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June 20, 2007

The Fallacy of So-Called "Interest-Only" Loans

So-called "interest-only" loans are all the rage right now, but they'll get many borrowers into hot water if interest rates begin to rise quickly. First of all, the phrase, "interest-only", is a fallacy. While the borrower is not required to pay back any principal at first, beginning somewhere around year five to year eight, he/she must begin paying back the principal. For example, let's say the required principal payback period on a 30-year mortgage begins in year six. From then on, he/she would be required to pay back 1/25 of the principal ($10,000 on a $250,000 loan) annually.

Now, if the borrower does not expect to keep the house very long and is looking for quick run-up in price before selling it in a few years, some lenders and mortgage brokers will push these interest-only loans. They use the initially low payments as an enticement. These types of loans would ultimately be the best choice if (1) the price run-up actually occurs and (2) interest rates remain relatively low.

The real estate "bubble", which led to sharp increases in property values over the last several years, has apparently begun to burst, leaving some property owners with mortgages that exceed their actual property values. Even those with conventional have been adversely affected. But interest-only mortgages, as many had predicted, have proven to be additionally problematic since this downturn.

Also, if interest rates rise quickly, borrowers might not be able to get out from under their interest-only mortgages so easily before their payments considerably increase (by $333 per month on just a $100,000 mortgage, using the example above). That's because interest rates might be so high that (1) they may not be able to afford new/refinanced mortgages and/or (2) they may not be able to find anyone who can afford to buy their current houses.

June 19, 2007

The More You Have, the More You Have to Pull Maintenance On

As I've mentioned before, I don't like to collect a lot of material assets. I'm not fond of owning baubles and I've never owned more than one car or house at a time. I own only the minimum amount of hard assets that I need and/or will use on a regular basis. The reason is simple. I hate doing (or paying for) maintenance. As soon as you buy any hard asset, it begins to need maintenance. The more of them you have, the more of them you have to pull maintenance on. 

I prefer liquid assets and services. No bank account, stock, or mutual fund I've owned has ever broken down or required me to perform any kind of maintenance on it. I also prefer purchasing services to purchasing things. As is the case with liquid assets, I've never had to pull maintenance on any service I've ever bought.

June 18, 2007

A Fresher Take on the World's Biggest Lies

Here are ten more common, everyday fallacies that I am debunking. Actually, I've added an extra one this time for good measure. Enjoy!

(1) 500 TV channels. All too often, the truth falls victim to popular belief. Such is the case with the supposed 500 TV channel universe. This myth started getting repeated in the early 1990's. By now, it has been repeated so often that most people believe that many cable and satellite TV systems offer as many as 500 channels for subscription. In reality, I know of no cable or satellite TV provider that offers that offers this many channels. Let's suppose that, when you were a preschooler, you began hearing rumors about the existence of a five-legged horse called a "quinthorse." Now let's suppose you are 40 years old but have never seen a quinthorse either in the flesh, in pictures, in the movies, or on TV, even though you are still hearing rumors about it. Would you still believe such an animal exists? Based on the history of the 500 TV channels myth, many people in that situation apparently would.

(2) The candidate from the independent party. Think about it. This is actually an oxymoron and tantamount to saying you paid toll on a freeway! If a candidate is indeed an independent, he/she couldn't be a member of a party; if he/she were a member of a party, he/she couldn't be an independent candidate.

(3) We're doing it for the children. Yeah, right! This is nothing more than an excuse to restrict the rights of adults. The Parents Television Council (PTC) and other so-called "family values" organizations are prime examples of what I'm talking about. They claim they want to protect children from the influence of inappropriate material available over the airwaves, but their real goal is to regulate what adults can see on TV or listen to on the radio. How do I know this? Because, if their true goal was to protect children, they would be emphasizing technology like the V-chip, which helps parents control what their children watch on TV. Instead, they emphasize the removal of programming from the airwaves, so no one can see it. Even if we could incorporate some kind of super-advanced technology in the V-chip that could automatically detect when children are present and shut off inappropriate programming, the PTC and others would still reject it. If censoring broadcast content from adults is what they want to do (as it quite obviously is), then they should have the moral integrity to admit it and quit hiding behind the "it's for the children" charade.

(4) The highest standards of ethical conduct. Almost every large corporation has this line written somewhere in its standards of conduct and code of ethics. It's there because their corporate lawyers say it has to be and not because most corporate mucky-mucks actually believe in it or adhere to it. I know I sound cynical, but that's the way things are in the real world. Most corporations will bend or break any rule they can as long as they believe it will be to their advantage and they think they are not likely to get caught doing it. Corporate honchos are some of the worst purveyors of the "do as I say, not as I do" philosophy. Of course, this is not an excuse for employees to engage in illegal or unethical behavior, as each individual is responsible for his or her own actions.

(5) Below dealer cost/invoice. Many automobile dealers will deceitfully include this phrase in their advertisements. However, it's just not true. If you believe a dealer is going to sell you a car for less than what he paid for it, then I have some ocean-front property in Kansas that you might be interested in. Sure, they might be able to produce a so-called invoice with a price on that's less than what you might be paying. But wait - that dealer is getting a rebate or an incentive from the manufacturer (that he's keeping and not telling you about) that ultimately lowers the actual cost of the vehicle to him. Rest assured that this cost is less than what you are paying.

(6) If you're not moving forward, you're moving backward. This is a nice little catch phrase that motivational speakers and spiritual advisors like to use, but it's not true in the real world. I know people who have been in the same job for years, just getting a cost-of-living pay increase every year. They have not improved their skills and it hasn't hurt them, despite the fact that they have been told that they would move backward in their career if they didn't. They have not moved forward, nor have they moved backward. They have just maintained their position in their career. Others just maintain their position in life and are happy to do so. We all know people like that and they are not moving backward.

(7) It's for your own safety. This is a favorite of people in positions of authority, but it's generally a euphemism for "I'm in control of you." If it is truly for anyone's safety, it's more likely for that of the person making the statement and/or creating the rule. For example, you've heard of people being handcuffed, locked up, or otherwise detained "for their own safety." If their safety was truly the concern, better methods, such as assigning them a bodyguard or allowing them to stay in a highly secure facility, could be used.

(8) Wrinkle-free, wrinkle resistant. Don't throw away your iron! Clothing that is supposedly wrinkle-free or wrinkle resistant will still wrinkle, just not as much so as other clothing. This will happen even if you follow the garment care directions to the tee. Washers, dryers, and overcrowded closets can wrinkle any material, regardless of what the label says.

(9) You can cancel at any time. Really? There are always conditions placed on any cancellations. For example, most companies will not allow you to retroactively cancel last month's subscription, even though a month later technically qualifies as "any time." Also, once your subscription and/or obligation begin, don't expect any reminders about the fact that you can cancel. Companies will play up this "cancel at any time" feature until they've made the sale. Then there's dead silence on this issue.

(10) Risk-free. So-called risk-free offers are generally made on mail-order items. The risk-free period usually lasts 30-90 days and allows consumers to send a product back for a full refund if not satisfied with it any time during that time frame. However, completely risk-free they aren't. For one thing, we all know there's some risk involved in everything, even getting out of the bed in the morning. More specifically, doesn't the risk exist that you might accidentally damage the item before you can send it back? I doubt that you would get a full refund in that case. What if you misplace it and can't ever find it? What if you lose your receipt? What if you mail it back without insuring it and it gets lost in the mail? What if you forget to send it back before the cutoff date? Don't those possibilities constitute risks? My point is that while those full refund offers might represent a reduced-risk method of purchase, they are certainly not risk-free.

(11) Less is more. If you're a cereal maker, for example, this would be an ideal lie to propagate. Why, you are constantly decreasing the size of the cereal box while increasing the price. Naturally, you would want people to believe something like that. Thinking they are getting more when they are actually getting less, consumers would willingly pay the higher prices. Sadly, this happens every day as consumers fall for this big lie. Now, granted, less could be all you need. It could be all you want. It could even be just as satisfying. But there's no way that less could logically ever be more than or even just as much as more.

June 17, 2007

12 Things That Are Overrated; 12 Things That Are Underrated

Twelve things that are overrated: (1) hair, (2) diversity, (3) possessions, (4) a degree from a prestigious college or university, (5) being fashionable, (6) county schools, (7) acting your age, (8) aging gracefully, (9) partying, (10) HDTV, (11) Hollywood blockbusters, (12) retirement.

Twelve things that are underrated: (1) Good health (physical, mental, and spiritual), (2) financial independence, (3) saving money, (4) quality time with one's soul mate, (5) a degree from an ordinary college or university, (6) strong family ties, (7) city schools, (8) walking, (9) enjoying the present, (10) proper nutrition/vitamins, (11) lack of debt, (12) foreign and independent films.

June 16, 2007

Random Rants and Raves #106

The smaller the print, the more important the information.            


Limits should be placed on the salaries of top executives of non-profit and not-for-profit organizations. Any of these organizations that pays one or more of them in excess of these limits should lose its tax-exempt status.


Senate Majority Leader Harry Reid recently said that President Bush was in a state of denial over the situation in Iraq. Bush responded by saying that he was not in a state of denial, he was in Washington, DC. 


Here's another one of those weird spelling rules: In order to create the word "abdominal" from the word "abdomen," not only are the letters 'al' added to the end, but the 'e' is also changed to an 'i.'


I know a guy who has a tattoo of a snowman on his stomach. He calls it the "Abdominal Snowman." 


If you can't be anything else, be an opportunist.


Illnesses are just God's reminders of who's really in charge. 


If you can't find anything in reality to be happy about, imagine something.

June 15, 2007

Classic Rants and Raves #13

It's not as bad to be wrong as it is to apologize for being right.


Many of the good things in life are impossible for some. However, most bad things are quite possible for all.


Whenever the media proclaims that a given politician must give the "speech of his life", he always comes through (at least according to the media).


Those who are constantly exaggerating are almost as bad as those who are always telling lies. Neither of them have any credibility with me and I refuse to believe anything they say without hard evidence.


Diversification is overrated. Sure, a well diversified portfolio does reduce an investor's downside risk. However, it also limits his or her upside potential.


The best thing about having your back to the wall is that no one can sneak up on you!


Things that some people like are a dime a dozen. For example, those who like country music can find stations playing that format all across the radio dial. On the other hand, nothing I like is ever that easy to come by.


I can't think of anything that sucks more pleasure out of life than being burdened with too much responsibility.

June 14, 2007

2008 Presidential Campaign Update #8

We're near the end of the second quarter of 2007 -- but still a full seven months from the first caucuses and primaries -- and we have 18 official entries, 10 Republicans and eight Democrats, in the 2008 presidential sweepstakes.

The Republicans are Representative Duncan Hunter of California, Kansas Senator Sam Brownback, former Arkansas Governor Mike Huckabee, former Massachusetts Governor Mitt Romney, former New York City Mayor Rudy Giuliani, Arizona Senator John McCain, Representative Ron Paul of Texas, former Wisconsin Governor Tommy Thompson (who also later served as the Secretary of Health and Human Services), Colorado Congressman Tom Tancredo, and former Virginia Governor Jim Gilmore.

The Democrats are former Alaska Senator Mike Gravel, Ohio Congressman Dennis Kucinich, former North Carolina Senator and 2004 Democratic Vice Presidential Nominee John Edwards, Delaware Senator Joe Biden, Connecticut Senator Chris Dodd, New York Senator and former First Lady Hillary Clinton, New Mexico Governor Bill Richardson, and Illinois Senator Barack Obama.

Today, I also offer my updated presidential power ratings for both parties, in which I rank the current and prospective candidates in order of their likelihood to receive their respective party's presidential nomination. Of course, these rankings will fluctuate with time, as the fortunes of the candidates change, some drop out, and new ones emerge. Here's my latest installment:

Democrats:

1. Hillary Clinton

2. Barack Obama

3. John Edwards

4. Bill Richardson

5. Joe Biden

6. Chris Dodd

7. Al Gore

8. Wesley Clark

9. Dennis Kucinich

10. Mike Gravel

Republicans:

1. Rudy Giuliani

2. Fred Thompson

3. Mitt Romney

4. John McCain

5. Newt Gingrich

6. Mike Huckabee

7. Sam Brownback

8. Tommy Thompson

9. Duncan Hunter

10. Jim Gilmore

11. Ron Paul

12. Tom Tancredo

13. Chuck Hagel

14. George Pataki

15. Michael Bloomberg

Stay tuned for regular updates, with the next one coming around the second week in July.

June 13, 2007

Random Gasoline Rants

With gas prices the way they are now, going to a gas station is comparable to visiting a house of prostitution. (Because I try to keep this blog at a PG-rated content level, I'll let you use your imagination to figure out what I mean here). 


I now make a practice of bending over and grabbing my ankles just before and immediately after filling up my gas tank!


Something really weird happened to me yesterday. You're not going to believe this, but I swear it is true -- I drove past a gas station and the prices were exactly the same as they were the previous time I drove by it! Honest!


The other day, I heard about this family that decided to give up their summer vacation and take the money they would have spent on the vacation and donate it to charity. They had planned to travel about 250 miles, round trip. How generous of them to donate what had to be a gift of at least $100,000! 


Remember 1986? That year, gas prices dropped to as low as $0.79 a gallon where I live, before moving back up. This was after prices had risen above a dollar for the first time in the late 1970's. Remember 2001? After rising sharply early in the year, gas prices started falling in the spring and had hit a low of about $1.19 at some stations in my area by 9/11. Of course, the terrorist attacks ended that little party. If only I would have had a way of storing some of that cheap gas for use right about now!

June 12, 2007

In This Case, Pain Would Be Good

We would all be clamoring for lower income taxes if they were more painful to pay. We have a kind of painless, "out of sight, out of mind" type of system right now, i.e., taxes are withdrawn from our pay checks before we ever see or possess that money.

Suppose we had a more painful system in which we received all that money throughout the year and then had to pay all the taxes due by April 15 of the following year out of our pockets. Besides the fact that many people would have already spent their tax money and would be in danger of going to jail, the rest of us would be painfully reminded of just how high taxes really are and would demand an immediate and significant tax cut.

June 11, 2007

Would a Cash-Only Exchange System Be Beneficial?

Sometimes I believe we would all be better off financially if we went to a cash-only exchange system and completely discarded checking accounts, credit cards, debit cards, etc. I don't carry around much cash, but I'm much more careful about the cash I spend than the money I spend writing checks or using my credit card (even though I pay off the balance every month). Cash just seems more like real money, so I'm more careful about how I spend it and I'm more likely to account for every penny.

Blog Summary


  • No-holds-barred commentary (and humor) by Terry Mitchell on a variety of subjects such as current events, society and culture, politics, personal finance, technology, religion, health and well-being, sports, media issues, and trivia.

    His blog entries have been picked up or linked to by mainstream news services like Reuters, CNN, Wall Street Journal Online, USA Today, the Houston Chronicle, the Austin American-Statesman, the Dallas Morning News, the Chicago Sun Times, the Palm Beach Post, CoxOhio.com, Northwest Florida Daily News, ConsumerAffairs.com, WWL-TV, WMUR, and WNBC. In addition to his blogging, he is currently a regular columnist for etalkinghead.com and American Chronicle. He has also written over 100 feature-length articles that have appeared on numerous Web sites.

    In this blog, Terry will never miss an opportunity to assail political correctness or take pot shots at the conventional foolishness.

    In this age of information overload, Terry knows that most people don't have time to read long, rambling blog entries. Therefore, he serves up most of his posts on this blog in small, bite-size portions. You'll appreciate his cut-to-the-chase writing style that gets straight to the point without the unnecessary and boring lead-ins.

    Also, Terry makes following promises in regard to this blog that very few bloggers will make:

    1) Posts which are always family-friendly and free of profanity and vulgarity (despite this fact, this blog is never boring and never shies away from controversy).

    2) A reasonable effort to assure proper spelling, grammar, punctuation, capitalization, and sentence structure.

    Readers are free to comment, both pro and con, on any post. However, any comments that include profanity or name-calling will be promptly deleted. One who cannot defend his position on a given issue without resorting to such tactics is, at best, too ignorant to adequately defend his position, and at worst, lacking a defensible position altogether.

    For Terry's biography (in his own words), see the "ABOUT" link on the left side of this page, just below his photo.

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