A Tale of Two Friends

Mus­ings are thoughts, the thought­ful kind. For the pur­pose of th­ese ar­ti­cles, a-mus­ings are thoughts that might amuse, en­ter­tain and even en­lighten.

The Star (St. Lucia) - - LOCAL - By Michael Walker

Iwas 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.

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