Musings are thoughts, the thoughtful kind. For the purpose of these articles, a-musings are thoughts that might amuse, entertain and even enlighten.
A Tale of Two Friends
I was recently offered the loan of a fairly large sum of money from a bank in Sweden at the rate of 1.68%. Yes, you read correctly: just over one-and-a-half percent. While in Saint Lucia banks and other financial institutions are busily squeezing the last pennies from their clients, like blood from a stone, the Swedish authorities have taken the stance that the best way to stimulate the economy is to make it easier and cheaper for companies and individuals to borrow money to finance their investments.
But let me tell you the true tale of two of my friends that might make your blood boil. In January 2002, My Two Friends (MTF) borrowed $120,000 from a mortgage and finance institution in St Lucia. Immediately upon borrowing the money, the debt exploded up to $131,013.70 because of something called “Interest on Advance”. In less than a second, the company made over $11,000 in advanced interest payments that, frankly, in my view, should not have been due until the end of the year.
If I deposited $120,000 in my account and promised my bank that I would leave it there for at least a year, does anyone believe that the bank would pay me the interest due after one year in advance at the beginning of the year? Of course not; there’s a law for the rich and a law for the poor! And the poor always get screwed!
But it gets much worse: in February of that first year, an item called “Insurance Renewals” added a further $523.09 to the debt. In July of the same year, the Insurance Renewals increased to a further $1,256.10. The debt was mounting – not going down! And of course, because the insurance payments were included in the total debt, My Two Friends clearly ended up paying about 10% interest on the insurance premiums too.
Throughout 2002, MTF made regular monthly payments amounting to $15,000, but were disappointed to find that their 120,000 borrowed dollars still amounted to a debt of 117,792 dollars and 89 cents at the end of the year. But it gets much worse: suddenly, in January 2003, exactly a year after borrowing $120,000, this debt skyrocketed to 129,572 dollars and 18 cents due to yet another Advance Interest Demand of $11,779.29. Once again, despite all their payments, they owed more than they had borrowed.
Now the really interesting thing about this disgusting affair is that the Advanced Interest was even more than the original interest paid immediately the loan agreement was made, more than 250 dollars more, despite the fact that MTF had “paid off” $15,000 in the first year. This, Dear Reader, is Usury of the very worst kind, and the government should stamp it out! How can any decent couple get out from under such a burden of debt? But of course,I forgot, the particular institution in question is government-owned, in part at least! So much for taking care of the people! How naïve of me! If the lending institution is owned by the government, what incentive do our leaders have to stamp out this usury? None, of course.
But it gets much worse: During 2003, my two friends “paid off” an additional $19,720, but by January 2004, the debt remained at $122,219.11. Let me repeat that: despite paying this particular mortgage and finance company a total of $34,720 in two years, they still owed 2,219 dollars and 11 cents more than they had originally borrowed.
But it gets much, much worse: in 2004 MTF “paid off” a further $15,020 but in January 2005 the debt was still at $119,300.74. After three years of mostly regular payments amounting to $49,740, their debt had been reduced by a mere $699.26. In January 2006, after additional payments of $10,500 MTF’s debt remained at 121,062 dollars and 53 cents, even though they had, by this time, already “paid back” $60,240 in all.
After 10 years MTF had paid this particular mortgage and finance company a total of $125,000 yet they still owed $150,000, which is $30,000 more than they originally borrowed.
Now wouldn’t it be interesting, Dear Reader, to find out what sort of perks those “holier than thou” bank employees – you know, the ones who berate you for getting behind with your payments – enjoy when they borrow money or use the services of their banking institutions? In some countries, all these perks would be classed as income and thus liable to taxation, which raises an interesting question … Maybe it’s payback time.