Wednesday, October 12, 2011

The photo at the left is of a five inch high stack of unsolicited (junk) mail credit card solicitations accumulated since the start of this summer. This is not all the junk mail I have received; the stack pictured represents ONLY bank credit card solicitations, primarily from Chase and Citi banks.

Pictured next to the pile of credit card junk mail is a coffee mug gift from our former mortgage company, Washington Federal Savings and Loan. Not to be confused with Washington Mutual Bank which was the largest bank failure in US history in 2008 and eventually taken over by JP Morgan Chase, the much smaller Washington Federal Savings and Loan has completely survived the financial mortgage breakdown of 2008 and continues to prosper during these tough financial times. They haven’t taken a cent of government stimulus buyout or been acquired by another company; to my knowledge they are not hemorrhaging under the cloud of excessive home foreclosure nor have I heard of them laying of a single employee. Why?

A bit of personal history first – During the first half of my professional career I worked in banking. My entry level job with the bank was repossessing cars from people who couldn’t make their car payments. The idea behind that training path was to ensure that future loan officers had intimate knowledge of what a bad loan was… so as not to make any themselves.

Later one of the first loans I ever made was to a couple who had previously declared bankruptcy. Each morning the branch manager would review the loans made by his officers the previous day. When he saw the loan decision I had made he sternly asked me to justify my decision. I explained that even though this couple had had their loans forgiven in bankruptcy, once back on their feet, the repaid their debts even though they were no longer required to. The sense of ethic this customer had shown convinced me they were a worth risk; my branch manager accepted my decision.

Back in those days interest rates were controlled by Federal and State regulations. There were “usury” laws on the books; it was illegal to charge excessive amounts of interest, fees or penalties. If you bought a car from a car dealership, you needed 20% of your own cash down for bank financing. A mortgage loan on a home required 10% down unless it was a federally guaranteed loan; 20% if it was not owner-occupied. There were strict debt-to-income and loan-to-income ratios in which a loan applicant needed to fall within for the loan to be approved.

Savings and Loans (like Washington Federal) carried mortgage loans on their own books as long-term investments. Banks such as my employer sold their mortgages on the “secondary market” at a discount for funds which they could turn around and lend out commercially for shorter term at higher interest rates. The system worked, and more importantly, it was stable.

But after I left the banking industry, the whole financial industry changed radically. “Whatever the free ‘market’ would bear” became the new rule. Usury laws were scrapped; credit card rates soared to amounts that “Loan Sharks” previously extorted from hapless debtors. Banks dropped completely out of car lending as the car companies (GMAC, General Motors Acceptance Corporation, Toyota Credit, etc.) could provide new car financing for 0% down over five years. Mortgage brokering took off as brokers, hungry for lucrative commissions, helped unqualified borrowers “fudge” their applications to make them appear that they qualified. Housing prices soared as demand from a new class of borrowers flooded onto the market. People were “flipping” houses, buying and reselling them for a profit a mere month or two later. It was the Wild West of Finance – the rule was that there were no rules.

Washington Federal Savings and Loan still makes loans the “old fashioned” way. They recently gave my wife and I each a lovely coffee mug as a thank-you gift for the half-dozen or so now paid off loans we have had with them over the years. If we ever need another loan or another mug, we know exactly where we are going to go.

The other day there were only four items received in our mail box; two pre-approved credit card solicitations from Chase Bank, two each for my wife and me. I added them to the recycle pile pictured above. I am going to keep adding to the pile until the November 2012 election.

12 comments:

DJan said...

In retirement, we've paid off all our loans and never banked with anything but credit unions, until I moved to USAA, available to us since my dad was in the Air Force. It's been a pleasure to deal with, and I am simply glad we never caved into the pressure to buy something we weren't qualified to buy.

Nance said...

What a great idea, Robert! A simple, real-time graphic that demonstrates how Big Banking is part of the problem, but also illustrates that some banks are part of the solution. Do you think WFS would give you a business loan? That would put them all the way into the Good Guy camp.

I remember when my son arrived at college the first day in 1998, there was a Capitol One credit card application waiting in the campus mailbox of every entering freshman. And they didn't require a parent signature. That was my warning on sinister banking changes.

Mandy_Fish said...

Can I have that pile when you're done with it? I collect them for work. Don't ask.

Paul said...

I had a Great Uncle who had over twenty thousand dollars under his bed in cigar boxes nailed to the floor when he died Robert. He didn't have much faith in banks...

Robert the Skeptic said...

DJan We use our credit union for our VISA card, I bank at the same bank I have throughout my career. Only a tiny fraction of our debt is not yet paid off. If we had a mortgage we wouldn't have been able to retire at all.

Nance Same with my son, and he used his credit card because he needed money... and got in over his head. Long out of college his credit score is still too low to get a decent car loan, let alone quality for a mortgage. These finance people are predators. Durning the Bush Administration they lobbied successfully to change the bankruptcy laws because their very policies were DRIVING people into bankruptcy. I think it borders on criminal what they have done. But... "Free Markets" benefits everyone, right?

Mandy I am guessing you heat at work with a wood stove?

Paul The wife has a relative who used to bury his money in coffee cans in the yard. Then he would forget where he buried them. Good thing your Great Uncle's house didn't burn down.

Paul said...

He passed away and my Great Aunt took the money to a bank...

Antares Cryptos said...

Looks like a solution to me.


Are you saving those for an art project? Would make a meaningful installation.

TechnoBabe said...

I can't even say the word Chase out loud. That company is a money grubbing greedy company. We are both on social security and if we want to purchase something we do it with cash and I will not have credit cards. Hopefully our little bank in our town will not be greedy like the larger banks and will not charge us for using our debit card but if that happens we will use cash only. Like the good old days.

secret agent woman said...

Chase holds the mortgage on my house. It started with someone else, but of course you have no control over who buys your loan. I use my credit card like others use a checkbook - it's convenient, I get cash back and I pay it in full every month. But people get in trouble when they put more on credit than they can pay. The interest will flat kill you.

Robert the Skeptic said...

Paul Good for her.

Cryptos If it set the pile on fire, THEN it becomes art.

TechnoBabe Banking locally is a good idea, Credit Unions are even better.

SecretAgent We do the same, put ALL our monthly expenses on our Credit Union VISA card. We've done this for years and never paid a cent of interest... plus we earn points for airline miles. We have flown free to Hawaii, Florida and DC already just from using that card instead of the checkbook.

Jayne said...

Robert- You read the Einstein piece I wrote, wherein I mentioned Bank of America's questionable accounting system. I still have an account with them, but have been slowly moving more my funds into a smaller credit union in town while also redirecting direct deposits/automatic payments. (Boy, it takes a while to get things rerouted.) I am so looking forward to the day, soon, when I fully close all my business with BOA. (Especially now that they're charging $5.00/month for using the debit card!)

Great piece, Robert. ;)

Robert the Skeptic said...

Jayne Most big banks, like big airlines, work in collusion. Expect most of them to likewise increase their fees as well. My bank currently has a $1.25 fee for Debit Card use. However, since I use my credit card a majority of the time, the debit card sits quietly in my wallet each month. If my bank increases debit card fees I will cancel my debit card service. I can write a check to the one business in town I use that doesn't accept credit cards.