The thoughts that were thunk and the goings on of my life.

Wednesday, January 30, 2008

A Deposit, a Bank, a System, and a Dream

I found out how we can all afford our dream houses! How? Just make the money ourselves out of thin air like banks do.

Now before you simply dismiss this as a stupid idea, you have to realize 2 things:
  1. Our entire economic system is built on the use of Fractional Reserve Banking. The short story on this system is that when a bank creates a loan it never has to actually have that money in its reserves.
  2. People are allowed to create their own banks. Those banks are known as Credit Unions. Therefore, if you can't beat 'em, join 'em by making our own bank. 10 steps to starting your own credit union.
So how exactly do I pull this off? And how do things actually come together.

Principle 1:
Well, first let's cover the basics. You see up there in item 1? Fractional Reserve Banking is the real key. Banks don't have to have money in their vaults to loan that money. Now the upper limit according to laws in the US mean you have to have a ratio of 9 parts magically created money on loan to 1 part money in the vault. In other words, if you deposit $1000 into my bank, I can take that $1000 in reserve and loan out up to $10,000 to the person of my choice.

Now here is the beauty and the sadness of this system. When a normal bank created that $10,000 loan, they charge ~6% interest on all $10,000. So by you giving the bank $1000 to hold as a deposit they are now using that money to make 6% interest on 10x that much. In other words, in that first year the bank is going to get $600 in interest money on the $1000 you gave them.

So now you should start getting the idea of why the biggest building in town is always the bank's building. -Try to show me any other industry where you can use somebody else's money to make a guaranteed 60% return per year AND be able to only offer the person that gave you the money a 5% money market rate and they are happy about how much they 'made' off the bank.-

So, my point on this level is that it seems somewhat wrong for me to pull out a loan for a home and be charged 60% interest per year on money that the bank magically created. It basically makes the whole I work hard for my money thing seem futile. I spend all of my life working for money and you can simply say that money exists and viola! There it is.

Principle 2:
So the real question is not so much, how do I earn $100,000s for a house. It really should be more focussed on what can I do to make this amazing system that banks have created for themselves work for me. Now I can't just run out and buy Wells Fargo because I'm simply not that rich. But, there is a bit of a legal loophole that I could try to pursue. And that would be point 2, establish my own credit union.

Unfortunately I'm sure somebody saw this establishing a bunch of individual "Federal Credit Union of Me"ses could create some serious problems because then any individual could say they are a bank and loan themselves money. However, if you can get 500-3000 people together you CAN create a credit union. As a credit union you would have all the power that a bank has. You could borrow money from the Fed for 3.5%, and then loan out 10x that much for 6% and laugh all the way to the bank...which fortunately is not far away because you are in the bank.

But, then comes that sticky situation. I've been to my local credit union. They aren't exactly loaded in dough, so what gives? And this is where my credit union would be completely unique, and why my credit union will offer an advantage unheard of in today's world.

So the key to this whole situation is figuring out a way that you can create a loan for yourself using the banks 10x fractional reserve system. In my credit union I would keep a couple things in mind.
  1. Banks would not make loans to people who are not members.
  2. Members would have to buy 'shares' of the bank (likely at around $1000 per share).
  3. Members would only be allowed to borrow up to 10x their share value, no more than that, no exceptions.
  4. All costs would be reduced to minimum so that fees are low.
The first part is really important. Because a bank can only loan out 10x what it has on hand it's important not to give out money to people that aren't vested in our institution. Therefore, no money can be lent to people that aren't members. However, after a strict screening policy we could allow new members the opportunity to buy shares.

Shares put money into the bank's coffers. By putting that money in, you allow the bank to loan that money out. Therefore, if you want to buy a $250,000 house you need to put in $25,000 otherwise we simply can't give you the money. If you can only save $2000 for a house over the course of a few years, then shouldn't be buying a house because you obviously don't know how to save. This bank will only be for those motivated enough to save a 10% downpayment on whatever it is that they want. Now say you wanted to use that $2000 for a $20,000 car, then by all means use it for that.

Now you won't be able to pull out any more loan money until you pay off the amount that you owe OR you deposit more money into the bank by purchasing more shares. The way banking regulations work, if you pulled out $250,000 for a house you have to pay back all of the principle before the original $25,000 is free to be multiplied out for something else.

One thing we also have to keep in mind is that all businesses have underlying costs that need to be paid. We'd have to hire a CPA, setup a website, etc. However, those costs could be greatly minimized if we had NO business front, required that all members handle their own loan authorizations (it's THEIR money after all, not the bank's), etc. But the beauty is that by not having a real front, we can easily run the thing in our spare time as an algorithm that simply sits there willing to help anybody that understands how it all works. Or at the very least somebody who understands that you can't pull out more than 10x what you put in in the first place.

So, how would we pay for those fees? I'm thinking just interest on the money that is on loan. But here's the kicker. Instead of charging 60% interest like the bank would our credit union would simply charge 6% on the principle, which means that you're only paying 0.6% on the entire loan. Now that is one SWEET deal. And totally legal because banks are not required to charge a minimum interest rate.

So let's look back at that home you might be interested in. Say the home costs $200,000. Well, if you want to buy, that means you need to start saving. In fact, if you save $10,000 per year (feasible if you're willing to work for it), you could own that home within 2 years. And the best part is you only pay 0.6% interest! So, based off of this calculator, that make your home go from costing you $1200 per month for the life of the loan and paying a total of $231,750 in interest...on top of the $200,000 for the house. And brings things down to paying $600 per month over 30 years and owing a total of under $18,750 in interest. So quick comparison. Would you rather pay $431,750 to Bank of America for your home, or would you rather just save 10% down-payment and pay $218,750? I can tell you which one I would do.

So, now all I have to do is find 500 people who like using the system to their advantage and we're set! Who's in?

This post quite possibly had a lot of concepts in it that may be unfamiliar. Just so you know, everything written is totally legit. If you have some questions about what I'm actually talking about I suggest you watch a documentary called Money as Debt. Once you've watched that once (or if you're too lazy), do a search for "Fractional Reserve Banking" and you'll come up with all sorts of sites, such as this one, that one, or this other one. Most sites will be paranoid because they are thinking 'fight the system'...I'm thinking 'work the system'.

Tuesday, January 29, 2008

Social Netiquette

Alright, so I've had a bit of nostalgia lately and I decided to look up a few old friends on facebook (not MySpace because it's a the epitome of horrible web design by least facebook has limitations on 'personalization').

Going through all of the old people though, I realized that it wasn't going to be a simple task. Somewhat because a lot of people don't appear to be connected to the web. While I personally can't understand that, I can understand that some people don't want to have an active web presence. So that I could forgive, but people make it ridiculously hard to tell who they are for 2 main reasons:
  1. The profile image is of something random
  2. They got married and decided that their maiden name isn't important anymore
Now, I could just list those 2 things and not explain, but what kind of post would that be?

So let's delve into the first since it's the shortest. The site is called FACEbook, not randompicturebook or noimagebook or fungroupphotowhereeverybodysheadis2pixelstallbook. No it's facebook, and the reason it's called that is so that I can see your face and tell who you are and then we can become friends. Why do I want to be your friend? Because I think you're a cool person that I'd like to see again at some point in my future.

Now, the even more aggravating problem, because at least if people don't have a good image you could potentially find them by their information. However, girls that run off and get married and then toss aside their maiden name with reckless abandon aggravate the snot out of me. I understand that you're married, I am too. Marriage is a great thing, and it is the source of so much joy. But to be on something like facebook and completely abandon any mention of your maiden name is the most 100% guaranteed way of making sure that your future will only involve people that you ever see again are people that hung out with you after you got married. While that may be cool to you, I once enjoyed your company and who you I can never find out what became of you. If I'm in your same area I could drive right by your place and not even say hello. Mini disaster in my book...chances squandered and opportunities missed. The worst part is that for you married ladies out there, there is a field called "Former Name", you could just fill that out and viola all is well. Instead you lead a life that abandons a great chunk from your past...when you were just 'you' and you were great then too.

So to all of you social-site-using people out there. Social sites are like a big phone book with all of the cool people from all over the world, the best part of these sites is that you can use them to find all of the people that you want in your own personal phone book so that you can meet and relive who you were. By fixing these 2 simple things we can change ourselves from being simply strangers in this world passing by one another in the ether to once again sharing laughs, reliving memories and developing our friendships further from this moment on.

Chris Johnson...if you're reading this, I tried to find you, but MAN are there a lot of you in the world.