News Updates:

In my area a Frozen Custard shop closed up last month. They were heavy in debt about $300,000 and they ended up closing their doors.

There was another example of what I explained in my previous blog posting. They took advantage of the banking situation.

More closures and layoffs...Curcuit City closing 155 stores and laying off 7,000+ workers
WR&R Greenbay Wisconsin furniture store closes all locations after just opening them months ago.
Over 600 New and Used Car Dealers nationwide have decided to close their doors.
Mastercard losses $193.6 million dollars this quarter.

Years ago when I started working with mortgage brokers that advertised in my publication I started asking questions about the principal.

With all of the refinancing who pays the principal of the loans. Now let's examine this for a moment. When a bank makes a loan they front load the interest so they will make money immediately for lending money.

Now here's the tricky part of the equation. If you refinance the loan with new money does it actually pay off the old money or does it just add more money to the original principal amount?

Where does this new money come from?
If the bank get the new money to pay off the old money and they make their interest from the original loan they should be happy right?

To get a clear answer we need to go back about 100 years. Banks didn't make much money when they made loans. But they did make a lot of money after they let long term loans mature. Think about it they would make a home loan and wait at least 20 years before they could actually on paper make money.

So they had to figure out a way to record profits earlier and they did it two ways.

1. They went of a fee binge. overdraft, overnight overdraft fee, over, overnight overdraft fee, tyme machine fees, check cashing fees. And my favorite the counting cash fee. They charge me $2.50 to $3 to count my cash when I make large deposits.

2. They went on a lending binge. They kept extending credit. This was actually the death of most banks. They have so much money loaned out they can't make their own interest payments for the money they borrowed.

That's why I say the principal is never paid. Todays market has made that possible and that's why if you can become semi or totally debt free you will actually be able to save more money and have more money.