Effor.com

I’ve read many stories in the past few weeks about how hard it is to get a loan now.  All the stories are saying the same thing - banks aren’t lending, people can’t get loans, so the economy is tanking because people can’t borrow money to buy things.

Bullshit.  This past summer I had to replace my air conditioner (I chose a Trane heat pump and got rid of the natural gas furnace at the same time) and my refrigerator.  The heat pump (a Trane XLi15) cost about $7500 and the fridge was over $2000.

I don’t happen to have $10,000 just laying around so I shopped for financing and got 0% interest for 18 months on the heat pump, and 0% interest for 12 months on the fridge.   The interest rate on both loans will jump to over 18% after the intial promo runs out.

In looking at my budget, I probably won’t have both of them paid off before the promo rate runs out and the high interest part kicks in, so I decided to get a HELOC in order to pay the initial finance companies the reamining balance just before the 0% promo expires.

My house is worth about $200,000, and I only owe about $50,000 on the mortgage because when I moved to TN I used the proceeds from our house in MO as a down payment on this one.  So I’m not in over my head and I’ve got equity - even if the housing market here drops drastically.

Anyway, I called you my bank (First Tennessee) and they took an application over the phone.  They also called my employer to verify my salary and how long I’d been with the company.  They ran a credit check and asked a lot of questions about how much money I wanted ($10,000 line of credit) and what I wanted it for.

They called me back a few days later and said I was approved for a $25,000 HELOC, because they didn’t want to mess with a $10,000 line.  If you’ve read this far, here’s the kicker:

My interest rate is 1% BELOW Prime (as published in the WSJ).  Prime had been at 5% for a few months, but just this week (thanks to the Fed jacking up inflation by lowering it instead of raising it!) it dropped to 4.5%.  So my interest rate is currently 3.5%

And the 1% below prime margin is fixed.  I know the prime rate will go up and down, but my loan will always be 1% below prime.  And with Bush and Helicopter Ben at the controls, the interest rate isn’t going up anytime soon.  (And do you honestly think Obama or McCain will change the Fed cheap money policy?)

To sum it up, I not only got the money I was looking for, I got the money at an interest rate that is stupidly cheap.  First Tennessee is borrowing money from the Fed at 1.5% and loaning it to me at 3.5% - so they make 2% of every dime I borrow.

So the next time you read a story about how the banks aren’t lending money, or how tight credit has gotten - print it out and use it to wipe your ass - because that’s all it’s good for.

To say it another way, it’s easy to get a loan at ridiculously cheap rates - if you can afford to pay it back.  I’m assuming that if I owed more on my house than what it’s worth then the bank wouldn’t let me borrow any more against it - rightly so!

If you don’t have a job, you shouldn’t qualify for a loan.  If you are upside down on your house then you shouldn’t qualify for a loan against it.  If you make $40K/year and want to buy a $400,000 house, then you shouldn’t qualify for a loan.

In other words, banks are lending money - and they’re lending it at VERY low rates.  As long as you can afford to pay them back, which is how it should be.

If you can’t afford to pay them back, don’t bitch and moan about the banks not lending any money, because it’s simply not true!  And you’re stupid for thinking that they should loan you money that you can’t pay back.

So SHUT UP with the “tight credit” and “hard to qualify for a loan” stories.  You won’t get any sympathy from me.

gk

I was aimlously surfing tonight when I found this:

In a credit-based economy, a fall in money supply leads to markedly less lending, with a further sharp fall in money supply (since debt is money), and a consequent sharp fall-off in demand for goods. Demand falls, and with the falling of demand, there is a fall in prices as a supply glut develops. This becomes a deflationary spiral when prices fall below the costs of financing production. Businesses, unable to make enough profit no matter how low they set prices, are then liquidated. Banks get assets which have fallen dramatically in value since the (mortgage) loan was made, and if they sell those assets, they further glut supply, which only exacerbates the situation. To slow or halt the deflationary spiral, banks will often withhold collecting on non-performing loans (as in Japan, most recently). This is often no more than a stop-gap measure, because they must then restrict credit, since they do not have money to lend, which further reduces demand, and so on.

Sound familar?  To me it sounds like what’s beginning to happen in the US right now.  The above text is from:

http://en.wikipedia.org/wiki/Deflation_(economics)

Yup, it’s about deflation.  I keep wavering about if we’re heading down the deflationary road, or if we’re setting up for a round of hyper-inflation.  Anyone care to enlighten me?

gk