Happy New Year!

I actually started this off as another rant about stupid things people do, and how this phenomenon is responsible for most of the problems in our world that are not caused by random chance, but then I reconsidered. I mean, that would be a depressing topic for the day on which a new year starts, with all of the potential and possibilities for a better future that a new year implies. The past year was a tough one for everyone who actually believes in democracy, free will, common sense, the human potential, a free market economy, peace on Earth, the United States of America (as something other than a way for rich people to screw over the rest of the world), literacy, higher or lower education, the environment, artistic freedom, freedom of speech, freedom of the press, freedom of religion, the pursuit of happiness, or sugar-free chocolate that actually tastes like the real thing, not just for me and my family in particular. And yet, even an old cynic like me can appreciate the promise of a new year, another chance, and the hope for a better world. Or, to quote Adam Duritz and the boys from Counting Crows, “It’s been a long December, but there’s reason to believe, maybe this year will be better than the last…”

In that spirit, I want to bring up a practice that came up in the news this part week that I think should serve as a warning for all of us who haven’t quite lost all of our common sense yet – or at least might remember where our marbles are. A story in the Los Angeles Times this past week mentioned a new loan crisis forming – this time in the field of auto loans, not mortgages. With the introduction of the new 7-year car loans, a lot of people are reaching the point where they want to buy a new car, but they still owe more on their car loan than they can get for selling the vehicle (or trading it in). This would prevent them from buying a new car, and thus delay the sale for a long period, thus lowering the sales rates for new cars. To avoid this, some car dealerships (and their financing partners) are adding the remaining balance from the old car loan to a NEW car loan, and raising the monthly payments to cover the difference.

Sounds like a bad idea, doesn’t it? In effect, you’re keeping your old car loan and taking out a new one at the same time, but you only get one car out of the deal. Even worse, some people replace their cars every three years (or even sooner), but are still paying on the loan for seven. There were a few cases in the paper of people who had replaced several vehicles in a short span (for whatever reason) and now had car payments that are higher than their mortgage payments! It’s destroying their credit, sucking up all of their available income, threatening their home equity, and potentially destroying any chance they have for retirement (or of supporting themselves when they can’t work anymore) simply because they don’t understand how loans actually work – or because they are stupid enough to believe that they can somehow beat the system.

Folks, trust me on this one: the House always wins. What the finance companies in this story are failing to realize is that they aren’t really the House – they can’t beat the laws of economics any more than the foolish and/or greedy consumers they’re fleecing can. If enough cars are repossessed for lack of payments, the finance companies are going to lose money no matter how usurious the terms they’re changing are, and if the economy crashes because too many people have destroyed their financial health with preposterous loans, it’s going to take the finance companies with them. And, as I noted in my post last year about Predatory Lending, we can’t expect the Federal Government to do anything about it; even if they weren’t already owned by the people who make money on this sort of nonsense (and as long as lobbying is legal, they will be), none of the other economic models have ever worked. The laws of Economics are not as precise as the laws of Physics, for example, but they’re just as hard to legislate away.

The only possible answer is in our hands, yours and mine. We have to be the ones to stop thinking we can beat the system; stop spending money we don’t have; stop acting like idiots. We have to declare the revolution of common sense, restore personal responsibility to our vocabulary, and start living like people who can actually find our butts without a lengthy search. Or at least remember where they were…

Because if we don’t, there’s reason to believe that this year will be even worse than the last…