FICO score of 666...I think that might open a few doors.
ReplyDelete