Friday, July 21, 2017

Shitblogs and Internet Click-Bait Filler

The structure of the Internet and Internet Advertising results in some odd consequences.

I received an interesting e-mail the other day which exposed me to the seamy side of the Internet, which, let's face it, has a lot of seamy sides:
On Thu, Jul 20, 2017 at 7:20 AM, Olivier Jennes <olivier@******.***, wrote:
Hi Robert,

I was doing some research on portable air conditioners and I came across one of your pages:, which I found informative and well-written, so I was wondering if you wanted to have a quick look at an article about portable air conditioners we just published.

After doing weeks of independent research about all available brands of portable air conditioners, we published the results in a blog article. Please note: we are in no way connected to any of the brands, we are just a blog with a passion for art, design and everything to do with home.

Here is the article: http://******/the-best-portable-air-conditioners

It reflects a summary of the feedback from people around the world - I'd love to know what you think!

Feel free to send your thoughts by email, or, if you prefer, you can also leave your thoughts in the comment section at the bottom of the article. And if you like the article you would make us very happy with a mention on your website :-)

Best wishes and thank you,

Olivier Jennes
Twitter: @******************
I went on the site and was appalled by the article, which had so many factual errors, it wasn't funny.  The "reviews" of portable air conditioners appeared to be little more than recitation of their specs. Unwittingly, I wrote back to the "author" of this piece and acted as an unpaid fact-checker and proofreader
These two paragraphs are confusing in describing how these units work:

"Single hose units will pull the air from within the room, cool it, and send it back into the room. It then vents warm air and moisture out of the outtake hose that is mounted to the window with a simple removable frame. With single-hose units, this is where auto-evaporative technology helps keep the machine running efficiently by cooling the unit. For less consistent use, like in locations with warm afternoons and cool evenings, a single-hose air conditioner is generally sufficient."
The evaporative function is used to discharge the condensate that forms on the cooling coils.  It has little to do with "cooling the unit" and it appears you don't understand how these units work at all.   In addition, the evaporative function is present in both single and dual-hose units.
(when cold air passes over the evaporator coils, it falls below the dew point, causing water to condensate onto the coils.  This drips down into a drip pan.  In a house A/C unit, this would then drain outside via a hose.   In older portable A/C units, the drip pan or condensate pan would have to be emptied on a daily or even hourly basis, depending on how humid the environment was.   Modern units use the edge of the evaporator fan to splash this water onto the warm components such as the compressor, causing it to evaporate again, at which point it gets blown outside with the discharge air.  Some window units use this technology as well.  It also does serve to cool the compressor somewhat.  But that's not the point!  The point is to avoid having to drain the damn drip pan all the time!  Even with this technology, the drip pan may need to be emptied when the room is first cooled, before the humidity level is pulled down.  Once the room is cool, the need is less, which is why it is a good idea to leave these buggers on all the time, rather than try to turn them on and off during the day).

The problem with single hose units is that they are taking air from the room and discharging it outside.  You are taking the cooled air, using it to cool the condensor, and then discharging it.  This is less efficient.   But worse than that, if your home is tightly sealed, the fan discharging air may have to fight to push air out the hose, as there is no air coming into the room.  For this reason, they often recommend opening a window a crack to let air in, which again, negates efficiency.
"Double hose units have both an intake and an outtake house. Air is pulled into the interior intake (the unit itself), cooled by the coils, and then sent back into the room. As the machine warms up, the intake hose (hooked to the window) brings air from outside in order to keep the unit from overheating. The outtake hose then removes the heat and moisture just as it does for the single hose systems. In larger spaces or spaces filled with computers or other warm electronics, the two-hose system is ideal for optimum cooling and to ensure the longevity of the unit."

Again, this seems to illustrate that you have no fundamental idea of how air conditioning works.   While I suppose you could say this is technically correct that it "prevents the machine from overheating" it is really not accurate.   An air conditioner is a heat pump - it moves heat from point A to point B.   A reversible heat pump can pump heat in both directions, so it can heat or cool.
When you run an A/C unit - ANY KIND of AC unit, you are rejecting heat outside of the room.  The point of these ducts is to reject the heat (hot air) in this case, which is generated when the refrigerant is condensed in the condenser.   This is where a lot of people get confused about these units - they think you plug them in and the unit turns electricity into "cold".   No, it takes the heat out of the room and pumps it outside.   If you don't connect the ductwork, you are just pumping heat around in the same room.   The two-hose solution is more efficient than the one-hose solution, as you are using OUTSIDE AIR instead of INSIDE AIR to remove the heat.   So you are not cooling air (as in the single-hose unit) and then blowing it outside.   It has nothing to do with "overheating" but rather improved efficiency.
The ducts don't prevent the unit from "overheating" but allow the unit to function.  These units don't really "overheat" by the way, they would shut off if the flow of air to the condenser was blocked (the high pressure refrigerant switch would kick off).
All of the bolded statements in your article above are inaccurate.  I bring this to your attention in that you don't want to make yourself look foolish online.
I have not reviewed the rest of the article in detail.   I think you need to do some research on how air conditioners work, and in particular on how portable air conditioners work, before writing an article about them.
Good Luck!

A few days later, he wrote back:
Dear Robert,

Thank you very much for your reply and your feedback, that is very kind and helpful!

I full agree with everything you said there. We broke the contract with the copywriter who wrote this for us as after further inspection I agree the text is unclear and factual wrong in many ways. I now have my main copywriter reviewing and correcting the article (luckily she is amazing) and I will let you know once this is done. Thanks again for sharing your opinion, this is super helpful.

Best wishes,

Copywriter?   What the Fuck is going on here?  Welcome to the wonderful world of shit-blogs and Internet Click-Bait filler sites.

What are these sites?  They are the weird sites I have written about before, often containing scraps of text in broken English.  Sometimes they even incorporate postings from my blog - or copy my entire blog.   Others are articles so poorly written and lacking content and point-of-view.  For example, you might see one on auto leasing that sounds like this:
"Leasing a car is often a good value for some car buyers.  Others prefer to buy cars in the traditional manner.  There are advantages to both approaches.   People who lease cars like the convenience and prefer to trade-in every few years.  When you lease a car, you may be asked to sign a lease agreement and make a down payment.  Then, every month, you make a lease payment on the car....."
In other words, it is bland, inoffensive shit that really says nothing at all.   But if you search on "Is leasing a car a good deal?" this page might come up.   You click on it and the page owner makes a penny - or a fraction of a penny.   A million people click on it, he makes a few dollars.   If he has hundreds of pages and blogs like this, he might make enough to live on - in a third-world country.

What's the problem with shit-blogs?  Nothing really, other than they are the wad of paper towels clogging up the toilet of the Internet, causing shit to overflow everywhere, and someone has to clean it up eventually.

But this is a prime example of how people have so easily spoofed Internet Advertising, something I did not realize myself until I monetized this blog (which this month, made about $237, I'm rich!).  If you can create content that generates clicks, you make money.   How do you do this?
1.  Create controversial content:  My posting on RV Quality is controversial and gets a lot of clicks.  My posting on Fibromyalgia gets a lot of hits as well.   My recent Elio posting went ballistic when someone linked it from Facebook and Reddit.  The Elio "true believers" click twice as much as the skeptics, illustrating how they lost their $1000 deposits in the first place.

2.  Spread the word:  My most popular posting is on insulating your garage door for cheap which several people posted on Pinterest (thanks, guys!) and thus it gets a lot of hits.  Ditto for my Park Model posting.   Some people intentionally go out to discussion groups and cross-post to their blogs or sites, hoping for more clicks.

3. Create topical content:  People want to know about portable air conditioners (another one of my popular postings) or car leasing or getting mortgage, buying a home, getting out of debt, etc.   Write something about this or other topical content, even if you have nothing to say, and you will get clicks.  SEO (Search Engine Optimize) your postings, and watch the dollars roll in!

4. Political Content:  As the last election illustrated, people will click on "red meat" that disparaged Hillary.  Not so much on Trump, but I do note that some of my highest paychecks from Adsense were before the election when I made some political postings.
Again it doesn't matter if you are vilified or lauded.  In fact, the former is better than the latter.  People will click on a link on "Fibromyalgia Sufferers Page" when somene says, "can you believe what this asshole said?  He's implying our suffering isn't real!" and they all get their pitchforks, say awful things about me and then click on the link and make me money.   That was an interesting lesson for me about how the Internet really works and why outrage these days is a better internet currency that Bitcoin.   Bitcoin exchanges might crash, but outrage is money in the bank!

Which is why I say that being outraged is stupid and just profits other people so stop doing it.

It also illustrates that I could make a lot more money at this if I put my mind to it.  Other sites like the "X-treme Retirement" guy or the "Mr. Money Beard" monetize their blogs, run discussion groups (comments sections) and engage their readers more directly.   If I did this, I could gin up readership a lot - but of course, have to spend hours every day moderating.   Also, If I went out and whored more on the Internet, providing URLs and hot-links to my blog, I could generate more traffic.
If I SEO'ed my site to move it up on google, I could generate more traffic.  And more traffic moves sites up on google, which illustrates the fallacy of Google right there.  It is an endless feedback loop.   If I wrote outlandish content (moreso that I already do) that pissed people off, I could generate more traffic.  

It isn't hard to do, the question is, do I want to do it?   The reason these folks from third-world countries figured out how to spoof Google AdSense is that they desperately need the money.  They set up a site, generate some hits, make a few bucks and can then buy one of those three-wheeled tuk-tuks (which actually exist, by the way).   Who am I kidding?  Some kid in Macedonia is probably buying a new Mercedes with his click-bait money.

Google AdSense and other online advertising companies are clamping down on a lot of "fake news" sits and shitblogs.   But for advertisers, a click is a click, and a sale is a sale.  And people foolish enough to click on a shitblog sidebar ad are probably prime meat for them as they have already demonstrated gullibility.  This is why Bezos advertises on Breitbart.  Politics are fine and all, but money is money.

In a way, this is sort of a "brave new world" kind of thing.  You can post crap online and get paid for it.  Maybe you'll even become famous or at least internet famous and make a few dollars at it.   It is a more egalitarian system than in the past, where editors, producers, studios, publishers, and newspaper owners were the gatekeepers, keeping outsiders from putting up content, back in the days of paper and film.

Tenant Rental Scams

Do landlords intentionally scam their tenants?  Not often, but others will try to scam you as a prospective tenant.

A reader writes:
In your article tenant 101, you have mentioned scams committed by tenants.
I am in the lookout for a new place to stay as a tenant, can you tell me some of the scams committed by landlords?
This is an interesting question.  Scam artists usually thrive because they have no assets to attach, no fixed address, are out of the country, or have a corporate shell they hide behind.   You can't scam people very effectively if you have attachable assets, a business reputation to protect, and a name and address locally.   Of course, this doesn't stop a lot of people from trying.  Car dealers routinely rip-off people with the "put the tags on it tonight and negotiate tomorrow" scam - or at least they used to.   And yes, some landlords scam tenants merely by charging high rents, never doing repairs, and refusing to return security deposits.   We'll get to that later.

The really dangerous scams are often online and not perpetrated by landlords, but by people posing as landlords.   And usually, but not always, Craigslist and Western Union or prepaid debit cards are involved.

The classic Craigslist landlord scam is a posting for an apartment or house for rent, or a vacation rental.  The listing looks legit and has nice photos of the place for rent.   You've been looking high and low for an apartment or vacation rental and can't find anything in your price range!  Suddenly this listing appears and it sounds too-good-to-be-true.   And of course it is.  But you are blinded by the "deal" and want so much to believe that you get roped in.

You respond to the ad and a day later (again, with these cons, you make the "Mark" wait, as it builds tension).  The "Landlord" starts the "story" about why the property is so cheap.  They need to rent in a hurry, and they are out of the country for a while.   So if you want to reserve the property, you need to send money right away, by Western Union or Blue Dot prepaid credit card.

He may send you official-looking rental documents or leases.  He even might ask for a credit check (and sell your SS number to others to scam you later).  It all looks legit.

If you pay, the fun just begins.   For the vacation property, you fly out there and arrive at the destination, only to find that someone is living there and no, you can't stay.   It turns out the "Landlord" is in Nigeria, and he just scraped some photos of the place from a Real Estate Listing or VRBO.   You are now stuck with no place to stay, and no, you can't get your money back.

In other instances, the "Landlord" knows the property is vacant and tells you to move in, but that since he "lost the key"  you'll have to have the property re-keyed.   The real owners of the house come home from vacation and find you living in their house.   The nightmare is for them, of course, as they have to evict you, which they will do.

The fake "Landlord" may even show up at the property to show it to you - after he has broken in and changed the locks.  He collects a security deposit and first month's rent - and it is such a deal you overlook the fact he was insisting on cash.   He leaves and the real owners come back a month later.   This is especially true in areas with vacation homes which are occupied seasonally.   The gardener or lawn guy or maid may know the owners are out of town for two or three months, and they share this information with their cousin who just got out of jail.   Hilarity ensues.

For the tenant, these cons are easy to avoid.   If something sounds too good to be true, it probably is.  People asking for huge payments up-front are often cons.   Cash is always suspect.   You can check quite easily online, if you are unsure, by looking up the tax records for that county and seeing who the real owner is.   But bottom line, ads on Craigslist, sadly, are not to be trusted.   Every so often I go on there to look at stuff, and it never ceases to amaze me that in every category, there are listings for boats, cars, and RVs that don't exist, offered at low, low, prices, in ads that make no sense whatsoever.   And people keep sending in their money.   Real Estate is just another example.

By the way, people have been snookered in SALES of homes this way.   They see a house for sale and the price is too good to be true.  It is "for sale by owner" and the owner meets you in front of the house.  He writes up a contract and asks you for a large down payment - as he has another "prospect" ready to buy any minute now!   So to avoid losing this "deal" you hand over thousands of dollars to buy a house he doesn't even own.    Only later on, when you try to close the deal do you find out his cell phone number was a "burner" and he is no where to be found.   Oh, and by the way, six other people thought they bought the same house and also gave down payments.   The real owner, when they show up, are not amused or sympathetic.

Again, this is easy to avoid.  Stop believing in something-for-nothing.   Don't write a contract and hand over money until you see proof of ownership (and proof of identification).   Use a closing company or attorney, not some contract signed on a trunk lid.   Most "good faith deposits" are kept with the attorney or closing company, not the buyer personally.   Anyone asking for cash is a crook, period.

Those are obvious frauds and cons that are perpetrated by fake owners of properties.   But what about frauds, scams, or cons by real landlords?

Well, again, a real landlord has attachable assets and can be sued.  So they don't outright perpetrate fraud so much as they might just rip you off.   When I was younger, I had a landlord who refused to return a security deposit, claiming I had not provided sufficient notice when I left (the lease expired, and there was no notice provision in the lease).   I went to small claims court, won, and he never paid, and the amount was so trivial that I was never able to collect.   Not paying back security deposits is probably the most common rip-off.   Particularly if you left town, they will assume you won't take them to court, and just keep the money.

When in doubt, though, call first.  I had a tenant leave a property and a month went by and I forgot to send him his check.  He assumed I was trying to scam him, when I had merely forgot.  If he had just called me...   I gave him his deposit back, with interest, of course.

The landlord may, in good faith, believe that your damage may warrant keeping the security deposit while you may believe otherwise.  This may not be a rip-off so much as difference of opinion.   I had one tenant who decided to run his barbecue grill next to the vinyl siding.   He also let his dog urinate all over the house.   Well, he didn't let the dog do this, it just happened.    We reached an agreement on the security deposit, after I showed him receipts for the work done.   We were both reasonable about it.   Others, on both sides, are sometimes unreasonable.

Another rip-off are landlords who are slumlords.   Our cleaning lady had an apartment where the kitchen from the unit above started leaking water into hers.   I was appalled to visit her and find the entire ceiling of her kitchen was missing, and a bucket was in the kitchen catching drippings from the plumbing above.   And the landlord had no intention of fixing this.   This was in a 300-unit apartment complex that rented mostly to illegal immigrants (many six to nine to an apartment!).   We went to the rental office and the bored clerk basically intimated that if we didn't like it, too bad.  And by the way, she'd all the INS if we complained or took legal action.   They just assumed our cleaning lady was illegal, which she wasn't.

And while it may seem to be a "rip-off" some landlords charge onerous late fees and require tenants to pay by money order if their checks bounce.  I lived (briefly) in such an apartment complex, and they were very strict with the tenants, as it was a kind of shady place and the tenants needed a lot of discipline.  If you were late with the rent, it was a $50 fee and if a check bounced, they would no longer accept your checks.

When I was a landlord, I avoided this problem by offering a discount for early payment rather than a "late fee".   Same deal, really, but by offering a discount, I'm the hero, not the villain.   Smart psychology - people like a "deal" don't they?  And if they pay late, the tenant is not being "bad" but rather just paying the standard amount.   Again, psychology.  I am not the stern taskmaster punishing tenants.   Of course, if they were 30 days late, then late fees applied and eviction proceedings would start.   I'm a nice guy, not a patsy.

So some landlords do skirt the edges of the law, particularly when they think they can get away with it.  But outright, wholesale fraud?  A lot harder to do, as most States have Landlord-tenant laws, and tenants do have rights (in some States, extensive rights) and Landlords have attachable assets.

As I noted in my Tenant 101 posting, landlords are always looking for good tenants.   If you are a good tenant, pay your rent on time, and don't cause trouble or damage things, you are an asset and a resource to your landlord.   If you are late on the rent, cause the police to be called, annoy other tenants, break things, park your car in other people's spaces, leave your laundry in the community dryer for three hours and shit like that, well they just assume you left.

You do have a lot of control in this situation - more than you think.   The types of people who bend my ear about "asshole landlords" often have another side of the story they don't want to tell me.   But when I start asking pointed questions, well, another side emerges.

As a landlord, you don't make money with empty apartments.  In fact, you go broke.  Be a good tenant, and you will be in high demand.

Thursday, July 20, 2017

Will Amazon Take Over the World? Not Exactly.

Will Amazon take over retailing as we know it?  Not quite.

Another day, another sensationalist story in the press.   After Amazon bought overpriced and under-performing "upscale" food retailer Whole Foods, the Washington Post (owned by Amazon as well) gushed that "Now we'll get our fresh kale delivered by drone!"  Impartial reporting from the Washington Post!

Oh, except that despite all the hoopla, no one is delivering anything by drones.   The risk of one of those things crashing into someone and killing them is just too high.   Also, how would your drone handle a thundershower, snow storm, or high winds?   Oh, and right, those things run on batteries and can stay in the air for only minutes, not eight-hour shifts.  It makes for nice click-bait eye-candy, but no, it is not a reality, no matter how many demonstration flights Domino's or Amazon makes.

Why people choose to believe this shit is beyond me.   Take the Whole Foods thing.   Whole Foods is a blip on the radar in the food business.  They are famous for selling celery water and other overpriced junk.  The media hypes it because they all live in Manhattan or LA and shop there and think paying $15 for an organic cucumber is a good bargain.  They also think this makes them experts on the food business.

The reality of the matter is that the bulk of us shop at Krogers, Safeway, Winn-Dixie, Wegmans, Shop-right, Wal-Mart of any one of a host of retail chains who make up the vast majority of grocery retailing.   That Amazon is acquiring a niche marketer of upscale foods is hardly a threat to Wal-Mart.  Lurleen in her trailer is not having her organic kale delivered by drone - or by any other means. 

Today, we are treated to another scare story about Amazon.  Amazon is teaming up with Sears to sell appliances!  Home Depot and Lowes will go bankrupt!  CNBC - never a source to be trusted for financial news - plays the odd game of lumping together Home Depot, Lowes, Whirlpool and Best Buy, and then uses "market cap" which is a meaningless word, to argue that combined, these companies lost $13 Billion in value.

Never trust a sensationalist headline, particularly one that uses "market cap" to try to make a point.  Relax, no one lost a penny, because market cap means nothing, unless you decided to sell these stocks yesterday, in which case you only lost money if you bought them the day before.   You see, you cannot "lose" phantom gains.  It is like that a-hole who said, "I lost $250,000 on my home!" during the financial crises, because he paid $250,000 for it years ago, and it went up to $500,000 in inflated value during 2007, and dropped back down to $250,000 in 2008.   He lost nothing, he broke even.  You can't lose potential profits, only realized ones.

But beyond that, why is this analyst using "market cap" instead of the more important share price?  Well, when you say Lowes stock went down 5% in value, which it did, it isn't as alarmist a headline as $13 Billion dollars.  And we all want you to click on our article, right?

So what is actually going on?   Well, Amazon did not buy Sears and Sears didn't sell them its Kenmore brand.   All that happened is that Sears listed Kenmore appliances which are compatible with Amazon's Alexa electronic assistant, on Amazon's website.   Anyone can sell anything on Amazon's website, all you have to do is sign up.   Got some old books to sell?  That's how Amazon started.  What to sell appliances?  You can do that too.  Some already are.   So why is this Sears announcement "news" at all?  It ain't.

But will people buy appliances online?   Hard to say.   Yes, people go to Best Buy and look at electronics and then order them online.   But you can't cross-shop a Kenmore appliance with the appliances sold at Lowes, as only Sears carries Kenmore.   And Sears isn't selling upscale Samsung or LG appliances that Lowes has.   And the only products Sears is apparently listing are these "smart" appliances which are not necessarily a huge part of the market.

I read a review online today about a "Smart" lightswitch from Lutron that interfaces with Apple's iPhone.  It doesn't interface with Android, or Google, or Alexa or whatever.   The switch costs $50 and was difficult to install.   I scratched my head.  Why would I want to spend hundreds of dollars changing all the light switches in my house so I could access them with my smart phone?  I mean, that is a neat toy to have, but that is all it is - a toy, and an expensive one at that.   Maybe when the price comes down... but even then, why?  Light switches can be bought for under a dollar, today.

Now Sears does have an ace up its sleeve, and that is Sears Home Service - the largest repair network for home appliances.   Many other appliance companies contract with Sears to do their warranty repairs as I found out when my Hotpoint stove and microwave failed under warranty.   Appliances over the internet makes no sense, unless you can deliver, unpack, and install them, and haul away the old ones.   Maybe a washer or dryer or even refrigerator is possible to self-install (at least for me) but a gas range?   Harry Homeowner could blow himself up with that.

However, most Sears Home Service techs have service trucks, not delivery trucks.  And my experience with "truck freight" has been mixed.  Many truck freight companies bring a tractor-trailer to your door, without a lift gate, so you can't get heavy items off the truck easily.  And then you have to carry it inside.  And no, UPS won't deliver a refrigerator.   They are limited in weight and size, by law.

So Sears is going to have to figure out the delivery and installation over Amazon.  Would they deliver from the local store?  Or what?  And since appliances are a "touch and feel" kind of thing, if someone wants to buy a Kenmore appliance over the internet, they would want to go to a Sears store and see it first.   Oh, right, Sears stores are closing everywhere.  If there is no local Sears store where you can go feel the goods, how do you know what to order?  And if there is no local Sears store to deliver the goods, how does the homeowner get his new fridge?  Brick and mortar ain't dead yet.  Sears, on the other hand - put a fork in it, it's done.

The problem for Sears is the same problem Radio Shack has - the Trademarks are toxic.   Someone just bought the "Intellectual Property" of Radio Shack, including the trademark name and logos, in exchange for some of their debt in bankruptcy.  They are going to lease the name back to General Wireless - the company that was trying to make a go of the Shack before it went bankrupt the second time.  My advice to General Wireless would be to just call the stores General Wireless, as the Radio Shack brand by now has a dirty halo - all it stands for is cheap toys and substandard electronics.

The same is true for Sears, Kenmore, Guardsman Radials, Tuffskin Jeans, and even Craftsman tools - they all stand for mediocrity these days.  The trendy folks with $50 light switches and drone-delivered kale are not going to invite their yuppie friends over and say, "Want to see our new laundry room - we bought Kenmore!"   It is akin to buying an Edsel.   You'll just get laughed at, and people who buy trendy crap like smart appliances don't want to look foolish.   The rest of us buy the cheaper machine and don't make a point of showing off our laundry rooms - and we don't buy Kenmore, we buy for cheap at Lowes or Home Depot.

So once again, Amazon is partnering with a niche player, because Amazon can't afford to partner with a major player.  Amazon, in fact, is not really earning a lot of money, at least compared to its share price.  Amazon's P/E ratio is hovering around 200, which is the number of years you'd need to make your money back.   Or look at it this way, to achieve a more rational P/E ratio of 20 (which a retailer should have, online or not) they have to increase profits (or cut expenses) by a factor of 10.

Or the share price needs to come down by a factor of 10.   And I suspect the latter will happen, over time.

Meanwhile, poor dumb old Lowes has a P/E ratio of 22.   Really, which is the better buy, Amazon or Lowes?  Did I mention Lowes pays a dividend of 2.2% while Amazon pays nothing?

Is Amazon a threat to Lowes?  No more than Home Depot is.   Amazon can and will take some business away from these stores.  For example, I went to buy washing machine drain socks the other day, and Lowes didn't have them (a 98 cent item).   Amazon had a carton of them - a lifetime supply in fact, for a fairly reasonable price.  Actually the price was not better, once you factored in shipping.  But they had them - and that is Amazon's forte, having oddball things you want to buy that the local brick-and-mortar doesn't keep in stock.

I went to look for a wire rack shelf at Lowes, but they didn't have the exact "Homz Maxi Organizer" that was installed in our Casita.   Amazon had it - for $13.   Another online store had a package of six for $18.   That is the real threat to Amazon, other smaller online niche retailers and the use of Google to find them.

The financial press is all agog over Amazon, and in part that is because Amazon owns its own national newspaper which prints flattering articles about Amazon.  But the reality is, and what the financial media should be asking pointed questions about, Amazon isn't making enough money to justify its share price.  Moreover, it doesn't have a monopoly in the marketplace and never will.   There are too many competitors, such as WalMart on the large end, and mom-and-pop shops online on the small end.

The idea that just because Amazon makes a move and makes news means that you should panic-sell your shares in other retailers is just idiotic.

Myself, I may snatch up some Lowes stock, now that the price is depressed.  I already own Home Depot.

When we go to town these days, the two places we almost always visit are Wal-Mart and Lowes.   And I am not sure how these can be replaced.  I am not getting my fresh kale or my lumber by drone, or even by UPS anytime soon.  There are some things you just can't order online.

Should You Hold Physical Stock Certificates? (DRiP Investing)

Holding physical stock certificates is not necessarily safer or more convenient than having them in "book" form.

I mentioned before that "back in the day" my Mother used to buy stocks and keep the certificates in her safe deposit box, and reinvest the dividends.  She told me two things, which were among the plethora of things that she told me that I found out were dead wrong, or at the very least, sadly outdated, and that was to hold physical stock certificates and reinvest dividends.

Are these bad ideas?   Maybe in her day they made sense.  Today, less so or not at all.

As I noted in an early posting, one way I got started investing was by subscribing to The Money Paper.  Back then, we didn't have your fancy-schamcy Internets to do business on.  So you got this physical newspaper in the mail, and one thing they allowed you to do was buy one share of stock in a select list of companies that allow for shareholder investment.  They charged I think, a flat fee service charge to buy this one share, which you received in the mail.   I would frame these and put them around my home office - it was a good way of encouraging myself in the investment process.   Kind of impressive, too - let's face it, we all seek status!

But what this allowed you to do was DRiP investing - the Dividend Reinvestment Plan - that many companies offer to their shareholders.   Once you own that one share of stock, you can then buy additional shares for a nominal service charge.   You can set it up so every month you automatically buy $50 or $100 of ACME stock, and they would charge you a $1 service fee.   And dividends would be automatically re-invested over time.

Now bear in mind this was years before E*Trade and Ameritrade and low-fee or no-fee investing.   Back in the bad old days, you had to go to a licensed broker and pay like $30 a trade or more!   And I am not talking about 1930, but 1990.   Times have changed - rather rapidly.

Now, not all companies do DRiP investing, and some require you own more than one share to be a DRiP investor, for example 50 or even 100 shares.   The companies that do DRiP investing tend to be old line blue-chip dividend paying companies, not your stupid dumb-ass IPO tech nonsense that the media says will make you rich (but does the opposite, of course).   This is not a vehicle to speculate in stocks or gamble in the market - it is a means for small investors to build up a stock portfolio over time.

As I have noted in other postings, one problem for the small investor - the 20-something starting out with nothing in the bank - is that an "investment advisor" will say, "Well, I can set you up with a mutual fund, if you have about $5000 to start with!"   But of course, when we are in our 20's we don't have $5000 lying around - or at least I known I didn't.

So, for example, I started out putting $100 a month into Stanley Tool Stock (Now Stanley Black & Decker).   It has been a pretty stable company over the years, cranking out dividends like clockwork and gradually increasing in price over time.   And the end of the year, I had $1200 invested, and maybe $1500 in stock, with dividend reinvestment and gains in stock price.   The next year, I added another stock, such as AT&T or whatever - another blue chip, old line dividend payer.   By the end of the next year, I had over $3000 in stocks.

What this allowed me to do was adjust my spending in order to invest.  The big mistake I see people make (and I did it myself, once) is to sign up for the maximum 401(k) allotment, or make some big splashy investment, without figuring out where the money is coming from first.   A hundred dollars a month isn't going to materialize out of thin air, just because you decided to "invest".   You have to take that money from somewhere else in your budget.   Cut the cable bill, or maybe fewer of those $29 family meals from Chik-Fil-A.   Saving money is a lot more fun when the sacrifices you make are directly connected to doing something good for yourself.

If you don't figure out where the money is coming from, well, you can end up in deep trouble.   You'll start using credit cards to make ends meet, and well, we know where that ends up - your own personal credit card crises.   Going into debt while investing is idiotic.

Getting back to stocks, over the years, companies have moved their DRiP programs online and farmed them out to companies like Computershare.   Computershare operates these DRiP programs and also allows you to buy stocks through their website.   You can set up an account and have money debited from your checking account and used to buy shares periodically.  There are small fees for this, of course, but often far less than other online platforms.

Yes, I get free trades with Merrill Edge, but you have to have a minimum balance of $100,000 or so, and like I said, I didn't have that when I started out at zero.

So today, the need to have physical shares in your possession is unnecessary, even for DRiP investors.   And I found out the hard way, it can be a pain in the ass as well.   I had 70 shares of Stanley stock in my office and somehow it got lost when we moved.   This is not a good thing.   Of course, you can get your shares back, by signing an affidavit and paying a fee - which came to about $150.   It is sort of like if you lost a physical savings bond.   You don't have to worry about losing your investment, but it can be a pain in the ass to get it back.

Most stock holdings today are kept in "book" form - that is to say on the books of the company you have invested in.   So there is no need for physical shares to be issued and for you to keep them.   In fact, I suspect that physical stock shares will go the way of the buggy-whip in due course, if it has not already.   And that would be too bad, as they were often real works of art and kind of cool to look at.

DRiP investing is still around, and while I would not suggest you put all your eggs in this one basket (or indeed any basket) as your 401(k) and IRA are often better options, it is a good way to build up an after-tax portfolio which you will need as a buffer against possible downturns in life (layoffs, unexpected bills, etc.).   It is also a good way to get you to think about your portfolio, investing, and where your life is going.   When I started DRiP investing, I started tracking my net worth, and that made a huge difference in my finances, over time.

Getting back to the second thing my mother said that was wrong - should you reinvest dividends?   Back in the day, this made sense, as it was a very low-cost way to buy shares.  Your dividends were used to buy shares (or fractional shares) of stock for a nominal fee.   And when you are starting out, maybe this is a good thing do to to build your portfolio.   But once you have a large enough portfolio to generate hundreds of dollars of dividends a year (or more) it makes more sense to me, in this day and age, to take these as cash, in your trading account, and when the amount gets large enough (over $1000) use the money to buy another stock - thus diversifying your portfolio.

Again, my Mother's advice was not so much wrong as it was outdated.   If she wanted to diversify her portfolio, the stockbroker fees and transaction costs were very, very steep.  It was less costly to reinvest dividends, even if it meant that she had all her eggs in one basket, or at the very least, a small number of baskets.   With low-fee or no-fee trading today,  you can create your own "stock fund" with dozens of stocks, and not a lot invested in any one stock.   My stock account has more than 30 stocks, and no single one having a value more than $5000.  One stock crashing isn't going to take me out.

Today, I still have many of the stocks that I bought while DRiP investing - but I have them in a no-fee trade Merrill Edge account instead.    The $100 a month I put into various shares is now worth over $100,000.   And over the years, I have cashed in some of those stocks when I needed money for various reasons.   Financially, I came out ahead (as opposed to, say, putting $100 a month into cable TV) and psychologically as well.   When you have money in the bank, it helps with your mental health and well-being, that goes without saying.

Wednesday, July 19, 2017

Chik-Fil-A $29 Family Meals?

Is this a good deal for $29 plus tax?  I don't think so.

Convenience foods are a big deal today.   People claim they are "too busy" to cook or even shop, so they stop at a chain restaurant and buy bags of food for "takeaway" and the go home and much it all down.   Yes, it is convenient, no it isn't very cost-effective.

$30 a meal, with tax, for a family of four is more than double the price of making a meal yourself, or even buying a semi-prepared meal.   Chik-Fil-A is jumping into the "takeaway" market to tap into the lucrative dinner trade.   We see the cars lined up around Chik-Fil-A at lunchtime.  But at dinner time, less so.  People are less likely to have "fast food" for dinner than they are at lunch, so many fast-food restaurants are trying to move up-market to the "fast casual" or "family dining" space.   You can understand why Chik-Fil-A is making this move - or at least this experiment.  There is money to be made here.

As I noted in my meal kit mathematics posting, you can make at home, a meal that Blue Apron sells for $10 a serving, for under $5.  So for a family of four, you are talking $20 or less, about 2/3 what Chik-Fil-A wants for dinner.

And if you think saving $10 a day is chicken-feed, add that up over time - it comes out to hundreds of thousands of dollars, if invested ($368,916.60 to be precise, if invested for 30 years at 7%).   If you are underfunding your retirement and buying convenience foods, well, you have no one to blame but yourself, right?  Oh, right, you want your meal-to-go today and the government (meaning me, as a taxpayer) to bail you out later on.  Sorry, no sale.

Not only that, the prices I quoted are for the fancy Blue Apron meal, which you can probably beat in preparing an equivalent Chik-Fil-A meal - with about as much convenience.   You can buy a whole roasted chicken for $4.99 at Wal-Mart, that you can take home and serve.   Mac and Cheese?  This is one of the most inexpensive foods in the United States - and easiest to prepare, if you can boil water.  Heating a can of beans?  How hard is that?  A package of dinner rolls?   A buck at most.

It is funny, though, when you say "$29 dinner" it sounds like a lot of money - at least to me.   But if you look at the "ticket" on most people going through the Chik-Fil-A drive through, odds are they are spending close to $10 each for lunch, if not more.

Let's do the math on this, using the Internet for price comparison:

Chik-Fil-A "family meal"
One entree (chose ONE):
12 chicken strips
four chicken breasts
30 chicken nuggets
 Two sides (choose TWO):
bacon baked beans
mac and cheese
a fruit cup
a side salad
kale and broccolini
 Eight mini rolls.
Total cost:  $29 without restaurant meal tax (!!) or $7.25 per serving.
Now consider stopping at your Neighborhood Market and spending as much time as you'd spend in line at Chick-Fil-A, picking up a basket of items:
Whole roasted Wal-Mart rotissery chicken $4.99
Baked Beans, 16oz.  $1.48
Fancy Premade Salad Mix - $3.63 
Hawaiian Rolls (8)  - $1.88

Total cost:  $11.98 without grocery tax (far less than restaurant tax!) or $2.95 per serving.
Hell, for that price, you could buy two whole chickens and a bottle of wine and still be less than Chik-Fil-A.   You'd probably have better and more food as well.   I chose a fancy salad "kit" and Hawaiian rolls.  You can buy rolls for less than what I am showing and a more plebian salad.  Or if you went with mac-and-cheese (as shown in the photo), well, that is ridiculously cheap.

The "hassle factor"?   Well, you have to nuke the beans, serve the chicken, pour the salad into bowls.  About the same amount of labor you'd have to do with take-out food, unless you are just going to gorge yourself in the car on the way home (you laugh, I am certain there are people who do this - eating a meal for four by themselves).

So in terms of work involved, you can eat for a lot less for about the same amount of "hassle" it takes to wait in line at a busy fast-food restaurant and schlep food home.

If you want to hassle, you could buy chicken breasts at SAMs club, freeze most of them and cut your chicken cost in half.   You could prepare your own salad from individual ingredients, or your own kale and brocollini or whatever.   The point is, home-prepared foods, even quasi-convenience foods prepared at home, beat restaurant meals by more than 2:1 in terms of cost.   And yes, this is a lot of money, for the middle class.

And don't tell me "you can afford it" because if you are really rich, you have your own live-in chef, and aren't eating dreck from Chik-Fil-A.  Please, don't pull pretend rich on me.  I've seen it too much.

Are all take out foods a raw deal?  Well, of course they are - no one can buy ingredients, pay people to prepare them, pay overhead on a store, and make food for less than you could.  This is not to say that I never, ever get take-out foods, but only that I rarely do.  I'd save the take-out for foods that are more difficult to prepare at home.  Indian cuisine or American Chinese or Thai.   Fun things you do once in a while as a treat.   Grilled chicken breasts and baked beans?   I don't think that warrants $29.   Not in my book, anyway.

Americans - going broke one credit card charge at a time, using restaurants as their kitchens!


Should you join a Frat?  Probably not.

Fraternities have been in the news a lot in the last few years due to a number of high-profile incidents involving date rape, gang rape, and drugging of young coeds.  In addition, there have been a number of hazing incidents, some of  which have resulted in the injury or death of young pledges.  Fraternities, what's not to like?

Some schools have actually banned fraternities and private clubs entirely.  Harvard is trying to tamp down the import of fraternities and private clubs and perhaps effectively outlaw them by preventing students from participating in certain sanctioned school activities if they belong to some of these clubs or fraternities.

It's interesting how these organizations work.  In the past, if you became a member of one of these frats, clubs, or secret societies, it was supposedly going to open up opportunities to you later in life. Famous clubs at Harvard and Yale mimic the club tradition of schools in England such as Cambridge and Oxford.

And many famous people have been members of some of these clubs leading to the speculation or more precisely, the self-fulfilling prophecy that if you join one of these clubs you will become rich and powerful.  For example, the Skull and Bones Club at Yale counts as its alumni a number of presidents including both Bill Clinton and George W. Bush.

The top club at Harvard was the Porcellian club, and one prerequisite to joining was to come from inherited wealth.  Franklin Delano Roosevelt desperately wanted to join the Porcellian club but was blackballed by an existing member.  Somehow he managed to do okay in life without the club membership.

It may be true that joining one of these clubs or fraternity may open up opportunities to you in life, but the converse is not true, namely that if you don't belong to a club or fraternity you will be shut out from all opportunities in life.  And increasingly in our society, your success is dependent more on your performance than who you know or what fraternity or club you belonged to in college.  In fact, for many very wealthy people in country, college is almost irrelevant.

Many famous and wealthy people drop out of college because he quickly reached a point in their life where they figure out that they would make more money and become more successful outside of academia, and that obtaining a degree was really unnecessary for them.  Again, the example of Roosevelt - who became a lawyer even though he never completed law school.  Yes, back then being a lawyer met passing bar exam but did not require a law degree.  Today almost every State requires you obtain a law degree, although in Virginia you can still "read the law" and sit for the bar exam.

Should these fraternities and clubs and secret societies be shut down or discouraged?  That's more of a political question than a personal one, and you can debate that in your mind or with your friends. Some argue that these clubs are misogynist as many are all-male. Others argue there also they are racist as they limit membership, or used to limit membership to people of a certain race, namely whites-only.  And indeed, many are ore were antisemitic as well in that they did exclud Jews from membership.

From personal standpoint, I think that joining fraternities can be a major distraction in your college years.  The vaunted advantages of social and business connections through your fraternity ring are wildly overstated.

When I was at GMI, I pledged Sigma Chi, mostly because my father went to Sigma Chi and I thought that would make him happy.  I realized that doing things in life to please my parents, once I was out of elementary school, was sort of pointless.  And then I started living my own life rather than living to their expectations.

My dad was a sort of guy who would fit in really well in a fraternity.  He was also the sort of guy who would try to use fraternity connections to get ahead in life, which I think probably just annoyed fellow fraternity members.  Even late in life, he traveled across country, staying in the homes of former fraternity "brothers", which I'm sure pissed off their wives.  After 50 or 60 years, you really don't have much in common with people you went to college with.  And your spouse doesn't need somebody they've never met sleeping on your couch.

That was the first thing about fraternities I found was false.  You are put together in a group of people who really are not your real friends.  And oftentimes your fellow "brothers" can be real jerks.  There was one fellow at the fraternity, who is sort of almost psychotic.  He took an instant dislike into me, and I'm sure if the black ball tradition was still in the fact he would have prevented me from joining. There were a few others who seemed like good fellows, and I enjoyed hanging out with them.  But a lot of the other guys were really just strangers to me, and I didn't feel any affinity or need to join. So I took a pass.

About this time, the movie Animal House come out. Prior to that time, fraternities were in steep decline in America.  To the 1960's hippie generation, the idea of fraternities and sororities seemed rather retrograde - a relic from the 1950.  The hipsters of the 60's didn't join Greek organizations but rather hung out in crash pads with their girlfriends and had sex every night. Gender-specific organizations seemed, well, quaint and old fashioned, representing the "establishment" of their parents they were rebelling against.

Then Animal House came out and everybody decided that fraternities with the greatest party in the world and wanted to be just like Bluto.  Fraternities now had a waiting list of people wanting to join and they could back to their old selective techniques of carefully screening candidates and blackballing those they didn't want.

At GMI, we had more fraternities than we had students.  So it was kind of laughable in that every student got invitations to pledge at least two or three fraternities, as they needed warm bodies to fill the beds and pay the mortgage on the fraternity houses.  The idea that fraternities could be selective or turn away candidates was laughable.

And maybe this was why our fraternity "brothers" were such a disparate group.  It was really more of a housing arrangement than anything else.  And in that regard, some of the fraternities on campus would rent out rooms to people in order to make money to pay their mortgage.  I ended up staying at another fraternity, known for its heavy partying, and saw another example of the underside of fraternities.  One of the "brothers" had a girlfriend who he would beat up with on a regular basis. They would argue constantly and get into fights and then she would have a black eye.

When I asked one of the "brothers"e about this, he replied then a brother doesn't get into the another brother's business.  So not only did they not try to break up these fights they certainly didn't call 911. Fortunately, he didn't put her in the hospital or kill her, and eventually I think they broke up.

But the experience left a bad taste in my mouth about fraternities.  When I transferred to Syracuse University, the situation was entirely different.  Again, the Animal House movie had come out, and here was a school with 20,000 some students and the same number of fraternities that we had at GMI, which only had three thousand students.

As a older returning student, I was more interested in getting my degree and learning, not in socializing on campus.  Not only that, I was commuting to campus from house that I owned, thus I didn't really need a place to stay.

It was humorous to me how some of the younger students seemed obsessed with pledging fraternities and getting in to the right fraternity, as if it were the point of college, not the course work.  A friend of mine who was a very brilliant student in high school and a great draftsman who would spend hours doing mechanical drawings or drawing pictures of cars, ended up joining a fraternity.  He was in the Engineering program and we all thought he would go very far as Engineer.  Coming from a very strict family, he was very inexperienced in the ways of the world.  As a young pledge he discovered his new friend, alcohol, and drank his way out of his first semester of school.

And that happens to more fraternity pledges than you would like to think.  Drinking games and parties are often encouraged, and pledges are often forced to consume large amounts alcohol.  It's hard to maintain your studies when you are constantly getting drunk. In the old days, the "old money" would go to school and never study very hard and get what was called a "Gentleman's C". This is a tradition that dates back to our British friends at schools like Oxford and Cambridge. Gentleman didn't study hard, only those strivers from the lower classes tried to get good grades.

The fraternities would maintain files of past exams as well as research papers which could be copied by the fraternity members and thus skate through classes with as little effort as possible, concentrating instead on the social scene, partying, and making social connections.

Back in the 1800's and early 1900's, perhaps this made sense.  You came from a family of robber barons and you wanted to make connections at school to make future business deals in life.  College was also an opportunity for a young man to make romantic connections with people of their same class, as well as potential spouses of their social class.  It was also an opportunity for young men to obtain sexual experience which was condoned at the time.  Women were expected to remain chaste, of course.

Sadly, a lot of those values are still present in the fraternity system today, a holdover from an earlier era where the double standard for men and women was the norm, and social class was more important than actual knowledge.  Today, however you actually need to know something, and you have to get good grades and study something worthwhile in order to get ahead.

In that regard, these fraternities and social clubs and other organizations can be a big distraction from your college experience.  Maybe there are still a few areas of employment left today where who you know is more important than what you can do.  However I highly doubt this is the case anymore.  We live in a bottom-line society where performance is paramount.  Companies can't afford to hire people who are superfluous and don't pull their own weight.

In fields like engineering, it is put up or shut up.  If you have no idea what you're doing, the company has no use for you. Granted, much of what you learn as an engineer you learn on the job or by doing and not necessarily in coursework.  In some regards, engineering education are laughably outdated, as much as what is taught in school has no real application in life.  But the old club tie and fraternity handshake are no longer necessarily the keys to employment - after all, the hiring committee may have come from different frats.  Not only that, if you make the play for the old school tie, it sort of telegraphs that otherwise they wouldn't hire you, and thus you are not a viable candidate.

Should you pledge a fraternity? That's a personal question that's up to you. However, there is a definite risk to you if you pledge a fraternity you could end up dropping out of school or even dead as the result of hazing and pledging activities. Your reputation and life could be ruined if one of the your fellow brothers close quotes is accused of raping a young coed. There's a lot of potential downside to joining a fraternity, and not much upside unless you like to drink yourself Blotto.

The idea that some fraternity or secret club membership is going to open doors to you in the world is probably a little overstated in this day and age.  The sort of Good Old Boy networkand secret handshake thing has largely died out.  But even if it hasn't, it's still a little club that you can't join unless you come from old money.

And even if you come from old money, they might not let you join their little club as Franklin Roosevelt and found out.  What the Roosevelt example proves, however, is that not being a member of their little Club doesn't necessarily prevent you from succeeding in life.

Fraternities?  I'd take a pass.  The kind of people attracted to that sort of thing are, well, kind of jerks.  Ladies, take note.

Tuesday, July 18, 2017

Lending Club and Personal Credit Card Debt Crises

An astonishing number of people are mired in debt and there is no reason for this.
Lending Club is back in the news again as their disgraced former founder is also in the news, starting a new business venture.  He was asked to resign by the board of directors of Lending Club apparently for some minor malfeasance, failing to report that there were issues with some financial statements. The stock in the company has dropped to 70% of its IPO value which means it was not a very good investment for most people.

I wrote about Lending Club before and other peer-to-peer lending sites.  They were sort of a product of the tight credit era following the market crash of 2009.  Back then, few people could get loans, particularly unsecured loans, and interest rates on credit cards were skyrocketing.  In the meantime, investors were finding they were not earning much in the way of returns from traditional investments. Lending Club stepped in with a new model that connected investors directly with borrowers in a social network kind of environment.

Like so many other of these so-called disruptors in the marketplace today, they eventually have to grow up and become part of the mainstream, and that's when problems begin.  Uber and Lyft started out as ride-sharing services to allow college students to cadge a ride from friends on the way home from school.  They have morphed into an unlicensed taxi service, raising the ire of local and state regulators as well as taxi licensing commissions across the globe.

Lending Club faced similar issues. It had to file an S-1 with the SEC and position itself more as a traditional lender than as a social networking site.  And of course, eventually it did an IPO so the people who invested early on could cash out on the stock.

The problem they're having today, is that there are fewer people are desperate to borrow money - or at least fewer people with good credit scores.  There are also fewer people willing to invest in the scheme, as returns on traditional investments have improved since 2009.  The average rate of return of 6-9% on Lending Club isn't very competitive with more traditional investments which may also be far less risky.

But what struck me is interesting about Lending Club was the borrowers.  According to this Wikipedia article, the average borrower has an income of almost $75,000 a year, which is well above both the median and average income for the United States.  The average borrower has a credit score of about 700, which is below prime lending status but still somewhat respectable.

What is most fascinating to me was that the average borrower was borrowing about $15,000 and using it to pay off credit card debts.  This is a familiar story to me and to millions of others.

I've talked about personal credit card crises before, and some readers have taken me to task saying such things don't exist.  But they do, and they affect almost every American at one time in their lives or another.  Usually this occurs when we are younger and more naive about financial matters.  We get our first credit card and think that this is a sign that we are being recognized for our financial acumen.  What it is, in reality, is a well-baited trap.

The credit card companies are hoping that we will go out and spend more money than we have, not taking into account things like interest rates, payment due dates, minimum payments, and whatnot. While most of us promise to pay off the entire balance every month, very quickly this resolution goes by the wayside.  Again, according to surveys taken of individuals, 70% of people surveyed self-reported that they pay off the credit card balance every month.  According to the credit card industry which has computers which keep track of these things, 70% of people carry a balance every month.  We lie to ourselves about finances - a lot.

And credit card debt can be insidious.  The problem is, once you start using the credit card it is hard to stop using it.  The balance creeps up and you pay interest on that balance each month and it gets harder and harder to pay off the entire balance as the balance may exceed your income for that month.  You try to make a payment on the credit card, and that drains your bank account dry.  Thus in order to buy groceries and gasoline, you end up using the credit card, thus adding to the balance.  It becomes a vicious circle.

Compounding this is the way revolving credit works. When you borrow money for a car loan or a boat loan or even an unsecured personal loan, the balance on the loan always goes down over time. The interest on the loan is calculated based on the remaining balance.  Credit cards work a little differently.  If you fail to pay off the balance on your credit card, the interest on the amount owed is calculated retroactivly back to the date of purchase.

And every payment you make on the credit card balance doesn't pay off the oldest part of the debt, but rather merely reduces the monthly balance by the payment amount.  Interest keeps accruing and interest is being paid on interest.

Not only that, the interest rates can be staggering.  Most credit card sites glowingly report that a credit card has a "good" interest rate if it is "only" around 14%.  This is somewhat appalling in an era of 5% mortgages and negligible inflation.  Most credit cards have a penalty rate of 22-25% and some as high as 30%, which can be triggered if a payment is it even one day late or the minimum balance is not paid.

Once the penalty rates kick in, it could be nearly impossible to get out from underneath the credit card debt.  Again, this is something that doesn't happen with a car loan or even an unsecured personal loan.  Usually with such loans, if you're a day late with a payment you are assessed additional interest, and perhaps a late payment penalty of a few dollars.  With credit cards, it resets the entire terms of the loan and not to your advantage.

And I know all this because when I was younger I did all the same stupid things.  When I got a credit card I thought it was a sign of my financial acumen and that I was doing well.  I didn't pay much attention to the interest rate as I felt that I would "pay off the balance every month" like a responsible adult.  Of course, that didn't happen.

And back in the days of mailing in checks to pay your credit card bill, it was all too easy to have a payment arrive even one day late and kick in the penalty interest rate.  Once that happened, you were basically behind the 8-ball, with no realistic way to possibly off the debt.

Of course, the consumer would then be offered balance transfer offers from competing credit cards, which seemed like a lifeline out of the debt problem.   These were like your local pot dealer offering you heroin.  Usually these had reduced rates for a certain number of months, although usually you had to pay 4% of the balance right off the top - which is a significant amount.  The problem with balance transfers is that you pay off an entire credit card and feel that you've gotten a fresh start and fall right back into the same habits.

Debt consolidation loans and home equity loans had the same problem.  People refinance their house, take out $10,000 to $30,000 to pay off credit card debt and then start all over again running up more debt, essentially mortgaging their future to live today.

And this is why I'm a little skeptical of Lending Club and its ilk.  The people borrowing the money are going to do the same exact thing they did before.  They will borrow money, pay off their credit cards and then run up more credit card debt, leading to a risk of default of both the credit card and the Lending Club loan.  Exact numbers are hard to come by, but doesn't seem the default rate at Lending Club is all that high, although it does exist.

For the borrower, it can be a life ring thrown to prevent them from drowning.  However if they keep go on spending as they did before, it could be a life ring made of lead, pulling them to the bottom.

If you are borrowing money to pay off debts, this should be a five-alarm wake up call there something is seriously wrong with your finances.  It is a five-alarm wake up call that I have set the snooze bar on many times.  At least I had a good job and high-income and was able to do well with my real estate investments to overcome this problem eventually, and eventually became debt-free.  But when I think of all the money I wasted on interest payments - and for what?  So I wouldn't have to pay a bill for a few years?  Doubling the amount due just so I could have something today, instead of tomorrow?  Pretty idiotic when you think about it.

But for people in the middle class or particularly the lower classes, this can be a deadly cycle of perpetual debt.  Debt consolidation loans, home equity loans, or Lending Club loans just lead to more spending and more debt and eventually the borrower physically cannot pay all this debt back even if it was refinanced at a low rate.   Bankruptcy is inevitable.

And under new bankruptcy laws, much of this debt cannot be wiped out, as it was in the past.   Thus the debtor has to continue to make payments on these debts while struggling to get by with a poor credit rating.  And for many, the fun doesn't stop just there.  They then turn to shady credit lending places like Buy-Here-Pay-Here used cars, check cashing stores, payday loans, and title pawn loans to borrow even more money, at interest rates as high as 300%.

If you look at this from a mathematical point of view, you end up scratching your head.  If I make a dollar a week, and borrow more money, I end up with less wealth overall.  For every dollar I borrow I have to pay back $1.10.  In other words, if I borrow money, I don't come ahead, I end up behind.  My dollar becomes ninety cents.  If I borrow money then I will end up less wealthy and a banker becomes more wealthy.

When interest rates go up to 25-30% or more - or 300% as with some payday loans - you end up giving all of your money to bankers and keeping very little for yourselfIt becomes debt-slavery, self-induced and self-inflicted.

It is idiotic, but some of the left argue that living on minimum wage or at or near the poverty line is so difficult that borrowing money is the only way out.  However this argument makes absolutely no mathematical sense whatsoever.  Borrowing money merely makes you poorer.

As I illustrated in another posting, you can work a minimum wage job for 40 hours a week and still get by even supporting a family if you have access to food stamps and other government programs. However, if a big chunk of your income is going to pay interest on ill-conceived loans or pay back debts in bankruptcy, then your life situation is indeed going to suck.  And I suspect this is what's happening to a lot of poor people in our country.  It's not that they don't have access to money, but that they tend to squander it badly.

And increasingly, the middle class is doing the same thing, which I can speak to from personal experience.  Our generation seems to love having its toys and accessories and wants it all now and would rather pay for it later, or preferably not at all.  We've trained an entire generation to think that college should be free and student loans don't need to be paid back.  That you can go to college and have a fun time at party U. and then complain about how unfair it is that you actually have to pay for it.

And I don't disagree that it's scandalous that we are offering eighteen-year-olds obscene loan obligations on onerous terms at an age where they don't fully understand what they're signing.  But I think it's just a scandalous that we're encouraging them to do this and at the same time encouraging them to think that somehow the system is crooked and they should be given a get-out-of-jail-free card.  You sign a loan document, you are obligated to perform.  That is law as old as the hills.   For some reason it is not being taught in schools.

It took me a long time to figure this out - about 40 years in fact.  It took me a long time to figure out that the financial media and the powers that be want you to be in debt and that being debt-free and is one of the greatest things you can be in life.  It took me a long time to figure out that it wasn't an impossible to do, by wanting fewer things in life and more security, instead.

And yet this basic simple premise is shouted down by many.  Readers write to tell me that having a mortgage is a great thing because you get a tax deduction and you don't miss out on the opportunity cost of investing.  Others tell me that it's better to buy a brand new car because you get 0% interest as opposed to buying a well cared-for second-hand car.

The debt mentality is so thoroughly ingrained into our culture that it is almost impossible to shake. And if you stand up and argue that debt is a bad thing, you will be shouted down as a heretic, perhaps even crucified.

And is this Lending Club example illustrates, there are an awful lot of people - I believe an overwhelming majority - in this country who end up in these credit card debt crises at more than one point in their life.  So this is something we all experience and we're all intimately familiar with and yet we are all in vehement denial about it.

Debt is just bad, period.   Stop defending your abusers by saying that "some debts are smart" or "it's OK to be in debt, everyone is!"   These are the words of victims of battered debtor syndrome.