Wall Street Financial Truth

Chapter 13 Who Emptied Your Wallet (4)
Judging from Ali's case, housing prices in the United States will not only fall further, but also accelerate their decline.Because, it turns out that after the bank has bought a large number of foreclosure houses, it will not auction them casually, because the lower the sale price, the lower the house price, and the greater the bank's loss.Now I don’t have such scruples, I don’t care, as much as there are auctions, anyway, the money lost will be repaid by the lender!

8. The mantis catches the cicada, the oriole is behind
When I first arrived in the United States, I was pursuing a master's degree in mass communication at a state university in the middle of the country.I heard that Americans are not very good at mathematics, so I took statistics as an elective in the first semester.I thought that if I had studied statistics in China, I could easily get three credits and free up time to work part-time to earn tuition fees.Unexpectedly, Professor Ai who taught the class is also Chinese, and it is not easy to get credits.

Professor Ai was one of the first batch of international students to come to the United States after the reform and opening up. After earning a Ph.D. in astrophysics at Stanford University, he applied to the state university where I was studying as an assistant professor (equivalent to an associate professor in China).Such an experience was considered rare among the Chinese at that time.As a result, I only got a B+ (equivalent to 86-89 points) at the end of the first semester. This is intolerable for me who has always been excellent in mathematics since I was a child.In the second semester, I took statistics again, taught by Professor Ai, and finally got an A.Although it took a lot of time, it has benefited a lot.

After three semesters, I left Central for New York.However, I have been in touch with Professor Ai.Especially after entering Wall Street, I often ask Professor Ai for advice on models.Later, many of Professor Ai's students earned more than he did as a professor, especially those who entered Wall Street, whose average income was two or three times higher than his.However, Professor Ai is obsessed with scientific research and has no intention of leaving the school.

The sky pays off. The year before last, Professor Ai won the Shaw Prize for decades of research results, with a prize of 100 million US dollars, which he alone shared (the 100 million US dollars of the Nobel Prize in Physics is usually divided between two or three people).When I heard the news, I immediately called to congratulate!Professor Ai said that after working hard for most of his life, 50% of the tax will be deducted from the money, and he can also buy a holiday house and enjoy retirement.I advised Professor Ai that the housing price bubble in the United States is about to plummet, and it is best to wait two or three years to enter the market.

A few days ago, I video chatted with him on the Internet and told him that the housing prices in the United States have fallen by more than 30%, and now is the time to buy a vacation home.I saw his thick eyebrows twitched, shrugged his shoulders and said: The money evaporated, half of it was given to the IRS (United States Taxation Service), and the other half was handed over to "Stanford".There is no way to hand it over to the tax bureau. Isn't "Stanford" his alma mater?Did he donate it to his alma mater?After careful questioning, it turned out to be another Madoff—Alan Stanford.Alan Stanford is one of hundreds of large and small Ponzi scheme makers who appeared in the financial tsunami after Madoff.Among them, Madoff and Stanford are the two cases involving the largest amount of money.

When mentioning the surname "Stanford", many people will think of Stanford University, a famous American university. This is also an important weight for Stanford to put gold on his face.Originally, he had nothing to do with Stanford University. In order to establish a connection with Stanford University, on the one hand, he declared to the outside world that he and the founder of Stanford University, Leland Stanford, were distant relatives; on the other hand, he used money to " Family Climbing” to finance the reconstruction of the Leland Stanford Building.On Stanford's website, people can see him hugging House Speaker Nancy Pelosi and former President Bill Clinton praising him in person. Since 1995, Stanford has played the same trick as Madoff, claiming that the annual return on investment is fixed at 10.3% to 15.1%.His "Stanford Bank" one-year deposit certificate, the annual rate of return can be as high as three times that of JPMorgan Chase Bank.

Through the introduction of the alumni association, Professor Ai handed over the after-tax US$50 to Allen Stanford, agreeing to pay at least 10.3% interest per year, which can be doubled in five years at the earliest.Unexpectedly, the financial tsunami came, Alan Stanford was exposed, and Professor Ai's $50 disappeared.

It’s also my fault to say one more thing, if Professor Ai buys a holiday house as soon as he gets the money, the house will still be there even though it has shrunk by 30%.It's good now, there is no bonus left.

But who would have expected that a person with such a high IQ as Professor Ai would fall into Stanford's trap, believing that it sounds like an impossible good thing.However, whoever was deceived by Madoff and Stanford is not an "elite". I wonder if the fox is too cunning, or the "elite" lacks common sense?

9. Credit card trap, can't afford it

Today, modern people under the credit consumption model have become accustomed to facing the endless stream of credit cards in their mailboxes.Credit cards are almost indispensable in people's daily life, and it has the convenience of "traveling around the world with one card in hand".

Of course, everything has two sides, and credit cards are no exception.This small plastic card can be used not only as money, but sometimes as an ID card. For those who are good at using it, it has many advantages; however, if it is not used properly, troubles will continue. Fall into its trap and want to break free?How difficult!

When a credit card is received, how it is handled varies from person to person.Some people picked up the scissors and cut it down the middle, and immediately threw it into the trash can (there are too many people selling credit cards); Some people are neither hated nor happy, throw the card away, and forget it in a few days.

Regardless of how people handle credit cards, have you ever wondered how credit cards were invented?How did it get into thousands of households?How does it affect people's lives, and even the consumption habits of the whole society?
In fact, a credit card is a type of credit.The word credit (Credit) comes from Latin, meaning "trust". In 1920, a shopping card that read "shopping first, paying later" on a chip similar to a metal badge - the credit shopping system was introduced to the United States.It is said that the first credit card was issued by the Diner Club, the inventor of this card is the founder of the Diner Club - Frank McNamara.About his invention, there are different stories circulating on the Internet, but they are all closely related to eating.Later, his credit card company used a name related to eating.

There is a story that goes like this.Once Frank invited a guest for dinner, but he forgot to bring his wallet, and he was extremely embarrassed when paying the bill.Tongda's boss made a rescue and said, "I know you have always had a very good reputation, so let's pay together next time." This accident inspired Frank, and he cooperated with his friend Schneider to establish the "Dining Car Club" in New York. Members are issued a card that proves their identity and ability to pay, so that they don't need to bring cash when dining in 200 restaurants in New York, and they only need to settle the account with the dining car club once.This network became what would become the Food Truck Letter of Credit Company, the first credit card company.

In 1958, American Express issued a true credit card (Amex), the Express Card.Widely accepted and distributed in the United States.Over time, by 1959, it was Bank Americacard (which was changed to a Visa card in 1977) that allowed credit card balances to be paid slowly.A credit card is different from a bank card, which must be paid off once a month, while a credit card allows the cardholder to recycle the outstanding balance, and the price must be paid interest on the arrears.

When credit cards developed to the mid-20s, the purpose of making money for profit replaced the original intention of convenient portability and circulation.Due to the fierce competition in the credit card industry, credit card companies often provide rewards, such as: free air tickets for accumulating flight time, gift certificates, or feedback cash (according to the annual consumption amount, there is a maximum of 70% cash feedback each year) to attract customers. new user.However, these rewards are nothing compared to the high penalty interest.Credit card companies mail a large number of advertisements to college students, and even set up stalls at the gate of the university, so as to recruit young people who have not yet set foot in society.As long as they take the bait, these young and inexperienced young people will roll in the trap for at least ten or twenty years, and at most for a lifetime, unable to escape.The usual methods used by credit card merchants to lure young people into taking the bait are nothing more than the following:

One of the traps: It doesn’t matter if you owe credit card debt, you will definitely be able to pay off the debt after graduation.

The old slogan of "shopping first, paying later" has become a bait to lure the younger generation in the United States, especially college students aged 18 to 24, to let go of credit consumption.

The prospect of a five-figure annual salary after graduation is enough to lure young students into the trap of overdraft without knowing it. "Consume first", find a good job after graduation, and worry about having no money to pay back the debt?Therefore, a large number of students have not yet entered the society, and they are already carrying debts on their backs.In fact, college students who are eager to live independently are not optimistic about their financial situation after graduation.Not only do you have to pay your own rent, car insurance, utilities, furniture, and work clothes, but you may also have student loans to pay.Some people may want to continue to study for a master's degree. The old tuition fees have not been paid off, and the new tuition fees will follow.And the habit of spending money extravagantly has been formed, how easy is it to control?

Today, young people aged 25 to 34 owe an average of $2 in debt, a 1989% increase from 2004 to 47.Nearly one-fifth of people are burdened with "difficult debt".Households with credit card debt will spend 1% of their income on debt repayments.

Trap #[-]: As long as the minimum payment is made, everything is OK.

In the payment column of the credit card bill, you can choose the payment method, pay in full or pay the minimum payment.If you choose the latter, you fall into a trap.Of course, $2000 of credit card debt will never cause trouble on the books if the $55 minimum payment is made on time every month.But in the next 20 or even 30 years, you will "eat" 18% interest, and you will end up repaying an extra $2600.

If this account is reversed and calculated, what will the result be? If you graduate from college at the age of 23 and don’t owe any debts, and save $55 a month, instead of waiting until you are 43 to deposit and invest, the situation will be very different.

Trap [-]: I really need it!
The credit limit on the credit card induces young people to ignore one word - "loan", mistakenly thinking that they can use it as long as they want without exceeding the credit line.Sometimes I ignore my ability to repay the loan, in order to prove to my family and friends how good my financial situation is, even if I have no deposit in the bank, I have to "buy" as soon as possible.Even if you are in debt, you will not hesitate.

Trap [-]: There is only a little delay, but there is no non-payment!
Credit card merchants are a favorite gimmick to lure new customers with low interest rates.But low rates are usually only locked in for the first 6 months, and possibly the first 12 months.If the arrears are not paid on time, the penalty interest can be as high as 24% or even 30%, including large financial institutions such as Citigroup and Bank of America.A 30-day late payment record will stay on your credit record for 7 years, which will affect the future application for housing loans, and the company will refuse to hire you when you look for a job.

可信贷消费在美国已成形，信贷消费额在2009年达到1万7千亿；美国人花费在信用卡上的财务费用大约500亿美元，人均欠债8562美元；近一半的信用卡持有人每个月只付最低额。

In view of this, the U.S. Congress began to regulate the credit card industry, prohibiting credit card companies from marketing to people who do not need credit cards through mass mailing.But in 1996, the U.S. Supreme Court lifted an injunction that capped fines for credit card companies in the case of Smiley v. Citibank.Once the ban is lifted, credit card companies can not only impose unlimited fines, but also charge high interest rates to cardholders.

At present, credit cards have developed from a simple form of revolving credit to a complex financial instrument that can compound and balance various interest rates.Card-issuing financial institutions often tempt people to transfer the balance on credit cards of other institutions, promising to give relatively low interest rates within a certain period of time (usually 3 to 6 months).But in fact, once this deadline has passed, the card issuer has the right to raise the interest rate arbitrarily.Cardholders make such an adjustment, only to find out months later that rates have jumped dramatically, before it's too late.In this way, for financial institutions, the income has been greatly increased, while cardholders are gradually getting into trouble.

A controversial issue that exists in many North American credit card contracts is the "universal default" feature.As long as a cardholder delays payment on one card once, other credit cards of this person will be affected by it. Although the payment is made on time, the interest rate can be raised arbitrarily. Accumulated arrears will drown you in debt and you will not be able to get out.In fact, the "universal default" feature is encouraged and supported by federal regulators as a management tool for monitoring cardholder financial risk.

Another area of ​​controversy is trailing interest, which means that the card issuing bank will charge interest on the entire amount owed, regardless of what percentage of the cardholder's repayments.For example, if a cardholder owes $2 and has repaid $1, interest will still be calculated on $2, not $1.

During the financial crisis a few years ago, as unemployment rose significantly, a growing proportion of consumers could not pay their credit card debts. In 2008, the amount of credit card defaults was as high as 410 billion U.S. dollars, and in 2009, the amount of defaults rose to [-] billion U.S. dollars.More and more people are looking for professional companies to help them clean up their debts. A large number of credit defaults will ultimately hurt cardholders, especially those unrestrained "card slaves".

Because the means for banks and credit card companies to restore profitability is to raise interest rates.The wool comes from the sheep, and the loss of the card issuer is borne by the cardholder.According to a survey by the credit card consumer group, 37% of credit card companies have raised interest rates across the board, even for consumers with relatively good credit histories.This method has forced some families and individuals to the brink of bankruptcy.

So do you still dare to use a credit card?Especially the unrestrained use of multiple cards.My suggestion is that a credit card can properly alleviate the current debt needs, and can occasionally relieve difficulties; but if you don’t need to use it as much as possible, you can ensure your financial freedom, and at least you don’t have to worry about repaying the loan every day, because once you default, what you owe is “credit ".

10. The story of the bubble

The financial history of mankind is almost a history of bubbles.

There was a small bubble in the previous three to 50 years, and a big bubble in the 80s.Later, there was a small bubble in 30 and 50 years, and a big bubble in 1637 years.Familiar ones include: the Dutch tulip madness in 1720, the Great South Sea Bubble in 2 (Newton lost 800 pounds in this big bubble, which is worth 1837 million pounds in today’s money if the inflation rate is 1929% per year. ), the Bank of America Panic of 1907, etc.The most terrifying Great Depression in history in 30, the bubble began with the "Panic of [-]".In the past [-] years, with the acceleration of global economic integration, the speed of information dissemination has become faster and faster, and the degree of bubble accumulation has become more and more fierce. In the past ten years alone, we have experienced countless bubbles, large and small.The huge bubble appeared twice: once in the "dot com" and the other in the housing market.Each time the cause was similar, and the end was quite the same.But people seem to be very forgetful, always chasing highs and killing lows again and again following the bubble, and then suffer from it.

There is always a theory for blowing big bubbles, and there are several typical ones.

(End of this chapter)