Wednesday, September 14, 2011

You'll Get Your Money - I Guarantee It

A series of exchanges from a recent online financial advice column:

"Hi. My nephew is going into business for himself. It's a business I don't know much about (green energy stuff), but he's a smart kid, and I think he's going to do well. But being young, he doesn't have a whole lot of money, or a very long credit history, so the banks he's approached haven't been jumping at the chance to finance him. He says one bank is willing to loan him the money he needs, but only if someone with a good credit history will co-sign the loan. He's asked me if I would co-sign. What should I do?

"Sam in DC" 

Dear Sam -
Co-signers typically will have well-established credit to help the borrower qualify for the loan. But being a co-signer isn't like giving a person a reference on a job application. It carries a weighty responsibility and some potentially significant implications that need to be understood before it's taken on.

That's because you're not just vouching for your nephew's ability to repay the debt, you're promising to pay it yourself if he defaults.

Most people would probably say, "That's fine. My (insert relative or friend) since third grade has a good job, is very responsible and will make every single payment."

And that may be absolutely true. It's also true that unanticipated things happen. People lose their jobs, they get sick and they die unexpectedly. If, for whatever reason, the borrower doesn't make the payments, you're on the hook.

You need to consider your nephew's character and ability to make the payments, and whether you could afford the debt if he defaults.

The main thing you need to understand is that you are signing that loan for a reason. If the loan goes bad, you have to pay it back. You need to look at this as if you  were taking out the loan yourself.

The FTC puts the situation into simple terms in its information on co-signing. You're being asked to take a risk that a professional lender has decided not to take.

The risks are real and significant. The lender doesn't have to exhaust every possible means to get the money from the borrower before he comes after you. The bank can select which debtor he wants to pursue. He'll pick the one who is the most likely to pay the quickest.

A few months later:

"Hi - remember me? My nephew had started his own business and needed someone to co-sign his loan. You told me the risks involved, and after weighing them as best I could (I really don't understand this green energy stuff his business is about), I decided to co-sign the loan anyway.

"Now my second nephew is going into the same line of business and he also needs a co-signer to get a loan. Since the first one seems to be working out, I'm going to co-sign for him also, even though the amount he needs to borrow is about twice what my first nephew borrowed. I think it should be okay, even though my credit score is a little lower than the last time I had checked - I guess some lenders are a little worried about my ability to pay my bills, even though I've never in my life missed a payment, or even been late.

"Sam in DC" 

A few months later:

"Hi, it's Sam in DC again; hope you remember me - I co-signed on loans for my two nephews so they could start their own green energy stuff businesses.

"I guess I should have listened to you. Nephew #1 told me he's burned through all the money the bank loaned him and his company isn't selling nearly enough of his green energy thingies to pay to keep the lights on, never mind pay his employees or pay the bank back. So he's going out of business. And now his bank is coming after me to repay the loan. I'm not happy about it, but I guess I can afford it. My nephew says there are federal investigators looking at his business records; they evidently think he might have done something criminal, and people are asking if I was somehow involved.

"I'm still guaranteeing the loan to nephew #2, but now I'm worried. Is there any way I can get out of this?

"Sam in DC" 

Dear Sam -
You are well and truly screwed. When the federal government tells you co-signing on a loan is risky business, don't you think you should listen?

 A few minutes later:
"I am the federal government."

Friday, September 9, 2011

Ten Years Later

Ask someone to name a hero these days, and you're likely to get the name of an athlete or an entertainer, someone who gets paid millions to ply a trade that presents about as much risk to life and limb as waiting tables.

We're somehow too cool to have real heroes any more, people who willingly put themselves in harm's way for someone else's benefit. Most of the time, the only popular recognition they get is when their heroism is of the man-bites-dog variety and the local eyewitless news sends someone over to film the eight-year-old who rescued his entire family from their burning house three days after he did the same thing for his neighbors. And having had his fifteen seconds of fame, he fades back into the crowd and we turn our attention back to the vulgar doings of Snooki and The Situation.

We know the names of the evil and the deranged. We know who Jared Lee Loughner is, but do we know the names of the people who subdued him and saved Gabrielle Giffords's life?

So ten years later, you doubtless recognize the name Muhammad Atta.

And you probably don't know the name of the man who single-handedly saved almost as many lives on September 11, 2001, as Atta destroyed that day.

Yes, he'd served in the U.S. Army

You don't know the name of the man who survived the 1993 World Trade Center bombing, and, convinced that it would happen again, used his position as his company's director of security, to implement a program of emergency evacuation procedures. Every three months, everyone at his company's office in the World Trade Center was required to participate in emergency evacuation drills. Everyone - even the corner office executives.

And you don't know the name of the man who, on September 11, 2001, calmly supervised the evacuation of his company's 2,700 employees - after building officials announced the building was safe and they should return to their desks. The man who kept everyone calm, who reminded them of the drills they had practiced, who sang God Bless America and other songs of his native Cornwall through his megaphone.
September 11th's greatest hero, on the day he died

The man who, after all his employees were safe, went back into the building to make sure everyone got out.

Who was last seen on the tenth floor of World Trade Center Tower 2, going up, and whose body was never recovered.

There is no monument or memorial to him at Ground Zero, and are apparently no plans for one. We're too cool to have heroes any more.

Rick Rescorla. September 11th's greatest hero.