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Mar

28

Cyprus Banks Had the Right Idea

By admin

Can we trust the banks with our money? Fifty years ago, anyone raising such a question was considered a paranoid lunatic. One hundred years ago, the question had some legitimacy behind it, as lots of folks did not yet trust banks. Many people who lived through the great depression in the 1930’s in the U.S. understandably became mattress stuffers, having seen bank failures actually happen. Here we are in the year 2013, living in the digital money age where cash is a rapidly vanishing entity, and we once again must wonder about our money being safe in the bank. It appears we have come full circle.

The situation in Cyprus seems far enough removed to not cause many Americans to have sleepless nights. Of course, it really isn’t as far removed as it seems. Repercussions in Italy and Greece are likely. From there, who knows what could happen. We all know this, but we don’t let it upset us too much. In this day and age, we are just thankful our own highly questionable financial system is still somehow holding together. Better there than here.

Can’t you just picture Jimmy Stewart behind the counter of the Cyprus banks telling the people, “You’re thinking about this place all wrong! Your money isn’t here, it’s in Dimitris’ house and Christos’ house and Giorgos’ house!” Only, that’s not the way it works in modern banks. These days, home mortgages are sold to specific mortgage holding companies who service them. Your deposited money should be in the bank.

…just not in cash. Banks don’t have that much cash on hand. It’s not in gold, either. The money is all just digits in a computer database. You can get some cash, of course, but it’s best if you just keep using your cards and adjusting the balance of those numbers. Hey, you can always close your account and transfer it all to another bank and look at those same numbers on different letterhead – assuming, of course, you even bother to receive paper statements anymore.

So, when the mobs hoard the Cyprus banks upon their reopening, nobody can get more than 300 bucks per day. They cannot transfer more than five grand out of the country. They can, however, close their accounts and transfer it all to a different bank within the country of Cyprus – which will seem like an exercise in futility. All of this is to prevent a run on the banks. A bank run is a mob mentality that has the very real potential for igniting an unnecessary financial crisis.

Here is my take on the entire situation:

As usual, the problem does not lie in the mechanics of how things are operating, but in the reaction of the human mind. Our resistance to change and tendency to overreact to negative-seeming developments is what causes most of our problems. The Cyprus banks came up with a very reasonable solution to thwart off a massive financial crisis. They were going to take 10% of all deposited funds in the banks. Everybody kicks in 10% of whatever they have. Problem solved, and everyone gets to keep living their wonderful little life on a Mediterranean island. (This is especially reasonable considering that your 10% would be paid for in less than three years at the 5% interest rate Cyprus banks currently pay depositors. You are still better off there, after paying the bailout assessment, than you are having your money is USA banks.)

But noooooooooooo. They had to go get all up in arms about it. Now the banks are being forced to do something different, something much more conspicuous. They will be shamefully robbing the wealthy and upper-middle class instead. Instead of everyone paying their fair share, large depositors will now lose up to 40% of their balances to pay for the bailout. This is a much worse solution for many reasons, but the main one is the large depositors will be pulling all the rest of their funds out of that country just as soon as they are able. Count on it. This sets up a condition which could very well result in real bank failures in the near future. The bulk of the wealth will be removed.

Folks, if the choice is to pay 10% of your money or risk complete financial ruin, the correct answer is to pay the 10% and go back to your happy life where the currency is still good and a loaf of bread doesn’t cost a wheelbarrow full of cash. Whining and complaining your way to making those richer than you pay for it, and driving them all out of your economy as a result, leaves you on an island of only poor and destitute whiners and complainers.

Jul

23

Rebate Advertising Should Be Illegal

By admin

   

Have you ever seen an advertised special in a store that seemed like a great price, only to find out that the advertised price was effective only after you received a mail-in rebate? How did you feel about that? If you are anything like most people, it didn’t phase you much. You probably thought, Well bottom line is if I get some money back in the mail which makes the item only cost that much, then that’s the price I can buy it for. But there is still that little asterisk in your brain about the discounted price, isn’t there? Somehow you know this isn’t quite like buying it at that advertised price.

After all you still do have to fork over all the money now and wait for a rebate to arrive, and there is at least a tinge of doubt in your mind that you will actually receive it. And for good reason! Retailers are getting worse and worse about honoring these rebate offers. They are looking for any excuse not to honor them and some of them go to ridiculous lengths to weasel out of their obligation. They make you dot a hundred i’s and cross and hundred t’s on three or four forms, send in a critical part of the packaging plus a printed receipt, and if you slip up on some minor point you blew it – no rebate.

Now, understand that just because you missed something on the form or sent the wrong part of the packaging in, the company doesn’t really doubt that you purchased the item. They can see just from the receipt alone that you are a legitimate customer. There is pretty much no chance that somebody is trying to scam them out of an unearned rebate. They know this. They are just trying to find a loophole – any loophole – to dishonor the price they advertised the item for. Electronics companies are especially notorious for doing this nowadays.

If you do somehow clear the obstacle course, you are likely to receive a prepaid visa debit card which you must spend at retail establishments in order to redeem. What’s more, if you don’t do it pretty quick the thing will expire and you will lose the rebate. It’s not cash. It’s not a check you can deposit in your bank account. It can’t go into your savings account, cannot go into your kid’s college fund, cannot practically be given to your favorite charity. You have to use it at a store or a restaurant in order to redeem it. And you won’t get it for many weeks, possibly months after you mail in the required forms.

This still all might seem OK to you. After all, you live in this society and so you are out spending money in stores quite often, and even the grocery store will accept that prepaid debit card. But let me tell you a considerable percentage of those cards expire without being used. They go into a purse pocket or a drawer and you find them in 8 months expired and worthless. You didn’t get the advertised price. As a matter of fact there is a good chance that as you are reading this some Christmas present you purchased a couple months ago cost you more than you planned on. Because right now, that rebate card is lost somewhere, if you even remembered to sit down for 30 minutes and figure out the claiming process in the first place.

What this all adds up to is terribly misleading marketing, if not blatant false advertising. It’s amazing that it is still legal. When Mama Riah and I purchased new cell phones recently the girl at the store told us to make sure we didn’t put the rebate claim forms in the same envelope or we would only get one of them. Now isn’t that utterly ridiculous, even perhaps borderline criminal? We should all get together as a society and just say no to any product advertised with a mail-in rebate price. Either that or start a massive class-action lawsuit.

Papa Riah

Nov

15

Financial Bailout, Wrong Recipients

By admin

You don’t want to know what’s happening with the $700 billion (with a b) bailout money that was supposed to be earmarked for large financial institution’s foreclosure and mortgage-related losses. Trust me, you really don’t. Especially if you are the type who gets mad when the leaders of your country act foolishly, irresponsibly, and with self-interest as their first priority. This is one time when it’s definitely better to stick your head in the sand. In fact I don’t even want to watch the news any more, especially financial and political news. I’m sure I’m not alone there.

The whole idea behind the bailout was to rescue large financial institutions whose exposure to the subprime mortgage business (and foreclosed properties that can only be unloaded for large losses) was threatening their existence. That’s what it was for. Unfortunately between the time the legislation passed and now, which has only been a matter of weeks, lots of other uses for the money have popped up. Gee, who would have thunk?

Bank of America already received $25 billion (with a b) of that money. Now they are a company that is in good financial health and has never been involved in the mortgage business. They have no bad subprime loans, nor do they own any foreclosed residential homes. BOA is doing just fine charging their customers every time they talk to a teller. So how did they get their hands on that cash? Is it because they have a sign that says Bank on the front of their building? Or do they know the right person somewhere?

Today on television the mayor of Philadelphia made a desperate plea to use the money to bail out city governments – in particular, his city. When it was explained to him that the legislation which allocated the funds would not allow that, he responded that they need to give him some other money then – just like the auto makers are apparently getting. When asked where the money was supposed to come from, he said (and I kid you not) The federal government are the ones who print the money – just print some and give it to us.

As a reader of this blog I hope you understand why that doesn’t work. That crazy mayor might as well print the needed money himself – it will be worth just as much as all American currency will be if the federal government starts printing money to give to every failing entity. Heck, haven’t you made some investment decisions that didn’t work out? Have the government print you some money to bail you out.

The really scary thing is, what the government is actually doing with these bailouts isn’t much different than just printing the money. The effects are going to be the same – they just don’t realize it yet. Or perhaps they don’t care what happens to the next generation in America. By spending more and more money on an unlimited credit line that they have setup for themselves, they are setting a terrible example to the American consumer. The whole system could be bankrupt in our lifetimes, not in our grandchildren’s as we are all planning on. At least consumers have a point where their credit is maxed out. Our government can just keep borrowing – and because they can, they do.

Eventually all this government borrowing and printing money will come home to roost. When it does, expect the US dollar to be worthless – not only overseas but within our own country as well. How are you set on gold coins and gold bars? You might want to stock up on them the way things are going. Either that or you will need chickens, pigs, apples, and ears of corn for currency.

Papa Riah