tag:blogger.com,1999:blog-7766273935038042110.post6778360953871751888..comments2023-10-17T03:30:00.824-05:00Comments on Prudence for Dummies: Credit and Debt in the EUmushroomhttp://www.blogger.com/profile/07651027035577798096noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-7766273935038042110.post-91867143441940186902012-08-06T18:28:24.784-05:002012-08-06T18:28:24.784-05:00Wow, that is good. I particularly liked the examp...Wow, that is good. I particularly liked the example of the student loans: <br /><br /><i>To see the debt as the problem is to ignore the system which created the "need" for that debt: in the education cartel, that is the entire system of "higher education," which is fundamentally a "skimming operation" not unlike its partner in crime, the financial industry and central State that creates and enforces the debt.</i><br /><br />I think you could say the same thing about the health care/insurance sector.mushroomhttps://www.blogger.com/profile/07651027035577798096noreply@blogger.comtag:blogger.com,1999:blog-7766273935038042110.post-46674894741814036272012-08-06T18:23:36.040-05:002012-08-06T18:23:36.040-05:00Thanks, that looks good.
Yes, GM or the individ...Thanks, that looks good. <br /><br />Yes, GM or the individual can file for bankruptcy to protect themselves and their assets from creditors in order to stay in business. Personal bankruptcy will let a person hang on to some property -- depending on how it is adjudicated. <br /><br />A year or so ago I gave a friend $650 to hire a lawyer to file for bankruptcy. He got it done and he's still living in his mobile home on his little acreage and has his truck. He just could not pay his bills. I don't know the details, but a lot of people do that.<br /><br />GM could have done the same thing and continued to make cars. They would have just reorganized.mushroomhttps://www.blogger.com/profile/07651027035577798096noreply@blogger.comtag:blogger.com,1999:blog-7766273935038042110.post-38801839263916147302012-08-06T16:03:09.219-05:002012-08-06T16:03:09.219-05:00Thanks Mush. That was a good, post-worthy response...Thanks Mush. That was a good, post-worthy response. Ok, clearing debt hammers the creditors and those invested in the creditors. So not just JPM, for example, take a financial hit but any pension fund investing in JPM. So the "little guy" can get financially hurt as well. <br /><br />For GM, clearing debt didn't liquidate the company. But it could for other companies and that would be disruptive, to say the least, to those whose livelihoods depend on that company.<br /><br />Coincidentally, I saw this arcticle on Zero Hedge today which covered this subject. You might like it.<br /><br />http://www.zerohedge.com/news/guest-post-little-perspective-what-lies-ahead<br /><br />I'm kinda figuring it out.John Lienhttps://www.blogger.com/profile/02302615225311776021noreply@blogger.comtag:blogger.com,1999:blog-7766273935038042110.post-53849937069280436082012-08-06T08:52:03.715-05:002012-08-06T08:52:03.715-05:00Yes, tightening credit will be deflationary. And m...Yes, tightening credit will be deflationary. And mainly the businesses I'm talking about are financial companies like J.P. Morgan, Goldman, Bank of America, etc., that made questionable, speculative loans and investments in things like derivatives. <br /><br />When I worked for a credit card company, our marketing people loved to look for "borderline" customers to send cards to. There's a FICO range of credit scores that they now call sub-prime where credit card companies are almost guaranteed extra revenue. Marketing would hook people with a low-limit card knowing they were going to get more money in over-limit and late-fee charges than we got in interest -- which was often like 15% anyway. <br /><br />These bad customers only have to pay for a while in order for the banks to make back their principle. They expect, in many cases, the customer to charge-off at some point or declare bankruptcy. <br /><br />When our company did stuff like that, we were solid financially. This was just a way to get some gravy. It's kind of disgusting, really. But we had our Risk Management department that throttled back Marketing. The Risk guys used to say that, if we would let them, Marketing would just mail out cash in envelopes. <br /><br />That was a joke to us, but it's not too unlike what has been done. Banks that do that deserve to fail. <br /><br />A non-bank company like GM can usually declare bankruptcy and clear itself out of whatever mess it is in. It gets the court to assign priority to various creditors such as bond-holders. In GM's case, that would have meant that the union pension funds would have been just another creditor. Had that been allowed to happen, GM could have re-negotiated all of its contracts and reduced the "cadillac" union benefits, possibly even gotten rid of the union. It could have streamlined its product line, becoming more focused on quality and customer satisfaction -- like non-union companies such as Toyota. <br /><br />A significant portion of the cost of a new Silverado goes to pay workers benefits to workers who tightened lug nuts on the assembly line for twenty years at $20 or $25 an hour then retired at fifty. <br /><br />When stock prices were rising and interest rates were higher GM could fund those pensions without cutting into profits. They haven't been able to do that for the last decade and they are hurting. <br /><br />It would be bad to cut a guy's pension after he had been promised a certain amount. But those promises were forced out of companies by the unions, and they were unrealistic and unsustainable in the long-term. GM, though, took the Keynesian approach that in the long-run we're all dead and just made it the problem of some future iteration of the company. <br /><br />That's just one example. I'm not sure I answered your question. If not, I will try again in a shorter form.mushroomhttps://www.blogger.com/profile/07651027035577798096noreply@blogger.comtag:blogger.com,1999:blog-7766273935038042110.post-31914309860282097402012-08-03T22:05:54.572-05:002012-08-03T22:05:54.572-05:00Hi Mush,
If you get rid of easy credit won't ...Hi Mush,<br /><br />If you get rid of easy credit won't that also cause deflation because sellers can't ask as much for a house, car, or education? They have to drop the price to get buyers interested? <br /><br />I followed what you said except maybe the part about clearing debt by letting businesses fail. What happens there? The lenders take a loss on the difference of what was unpaid on the loan and what they resell the collateral for. But that will clear that particular debt from the system. <br /><br />Too many losses and the bank fails. Which, as an aside, will make property cheap because the banks will dump properties on the market and this is also deflationary.<br /><br />I agree, it's going to happen one way or another.John Lienhttps://www.blogger.com/profile/02302615225311776021noreply@blogger.com