Friday's Rants: Supply & Demand, and Financing

Hold onto yer butt, it's gonna be a bumpy ride.

First, let's talk about supply and demand.  What is something worth?  Well, it's worth whatever people are willing to pay for it.  Period.

You can purchase a Wii console right now, brand new, for $200.  Is it worth $200?  If people were unwilling to pay $200 for it, the price would drop in order to boost sales.  The fact that it's selling like crazy for $200 means that IS what it's worth.  Granted, YOU might not want to spend $200 for one.  It might not be worth it to YOU.  But that IS the actual market value of one.

We're all totally clear on that, right?

So what happens if you bought your Wii when it first came out 3 years ago, and you paid $250 for it?  It's now selling for $200.  Did you get screwed?  Did someone lie to you about the value of the Wii?  Can you demand a refund from Nintendo for the difference?  No.  You paid what it was worth, and its worth has changed since then.

What if you bought it from Best Buy and paid $200 for it, and then saw it at Costco for only $175?  If Best Buy wants to do price matching that's up to them, but they aren't legally required to do so.  You agreed to buy it for $200 and you get to live with that decision.

What if you brought it home and decided you didn't enjoy it as much as you expected?  Or you were too busy to play with it?  Or you realize you would have been just as happy with an old, used Nintendo 64 you could buy for $20?  Can you tell Best Buy they have to take it back?  They might have a "return for any reason" policy, but they aren't legally required to unless it's broken or misrepresented.

You're all still following me?

Okay, let's add a twist to this.  What if you didn't pay cash for it, but bought it on your credit card.  And NOW you decide you don't like it.  Can you refuse to pay back your credit card because you no longer like what you bought?  No, you didn't buy the Wii from your credit card, you bought if from Best Buy.  And Best Buy already has your money.  The credit card simply loaned you some money which you spent however you wanted.  You have to pay back that loan.  They aren't responsible for your lack of enthusiasm about your purchase.

We're all still on the same page, I hope?  You agreed to a price, you purchased it, and you borrowed the money to make that purchase.  The fact that its market value fluctuates or that its value to YOU fluctuates doesn't change the fact that you bought it at a price you agreed to, or that you took a loan to buy it and now have to repay that loan.

Now's when things start getting sensitive.

What if, instead of an unsecured loan you did a secured loan and put up the Wii as collateral?  What if the credit card company could repossess the Wii if you stopped paying the card?  Does that change the fact that you didn't purchase the Wii from them and they aren't in the business of selling Wii's and you borrowed money from them that you promised to repay?  No.  It means they've got some additional legal recourse if you break your promise, but it doesn't mean that if you decide you don't want the Wii anymore you can just stop paying your credit card.  Once again: you didn't buy the Wii from them, you just borrowed money from them to make a purchase that happened to be a Wii.

Okay, deep breath everyone...

What if it wasn't a Wii that you purchased?  What if it was something more expensive?  Do the rules change?  No.  You agreed to a price.  That price was somewhere around the current market value.  Market value is based on what everyone else is willing to pay, no matter how stupid they all are.  No matter which review in which magazine talked about how awesome it was and how they would be willing to pay twice the price for the same thing.  Not even if it was Nintendo themselves who said it was so fantastic, and they only said so in order to make more profit!  Yes, not even then!  No one held a gun to your head and made you buy it at that price.

What if it was a house?  :::insert sound of squealing tires as everyone comes to a sudden halt:::

I would like to remove the phrase "house payment" from our vocabulary, because it makes us think that we are paying the money to the bank in order to purchase our house.  THIS IS NOT THE CASE.  You didn't buy your house from the bank, you bought it from Mr. and Mrs. Jones who received the money right away and have already used it to pay off debt or to put into the stock market or blown it all on strippers and roulette.  The mortgage company, like the credit card, didn't sell you the house or the Wii.  They loaned you money so you could buy the house from Mr. and Mrs. Jones.  Your $3,000 mortgage check isn't sent to Mr. and Mrs. Jones every month.  You aren't making payments on your house.  You already bought the house.  You own it.  Just as you own the Wii.  You are making payment on the money you borrowed to make that purchase.

If at any point you get confused about the difference and think I'm splitting hairs, go back and read the part about purchasing the Wii from Best Buy and borrowing the money from your credit card to do so.

Yes, it is a secured loan.  The bank can take your house if you stop paying the loan.  That does NOT mean they own the house while you're making payments, or that they are in the real estate business.  It just means that you've put up your house as collateral on a loan, and it so happens that you used that loan to purchase the house.  Or, these days, maybe not.  Maybe you took out equity from your home in order to pay off credit cards - so now you've put up your house as collateral to pay off your Wii!  (Not really, since you completely bought the Wii, just as you bought the house.  But it makes for a fine shock-point, doesn't it?)  If you took a loan on the equity of your house AFTER buying it, then that loan wasn't to pay off the house, it was a loan to do whatever you wanted - and your house was collateral for the loan, right?  But the original mortgage you use to buy the house is exactly the same thing.  You're not buying a house for 30 years, you're taking a loan, using that loan to buy the house, and using the house as collateral.

Hopefully I haven't lost anyone.

Why am I making such a point of this?  Because I think, from what I keep hearing people say, that a lot of people have honestly started to believe that the bank owns their house and that they're buying their house from the bank on payments every month, and that if the market goes down and the value of their house drops they shouldn't have to pay so much to the bank for the house that isn't worth as much anymore.

I have no doubt that someone will want to make comments about evil banks and evil mortgage companies and evil credit cards and evil real estate markets, and evil economy, and evil unemployment rates.  And many of those things may very well be true.

But NONE of it changes the fact that you agreed to a price, based on market value, and that you paid that price ALREADY to Mr. and Mrs. Jones.  If you think they screwed you on price, you're welcome to track them down and demand some of the money back (good luck with that).  But you've already paid them, and borrowed money to do so.  The responsibility to repay that loan is yours.

Don't bother commenting please.  It will probably become ugly and I'm not interested in that.  Feel free to disagree all you want, but not right here and not right now, okay?

Happy Friday, all.