I had an interesting discussion with my friend a few days ago. About a year ago he borrowed $40,000 (at 0%) on credit cards to invest in the stock market. He had asked me about investing in the market and I advised him AGAINST borrowing credit card money. He asked me why I could do it but not him and I told him that I keep huge cash reserves to be able to pay everything back if something goes wrong. I told him that if he was dead set on borrowing the money, he should just invest the money in a bank paying high yield interest (3% to 5%) like HSBC Direct or ING.

He did the math and figured that $1200 return in a year simply wasn’t worth it but he was dead set with investing in the stock market. After more discussions, I advised him if he was dead set in investing in the market he should do so as conservatively as possible. I even suggested ETF Covered Calls as a strategy. He asked me how much he could earn with this strategy and I told him about 20% in a good case scenario maybe more maybe less. He still wasn’t happy with that potential.

He opted to invest in call/put options and risky/volatile penny stocks. Things actually went well initially. He bought a hundred thousand shares of some no name penny stock for $0.03 and it went to $0.15. I begged him to cash out and sell the stock, I told him he got lucky and that was a once in a lifetime scenario but he wouldn’t sell! He said no. He was going to “ride” this stock all the way to $15.00 and retire.

This is when things turned for the worse. That penny stock nose dived a week later from $0.15 to $0.002; yes, that’s less than a penny and it’s stayed there for the better part of the year.

Not to be deterred, he borrowed an additional $20,000 and bought stock in a major auto company. I begged him not to do it because gas prices were rising dramatically and that would hurt ALL automotive industries. Wouldn’t hear any of it and went and bought hundreds of shares of this auto stock. Needless to say the stock dropped 50% within months and things started to go really bad.

He figured he would roll over all this credit card debt (borrowed at 0%) to more zero pct credit cards but now we’ve entered the credit crunch cycle and banks are balking at lending more money at zero pct to him. Time is running out, he can’t roll over and the zero percent time frame is running out on the existing debt. He’s done the math and figured he’ll be able to survive for 12 months max before the tidal wave overwhelms him.

He called a bankruptcy lawyer and got some advice and now he’s trying to concoct all sorts of schemes to win out some how. He’s talked about borrowing one more time from some sucker credit card company and pouring all the cash he has into his home. The bankruptcy lawyer told him that they can’t/won’t touch his home. He’ll use any other proceeds from bad stock sales to pay off his car and hold on to it through bankruptcy.

He called me and asked me what he should do. I told him at the very minimum, he needs to wait till after the election to see how things pan out. He is of the belief that we’re about to enter the next Great Depression and he’s not bothered one bit about filing for bankruptcy.

When I asked him why he didn’t listen to me over the past year and a half of this he stated he was angry that Wall Street goons got to rip off America, walk away with millions and now tax payers have to foot the bill. He’s opted to “get back” at Wall Street & Congress through a “scorched earth” attitude taking anybody and everybody down with him.

We finished the conversation with him asking me if he should go through with the bankruptcy. I told him to wait till after the election before he takes any action. Should he file for bankruptcy? I’m not sure he has much of a choice.