Mark Cuban:
I paid for school with a chain letter and I would wake up in the morning, go to my mailbox and there would be checks there. And that's how I paid for my junior year.
Is a chain letter "productive" if it pays for college?
Friday, July 24, 2015
"Productive"
Mark Cuban:
Is a chain letter "productive" if it pays for college?
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4 comments:
Is a chain letter "productive" if it pays for college?
That's like asking if bank robbery is productive if it pays for college.
The US Postal inspection Service says chain letters in the mail can get you up to 2 years in prison.
https://postalinspectors.uspis.gov/investigations/MailFraud/fraudschemes/sweepstakesfraud/ChainLetters.aspx
You seem to be mesmerized by what happens to the borrowed money after the loan is made. Borrowed money is usually spent and whoever gets the money also usually spends it and whoever gets that usually spends it and so on ad infinitum...
The point being is that it is unknowable to what extent borrowed money is used productively even if we could agree on a definition of what is productive and what is not.
What can be determined is where the money comes from to pay back the loans. If any loans are made where the anticipated income stream comes from chain letters then at some point those loans will fail when it becomes universally recognized that these schemes are a scam.
The same thing can be said of relying on asset price inflation when it is relied on as the source of some of the income to pay back loans - only in that case it is far worse. When the day of reckoning comes and the assets are no longer inflating and that income starts to disappear then the indebted are forced to liquidate more assets to generate income which in turn creates more asset price deflation and puts more loans in jeopardy. That is what Irving Fisher called Debt Deflation.
Jim: "If any loans are made where the anticipated income stream comes from chain letters then at some point those loans will fail when it becomes universally recognized that these schemes are a scam."
I think we have to say that for Mark Cuban the chain letters were productive. Jim, you don't have to convince *me* they're not productive. You have to convince *him*. You have to present me an argument that would convince me if I was him.
As I said you are so mesmerized by whether money is used productively that you fail to see that it is totally irrelevant to the question of whether lending is sustainable. Cuban was not paying off a loan with a
chain letter. There was no loan that relied on the proceeds of that chain letter to survive.
When you have more than 25% of the all the nation's lending dependent on the proceeds of chain letters to be paid back then it shouldn't be too hard to see that economic collapse is just around the corner. And yet so many failed to see it because they too were completely mesmerized.
In 2006 there were about $1.2 trillion worth of US Mortgages financed by private investment money. 90% of those loans were not viable and destined to fail if housing prices went down.
Before the bubble and since the end of 2008 the amount of mortgage loans financed by private investors is close to zero.
Jim: When you have more than 25% of the all the nation's lending dependent on the proceeds of chain letters to be paid back then it shouldn't be too hard to see that economic collapse is just around the corner... In 2006 there were about $1.2 trillion worth of US Mortgages financed by private investment money...
Your remarks seem to suggest that the excessiveness of debt (or the excessiveness of the debt related to "financial asset appreciation") is part of the problem.
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