The Chains That Bind Them

In the news this morning it was announced that GM, Chrysler, and AIG had paid back $675B of the $700B they were loaned.  Do you remember the high anxiety over the situation a year ago?  Congress was told by the Fed and the President the nation’s economy was going to implode if they didn’t take immediate and drastic steps to shore up the bad loans of these corporations.  Do you smell a rat?

Imagine this: You and your spouse have been spending your way to prosperity (an oxymoron but indulge the metaphor a moment) with nothing down on a house worth >20 times your income, and piling up credit card debt like Inspector Drebben used them for ID. (RIP Leslie Nielsen.  I loved you.)  Suddenly you are asked to make good on all these loans, but you scream you can’t.  So the loan institutions for fear of caving in themselves figure out how to consolidate your loans, and lend you the money to pay them the interest.  Now here’s the coup de grace, in less than a year you are able to pay 96% of that consolidated loan back!  Not possible unless you were in sound financial straights and never needed it in the first place.  Now do you smell a rat?

Why would your lenders do such a thing?  It doesn’t make sense!  No it doesn’t, until you discover the way they produced that money to loan you was to devalue your income.  They went to your employers and arranged the books such that you got paid the same on paper, but your pay was worth much less than before.  When you and I do this it’s called fraud.  When the people who lend the money out do it, it’s called collectivism.  They are collecting not just your property, but your ability to amass wealth.  Soon everyone is equally poor, and the people who loan the money possess all the tangible property.  The result is, even though those giants loans have been paid back, you and I are stuck with a currency that is worth much less than it was a year ago.

If you haven’t read the fine print before now, every loan originated is set up to pay back the interest before the loan amount is paid.  You pay them for the “privilege” to use their money, and the payment of the original borrowed amount gets deferred until they get all their interest.  Although the two are paid off coincidentally, effectively if you let the loan run full term it’s as if you are consigned to paying off the borrowed amount last.  Loans are ALWAYS in the lender's favor.  You have to give them collateral—usually tangible property, you have to pay them first for the use of their money, and they can take it all away from you at any time.

In every debt instrument there is a clause: Payable in full upon demand.  The lender can demand all the money back they gave to you at any time.  If you can’t do that, they come and take your property away.  It doesn’t matter how much you have given them in interest.  A 10% interest loan over ten years means you pay them in addition to the amount you borrowed, 100% of that borrowed money for the privilege of using that money.  In a thirty year loan you have paid them three times the borrowed amount, plus the loan amount, meaning if you let the loan go full term you have paid four times the original value.  And at any time during that period if you fail to pay according to the plan they take it all back and you get nothing.

This is called a simple interest loan, and if you think this is robbery, when I was a youth banks were still making compounded interest loans—you paid interest on the unpaid interest!  This practice didn’t go away until the public finally wised up and refused to participate in the ripoff.  However, it still continues in a different form which loan sharks (payday and title loan businesses) use—the interest rate is usually around 25% and the interest period is in days instead of months.

If you haven’t figured this out yet, the practice of borrowing amounts to this: you get to use property today that would take longer to pay for in cash, BUT over the long term you get to have less property than you otherwise could have had.  You don’t get to travel as much as you would have, nor enjoy the comforts in tangible assets that you could have had at an age when it is most coveted.  If you engage in the practice of borrowing long enough, and without restraint, your children and even their children will be your slaves.  Perhaps for their entire lives.  At it’s root, this practice is called a Ponzi scheme.  You get away with the goods while the unsuspecting and innocent are compelled to pay for your extravagance.

Oh sure, Madoff went to jail for that.  But who really should be going to jail are all the members of the Federal Reserve for devaluing our money in order to cover bad loans (people who can’t manage a dollar in cash but borrow for everything) and thereby acquire the real wealth—your property.

This kind of fraud was in existence before Nixon took the country off the gold standard.  Now if YOU had made a fuss about it loud enough, Congress, who are the ones who spend your money, would not have gone along with Nixon.  And the consequence would be the value of your money would have remained relatively constant in spite of bad loans to this day.  What these money lenders used to do in ancient times to devalue the money supply was substitute bogus weights on the balance beam scales.  They often got away with it because communication was much slower, and the legal system under the existing ruler while much harsher than ours, was incapable of consistently enforcing punishment for the fraud.

When it comes to who is responsible for exploitation, is it the exploiter, or the exploitee?  Fool me once, shame on you.  Fool me twice, thrice….

SethSmee