Get Rich Slick

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It seems every few months someone will post a comment on this post from a while ago coming to the defense of Dave Ramsey.   I guess what I’m really interested in writing about today is to ask what the end game of the Dave Ramey philosophy will lead us to at the end of the day?

Since I’ve never purchased any books and never listened to the radio show I’m going to try to answer that questions from the bits and pieces I’ve gathered from snippets from PF Blogger posts and other news sources.

If I’m not mistaken, Dave Ramsey hates credit in all forms: credit cards, mortgages, student loans, etc.   Dave feels you should pay cash for everything and no other forms of payment except perhaps debit cards and checks.

So if every American followed this advice, what would be at the end of the rainbow?

If we all stopped using credit cards then I guess several hundred thousand people would immediately lose their jobs.  In trying to figure out who loses their job, I whipped out one of my credit cards to take a good look at it.

The first thing I notice about my credit card is that it is made of plastic.   Clearly, there must be some manufacturing plant some where that makes these little cards; I wonder how many people would lose their job if they didn’t need these cards any more.

The next thing I notice is that there are numbers printed on my card.  I’m guessing those numbers are used to track transactions.   Hmmm… accountants, computers and analysts must be involved in handling all that.  I wonder how many people will lose their jobs now.

As I flip the card over I can’t help but notice a toll free number to call.   Hmmm.  Someone must answer the phone so that means there is a call center somewhere where customer service reps are employed.    Speaking of phones, I’m guessing the phone company is employing people keeping the phone systems up and running.  I wonder how many engineers are associated with the call centers banks run?

There’s some nice artwork on my credit card which means that a graphic artist was hired to design the card.   Goodbye graphic artists, you are no longer needed.

Keep in mind that I’m just discussing ONE thing on Dave’s hit list: credit cards.   You can find a long list of people involved with houses, schools & universities, autos, retail shops and anything else “debt” related.

So after the vast majority of Americans lose their job what exactly are people suppose to do to earn a living?  What is the Dave Ramsey End Game?

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My kids go to a private school and have been since they’ve been since the beginning. Over the years, the tuition has gone up fairly dramatically but that isn’t the real issue. It is understandable for tuition to go up as the cost of certain things increase such as staff salaries and operational costs but what is not so understandable is increasing tuition to cover these things AND shifting some of the consumables and operational burden of school functions to the customer.

As our kids prepare to go back to school, I looked over the list of required items. Most of the items were your typical stock of items you’d expect a kid to have: pencils, pens, paper, notebooks, erasers, etc. What I thought odd were consumable products such as hand sanitizer, rolls of paper towels, box of tissue, and other items I didn’t think fell under the “educational” supply umbrella. I was surprised I didn’t see toilet tissue on the list since every other consumable product was on the list.

The school is also considering adding a “energy” fee to the tuition. Huh? If that fee didn’t exist before the last few years my kids were going to the school how is this there now? When I spoke to some of the administration people about this they stated that parents didn’t want to pay for any more tuition increases. I looked at them bewildered and asked them what they thought a new energy fee was other than an alternative form of tuition fee increase?

I didn’t get much of a response because there is no response. I often wonder how naive and gullible people are out there not to question these fees but I guess that’s why airlines and other businesses get away with it. I did find out one interesting thing however, this year we have many more students coming in from some of the other more expensive private schools in the area into ours. Evidently, some parents can’t afford the tuition increases in fees at the more “prestigious” private schools so now they’re attending our less “prestigious” one and finding out it isn’t so bad after all. Go figure.

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Beijing has an estimated 3.3 million cars.  By most estimates, half have been banned from driving during the Olympics.   If we assume that each car has a 10 gallon tank then Beijing consumes 33 million gallons of gasoline per week (assuming typical usage).    Since half the cars have been banned then that represents a drop of 16.5 million gallons of fuel.

Also keep in mind that construction machinery was ordered halted to reduce air pollution.  I’m not sure how much diesel the bull dozers, cranes and other equipment burn but I would guess at least a few million gallons of diesel.   The Olympics will be over in a few weeks and the roaring machinery will be brought back to life.

I’m not sure if oil will hit $150 again soon but I do know it will not drop forever.

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The world is a marketplace of ideas, commodities, and services and I’ve always believed that the person that finds the most effective and efficient way to churn a profit would be a person of great wealth.    So when I read about people home gardening as a way to wealth or joining peer to peer lending organizations to grow rich, I am intrigued but often skeptical.

In the past I’ve commented about how a home gardening enthusiast really doesn’t have a competitive advantage against an industrial/professional farmer.   The economies of scale simply don’t exist for the home gardener and the marketplace simply doesn’t allow for small scale producers access to large commodity markets.  It all boils down to the supply of massive demand vs. minuscule supply when dealing with individual home gardeners.

As I continue to do research on Prosper.com, I came across this interesting blog post by zcommodore with the following excerpt:

Still, banks have the benefit of having access to the whole credit report, experienced people making lending decisions, the ability to charge higher rates, and much more favorable tax treatment on their earnings.

It’s interesting that people quickly learn that it’s difficult to compete against “industrial sized” interests in a market place open to all.   When home gardening I quickly learned this lesson early on and wrote this excerpt on my blog a while ago:

A farmer will typically grow food on a large scale leveraging land, equipment, seed, water, and labor on a wholesale level where a home gardener will pay retail prices for most of those things on an un-leveraged basis. You can crunch the math numbers any way you want but at the end of the day the economies of scale do not favor the individual home gardener and I’m not even including tax payer subsidies!

So we have two entirely different activities, gardening and lending, from two different perspectives reaching the same relative conclusion:  Professionals will beat amateurs most of the time and a primary cause of that is access to economies of scale and leverage.   I think this continues until the amateur becomes a professional and the playing field becomes level and true competition takes place.

I’m working on a more detailed post expanding on my hypothesis entitled “The Prosper.com Obituary” that I hope I don’t ever have to post but I’ll continue to work on it because I’ve been down this road before so many times…

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I’ve been trying to do some research on Prosper.com and all I could come up with for research info is a website named Prospers.ORG which has some interesting information about loans and defaults. I’m surprised the usual PF Bloggers haven’t been saying much about Prosper recently and some seem to have very high default loan rates that they’re evidently not talking about on their blogs.

I found this chart rather shocking on Prospers.ORG showing default loan rates climbing like crazy.

I wrote a post not too long ago expressing my alarm about Prosper.com growth membership crashing after reviewing some stats here.

I’d be really disappointed if my prediction comes true and Prosper washes out next summer. I think the timing might have been off and the credit crunch is going to squish Prosper out of business. It’s unfortunate because I had planned to throw some cash into the thing to see how well I could do but I’ll wait it out to see what happens over the next 12 months.

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So much for frugalism as used cars are approaching cost of new cars in the “efficiency model” market.   Remember all those frugal tips such as “buy a used car,” well do you still buy a used car if it costs as much as a new car?

According to this article on Yahoo, used cars are approaching new car prices fast,

Some used cars’ prices are even approaching the levels of new models. The average 2006 Honda Civic costs $16,118, or 86% of what a new 2008 model costs. The average price of a used 2006 BMW Mini Cooper is about 81% of what a new model costs. And the long-sought-after Toyota Prius costs 87% of the new-model price. Typically, three-year-old used cars cost between 50% and 60% of their new equivalents’ prices.

It’s all a matter of supply and demand and the reason used cars are typically cheaper is because, well they’re used, but what happens when used cars become the only cars?   Well, the price goes up!

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With the prospect of major banks failing and the panic surrounding investment banks, it’s always intriguing to see how smaller social capital markets are fairing so I took a quick gander as Prosper stats here. It seems to me that prosper membership growth is crashing hard. The borrower/lender ratio is a bit worrying too.

I don’t have time to delve into the loan default and borrower statistics but it’s curious that it is happening now along with the financial credit crisis. I wonder if Prosper is vulnerable to a “bank run” if lenders get skittish about future prospects? I’m curious to see how many people had Prosper linked to IndyMac accounts too but that’s something we’ll probably never know.

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