Borrowing money
I saw the Big Short twice. Once in a theater and once on vacation because a friend had a loaner. I loved the film. It showed the story of the collapse of the housing market brought on by mortgages for all. The film would be completely entertaining if it wasn’t true. We all grimaced and certainly hoped lessons had been learned. Nobody in the banking industry went to jail for what happened. Remember the saying “too big to fail” well that summed up the film.
I invested in a company called Tactile Finance because mortgages are hard to understand and she was simplifying it for consumers (and lenders). It gives everyone a clear understanding of what they are purchasing (borrowing). It is there to help everyone make smart solid financial decisions. After watching the film you realize that the people who were selling the mortgages didn’t quite understand them either.
I was watching the Super Bowl and saw the ad from Quicken Loans. Quite frankly the ad scared the hell out of me. It was about how easy it is to get a mortgage on a mobile device. Getting a mortgage could be as simple as pushing a button and by borrowing that money you could buy a house, buy a couch, buy a washing machine and in turn that spending would be good for the economy.
How soon we forget. The 2007 mortgage collapse brought the entire world into a financial crisis. The message from Quicken was borrowing money should be a casual thing. No biggie. We give it to you, you buy and then you pay it off. It works for all! Responsible debt is good for all but based on the recent mess we have pulled out of you would hope that people take loans very seriously. Permanent IOU’s don’t work for bankers and they shouldn’t be as easy as a click. It should be very tactile.
Comments (Archived):
Felt the same way. I’m all for ease and mobile-centric. Though obtaining a mortgage prob shouldn’t be as easy as buying a pair of shoes on Spring.
For sure!
I listened to an interesting A16Z podcast with Max Levchin on his new company Affirm that focuses primarily on millennials and borrowing. Half of their top ten most hated brands are banks, the majority don’t have credit cards due to lack of trust. No longer is your local bank a trusted advisor that guides you through financial advice with your best interest in mind. Fintech startups are disaggregating the old guard FS firms based on trust, security, efficiency, customer focus and forming a trusted advisor relationship. In ten years the banking landscape will be vastly improved.
If the tech community can vastly change the banking industry. I am hoping then perhaps government too?
Government will fight it. Just look at how they fight Uber….imagine banking.
change always wins.
I said to my friend yesterday ‘Let’s figure out a smart way to short the Financial Industry’ His response ‘I prefer to invest in the companies that will disrupt FS’ I thought that was a great response. I’m optimistic Government, Financial Services and Health Care will be changed for the better by technology…only a matter of time.
I am totally with the Millennials (I’m GenX)! I finally succumbed and got a credit card last year to try to fix my credit score. I had been living debt free for over ten years but was penalized with a poor credit score due to the fact that I had no debt (The irony was that my credit report listed zero debt as the main reason for my poor report, LOL!). When my landlord sold her house and I had to find a new rental, very few landlords would rent to me even though I have no debt, high income and excellent references. I finally found a landlord that didn’t use a realtor/broker who would rent to me. Credit reports are a scam by the banking industry to put people into debt. Net worth is not a factor on any credit report which is insane.
credit reports are a HUGE scam.
Ahh, very interesting.
I use credit cards to keep my credit score top notch, but I then go online and pay the balance even before the monthly statement is sent to me, a lot of the times.I’ve heard that in the credit card industry lingo, people like me are referred to as “deadbeats”. Ha ha! That’s just fine with me.
That’s what I just started doing. I got a credit card and put some of my autopayments on it, then setup an autopayment from my bank account for the same amount. A bit of a waste of time but after the rental issue I ran into last year, decided I needed to do it, despite HATING partaking in the banking industry in any way. My grandma did it right. She never borrowed for anything and died with a pile of stocks, annuities and cash that she passed on to her kids. She even bought her condo and cars with cash.
Mine too. Not a rich woman, but paid cash — even for her cars. Died without debt.My grandparents never got over the Great Depression.I grew up thinking there was a person named Hard Times planning to visit because whenever we had a treat, or money as a gift, etc., my grandfather would always tell us to “save some of it for hard times.”
That’s exactly how my grandmother was. She and my grandfather were both lucky to have jobs during the great depression but she never forgot how people in her neighborhood lost everything. She lived as if that could happen to her any day.
“…but was penalized with a poor credit score due to the fact that I had no debt”the mind boggles at the cynicism of that system.
after seeing Michal Moore’s movie last night (of course extremely left liberal and has his message) it is mind boggling.
So many people are buried in debt. I remember what that used to feel like and it sucks. There is so much freedom in being debt-free. Going into debt can be helpful momentarily, of course, but it’s a poor lifestyle on the long term. I’m also apprehensive of corporations who are eager to put people into debt. Good post!
thanks Mario
I’m with ya!
I completely agree with your comment on the freedom of being debt free. The most common theme I’ve encountered when trying to help friends or family with their finances is that most people are completely unaware of where they are spending money. I usually recommend this basic but highly useful Google Doc as a starting point to for the As Is analysis https://drive.google.com/pr… .
Thanks a lot, nice of you to share.
Haven’t seen the movie yet. Can’t wait – what an awesome cast!
I lived the movie. I have traded through several crazy markets since 1987. The one problem I have with the movie is it didn’t explain the clear relationship between the mortgage market and Fannie/Freddie. Without the government backstop, the house of cards can’t be built. The banks should never have been bailed out.Dodd-Frank is extremely scary for lots and lots of reasons. One reason is that the government now backstops independent clearinghouses like CME, ICE, BOTCC, OCC. If they get a black swan event, the taxpayer bails them out. Not cool.
Neel Kashkari was on NPR this morning discussing Dodd-Frank and stating banks are still in the too big to fail state. He made an analogy several times to a ‘nuclear reactor meltdown’ scenario. http://www.npr.org/2016/02/… . Also heard a great interview with Mohamed El-Erian on how risk has just shifted in the Financial System and that we’re no better equipped to handle extreme stress in the system than we were pre-crisis.
There are too many things wrong with Dodd-Frank to encompass in one comment. Dodd-Frank and other regulations killed community banking. They made it too expensive to compete. The big banks got bigger, and the people that need access to capital don’t have it. Dodd-Frank is one reason I started blogging. I have pretty good familiarity with the financial system. There are so many rules and regs inside of it that cause winners and losers to happen rather than having free market capitalism. In this age of the internet, it’s possible to have flatter markets, and eliminate layers of distribution. Instead, we are adding layers, and increasing costs.
During the Great Recession, a consolation to me was that this was a huge opportunity to learn from our mistakes as a country. That was wishful thinking. I guess we can only be responsible for our own learnings.I admit that when we bought our house all those years ago, we should not have qualified. We wanted to stop paying high LA rent down a black hole. I jokingly said to my husband that I thought the loan underwriters must have had a “liquid lunch” and then come back to find our loan docs waiting. After watching The Big Short, that could have been exactly what happened.It did turn out to be an amazing investment and we still own the house over 15 years later, but there were some very tough years of touch and go.
That ad was highly disturbing to me as well – the entire emphasis seem misplaced. I’m all for finding ways of making the lending process simpler and more intuitive, but please put an emphasis on how you are also making it more secure and creating better risk profiles of those borrowers! There are so many new sources of data that are available these days, companies should leverage this. We are seeing it in the world of small business loans with a number of startups e.g. Kabbage – would be good to see it in personal loans as well.
The mortgage collapse of 2007 was not new. The results were more widespread because of the mortgage backed securities that were introduced in the 1980’s. My first recollection of banks failing was in 1987. Before 1987 we had the condo craze. People bought condos that they could rent out to others. It didn’t matter if it was a good investment. If you lost money there was a tax advantage and every year the appreciation on the units were stellar. Reagan changed the tax law and people started dumping their investment condos. In turn the banks that had written the mortgages went out of business daily. It was truly a nightmare. There were no doc loans even then. I remember Dime Savings Bank advertised as frequently in the 1980’s as Countrywide did in the media just before the last meltdown. We learned nothing from 1987 and we have learned nothing from 2007. The last word I remember in The Big Short is”bespoke tranches.”
You are correct. I remember those times too.