Don’t Feed the Alligators

A Personal Finance Blog from a Small-Scale Landlord’s Perspective
03.24.2008

Two nights ago ScrapperMom and I watched Maxed Out, a 2006 documentary about the US lending business. This movie was very good in showing how deceptive and underhanded most of the common lenders are nowadays.

A number of pathetic stories were told: people who committed suicide because of seemingly insurmountable debt, people whose low interest government subsidized loans were replaced by subprime mortgages, a number of people who filed for bankruptcy — including a soldier who fought in Iraq beside modern day mercenaries earning many times his salary.

It was hard not to feel bad for most of the people portrayed, yet at the same time, all of the people in film were adults who made their own, albeit bad, decisions. Sure, it can be argued that they didn’t know what they were getting into, but at the same time, each of us is ultimately responsible for our own actions in life. Always read what you sign, and don’t ever let anyone pressure you into signing something that you haven’t had a chance to read AND understand.

The only person in the film for whom I really felt bad was a 57 year old widow who could not continue to make the mortgage payments on the house in which she and her husband had lived for 25 years. She fell behind on the payments and started using cash advances from credit cards to pay the mortgage. This, of course, only worsened the situation. All I have to say about this is: Shame on her husband for not leaving her with a life insurance policy that would have taken care of her needs after his death. Sure, wives everywhere bear some responsibility for making sure that their Family is properly covered, but this was the only person in the movie who was really screwed over through no fault of her own.

The other side of the story was shown as well: collections agencies that buy “written off” debts from the credit card companies for pennies on the dollar and then hound the debtors, even going so far as to call their neighbors, family, etc. to guilt them into paying up. Executives from a number of credit card companies appear in front of a Congressional committee to tell their side of the story. The credit card industry is a very profitable business, and issuers are betting on the hope that you won’t pay on time. A quote from the film:

“If you cut out the people least like to be able to pay, you cut out all the profit.”

All in all this was a good film that reinforces the following ideas:

  1. If you are in trouble with creditors, get help quickly. Most of the money owed by debtors in the movie was in the form of fees and interest, not principle.
  2. Avoid consumer credit as much as possible.
  3. Know what you are signing.
  4. Get life insurance.

I’ll rate this film 4 out of 5 stars at Netflix, and it’s well worth seeing.

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