Why You Hate Your Bank

whats in your walletWarning:  This is a story about customer service in the banking industry, so reader discretion is advised.  Do not read if you are prone to high blood pressure.  Also, this is not an apocryphal story.  This actually happened to me this week.[1]

The Background to the Problem

One of my businesses became inactive last year, so at the end of the year I closed out my checking account for that LLC with Capital One.  This Spring I filed articles of dissolution with the Delaware Secretary of State (where the LLC was created), as well as with the Texas Secretary of State (where I was doing business.)

Also this Spring I received a statement from an old $25,000 Capital One Line of Credit affiliated with this business entity.  It showed a $0.02 balance owed, a mistaken leftover from the last time I used the line, probably about two years ago.  A few months back I tried to close the line in person at the branch but the branch manager said they didn’t handle business lines of credit there, and she gave me a number to call to sort it out with Capital One customer service, over the phone.  So far, so good.

Two Pennies

I’m enough of a detail-oriented person when it comes to my businesses that I decided to get in touch with the bank and definitively close out the line of credit.

Two cents is silly, and the result of a bank error from a few years back, but it was a loose thread that I needed to tie off, and anyway it’s probably not a good idea to have open lines of credit that I’ll never use, especially since I had dissolved the business.

Also, I’m a Mary Poppins fan, and a finance-guy, so how can I not appreciate the ironic, iconic importance of two pennies (Tuppence), when it comes to banking stability?

Like I said, I had visited my bank branch to close the account, but the manager told me to call customer service.  Evidently Dick Van Dyke was not available at that time.

The Tragedy of Antigone

I called the customer service telephone number at Capital One provided by my branch manager. After receiving an automated voice menu in which “close my line of credit account” was never an option – on the second time through the automated voice menu, I think I pressed ‘1’ for loan account balance – and  reached a human. 

On her request I gave my first and last name and account number and explained that I needed to close my line of credit.

“Please hold for someone who can help.” Click.

Okay…another two minutes pass.

“Hello, this is Antigone for Capital One, can I have your first and last name and account number?”

Of course she can.  Again. Not a problem.

I explain that I would like to close my line of credit associated with one of my business entities which has been inactive for a long time, and that the associated checking account has been closed for months.

This is where the drama begins.

“Uh, do you know you have a balance on the line?  We will not be able to close it.”

“I know that.  It’s 2 cents.  That’s been on there for a couple of years.  After I transferred money from my checking account to pay off the balance, the 2 cents showed up.  Probably a day’s interest accrual or something like that, by mistake.”

“Ok, but the system won’t let me close the account if you have a balance.”

“But it’s a mistake by the bank,” I replied.  “The line always automatically deducted monthly payments from the associated checking account.  I made sure to request a full payoff of the line when I closed the checking account.”

“Ok, but the system won’t let you close the account.  You’ll have to go into the branch to do it.”

“I have another Capital One business checking account, and I have a Capital One credit card, maybe can you take the 2 cents from there?  I’d really like you to have the 2 cents.  I understand this is important.” (Because, again, “Tuppence”)

 “We can’t do that.  You’ll have to go into your local branch.”

“Well, I went to close the account at the branch, but they said they couldn’t close business lines of credit at the bank.  It has to be done over the phone, and this was the number the branch manager gave me.  Maybe you could just check with someone?”

“Ok, could you please hold and I’ll check?”

“Ok.”

5 minutes of hold music.  My soul begins to ache.  I can feel the already-advanced process of telomere shortening in my chromosomes accelerate.   Antigone returns.

“I’ve checked with my manager, but there’s really nothing that can be done if you’ve got a balance on that line.”

“I understand.  But you see, the branch says they can’t close it, and now you say you can’t close it.  And I’m afraid if I go back to the branch they’ll say the same thing again.  Could you please just recheck, because we’ve got an insolvable problem.  I’m really trying to get you your two cents, and I really want to keep your records up to date.  But this is beginning to bug me.”

“Ok, let me put you on hold again and call your branch directly to see if I can get them to help you close the account.  What’s the address of your branch?” 

I look it up online and provide her with the correct address.  Then, hold music for another 8 minutes. 

Entire civilizations, like the Whos of Whoville on specks of dust under Horton’s protection, grow, flourish, and perish in the interim.  Red giants become white dwarfs.  And our little blue orb floats alone and unnoticed, two-thirds of the way out on the spiraling Milky Way galaxy.

“Hi, Michael?  I reached the branch, but Cynthia who answered the phone said she couldn’t do it, and the branch manager was in a meeting.  The best thing is probably to just go down there.”

At this point in the call, 18 minutes into my epic quest to close the Tuppence Line, I’ve moved – in my mind – into full-blown unhappy mode. 

The NSA, undoubtedly monitoring this (and every other call we’ve ever made) will have registered a voice-tone recognition alert that the customer on the line, me, is no longer ok with how things are going.  Although I am still calm and mostly even-keeled, the absurdity has become too much.

“Antigone, listen, I’m not upset with you, but can you see how this whole episode really doesn’t work, from a customer service perspective?  Can you get the absurdity of this?  Are you a Mary Poppins fan?  I am.  Do you remember the Tuppence Song with Dick Van Dyke as the old banker?  I understand the importance of 2 cents.  Even though it’s a bank error, I really want to pay it, but I can’t.  You won’t let me.  And even though I’ve now spent 18 minutes trying to help the bank, you won’t let me.  And to leave it unresolved like this is really unsettling.”

I urged Antigone to try to elevate the problem with a manager, and to figure out a way to solve the problem for the customer.[2]  She promised she would “open an inquiry” with a manager and someone would get back to me.  We ended the call.

The Law and the Higher Law

I really don’t blame Antigone.  She remained positive and polite throughout the call, albeit ineffective.  She isn’t the main problem.

Antigone’s stuck in a bank that values ‘the system’ and ‘efficiency’ – whatever that means and at whatever the cost – over human judgment.[3] 

Why do people hate their banks?  We hate banks because we sense, rightly, that banks respond to a single set of laws.  At every turn, bank customers must be treated a certain way, and therefore be reminded that they are subject to non-negotiable societal laws around process, automation, and efficiency as understood by the company.

Sophocles’ character Antigone, of course, argued that a higher law prevailed over traditional societal law.

In classic Greek theater, the name Antigone has become short-hand for loyalty to a higher moral law – the right to honor our dead – over fealty to a flawed societal rule, punishment for challenging the ruler.  I swear I’m not making up Antigone’s name as a customer service rep at Capital One. 

I see in my interactions with her and Capital One this week as encapsulating certain fixed rules of customer service in an extremely anomic corporate world.  I get it that my bank has a ‘system’ rule about closing lines of credit with outstanding balances. 

I don’t expect Capital One’s Antigone to break out of her proscribed role and commit professional suicide, as Sophocles’ Antigone commits bodily suicide, in honor of a higher law.

But for the love of Oedipus’ cursed lineage and Polyneices’ unburied body, can I please get a human being with some power to be reasonable about the higher-order goal of customer service at my bank?  For fuck’s sake.

And now I will start an argument with myself.

The Bishop and the Banker – Is Automation a Tragedy?

James Jones, the Bishop of Liverpool, England – a sometime commentator for the BBC such as in this program on prisons – interviewed me last month for an upcoming program the BBC will call “The Bishop and the Banker.” 

The main thread of his interview query was the following: “By automating[4] the mortgage lending process in the lead-up to the 2008 Crisis (and presumably beyond) did we lose the ‘humanity’ in bank/customer relationships?  And his follow-up point by implication: can we reintroduce ‘essential humanity’ to the mortgage lending process?

My answer to the Bishop was essentially “No.”  Of course, you don’t just say “no” to a Bishop, so I said more than that, but really that sums it up.

No, I don’t think automation is the key culprit of the 2008 Crisis, and therefore ‘reintroducing humanity,’ to the lending relationship is not the key solution.

During the interview I talked about the price of tomatoes, as an analogy for mortgages.  Yes, sometimes modern tomatoes are tasteless cardboard things, but they also come cheaply and affordably.  Few people would choose to pay $9 for tomatoes, which is the price we could probably retail them in bulk if we returned to the labor-intensive ‘humane’ way of growing tomatoes – in our back yards. 

Adam Smith’s point about the division of labor in pin-making still prevails.  Incredible gains come from splitting up the task of producing the pin-head from the pin-body.  Efficiency in human production generally is a good thing, with great customer benefits.  Few people, if they understood all the consequences, want to take out super-expensive mortgages, even if George Bailey of Bailey Building and Loan Association kindly oversees the whole process himself.

What I think the Bishop missed, so I’ll reiterate my initial response to him here, is that the efficiencies of mortgage lending since the early 1980s are totally awesome.  Why?  Because my 2.75% interest rate 15-year mortgage is totally awesome.  And that kind of rate is not at all possible from the ‘humanizing’ Bailey Building and Loan Association.  Without all the efficiencies of this dehumanizing specialization, mortgages right now would probably cost 8-10%.[5] 

This interview came back to my mind this week, however, as I smacked up against the ultimate dehumanizing experience at Capital One Bank.  Am I a hypocrite for believing strongly in the efficiencies of mortgage lending when it benefits me, but railing against dehumanized customer service when I’m on the receiving end?

I would still answer the Bishop the same way, but my heightened blood pressure from Capital One gave me a new chance to reconsider his question.

I still don’t think we should blame 2008 on the dehumanization of mortgage underwriting, although I need to be careful to figure out why efficiency works in one context and not the other, aside from how it affects me personally.

How to reconcile this, aka how not to be a self-serving hypocrite

Can a bank be both efficient (cheap mortgage money is good) and humane (torture me for Tuppence is bad)?

One solution it seems to me is that Antigone, and all of her customer service cohort, needs more power to use human judgment.  She should never have to spend 18 minutes with me on the phone – in addition to whatever follow-up time she spent afterwards – trying to solve a problem worth two cents to the bank.  She needed to be trusted with business judgment, which clearly nobody in her chain of command has thought to give her.  To be thwarted twice in her quest to over-ride the ‘system’ means the earthly law of systemic efficiency needs to be trumped by the higher-power law of human judgment.

I think we hate banks because for the most part we sense that there’s no over-ride of the system available for person-to-person judgment.  I’m enough of an Adam Smithian to want total bank efficiency, but I also want to avoid the absurdities of bureaucratization.

The NSA treatment

In my imaginary non-existent poll of bank customers this week – 98% of people[6] reported disappointment with their bank’s customer service.  Why is that? 

At base we suspect, rightly, that the bank couldn’t care less about us as individuals.  Furthermore, banks operate within such a highly regulated environment that their entire frame of reference is to fit customers into neatly defined market and regulatory segments. 

We don’t think of ourselves as bits of data, but the bank does, and we can’t change that. 

Which reminds me:

Among the most frightening aspects of the recent NSA phone-tracking revelations is the creeping fear that we could, any one of us, be caught up helplessly in a faceless bureaucratic nightmare.

Personally, I prefer my spies to use common sense, actual evidence, the justice system, and human judgment before choosing who to target for snooping on the phone and internet.  Apparently, however, all citizens’ private behavior can be subject to the same anonymous tracking, classification, treatment.  This doesn’t sound like a good direction for us all to go in.

Advanced efficient technology, whether for snooping or banking, has temporarily outstripped our societal ability to set up limits to the system.

The 2008 mortgage crisis also felt like it came from this same uncomfortable place of valuing the anonymous efficiency of the system.  At least a part of the Occupy Wall Street movement responded to this terrible feeling that we are just data-points, adrift in a cruel economy.[7] 

If hyper-toxic CDOs rip financial holes in our biggest banks, and 6 million people suddenly get laid off in a 2 year period, who can you appeal to?  Two million homes get foreclosed upon by robo-signing attorneys.  $80 Billion of public funds get pledged from one day to the next – to prop up systemically essential banks still paying bonuses to their employees.  The efficiency of the “system” must be preserved at all costs, but what about the basic humanity?  What about what’s ‘right’?

I don’t yet think the cruel automation of Skynet – whether in banking or the NSA – has permanently won this war.  But we’ve got to figure out a few higher laws that trump the lower-order laws of the system.  We need a new Sophocles to remind us of what’s right.

Postscript to my Tuppence Debacle with Capital One

After I’d written most of this post, a representative from Capital One Bank called me today to tell me, in a treacly voice reminiscent of Bill Lumbergh in Office Space, that he’d resolved the problem for me.  “We’re just going to go ahead and forget about that two cents, hmmMK?  It seems it was from two years ago, so even though technically it’s still owed we’re just going to go ahead and take care of it on our end, hmmMK? Is there anything else I can help you with?”

Um.  No.  You’ve been a big help already.  I refrained from telling him a less Julie Andrews version of the phrase “Go Fly A Kite.”

If you’ve got tuppence for paper and string, you can have your own set of wings, with your feet on the ground, you’re a bird in flight with your fist holding tight (da dum dum) to the strong of a kite.  Ooooh, let’s go fly a kite.

 

Please see related post, Another reason you hate your bank

and also related Maybe there’s hope, the Kitty called back

 


[1] And something similar happened to my wife trying to close a checking account with a $5 balance.  And it will happen to approximately 2.38 people nationwide in the time it takes you to read this column.  Ok I made that last number up.

[2] My managing editor (aka wife) insists I clarify at this point that while the words I used may technically have been ‘polite,’ my tone might have channeled my “extremely annoyed bond salesman” voice, which has the power to wither small plants and make children cry.  And also, she really hates it.  Ok, maybe just a little bit of Mr. Gekko returned, but really in this case mostly I stayed cool.

[3] Speaking of allowing for human judgment, this TedTalk is absolutely worth your 20 minutes on this particular topic.  When we rely on rules, algorithms and bureaucracy instead of human judgment, that way madness lies.

[4] I’m paraphrasing the Bishop’s question, but by “automating” I take him to mean introducing efficiencies and algorithms that allow different people and distinct institutions in the process to pre-screen customers, underwrite the loan, provide the capital, and service the loan, rather than do this all in one bank.

[5] I’ve frequently been both a creator as well as an investor in seller-financed mortgages – essentially a do-it-yourself mortgage between a buyer and seller of real estate that eliminates the need for a mortgage bank.  It has rarely made sense to lend at less than an 8% interest rate, and as an investor I’ve always demanded significantly higher.  That’s how I know bespoke mortgage lending is WAY pricier than the type of 2.75% rate available through ‘dehumanizing’ automation.

[6] I rounded downward to be conservative.  That’s just good scientific practice.

[7] Another part of the Occupy Wall Street movement I guess just likes camping.  On concrete.

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The Importance of Real Rules Monopoly

monopolyA central idea, the idée fixe of Bankers Anonymous, is that as a society we do a poor job of teaching about finance, a consequently poor job as individuals of learning about finance, and therefore we all suffer an inevitable tendency to make bad decisions, both personal and political, about finance.

Sometime this Spring I realized why: We played Monopoly all wrong as kids. 

This explains everything that I’m trying to do with Bankers Anonymous.

Two ‘house rules’ prevailed when I used to play,[1] and both are absolutely terrible.[2] 

1. Free Parking – We collected all taxes – luxury tax, income tax, and taxes accumulated from Chance and Community Chest cards – in the middle of the board.  In addition, we frequently ‘seeded’ Free Parking with an orange $500 bill.  When a player landed on Free Parking he collected all the accumulated taxes, plus the $500, in a lottery windfall.  None of this exists in the real rules on Monopoly.

2. No Property Auctions – When we played, the player who landed on an available property got the exclusive option to purchase it, at the listed price only.  In the real rules, if the initial player declines to pay the listed price, any player may bid on the property, at any price – starting if necessary at $1, with no upper limit to the final auction price.

These house rules turn an interesting game about capitalism into a boring monstrosity.  A monstrosity responsible for societal poverty, government debt, runaway inflation and the Crisis of 2008.[3]

Real rules Monopoly is so much better for society

Let me explain why real rules Monopoly is far better.

Free Parking – Free Parking is stupid.  Growing up, my friend Brendan always, always, ALWAYS landed on Free Parking, collecting the taxes and the $500.  How did he do that?  I have no idea. 

Although he may have always won the game, I can be smug in my knowledge that Brendan learned bad lessons from Free Parking.  Free Parking never happens in real life.  Nobody actually wins the lottery. Clearly, Free Parking is a gateway drug for kids to learn about lotteries, casinos, and all the other terrible ways in which poor people pay taxes. 

Property Auctions – This would have been the ideal way to teach millions of children about valuable concepts like savings, real estate, competitive auctions, distressed investing and slum-lording.  Information, in other words, we can all use.

Instead, by eliminating the auction, we learned in Monopoly house rules that there’s just one price for property, take it or leave it, and that chance – rather than skill – determines whether you accumulate valuable properties.  But that’s never how it works in life.

In real life, sometimes you can nab the property nobody else wants on the cheap.[4]  In real life, sometimes you pay twice what the property is really worth and end up mortally wounded financially.

Bidding wars can break out in real rules Monopoly, which lead the ‘winner’ of the auction to actually be the ‘loser’ in the long run.  This is a valuable financial lesson.  It explains much of the real estate boom 2001 to 2007.

Monopoly isn’t a bad game, if played right

I was reminded of all this by a recent feature on Business Insider showing the odds-adjusted advantageous properties to buy. 

According to the feature, to play the odds, in sum:

1. Buy the orange properties,

2. Build 3 houses per property at one time (i.e. 9 houses, for most colors) for the fastest return on investment,

3. Take into account the likely dice rolls of your opponents.  (5, 6, 7, 8, and 9s happen more frequently, build accordingly), and

4. Note that “Jail” acts as a ‘sink,’ attracting more than your typical proportion of landings.  Other properties also have higher probabilities as landing spots, so invest accordingly.

All sound advice.

My advice is to play by the real rules, which turns Monopoly from an endless bore of a game to an interesting lesson in real financial skills.

I’m not saying Monopoly will become as interesting as The Settlers of Catan, Dominion, or my own nerdy group’s favorite, Cosmic Encounter.  But it’s worthwhile, especially with kids.

Epilogue – The bad news: I played real rules Monopoly for the first time in my life this Spring with Brendan, as well as with my 7 year-old.

My 7 year-old, with some coaching, won.  At least Brendan didn’t win.  I hate Monopoly. 



[1] I’ve linked here to a site that explains the origin of the typical house rules for Monopoly.  It turns out the rules were probably designed to keep kids from getting upset with Dad during the game.  As a Dad, that makes sense.  But as an ex-banker, I’m livid since this encapsulates everything that’s wrong with Western Civilization.

[2] In my 100% invented-out-of-whole-cloth fake poll, 93% of American households adopted these same house rules.  I’ve rounded down to be conservative, because that’s just good science.

[3] Not to mention Obamacare, the designated hitter, and Renee Zellweger after Jerry Maguire.

[4] When we played real rules Monopoly recently, Brendan and I cleverly avoided the railroads.  Because: No houses!  Meanwhile my 7 year-old picked them up on the cheap.  Guess who won?

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Ask an Ex-Banker: Mortgages Part II – Should I Pay My Mortgage Early?

mortgage or invest

Dear Banker,

Most months we manage to cover our costs and have a little extra left over.  Sometimes I send the bank an extra $500 or $1,000 toward paying down our mortgage balance, which has another 21 years to go.  Once I sent close to $5,000.  Does this make sense?  — Manny T., Chicago, IL

Dear Manny,

Congratulations on doing the first-order hardest thing in personal finance – produce a monthly surplus in your household.  Wealth for you – while not inevitable – is made possible by this monthly surplus.

I appreciate your question whether you should – or anyone should — pay off a mortgage early with small interim payments of principal.

This perennial question generates as many strongly held opinions as there are mortgage holders.  There’s a thoughtful discussion to a similar question prompted on this personal finance site.

Like most interesting personal finance questions, the answer depends on a combination of personal psychology and finance math.[1]  Your own personal relative weighting of this combination may lead you to a different ‘correct’ answer than that of someone else.[2]

My own short answer is that while paying off your mortgage principal in small early increments does not make much sense from a pure financial math perspective, it can be the totally correct thing for certain psychological reasons.

Therefore, while I don’t advocate paying off a mortgage this way, I fully acknowledge that for people with a different psychological approach than me, the incremental payments make plenty of sense.

The math side of things – forward rates

First, it’s helpful to understand mechanically what happens when you make an extra, partial, principal payment on your mortgage.

After making your regular monthly payment, let’s say you send an additional $1,000 to the bank for principal.  The bank – actually the mortgage servicing company, but let’s not nitpick – applies that principal to the furthest-away-in-time mortgage payment.  In Manny’s case, his $1,000 payment gets applied toward a payment due 21 years from now.

In other words, Manny’s total mortgage principal gets reduced by $1,000, but not in any way that affects his current monthly mortgage costs.  He’s still obligated to make regular mortgage payments next month.[3]

You may have read, not entirely incorrectly, that when you pay debt principal early you get a guaranteed return on your money equal to your interest rate.  If you have a 6% mortgage, the conventional wisdom goes, you get a 6% “return on investment” when you pay off your mortgage.

But this is not entirely correct either, in purely financial math terms.

I’m going to assume Manny’s mortgage (obtained 9 years ago) has a 6% interest rate.  Since he’s eliminated by early payment the obligation to pay 6% interest on his borrowed money 21 years from now, we could more precisely say he’s invested the equivalent of $1,000 at “6% interest rate, 21 years forward.”

That may seem like an odd turn of phrase, except that the bond markets operate precisely this way – on today’s interest rate (you might call this the ‘spot’ rate) as well as tomorrow’s forward rates (incorporating the idea for example, of 1 year interest rates, one year from now, stated as “1 year rates, 1 year forward.”)

We don’t all have to be bond geeks to make good decisions about early mortgage payments, nor do we need to know exactly what I mean with this clarification, except you should understand the following:  We don’t know with very much precision what prevailing interest rates will be 21 years from now.  As a result, it’s not as obviously a ‘good trade’ to pay off your mortgage at 6%, precisely because it’s not actually true that you’re locking in a “6% return” on your money today.

21 years from now a 6% mortgage interest rate may be extraordinarily high or it may be extraordinarily low (I’m agnostic on the issue) but the imprecision around the question of forward rates makes it less obvious what your effective ‘return on investment’ really is, or what you should reasonably expect to earn on your money 21 years from now.

One major and obvious exception to my clarification on “forward rates” is that if you pay off your full mortgage balance early – entirely eliminating the need to make future monthly payments – then indeed you did lock in a 6% ‘return’ on your money.[4]

Inflation scenario as an illustration of forward rates

To return to the problem of unknown forward rates for a moment, it may be helpful to think of specific, possibly extreme, scenarios.  I’ve written before that the combination of home ownership with a mortgage can be a very powerful inflation hedge.  One way of seeing that is through the concept of forward rates.

A future high inflation rate can illustrate the ‘forward rates’ problem.  If future inflation, say 10 years from now, runs at an annual 15% rate, with prevailing mortgage interest rates around 18%, then it becomes obvious that locking in a 6% return on your money in the final years of your mortgage was not a good idea, from a personal financial math perspective.  In my example you might have earned 18% just leaving your money parked in a money market account.  That kind of future interest rate can show us why we should be less sure of ourselves that earning a 6% return by paying of a mortgage early is the right decision, from a purely mathematical perspective.

More on the math side of things – comparative rates of return

I have not yet addressed the most common financial math reason why people claim you should not pay off your mortgage in small early chunks of principal payment.

Specifically, many argue that you may be able to earn a higher return on your money “in the market” than you can by eliminating personal debt and locking in the rate of return of your mortgage’s interest rate.

This is possibly true, although it depends on specific scenarios, like the following:

·         If you are talking about credit card debt – with interest rates between 9% and 29.99% – it’s clear to me that paying off your debt offers a better return than you could reasonably expect from another investment “in the market.”

·         If instead you are talking about current prevailing mortgage rates – like my newly refinanced 15-year mortgage at 2.75%! – then I heartily agree that a better return is quite likely available “in the market” rather than through paying down personal debt.

·         If you are able to invest in a tax-advantaged 401K or IRA vehicle, and you have a sufficiently long time horizon to invest in risky assets, then you can stack the odds mightily in your favor to earn a better return “in the market” rather than paying down debt.[5] 

The Psychological approach – Arguing against myself

So I’ve made the case that locking in a specific return on your money – by paying down mortgage debt – is not as clear-cut as it first appears, from a purely finance-math perspective.

However, I do think the psychological aspect of making early mortgage payments should not be forgotten.  We are all humans,[6] responding irrationally to myriad inputs.  For many of us, money left on a monthly basis in the checking account gets spent, so the key to not spending is to not leave extra money lying around.

If Manny’s realistic choice every month is between sending $1,000 to the bank to pay his mortgage early or instead – like many of us – to spend $150 more on Amazon Prime downloads, $300 on jewels in Farmville and $273 on One Direction concert tickets, leaving just a $277 surplus at the end of the month, then the choice is clearer. 

All the possible market returns in the world cannot undo the simple fact that paying off debt guarantees an incremental increase in net worth.  If you can’t stop yourself from spending your surplus – and this really comes down to the psychological imperative: “know thyself” – then paying off the mortgage in small extra increments makes total, perfect, unassailable sense.

And then there’s risk tolerance

In addition, there’s the “know thyself” imperative applied to risk tolerance. 

Investing money in the market – instead of paying down debt – makes an increase in net worth possible, even likely, but has no guarantee.  If you hate losing any amount of money ever, then by all means pay down all of your debts before investing in anything risky.

Earning a 6% return by paying off your mortgage[7] early may sound much better than shooting for a possible 10% compound annual return but with a possibility of a 25% sudden loss in any given year.

Few investments in the long run are worth 3AM insomnia.  A fully paid-off mortgage may do more for encouraging restful sleep than all the Posturepedic  mattresses in the world.

Please see related posts:

On Mortgages Part I – I Am a Golden God

Part III – 15 yr vs. 30 yr mortgages

Part IV – What are Mortgage Points?  Are they good, bad or indifferent?

Part V – Is mortgage debt ‘good debt’ A dangerous drug?  Or Both?

Part VI – What happens at the Wall Street level to my mortgage?


[1] My bond sales mentor memorably told me once that bond sales consists of 5% bond math and 95% child psychology.  Personal finance strikes me as a similar deal, although probably even more weighted toward the psychology part of the spectrum.

[2] And since I’m always looking for an excuse to quote Jack Handey, let’s review this gem: “Instead of having ‘answers’ on a math test, they should just call them ‘impressions,’ and it you got a different ‘impression,’ so what, can’t we all be brothers?”

[3] I’m assuming for the purposes of this example that Manny has sent the money to the bank to be applied to principal since that’s how his question is phrased, rather than specifying something like ”I’m paying the next 3 months early.”  Presumably that’s also possible, but non germane to the question.

[4] At this point further math geeks will point out that the tax-deductibility of mortgage interest means that your effective interest rate is probably closer to the 4% than 6% rate, making your effective ‘return on investment’ lower than it seems.

[5] As always, if you can get an employer match for 401K contributions then that use of money trumps everything except paying off high interest-rate credit card debt.

[6] All of us, that is, except for my Rihanna-bot, who takes care of me in my old age, on my hovercraft.  She’s not human, just human-like.

[7] Yes, closer to 4% after taxes, and yes, actually “6% 21 years forward.”

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Ed Garza responds – On Contracting with VIA

garzaAecomSAISD President and former Mayor Ed Garza reached out to me last week in response to my review of his real estate transactions.

He responded to my review of his real estate business here.

I then used the opportunity to ask him about his other business interests.

In particular, I asked him about Zane Garway Consulting Group LLC, which he has in the past represented as an urban planning business with business in San Antonio, Fort Worth, and even Israel.

I also asked about Garza’s history of subcontract work with VIA.

Garza and I agreed that it is important that Garza’s involvement as subcontractor for VIA, for example, be kept in the public eye.

As the President of the SAISD board, he has the power to award multi-million dollar contracts, including the $12.5 Million contract to VIA Chairman Henry Munoz’ Munoz/Jacobs group.

Transparency in financial dealings of public officials is of the utmost importance, as even the appearance of quid pro quo contracting can hurt the public mission of an organization such as SAISD.

 

A) On Zane Garway Consulting Group LLC

I mentioned – somewhat in passing in my prior post – that two Garza entities Urban One 30 Group LLC and Zane Garway Consulting Group LLC had lost their registration as businesses in Texas due to the resignation of their registered agent, and a subsequent ‘involuntary dissolution’ filed by the Texas Secretary of State.

Garza clarified that he has never done business as Zane Garway Consulting Group LLC, despite using a Zane Garway email, setting up a Zane Garway website, applying for business as Zane Garway LLC[1], and listing clients on the website.

This portion of the interview:

Michael:         Thank you for spending all this time and I really appreciate it. I had another question which is beyond what I had written about but I understand you and your real-estate partner do Zane Garway Consulting Group?

Ed:                  Yeah, we formed that group but we’ve never used that group.

Michael:         You haven’t?

Ed:                  Correct.

Michael:         You have a website that has clients and prospective clients.

Ed:                  We set it all up and we had the — the work that’s on there is work that I had worked on previously with firms I’ve been employed with. I didn’t even know it was still up but it’s good to know.

Michael:         Yeah, zanegarway.com.

Ed:                  I used the email because we set it up at the time and everything started coming in on that email. It’s just a hassle of changing an email, but we’ve never used that entity in any business transactions. When I started doing independent consulting, it was easier on my own to do independent contracts rather than utilizing the entity since it was just me doing the work.

And then after the last house on North, basically the business partnership between Mr. Wayne and I has stopped. We’ve not done business since that time. You were correct on your assessment on we had to reinstate Urban One 30 in order to sell the property. [He’s referring to 139 North Street]

Michael:         Buyers’ attorneys always say “show me you’re in good standing with the state.”

Ed:                  That came out during the closing. The title company called and said you’re going to have to reinstate this in order to close this property. We had no intention of selling it at that time. We figured the litigation would have to get resolved and didn’t know the timing on that, so there was no need to reinstate an unused business, in our opinion, and we decided to let it expire.

Michael:         You never got contracts for Zane Garway?

Ed:                  Correct.

Michael:         Or you’ve never done business as Zane Garway Consulting Group?

Ed:                  Correct.

Michael:         But it looks like on the site you have contracts or have done work for Ft. Worth.

Ed:                  That was all through EDAW, I worked with TCB and then they were bought out by AECOM and then shortly thereafter is when I left. Those were all with companies I was employed with, in my urban-planning role with those companies.

Michael:         Although on the report for Ft. Worth Planning Commission, you’re listed as Ed Garza of Zane Garway.

Ed:                  Yeah, I think initially it was, from what I recall and also I think I did a job in Arlington, I was selected as Zane Garway, but when we actually entered into the contract which I was a sub, it was as an independent consultant. At the time when we applied for those projects it was the partners. After that, when we went our separate ways, it was really the work that I would be doing personally and there was no need to bring an entity involved, that the other partners were not going to be performing any of the services.

Michael:         Never did business.

Ed:                  Correct.

Michael:         Some of your information online lists Sam Wayne and another gentleman, Kevin McConnell. Was that the full extent of the partnership?

Ed:                  Correct, the three of us, and Kevin’s the one that set up the website and was the Trinity student at the time. He was leaving the company before we even started the North project. He was going back to school out of the country so he withdrew from the partnership, even though he’d set up everything in the partnership in terms of the name, the entity, the website. Mr. McConnell did most of that work.

When he left the country it was just Sam Wayne and I, and when I would be pursuing contracts out of San Antonio, again it was “I’m going to be doing the work” so it was inefficient to utilize the company where Mr. Wayne was involved when he wasn’t going to be performing any of the services. By that time, he went off on his own. I think he went into looking at getting his broker’s license. I can’t confirm that. I’ve never had any business transactions with Zane Garway.

 

B) Contracts with VIA

I also asked Garza about his contracts with San Antonio public transportation company VIA.  The board chairman of VIA is Henry Munoz, who’s firm won the $12.5 million contract to manage SAISD’s bond deal.

Michael:         One of the contracts that shows up there on the Zane Garway site is a VIA contract and so that’s interesting because people look at business relationships and think “VIA, that’s Henry Muñoz,” and at the very least from a timing perspective, the way that gets looked at is with a jaundiced eye.

Ed:                  I understand.

Michael:         Can you tell me about what you did for VIA?

Ed:                  Actually going back to EDAW and TCB. I was already working on projects with VIA with the Bus Rapid Transit —

Michael:         I don’t know what EDAW or TCB is.

Ed:                  EDAW was an urban-planning firm based out of San Francisco and TCB was an engineering firm based in Texas. Both firms eventually were bought out by AECOM which is based out of Los Angeles, I believe. During the years that I worked for one of those three companies, because they kept changing ownership, and this is a global company, I worked on a number of projects.

Locally one of the projects I took the lead on for the company was VIA’s Bus Rapid Transit project. That probably began for me in 2006-2007. My role was public engagement, the public meetings we had along Fredericksburg Road, as well, as the site planning for stations for Bus Rapid Transit. I did participate with them, before I’m on the school board, well before I thought about running. I had already developed a relationship with VIA. The second contract I had with VIA was through HNTB who was awarded the contract to be program manager for the streetcar project.

Michael:         I’m not familiar with HNTB.

Ed:                  HNTB is another engineering company, I think they’re national or international. The gentleman that was heading HNTB I knew when he worked with TCB prior to him joining HNTB. He already knew of my work with VIA, so when he got his team he asked if I would become part of that effort, team effort, which I did. And again I introduced it as Zane Garway when we first submitted, but by the time we were selected, Zane Garway was no longer being used. I became an independent contractor to HNTB.

Those have been the two contracts that I have been involved with VIA. One was prior to me being on the school board and the other came up during my first or second year. The Express News wrote about the piece, the same questions you’d asked. When I was really clarifying the fact that my relationship with VIA had started before that, and really it was the work I was doing with the staff, and not at the board level, that proved to be where my value was to the projects. Having grown up in the neighborhood, I was very familiar with Fredericksburg Road, the Deco District revitalization. They saw that as a value to the project.

Michael:         Is that what you did for the HNTB, the Deco District revitalization?

Ed:                  HNTB, my role was specific to site planning for the streetcar, not the BRT, but it dealt with the urban planning, land-use issues, and the public engagement/public involvement. The two that I’ve been involved with to date have been the urban planning and land-use assessment. I haven’t done any work on that project probably for over a year. That had been written about, talked about, and disclosed.

Michael:         That’s one of those things that between public officials and prominent public entities, there’s a higher level of scrutiny that people want to see and a higher level of disclosure and higher level of public interest.

Please also see related post Ed Garza responds about Real Estate


[1] Such as he’s listed in this Fort Worth Report.

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Ed Garza responds – on Real Estate

garzaAecomI recently posted a piece about Ed Garza, former mayor of San Antonio, and current President of the San Antonio Independent School District (SAISD), critically reviewing his real estate businesses and questioning some of his results.

Garza was kind enough to respond last week, and I appreciate that he took the time.

He corrected a significant error I made on the price at which he sold one of his properties, although the outcome of a lawsuit with respect to a fire at the property, and his sale, should still remain in the public eye.

My goal with Bankers Anonymous is to make finance and financial transactions more accessible to the public.  This matters particularly when it comes to evaluating public officials’ actions in the public and private business sphere.

An important correction to my review of the 139 North Street transaction

Garza reached out to me last week shortly after I posted a review of his real estate transactions.

Most importantly, he corrected a sale price I reported for 139 North Street, which burned in the Spring of 2011.  Based on a public records search, I reported a sale price of $156,250, an implausibly high sale price for a burned structure.

Garza has since showed me a ‘Settlement Statement’ on the sale to Nuvista LLC, which shows a more reasonable $43,000 purchase price.  Since an unusual feature of the 139 North Street situation – in addition to the unusual fire, the unusual buyer, and the unusual loan – was the sale price this is an important correction.

The buyer, Nuvista LLC – newly formed in November 2012 by a recently bankrupt gentleman from Arizona – did obtain a $125,000 loan from private individuals in Allen, TX at the time of the purchase.

Ed Garza also responded to other aspects of my real estate review, and I have included commentary and portions of our interview below.

We covered a range of topics, including

A) The fire at 139 North Street

B) The sale price of 1919 Magnolia

C) The appraisal of 2006 Magnolia

In a subsequent post, I’ve included a portion of the interview in which we discussed his other business dealings, including contracting with VIA.

A) Fire at 139 North Street

Front 139 North
139 North Street from the front

I noted in my piece that a fire in the empty property seemed unusual, and I was curious what the fire inspection showed.  Garza responded that

1. The Fire department’s report was ‘inconclusive,’

2. The bank’s insurance company initiated litigation against the contractors on the issue 1.5 years ago,

3. Garza’s firm joined the litigation alongside the insurance company, and

4. Depositions have not yet begun as of June 2013.

The portion of the interview about the fire is below.  [I have edited out a few comments tangential to the discussion of the fire at 139 North Street.]

Michael:        I’m interested in the story that was reported in the Express News about 139 North Street, and that there’d been a fire there. Can you tell me what happened? I can only see what I can see from that story, but what happened?

Ed:                   It was a home that was being restored. Probably 80% into the project, the fire occurred. When it’s 80% of the project, that’s after putting in, and investing into a renovation budget of probably close to $100,000 over a period of at least a year, and trying to bring that house, which had been vacant to a number of years prior to the purchase. It was devastating to have something that you spent not just obviously money to invest, but also the time and effort and sweat equity to bring something back to life, in a neighborhood that I’ve lived in all my life was quite devastating. It was the last house that we renovated either individually or as an entity just because of the financial hit we took because of the fire.

Michael:          Who was the contractor?

Ed:                 The contractor was a local contractor that we used, Fieldgate Remodeling was the name of the firm. We used them in the house prior on some work. They were not a general contractor but they had performed services in some of the renovation on the house prior. I was impressed with their work. I was quite busy at the time and my business partner at the time was also busy.

                       With this next house that we had in inventory, we wanted to get somebody to do the day-to-day, which we’d never done before. We asked them if they would be the general contractor for the project to oversee the day-to-day work.

Michael:          Fieldgate Remodeling was the general contractor?

Ed:                   Correct.

Michael:          What happened? Did they have insurance?

Ed:                  They have insurance. After the fire, the city did their inspection and it was — I guess the best way to say it was there wasn’t a conclusion, it was kind of undetermined.

Michael:          When you say the city, who does the inspection for the city?

Ed:                   The fire department.

Michael:          The fire department did an inspection?

Ed:                   Correct.

Michael:          You described that as an inconclusive report?

Ed:                  Right. They said the property was secure, there was no forced entry into the property. But that they asked what had been done the night before, and what we were told by the contractor, the night before they were sanding the floors. Again this is getting into the final stages of the renovation. The arson investigator that the bank – or the insurance company for the bank – concluded for their report that they believe the fire was started through the combustion of the wood particles the night before, of the sanding of the floors with chemicals from — on a rag from what was used in the kitchen on the tile work.

                       The chemical and dust particle started the fire in a bucket near the front, literally in the front window of the house. If you’re standing there from the street, you would be able to see somebody. That’s where the bucket had been left, and that’s where the fire started. It burnt through the floor, went under the floor, through the walls, up to the attic and that’s what collapsed in the house was a big attic.

Michael:          Do you know who the fire department person was who did the inspection?

Ed:                   Not offhand, I’m sure I can find his card.

Michael:          Do you remember who the insurance company was?

Ed:                  That’s the same thing, I can get you that information. Are you talking about the insurance company for them or for the bank?

Michael:          For the bank.

Ed:                   I can get you that information. It was also devastating the day of the fire that I learned my business partner allowed the insurance on the property to lapse. That was a shock. Fortunately, I found out through that week that the bank of course by law has to have the house insured, so they had a forced insurance on the property. But was not one that we carried as the property owners.

                        Since that time, the insurance company filed suit against Fieldgate. We joined that suit. I forgot the legal term that’s used, but we joined that suit for damages caused by that fire. We haven’t been deposed yet.

Michael:          Your business partner let the insurance lapse?

Ed:                  Correct, for the entity. I’m not going to just blame him, but yeah, the business entity did not renew the fire-insurance policy on the house.

Michael:         You were personally uninsured but the bank was insured. Do you remember the insurance company’s name?

Ed:                   No.

Michael:          Did the bank’s insurance pay the bank off for the mortgage?

Ed:                   Yes.

Michael:          When did they pay?

Ed:                   It was probably a few months after the fire.

Michael:          At that time, the bank had insurance; you didn’t.

Ed:                   Correct.

Michael:          Then the bank’s mortgage —

Ed:                   We weren’t going to collect on anything from the insurance but the bank, because of the forced insurance policy, was covered.

Michael:          You’re understanding is the insurance did pay out to the bank?

Ed:                   Yes, so the note was paid later that year, the note was paid off. We held the property free and clear, but of course it’s a fire-damaged property.[1]

Michael:          Sure.

Ed:                  We were out of the investment made for the renovation. No real way to recoup that, and renovating it was going to be — we did get an estimate to rebuild as-is, in terms of same materials, same quality the house was built. It was a little over $200,000.

Michael:          It would have cost you $200,000 to rebuild.

Ed:                   Right, to rebuild as-is, same materials, same quality lumber, every detail was estimated and it was going to be quite an investment.

Michael:          The timeline for the mortgage being satisfied by insurance on North Street is really the end of 2011?

Ed:                   Correct.

Michael:          You’ve not been on the hook for that one since the end of 2011.

Ed:                   Correct, not on the hook in terms of the mortgage, but still in the litigation of the property.

Michael:          Is that ongoing still?

Ed:                  Correct, we’ve not even been deposed yet. We joined that suit with the insurance company that sued the contractor, based on their investigation.

Michael:          Are you claiming damages as well?

Ed:                   Yes.

Michael:          As the entity that owned 139 North Street, trying to get reimbursed.

Ed:                   Correct.

B) Price of 1919 Magnolia

1919 W. Magnolia Ave., San Antonio TX
1919 W. Magnolia Ave., San Antonio TX

It’s not terribly relevant to the review of Garza’s real estate transactions, but he wanted me to note that in fact he purchased 1919 Magnolia at a better (ie. lower) price than I had obtained from my public records search.  I had reported, based on records available to me, that he acquired the property for $114,220.40, which he 7 months later flipped for $250K.  He clarifies that he purchased it for $90,400, and sold it for $234,000.

C) Appraisal of 2006 Magnolia

2006 W. Magnolia
2006 W. Magnolia

I expressed surprise in my review of this transaction that the buyer could obtain a 1% down-payment mortgage, at a price significantly above nearby comparables, in the tough real estate and lending environment of 2010.

Garza responded, in essence, that

1. The buyer must have had good credit [I think this is necessary, but not sufficient.]

2. The Austin-based bank appraiser must have seen something in the renovation that allowed him to use higher-end Monte Vista comparables rather than the dozens of Monticello Park comparables to come up with an appraisal.

[I have edited this section to take out non-germane comments]

Michael:         That reminds me of this other property we haven’t talked about, the 2006 West Magnolia. What’s interesting about that for me is that this buyer was able to get such an attractive financing package. Did you know this buyer?

Ed:                  I did meet the buyer. They had a realtor.

Michael:         Did you list it with somebody?

Ed:                 Yeah, the same lady that listed 1919 [Magnolia] listed 2006 [Magnolia] with Keller Williams.

Michael:         Josette Gonzales?

Ed:                 Correct. I think that one took — that was already in the bust of the real-estate market and she was more cautious again because the values had gone down, appraisers were even more unpredictable in terms of how they would look at properties. But she still came back and said we can sell this one for $234,000. Keep in mind every house that we did set a new per-square-foot record in Monticello Park. I only focused in Monticello Park. That’s my neighborhood.

                       I wasn’t interested in buying properties to flip or just doing any house. Being employed at the time with a big company, I didn’t have the time to be doing this as a flipper would. This was more about bringing value back into the neighborhood that I’ve invested in, my wife’s invested in. It really became a passion.  

                       So 2006, again being parishioners at St. Anne’s and the man was a deacon at the church. He passed away and his siblings, his daughter approached me about purchasing that house. We bought it for $120,000. Every house that I bought from Magnolia, both Magnolias, to the Mistletoe, to Fir, I always tracked the BCAD [Bexar County Appraisal District Online Property Search] and I would never offer anything more than the BCAD. That was just a general rule.

                        This one was right at the BCAD price when we purchased it, and probably sat on it for at least six to eight months before we started the project.

Michael:         Just on the 2006 Magnolia, you got an amazing sale off, and what I thought was interesting and highlighted is the buyer — you said you knew the buyer somewhat?

Ed:                  No. The buyer was represented by a broker, and the buyer is the owner of Candlelight Coffeehouse. They’re the actual owners, what was represented to us, and they were not going to have a problem with applying for the note.

Michael:         The note is extraordinary, a 1% down mortgage.

Ed:                 Right. It must be because of their credit. I would imagine that’s how they were able to get those terms, especially at that period of time. That house we probably had on the market for a month but for us that was a long time.  Magnolia was a bit longer, being in 2010, and the market the way it was, but we were still able to sell it within that first couple of weeks.

Michael:        I’ve been doing property for a long time and I find just getting a 20% down payment mortgage takes about two months itself, never mind a 1% down payment mortgage within a month, and never mind at a price that really these are outliers if you compare to other tax-assessed value or Zillow value in your neighborhood. They’re really big.

Ed:               Even the appraisers, the one for 2006 Magnolia was an Austin appraiser, and every house was a different appraiser. You never know which way they’re going to lean, but the one from Austin came in and said this is an impressive house, every detail of this house has been renovated from the minute you walk up the sidewalk, to the new lawn, new driveway, every little detail of the house.

                     He said, “You don’t see these kinds of renovations. Usually we see flips, which mainly are in the interior, they may be more cosmetic. They don’t get to foundation or rewiring, and definitely don’t get to the landscaping.” Even an Austin appraiser didn’t know anything about the neighborhood, and they came with that Austin perspective. He appraised it a bit above what we were under contract for. They were using a lot of comps because many of these appraisers couldn’t find comps in Monticello, but they were using comps from Monte Vista.

Michael:        I got a mortgage in 2010 and my bank came in about 15% less than what I was paying. I’m amazed that in 2010 you could get a 1% down mortgage and a bank to come in at really 30% higher than anything else in the neighborhood. It’s impressive.

Ed:               We did a house on Fir also, 222 Fir, and that one set a per-square-foot record. That was the first one I did with Mr. Wayne. That was a 2-bedroom/1-bath and I think we had it sold for 211,000. The price per square foot it was $180-190 range, which again was unheard of in Monticello Park.

Please also see related post: Ed Garza Responds on Contracting

[1] “Free and clear” in this context is another way of saying Garza’s company owned the property without a mortgage.

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On Mortgages, Part I – I am a Golden God

10year yield june 2013On timing in investments and personal finance, as it relates to my home mortgage

Did you see the front page of the Wall Street Journal today?  Yeah, that graph that showed 10-year bond yields up 0.5% in the past two months?  Oh boy that made me so happy this morning.

I locked in my new 15-year mortgage rate at the end of April.  Yup, just at the low point in the graph.

Then, I closed on my mortgage refinancing this week.

Which means that today, I am a Golden God of mortgage refinancing timing.

Timing is stupid

As an investment rule, I don’t believe in timing.

Or rather, I believe in the opposite of timing, which is that when it comes to investments and personal finance you’re supposed to keep doing the same boring, unsexy, basically correct thing[1] no matter where we are in the interest rate cycle, business cycle, stock market cycle, or Elliott Wave[2] cycle.

However.

I am also human and not immune to the need to react to external financial conditions and to believe myself clever and responsive to said external financial conditions.

So whenever the stock market severely crashes, I feel the need – to both honor my contrarian nature and as a totemic superstitious thumbing of my nose at the market – to buy stocks.  This has produced mixed results – as I’m always too early in catching a falling knife[3] – but it makes me feel powerful and clever and unbowed.  Take that, market! I am investor, hear me roar! I am telling the Ballrog: You shall not pass!

I mention all of this because as far as personal finance timing goes, I just made my best trade ever.  This week I refinanced into a 15 year mortgage at 2.75% and I am feeling great.  In sum: I am a Golden God.


In the last 50 years, mortgage rates have never been lower than the rate I just locked in.

Of course, this same statement – “mortgage rates are at the lowest level we’ve seen in a lifetime!” – could be made at almost any point in the last 30 years.  I myself have predicted about a dozen of the last nonexistent interest-rate hikes.

So my timing may not be as amazing as it feels.  But still, let me bask for a moment in what might be the only good timing trade of my investment life.

Basking

I am pleased I got this refinancing done – It’s pretty arduous getting a mortgage approved by any underwriting process these days.

I am pleased I got the lowest rate I could have imagined – No way could I have predicted this rate even a few years ago.

I am pleased I got a 15-year mortgage rather than a 30-year mortgage – since it takes rock-bottom mortgage rates to an even rockier bottom level.

The timing-junkie in me – acknowledging the silliness of timing – wants to have low-ticked the mortgage market.  The 0.5% climb in 10year bond rates and the uptick from 2.75% to 3% for 15-year mortgages in the past month has me feeling smug.

Please see Related posts:

Part II –Ask an Ex-Banker: Should I pay my mortgage early?

Part III – Why are 15-year mortgages cheaper than 30-year mortgages?

Part IV – What are Mortgage Points?  Are they good, bad or indifferent?

Part V – Is mortgage debt ‘good debt’ A dangerous drug?  Or Both?

Part VI – What happens at the Wall Street level to my mortgage?

Part VII – Introduction to Mortgage Derivatives

Part VIII – The Cause of the 2008 Crisis

 


[1] To be most specific, ideally ensure a modest surplus every month and blindly put that surplus into an investment vehicle.  Also, make it a risky vehicle if you’re young and a less risky vehicle if you might need the money soon.  That’s the sum total of relevant investing advice, and I specifically eschew timing as a consideration.

[2] Speaking of stupid, if you’re involved in finance you know about the kind of technical trading analysis that goes by the name Elliott Wave or myriad other fashionable investment timing silliness.

[3] Specifically I bought shares in the Nasdaq Index on the most severely down day of the massive crash in tech stocks, Friday, April 14 2000.  This appeared to me to be the final leg down of tech stocks, which had dropped over 30% in just one month.  (check out the graph.)  It was a brilliant purchase until a few weeks later when the market went significantly lower, and would fall 70% from its peak in March 2000 to trough in September 2001.  I also bought shares in the S&P Index during the 2008 crisis, on October 8 2008 (down 19% on the year) and again October 26, 2008 (down 35% on the year).  Again, momentarily brilliant purchases until that falling knife cut even lower all the way through March 2009.  The lesson: timing the market is a mug’s game.  But, it may be satisfying when understood as a psychological and superstitious trick.

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