Dollars and Sense
Q: Since bankers are typically conservative,
does that mean they are all Republicans?
A: I can't speak for other bankers and my
voter registration choice is a private matter.
However, I think it is very narrow minded for
anyone to vote a certain way just because they have
registered with one political party or
another. I realize that nearly all politicians tie
themselvesto a political party but, it doesn't mean
they are the best person for the job. I have never
voted a straight ticket for one side or
another and neither should you. Take time to hear
whatthe candidates have to say and vote for
the one who best represents what you think needs
to be done. Family political ties usually go
back 5 or more generations and it is normally not
broken. If there is one thing that
bankers are probably consistent with in politics it's that
welook at candidates from a financial
perspective. We want to know who has the most
financialbackground and knowledge. I can't imagine
anything more important than our country gettingits
financial affairs in order unless it is terrorism. That's very
important as well.
Q: What is your biggest concern financially
about the Presidential election coming up soon?
A: The biggest concern for all of us should
be which candidate is most likely to spend money
that our government doesn't have unless they
increase taxes. We should not elect that person.
Abig part of why our country is a mess
financially is that politicians have added billions
of dollars in new subsidies most of which
have gone to those who do not pay taxes. I think
all taxpayers are fed up with the way our tax
dollars are spent. So, if your instincts tell you
that one candidate is more likely to initiate
more subsidies than the other, you might want to
consider this before voting. There is only
one way to pay for more subsidies and that's
highertaxes. If we are fortunate enough to
elect someone who will eliminate some of the
subsidies,that would be a bonus for us. It will
take years to eliminate our deficit but, we can start
by exercising our right to vote in a few
Q: On a news show recently, they were
talking about states that are giving free college tuition
to students from Mexico. Is this
A: I happened to hear this discussed on an
early morning news show but I don't know if it is
true. It would not surprise me at all if it is
true. Evidently, a handful of states with tax
supported universities are giving up to a 50%
discount in tuition to foreign students if they choose
their school. Those same states offering this
are charging more than the standard in-state
other words, if you are from Mexico, you can go to college at these
universities and pay halfprice
tuition. However, if you are in a bordering state to the one with
the universities, you willbe
charged more than the standard rate. The newscaster was arguing
with a representative of one
of these states and he was not giving a convincing answer as to why
this is being done. The
only one he could give is that they were doing it because student
enrollment is down which
is a ridiculous reason. Instead of charging students from other
states more, why not charge them less also to get more
students. I don't get this at all.
Q: President Obama said on TV that the
economic recession is over. Is it really over?
A: Obama saying the recession is over
doesn't make it true. Yes, there are positive signs that
it'sgetting better. However, there are still
some weak spots in our economy and they need to
befixed before we can say the recession is
completely over. People are beginning to borrow money
and make purchases such as autos and real estate. It's certainly
not back to what it was 10-15
years ago but, it's getting better. It doesn't matter if it's a
Republican or Democrat, thePresident currently in office is going to
try and make it sound good just to make themselves
look better. It's what politicians do.
Depending on how the election goes next month,
positive things may finally start happening. The
wrong person in the White House could set us back
in our progress by raising taxes. This would
not be a good time to have that happen. So, inanswer to your question, progress is
being made but, it's premature to say that the recession
isover. I think the best thing for us to do
is live our lives and do what we can comfortably do.
Ifyou have solid employment and can afford
it, enjoy life and do the things you want to do.
Q: What is the highest and lowest Prime Rate
we have ever seen?
A: For those who may not know what it is,
Prime Rate is an index used by banks to charge
interest on loans to business borrowers. Prime
Rate is usually set by the very largest banks and it
generally changes with the stock market
but there are other things that impact the need for
change. Based on records, the highest
Prime Rate recorded was in the early 1980's and it
was21%. I have read stories that it reached
21% during the Civil War in the 1860's but I can't
find any documents to support that. The 1980's
was a time of prosperity and the unemployment rate
was low. The economy was strong and everyone felt good about
things. About 10 years ago
everything changed and this is when Prime Rate was the lowest in
history at 2.50%. Unemployment went up and we lost all the
gains we made in real estate values and the stock
market. Today, we are picking up the
pieces after millions of foreclosures across the
country. It's ironic that record level
foreclosures occurred during a low rate environment rather
than when rates were high.
Q: How are home values holding up since the
crash in the market a few years ago?
A: Valuations on residential real estate
seem to have bottomed out. Depending on what part of
the country you are talking about, the
decrease in values ranged from 20% to 50% and it
hadto happen. For the past couple of years,
it seems that values have stopped falling.
need to be cautious about this. Residential real estate sales have
not been the best and wecould
be looking at another setback if things don't pick up. When
discussing this, we need to remember why the fall in values occurred.
Runaway inflation back in the 1980's and early 1990's inflated the value of real estate
above what was realistic. It was very typical if
someone purchased a home, lived in it for 3 years
and then sold it for a big profit. It shouldn't have
beenthat easy. So, the devaluation of real
estate was a correction made to bring things back
down to earth. Billions of dollars were lost
across the country by individuals and banks who got
hurt. We don't want or need to have runaway
inflation. We need a steady growth.
Q: When you purchase a car, clothing, etc.
you pay taxes on it once. When you purchase real
estate you pay taxes forever.
A: When you pay a sales tax on food,
automobiles, clothing and other consumer goods, the tax
isnormally a state and local tax and it is
used by both for operating revenue. This is the
primary source of revenue for cities or villages
and the state. The amounts are small so it takes a lot
of consumer purchases to pay the operating
costs of both. Real estate taxes go to the county and
it's probably 75% of the counties income. They use it to
repair roads and bridges, provide for law
enforcement as in the Sheriff's department, prosecutors and judges,
and other county offices like the health department. The
county also uses some of it to attract business
and industry. Also, let's not forget, a
portion of our taxes goes to our schools to educate our
kids and grandkids. All of these expenses are
ongoing. Therefore, we need real estate taxes to
be ongoing. If we didn't have real estate
taxes, there would be another kind of tax because these things must be funded.
Q: Does the cost of living index apply to
all areas of the country?
A: Each year, we're informed of the cost of
living increase. It's normally somewhere between zero
and 2 1/2%. There have been times in the
past where it has been higher but, this is where it
usually falls. There are a number of
things that are priced to determine the increase such
asfood, housing, utilities, clothing, fuel
and others. However, it is not an exact science. So
it's impossible to come up with a number that
applies to the entire country. Some areas are actually lower while others are higher.
Smaller rural areas are impacted less than big
cities. You've probably heard the old saying
"eggs are cheaper in the country." What that is
really saying is it's less expensive to live in
the country. Some may disagree with that but, for
themost part, I think it is accurate. Most
employers review the cost of living index report but,
itdoes not dictate pay increases.
Performance is still the primary factor used to
determine compensation and rightly
Question: What is the major difference between
Socialism and Capitalism?
Answer: Here is a basic comparison of Socialism
vs. Capitalism. In a Capitalistic society, you are free
towork as hard as you want and risk as much
as you want to gain assets and build wealth. If
yourrisk pays off, you become better off
financially. If it doesn't pay off, you lose financially.
Inother words, you have a chance to gain
through your efforts. Under Socialism, the
governmenttakes most of what you earn and spreads
it evenly regardless of how hard you work or
how much you invest. Does this sound
familiar? Well, it should because many of the things
our elected politicians have done is
Socialistic in nature even though we are a Capitalistic
society. Welfare and other subsidies is a good
example. Nearly half of our nation is now
receiving benefits without turning a hand. There
are many who feel we are already a Socialist nation.
Iwon't go so far as to say it's true but,
if the trends continue and more subsidies are created,
it could become a scary situation. We do not
want that to happen. It's not what we are about and
we should stand against this.
Q: What happens to paper currency when it's
damaged to the point banks can't give it out?
A: Banks are expected to take money out of
circulation once it becomes significantly worn.
Wecollect these bills and periodically ship
them to the Federal Reserve Bank for destruction. The
Fed shreds the bills to the point where they are unrecognizable.
The shredded material is then sent to a central location. The
average life of a dollar bill is 22 months. Larger
denominations last longer depending on
the size. For instance, the $100 bill, the largest
denomination printed, will last up to 7
years because it passes through significantly
fewerhands which reduces wear and tear. The
volume of new bills printed is partially
determinedby the volume of bills taken out of
circulation. We are reimbursed 100% of the face value
of all currency we send for destruction.
Here is a little side note and it won't make you feel
good about handling paper currency. It is
considered one of the worst items in terms of
spreading germs because it is handled by so many
people. A single piece of paper currency will be
handled by thousands of people before it
is finally taken out of circulation.
Q: Do banks have the authority to check on
anyone's credit if they want to?
A: No, we do not. A lender cannot obtain
information on an individual's credit unless they
have requested a loan or have a loan with that
financial institution and they feel circumstances
are such that a current report is needed
to protect their credit arrangement. The concept of
credit bureaus dates back to the 1860's
in a very basic way. However, they took shape in
themodern era just after World War I. Today,
there are three major credit reporting companieswho
gather information on anyone who obtains credit. There is no doubt
that the use of credit bureaus has been good not only for
lenders but also consumers. It is estimated that 90 million inquiries are made each year
on the credit history of individuals. Over the years,
the process has improved and the
information can be obtained in a matter of minutes
once the request is completed. If you have not
borrowed money for a long time, you can go on-line and check your score. Some
web-sites are free.
Q: Has there been a major change in bank
lobby traffic with all the new technology?
A: The banking industry has been going
through a change in the habits of customers for years
now. The changes began to accelerate over
the last 10 years. Prior to the use of ATM's, debit
and credit cards and other on-line
banking technology, it was not unusual to have long
lines waiting to see a teller. This was
especially true on Fridays when pay day usually occurs.
Due to technology, plus the advent of direct
deposits of Social Security checks and worker's pay
checks, the lines have decreased greatly.
Many from the younger generation do not need or want
the face to face contact. They are perfectly happy to do all their
banking on-line to avoid
coming into a bank lobby. So, we make that possible if this is
their choice. It's been estimated that lobby transactions in
banks have gone down throughout the industry by as
much as 40% or more in just the past 15
years. I think this will continue.
Q: What is the average age of first time
A: One article stated that first time home
buyers are older today than they were 40 years ago.
The average today is 32-33 years of age.
In the 1970's the average was 25 to 26 years. There
are various reasons for this. The primary
reason is economic conditions. Another reason is
high student loan debt. Also, young people are not settling down
with a family as young as they
used to. There are many other things to choose from today for ways
to spend money. Most
young people are not ready for the responsibilities of home
ownership before the age of30.
They haven't been established in their jobs long enough and they
are not aware of the expenses associated with home ownership.
There is no shame in renting a home when you are young. I did it for a few years as do
most people. Young people have it drilled into their
brains that renting is just throwing money away.
I understand the thinking on this but, it's still
theright thing to do when you are young and
not yet established. Don't rush it.
Q: Is there a rule of thumb on additional
expenses other than the mortgage payment for
A: I can't give you a number that would be
universal. Factors like the real estate tax rate, age
of the home, the age of the mechanical units
and, is the house brick or will it need to be painted
every 5 to 10 years. Regardless of what
you might think, parts of your home are not built to
last forever. Some home buyers are not prepared for the
added expense and they just let the home go without needed interior and
exterior repairs. If you are buying a home and you
want some idea as to what additional expenses
to expect, check the age of the furnace, air conditioner, water heater, appliances,
the paint, carpet, tile and other things like this
for damage or ware. Here is an idea to help
with your decision. If you are not prepared to
spend up to $5,000 per year in additional
expenses, you are not ready to buy. On top of this,
you will have insurance and real estate
taxes. You may have years where it's just taxes and
insurance but, you should prepare for the
unexpected. You will have it in home ownership.
Q: I was told if I finance something and the
business owner won't honor the warranty, I can
callmy bank and they will look into it. Is
A: Since I don't know what you purchased, I
cannot address your question completely.
However,in general, you made the choice of where
to purchase the item and you decided to borrow money
to pay for it. Your lender is not responsible for the enforcement
of the warranty. I don'tknow
if your claim under the warranty is legitimate or not but, if it is
and you are not gettingsatisfaction from the store or company
that sold it to you, your next step would be to
contact the manufacturer. If they do not respond
favorably, you can try the Better Business
Bureauor some other consumer's advocate for
help. Your lender may sympathize with you but, it
isn'tsomething you can or should hold them
responsible for correcting. There are some laws that
apply to the auto lending industry but,
since you did not specify the item purchased, I
amanswering your question in general terms
and not specific to one item.
Question: Why do banks wait so long to sell a
repossessed house? Some of them are falling apart
Answer: Based on my experience, it is usually 6
to 10 months before we get a foreclosed property
sold. Lenders have their attorneys do the
necessary paperwork to foreclose and then it sits for
months primarily due to the backlog of
houses that are on the list for a Sheriff's sale. Over
the past 10 years there have been from 150 to
200 per year in Defiance County. The Sheriff
has requirements to meet to keep it in
accordance with the law. There are appraisals that have
to be made to determine the value and
notices that have to be published. If I had total
it as a banker, we would sell them immediately. Unfortunately, it
isn't up to the lender so we
wait our turn. On top of all this, the borrower often files for
bankruptcy during this time which
adds to the delay. It is very frustrating for lenders when we have
to wait so long to getback
the property to sell. The majority of properties do not get sold at
auction and lenders get the property back to repair before
selling. The lender loses money at least 90% of the
Question: Why do some banks, when approached to buy
a CD, say you have to have an account with them
to purchase a CD?
Answer: As a general rule, this is not the policy
for most banks. It's actually rare for banks to do this.
For those that do require you to have an
account with them to purchase a CD, there are two
primary reasons. The first is that they
want to force you to have a checking or savings
account which ties you closer to the bank. The
other reason has to do with banker's views of CD
onlycustomers. CD's alone are the least
profitable product for banks. Most bankers feel that
CDonly customers are not as loyal and the
individual that purchases one without any other business relationship is likely going to
leave you when it matures if they can find a better
rateelsewhere. I have never gone so far as to
require a checking account relationship in order to
allow someone to purchase a CD. However,
I certainly understand to some degree why somebankers do it. The primary reason behind
bankers not wanting CD's from individuals who don't
have any other relationships and those
who do want them is loan demand. If the banker has
alot of loans to fund, it doesn't matter
nearly as much about the additional relationships.
Ingeneral, bankers would prefer more than
just the CD.
Question: What do you say to people who don't use
banks and they just hide their money at home?
Answer: If someone keeps all their money hidden
at home and it is stolen, I would like to be there
when they ask their insurance company to cover
the loss. It should be good for a laugh. With all
due respect to those individuals who do not
believe in banks, keeping money in jars and cans is
just not using your head and I'm aware that
there are some who do this. It's not safe. There are
extremists in this country that have
people believing the government is going to take over
all of their assets including all the money
in banks. That's about as farfetched as fortune
tellerssaying the world is going to end on a
certain date. Even if you own a safe in your home, it
isn'tas secure as your bank. Some would say
that an individual who would do this is just
eccentric. I think it goes a bit further than just
being eccentric. It's irrational. You are not only
putting your money at risk. You are risking your
personal safety. It's a bad idea.
young people graduating from high school today with better
financial skills than kids did 40-50
Answer: It depends more on how the parents
address this issue than what they learn in school. We
should not rely totally on the schools to
educate our young people. Financial literacy should
begin at home. Although our bank sponsors
a program of financial literacy in our schools,
youshould not rely totally on this training.
If your child someday marries someone who has
beentaught how to handle finances and your
child hasn't, it will most definitely end up causing
problems. You can almost count on it
happening. I couldn't begin to count the number of
timesI've seen this happen. One spouse cannot
control their spending habits resulting in a poor
credit rating for both. There are many
lessons we need to teach our kids while they are still
athome. Financial literacy is one of the
more important ones. Unfortunately, I would have to
say that kids today are less concerned about
financial matters than they were 40-50 years ago.
We can thank our government for much of this
in creating the out of control welfare system.
Question: We hear some say take your social
security as soon as possible. Others say wait. Which way
everyone were financially able to wait until the age of 70, I would
say wait. Since they aren't,there
is no right or wrong age to start drawing social security. If you
could wait until the age of 70 it
would maximize your monthly income vs. the minimum amount at age
62. Also, from the age
of 66 until the age of 70, if you have not drawn your social
security, the amount will go up about
8% per year. In other words, waiting the additional 4 years could
result in roughly a 32% higher amount than if taken at 66 years
of age. For example, if projections call for you to
receive $1,500 per month, waiting the
extra 4 years will result in your check being about
$2,000 per month. That's a significant increase.
The majority of retirees do not wait until 70 years
of age. Again, there is no right or wrong. It's
just a matter of whether you can retire at 62
and take the smaller amount or, wait and
maximize the amount at age 70.
Question: Are U.S. Savings Bonds still
Answer: In 1935, Savings Bonds were first
introduced to the public. They have been called by
different names over the years. During World War
II, they were referred to as War Bonds. Up untilJanuary 1, 2012, they could be purchased
at any bank. They are no longer sold at banks
and purchasers now have to go on-line or
through mail service to purchase them. I don't have
any solid numbers as to their current
popularity. However, I would imagine they are less
the convenience of buying them at your local bank was discontinued.
Also, World War II was
considered to be a popular war and many Americans purchased them
back then as a patriotic act and not just an investment.
Attitudes have changed since then about wars.
We've been involved in several questionable
military actions so they are purchased more for the
investment than to be patriotic. When you
are purchasing a U.S. Savings Bond, you are basically making a loan to our government
and they are paying you interest for the loan.
Question: Is there a reason why banks advertise
higher interest rates for larger deposits?
Answer: Financial institutions sometimes offer a
special rate. When they do, it usually requires a
larger amount. Let's say the figure is $50,000.
The reason is simple. It takes the same amount of
time to prepare documentation for a $100 CD as
it does for a $50,000 CD. If the goal is to bring in
an additional $1 million in deposits to fund
loans, it can be done with the higher dollar
amount with much less employee time than if they
allowed the special rate on a much lower figure. It's
no different than what we see when retail
stores offer a product and the more you buy, the
better the price. Or, they may advertise
buy one get a second at half price. It's basically
the same concept except the bank isn't
selling you an item. They are investing your money.
The single biggest expense any business has
is labor cost. The higher dollar amount allows them
to attain their objective with less time.
The average person does something along these lines
in their personal lives all the time. We do
things in the most efficient way possible to
accomplish the tasks.
Question: Why is it so difficult to get a loan with
the interest rate fixed for a long term?
Answer: A real estate loan to buy a home can have
a rate fixed for a long term if it's being sold in
the secondary market. This is about the only
way it's possible. The reason is simple. The majority
of a bank's customers will not go long term
on deposits. Most individuals won't purchase a CD
from their bank for longer than 2 to 4
years. Therefore, your bank can't take those deposits
and loan it at a fixed rate for 10-30
years because if CD rates go up, our customer will expect
a better rate when it matures even though
we would be stuck with the long term loan rate. It's
somewhat like asking a car dealer to
guarantee you a new car price in 5 years at today's
prices even though the dealer doesn't know what
the manufacturer is going to charge them for
the car in 5 years. Prudent bankers are not
going to guarantee a loan rate for 10 to 30 years
either. We just don't know how much we will be
paying for deposits that far out. We may do it for
5 to 7 years but not much longer than that
unless the loan is going to be sold.
Question: Some say that one Presidential candidate
is better than the other on the economy. Do you agree?
We have never seen anything quite
like this election and hopefully, we never will again.
The attitudes of people toward these two
candidates has resulted in us having to choose between the lesser of two evils. One
candidate has the financial background we would like
but, can't seem to stop putting his foot
in his mouth. The other candidate appears to have
more political experience but, lies about
anything and everything. Each person has to choose
whom they think will do the best job
overall. However, don't worry about either of
them making our economic conditions worse than
they already are. The President of the U.S. does not have the authority to bring our
economy down by themselves. Most critical decisions
must have the support of the U.S.
Congress and Senate. So, if there are mistakes made,
there will be plenty of blame to go around.
There are a lot of other issues that you need to look
at in making a choice. National Security and
integrity are just two of them.