Good for you. For many Americans who were born into families living in high growth areas (California, New York, etc.) a mortgage is often times the only way to stay in the area close to family, while scraping together some semblance of financial stability.

I'm curious as to why you think the "whole system is a lie". This sort of blanket statement seems to discount the fact that banks do in fact serve a purpose in our society, specifically by providing liquitity.

In software, we can generally agree that too many layers of abstraction introduces many issues since it is difficult to ensure each layer is perfect. For this imperfection we often pay a price: performance, maintainability, etc. However I think that often this imperfection is unintended and is a consequence of trying to make things better.

In the finance world, and particularly with mortgages, there are similarly many layers of abstraction but each layer has an imperfection built in: money.

Your mortgage, after its gone through all these layers and after everyone had extracted their pound of flesh from its value along the way ends up looking nothing like the original product. It might end up as a resecuritized security based on only the interest portion of a pool of loans or some other abomination. Just like a JavaScript application is a completely different beast from the the x86 asm executing on your CPU.

However, in software these layers exist to try to make things better. In the finance world these layers exist to only make money. To extract value from one place and move it to another. These layers don’t need to exist in this form but they do because they make people money. This is the lie.

Despite this, we can’t just remove all these layers at once but maybe we can remove one layer. Just like you wouldn’t rewrite your nodejs server in asm but might drop down to Go or something.

Alternatively you can say, “hey I don’t need this website so badly so I’m just going to not build it” and not play. Or maybe you have the time and inclination to build it “from scratch” from assembly.

Starting with a plot of land and only the money in your pocket reminds me of the true hacker spirit! :)

This brought all my thoughts on the absurdity of the debt system out in a clear and understandable light. Thank you for expressing what I could not put into words. I wish I had sockpuppets to upvote you extra.

Layers exist in finance for the same reason layers exist in programming: because value is being provided. Or, at least, that’s what the Efficient Market Hypothesis would say. Maybe you can’t see the value as an outsider, but you know, Chesterton’s Fence. Only when you see the value of the current system should you be allowed to change it.

Using the example of mortgage backed securities, they were created to solve real problems. Mortgages carried risk, were too unique. Also money had a hard time reaching those who needed mortgages. Most mortgage providers were local and often there were too many people who wanted mortgages and not enough money, or the other way around. By packaging mortgages together, you could reduce risk and sell traunches nationwide.

TLDR: understanding is a prerequisite of change. And just like software, if you can’t find a reason for why something exists you should probably look harder. More likely than not, you are the one who doesn’t understand, not the person who created the thing in the first place.

Layers of understanding. That's what we are talking about. How many Layers must be understood to know something is broken? Or what's broke about it?

It's broke. I know that. I don't think continuing down a broken path is gonna fix it.

I traded CMO derivatives for several years at a broker dealer that specialized in MBS and other fixed income products. I’m intimately familiar with the system and stand by my analogy.

I work as a derivative quant/trader in EM (mostly fx swaps and such) and think that the broker-dealers I transact with provide value. Otherwise, obviously, I wouldn’t need them! This may be a little controversial, but in most cases, being paid means you provide value. And when this isn’t true, it almost always has to do with government regulation.

Anyways, while I don’t have any experience with MBSs, you were probably providing value even if you didn’t think so.

It almost made me cry to read that. You get it. You exactly get it. Thank you for writing that because it helps to keep me motivated. It's really hard.

Banks used to serve as simple intermediaries that provided cash for the economic system to continue to function. Starting around the turn of the 20th century, during the rise of the robber barrons, a pattern of increasing consolidation created financial capital that became central to the system and so powerful that the planners inside of the banks can essentially control the economy by deciding or not deciding whether to fund a project or to fund a competing version.

The only way to get away from the banks is to have government funding or independent wealth. Independent wealth of sufficient magnitude will nearly inevitably be socially tied to banking circles as is government. We all know how the revolving door works in government.

Of course, it's not a secret what their aims are: squeeze as much money and power out of the economy as possible and arrange the world economic system to continue that process. It doesn't matter what figures actually head the banks, the system drives them to take the same actions. However, they do tend to be white dudes from the west with their thumb on the global south.

This is not a new pattern, and definitely existed before bank consolidation. Rich, powerful families dictated for centuries who and what to fund and controlled the economy of their fiefdom.

You're right of course, but I think after the monarchies were overthrown, people thought that OKAY now we can have a more equal economy with lots of small independent producers competing with each other. Consolidation showed that this story is (at least now) completely untrue.

It's not even banks as we know it, it's trusts that hold bundles of mortgage loans and are insulated from the mortgagors whose loans are serviced by entities with incentives that aren't aligned with either the trust investors or the mortgagor.

In the 08 meltdown we saw fee-based servicers incentivized to hang onto badly performing mortgages and the fees the servicing thereof generated rather than enter into workouts that 40 years ago the S&L down the street would have rushed into. The experience taught us nothing other than homeowners make great runway foam.

What's up with the throwaways? You and the gp aren't even saying anything that controversial.

I value my privacy. Throwaway is my way to indicate my lack of desire for any personal gain and also repercussion from what I say. I have no reputation to protect or desire to increase credibility or other gain.

I just say what I believe.

The implication is that the banks are breaking up families because they can't afford to live close to each other any more.

Think about that. They are profiting by coming between a human being and their basic human needs.

They've pushed up the cost to acquire those basic human needs by 7x in the past 80 years.

I think it's breaking our society. The lie is they are enabling people to afford a home, when in fact it is because of them that the younger generations may never be able to afford one at all.

> They've pushed up the cost to acquire those basic human needs by 7x in the past 80 years.

That's ~2.6% per year inflation, hardly the stuff of crippling hyper-inflation.

Chart median home cost vs. Median salary and you'll see the problem. Salaries have declined since the 1970s while home costs have doubled.

In 1970 about 1 year of earnings could buy a house. Today it takes 4 years salary.

> In 1970 about 1 year of earnings could buy a house. Today it takes 4 years salary.

That 1970 ratio seems wildly low compared to the data I found. Historical ratios seem to be 3-4x, with periods in the 1950s, mid-2000s, and perhaps soon [but not yet] of 4.5-5x. Housing seems slightly (~5%) cheaper now than in the 1950s and about 30% more expensive than the 1970s based on this ratio calculation.

https://www.longtermtrends.net/home-price-median-annual-inco...

House purchase prices were lower in 1970 in part because mortgage rates (and therefore housing monthly payments per $100K borrowed) were dramatically higher.

That doesn't mesh with housing prices increasing while salaries have remained flat. The 7x increase in price I mentioned above was inflation adjusted, so your 2.6% cagr was above inflation.

https://www.cnbc.com/2017/06/23/how-much-housing-prices-have...

You asked me to chart house prices vs income. I did and that was the first data source I found.

I shared it because it didn’t mesh with what you were saying.

Median salary seems a strange figure to use instead of, say, median household income. Way more two-earner households in 2019 than 1970, and at least some fraction of that extra income is being used to bid up home prices.

Because a household must have two incomes now to afford a home. This comes at the expense of what is best for the family, especially the children. I think you're agreeing. Home prices are out of control.

I think you have that backwards: Women choose to enter the workforce in much higher numbers than 50 years ago at least partially because it's much more rewarding than the equivalent time spent in domestic labor. The result is higher earning households and thus higher demand for the less elastic supply of housing in some markets.

It's also almost certainly the case that dramatically lowered costs in other areas (food, telecommunications, household appliances) has freed up spending power which, again, has bid up prices in desirable markets.

Cheaper credit has greatly magnified the same effect, without necessarily driving up true costs.

As you've pointed out, housing isn't particularly expensive everywhere, just places where they're not building to keep up with rising demand.

Oh, and we haven't even mentioned that comparing the median home in 1970 to the median home in 2019 is not exactly apples-to-apples, starting with square footage.

I believe, as did my single mother, that women going to work hurt families also. She said before she died, women "shot themselves in the foot and made it much harder on single incomes to support a family. Women always had a choice to work. Now they don't."

Maybe you have something wrong. Maybe it wasn't more rewarding to go to work. People on their death beds don't say I wish I'd gone to work more. No. They say they wish they'd spent more time with family.

I'm in a similar position, but don't avoid banks altogether. No debt, except a credit card balance which is paid off each month, and I only use that for the extra protection over a debit card.

For a short time after college I was in a bad spot with a low paying job and lots (relative to my income) of debt. In a way, I was fortunate to see what that's like early, with a relatively small amount of money (my CC limit was <$2000, but always maxed out because I was broke).

Not a situation I want to be in again.

> I blame the banks for a lot of what's wrong with society today and refuse to pay them interest.

That's a great observation. It's no wonder interest is prohibited in Judaism, Christianity, and Islam. The effects it has on causing and expanding the wealth gap are very obvious today. Not to mention it is a purely exploitative and parasitic practice.

Yes. That's right. It's having a noticeably toxic effect on society. Unfortunately the banks lobby effectively against the best interest of the public. I liked Obama, but the banks owned him. Goldman Sachs had people all in his cabinet.

Why would you want to be debt free? You often can make more money by having debt than paying in cash. Fixed rate 30 year mortgages are at ~3.7% right. Go buy some corporate bonds or stocks and you will easily net more than ~3.7%.

Another great strategy is to get as many credit cards as you can and create a credit ladder than defers payment (and interest) as long as possible. If you manage to get 12 credit cards and your interest free period is a month, you can literally defer payment for anything for year, netting you that sweet sweet interest (T-notes if you're risk adverse, or equities if want some better returns).

But if you think it's "wrong", well you do you I guess.

I am debt free. Paid cash for my house. Don't own a credit card. I think technically my wife has one.

There are a lot of ways I could make more money. I have enough money as it is, so what's the point? The rest of my money is in stocks, etc. I make enough of a return on it.

Basically, being debt-free gives me peace of mind that is worth whatever marginal return I may be getting otherwise.

With mortgage, that’s not unreasonable. After all, you will always be bearing some risk as your APR will never be below the risk-free rate. But for credit cards, if you just store the money in the risk-free rate (3 month T-notes), you will be strictly making more money without bearing any extra risk. In affect, it’s a free lunch: it is strictly superior. You could probably even program such a system and never have to think about it. Here’s an example using 1 credit card that charges interest after a month:

1. Initially, buy 3 month T-notes equal to your max credit limit.

2. At the end of the month, transfer the dollar amount of your current credit balance and pay off your card.

3. Top off your T-bills to maintain the max credit limit amount.

4. Profit!

You just scammed the credit card companies out of a month of interest! The strategy looks even better with cash back or airline miles or points or whatever.

As with all things in economics, it’s not a free lunch. The cost of credit has already been priced into everything you buy. In this case, you can choose to make a small amount of money in exchange for some headache of making sure payments go on time, or leave it alone. If everyone eventually takes 2% rewards, instead of using debit cards and plain cards, the cost of credit in your purchases will rise from about 1.8% to 2.8%.

You make a really good point. What one is actually doing with my strategy is arbitraging between my behavior and everyone else’s.

What is the dollar value of that behavior relative to other behavior? In other words don't neglect to consider opportunity costs.

I already view the 1.8% or whatever I'm making on my emergency funds as basically inconsequential, so a percent or so on several thousand dollars doesn't really pique my interest enough to go to the bother.

As I heard somewhere or another: "Get the dollars right and the pennies will take care of themselves"

In case anyone is interested, the "war1025 guide to wealth accumulation":

1. Decide a reasonable checking account balance based on your pay frequency and expenses. (I get paid weekly, so I've found that $2,000 is a good number for me.)

2. Every week when you get paid, transfer any amount in excess of amount (1) into index funds.

3. The index funds are not to be added to and never withdrawn from. (I made an exception to this rule to buy our house)

(Obviously have the correct emergency funds to handle unexpected events. Also you may at times choose to instead transfer the money into savings to work towards some known upcoming expense.)

Fair enough. But let me tell you a story: one of childhood friends was very well off and had a bunch of MTG cards. His decks were always very good (for a 11 year old). One time a new kid at the school came over to his house with us. The kid said: can I have some magic cards, you have so many? And my friend said: I didn’t get so many by giving them away.

Anyways, maybe not that profound, but the memory has stuck. By sweating the cents, you get the dollars. And there’s another saying that is different from yours that I heard my dad say constantly: every penny counts.

Every dollar does count, but being reckless with dollar bills is going to get you in a lot less trouble than being reckless with twenties.

For what it's worth, we have a family of five, my wife stays home, and I believe we currently save somewhere in the ballpark of 35% of our income. I think that counts as being pretty frugal compared to most of the people I know.

I agree with war1025 the overhead of managing the churn isn't worth it. Better to invest the time and brainwaves into a SaaS business or designing and building a home.

how deep is this conviction? does your employer have debt? do you collect interest, either on savings accounts, bonds, or investing in companies that do?

I see your point and acknowledge the depths of the rabbit hole. The banks have dug in deep. It's hard, but I'm trying to dig my way out. Debt free is just the beginning.

Where are you/how old/how much money did you save up to do that?

I’ve been working only about 4 years and don’t have that kind of capital saved yet, want to set realistic goals and see if and when that’d be possible for me.

I bought land for $60,000. I plan to spend $100,000 on materials, utilities, fees etc and construct it myself. I want to start a revolution and want to enable people to escape the system for what is a typical down payment in most large cities today.

I was facing that choice myself: build or buy. I can do either with what I have and after much consideration, the only moral choice I can accept for myself is to build.

I feel very fortunate that I have that choice. I know others don't and so now my life mission is to bring that choice to more people and in doing so fight what I believe is causing harm to our society: the banks.

In some cities if you buy land, you have to build on it within a limited timeframe.

I'm not familiar with any rules like that from the city but my neighborhood rules say I have 8 months to complete building the exterior portion of the house.

There's a lot of land for sale outside cities as well with few and sometimes no restrictions even beyond time limits.

Community covenants can be quite restrictive in some areas yes.