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A contract is a contract – or is it?

March 19, 2009

I’ll admit it… I’m an old school kind of guy. I’ve always believed that a man’s word was his bond; a handshake is as good as a signature on a contract. Lately, my government has made me begin to doubt my upbringing.

Lending institutions that employ packs of predatory lawyers will pursue a poor borrower to the ends of the earth if his loan goes delinquent. they even trade in credit defaults; there’s a lot of money to be made by collection agencies who pay pennies on the dollar for delinquent loans. In turn, they pursue the debtor until at least enough money is paid to show a profit.

Now, many of those same lending institutions are hat in hand begging for bailouts from the government. Once they receive federal money (which is really taxpayers’ money), they increase the amount they charge to lend money to the same taxpayers who just bailed them out.

Case in point… I had a credit card with CitiBank for which the interest rate was 7.9% before the bailout. Almost immediately after they slopped at the federal trough, I received notice that the interest rate on my credit card was going to 15.9%. I’ve always upheld my end of the bargain, so why should I be penalized. Since I carry no balance on that credit card, I called them and politely opted out.

Next come the mortgage borrowers for their fair share of my hard earned tax dollars. Many people bought houses over the course of the last few years, knowing that they could not afford the payments. Because they couldn’t really qualify for a traditional loan, they accepted a sub-prime loan. Now that the interest rate, and their payments have reached an unmanageable sum, they can no longer make their mortgage payments. Not to worry… here comes Uncle Sam with a bevy of treats to delight even the most over-leveraged home owner in San Francisco or New York.

If you’re not able to pay your mortgage, the government doesn’t want you to lose your home. Instead of foreclosure, judges are now empowered to reduce not only the interest rate on your home loan, but they can set aside a large portion of the principle owed. It is unbelievable to me that this could take place in America.

We’ve seen a lot of foreign investment in American assets in recent years. Most of those investors trusted America to honor the terms of their contracts, because like me, they believed in the validity of a contract. Sadly, we live in times where the government has proven that contracts are basically meaningless. How long until foreign as well as domestic investors grab onto this new reality and take their investments elsewhere?

Until next time,
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