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alex .

Oct 15, 2003, 8:25 AM

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the tanda and other redistribution of wealth plans

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The tanda (sp?) just plain doesn't work, don't even mess with it is my advice. Its a way that folks can cooperate, giving interest free loans among themselves, sort of. Ya get maybe ten people to put 1000 pesos into a pot each week for ten weeks. Numbers are drawn from 1 to 10 which dictates who gets the pot which week. Simple enough in principle. But each week someone, or several someones, can't come up with their share and "the game" goes bad quickly. The person who starts the tanda reserves the right to get the first pot, of course, and always does well. My wife drew number 5 and during week four she discovered that several others also held number 5 and something fishy was going on. When it looks like she is being cheated, she adopts a whole 'nuther persona, and someone had better watch out! Why , if she didn't get her 4000 peso investment back right now this minute then all the players were going to hear about it, the local press was going to hear about it, and her lawyer will CERTAINLY hear about it. She got her money back and therefore was one of the fortunate few who lost nothing. Some people played more than one number and took a real whipping.
Then there is this desire for folks to run a store, be their own boss, taking orders from no one. Set up a little shop, folks show interest in the product, would certainly buy it if they didn't have to pay for it all at once. So the vendor agrees to accept small payments and the customer leaves with the mechandise. Then the payments don't come. Ya have to go around to people's houses "cobrando" and they get angry. Aren't people funny that way?
My wife has instituted a "no bargaining " policy with her flower pot sales."La gente no deberia poner los precios a mis cosas (other people don't price my merchandise, I do)", " Y NADA fiado (cash and carry only)". We'll see how it goes.........
Alex

(This post was edited by alex . on Oct 15, 2003, 8:25 AM)

raferguson

Oct 15, 2003, 4:07 PM

Post #2 of 8 (1084 views)

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Re: [alex .] the tanda and other redistribution of wealth plans

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This story reminded me of someone telling me he was buying a car that way, put in so much a month, and eventually you get a car. I think that there was a lottery system there also, so they drew numbers to see who got a car that month.

One of the reasons that this kind of thing happens in Mexico is that financing for cars and other consumer goods is not nearly as available in Mexico. And one of the reasons for that is the lack of central credit rating bureaus like we have in the USA. The bank is reluctant to lend when they don't know whether or not the person will pay. There is more of a culture of "We don't have to pay" in Mexico than in the USA. (Think about the group Barzon, which promoted this idea). The courts are not as inclined to side with the lenders, etc.

It is bad when people get victimized, but the lack of available financing opens people up to this kind of program, some of which are scams and some of which may be more or less legitimate.

http://www.fergusonsculpture.com

Esteban

Oct 15, 2003, 4:19 PM

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Re: [raferguson] the tanda and other redistribution of wealth plans

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According to a person I know, in the Barzon party, the idea of refusing to pay their loans is more than meets the eye. Many people, in the past, had home loans that were VERY high priced because of the inflation rates at the time of the loans. As the inflation rate decreased, the banks sold the loans for pennies on the dollar without first giving the debtors the option of buying the loan at a similar price. The debtors got ripped off and consequently, after trying to "right the wrong" they formed the Barzon party. In Mazatlan, credit is advertised everywhere and seems readily available. They offer credit cards as you leave the supermarkets, almost all appliances and electronics offer a monthly payment program as does Telmex, the local Megacable company and many other stores.
I guess the purpose of this whole post is because you insinuate that the Barzon party is made up of scammers and that credit isn't readily available and that I disagree on both issues.

mcrown

Oct 15, 2003, 5:08 PM

Post #4 of 8 (1068 views)

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Re: [Esteban] the tanda and other redistribution of wealth plans

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Debo, no niego, pago lo justo.

The Barzón movement was originally formed by farmers who were having problems making debt payments. After the peso crisis, interest rates more than doubled and lots of people with home mortgages were unable to pay such high rates. So the movement widened to include debt problems of urbanites as well.

They were willing to pay but at fair rates.

alex .

Oct 15, 2003, 5:16 PM

Post #5 of 8 (1064 views)

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Re: [mcrown] weren't mortgages floating then?

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That the principal owed got jacked up along with the interest rate? My recollection is fuzzy on that whole deal.
Alex

raferguson

Oct 15, 2003, 5:22 PM

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Re: [Esteban] the tanda and other redistribution of wealth plans

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Esteban:

I agree that the Barzon situation is complicated, especially by the hyperinflation that Mexico suffered in 1994, and the extremely high interest rates of that period. In many cases, the monthly payment, due to adjustable rate financing, went up very dramatically, and people were just not able to make the payments. I did not mean to imply that the Barzon folks were scammers, just that they were trying to get out of their contract to pay off a loan on certain terms, in other words, trying to break their contract. In the USA there have been a few instances of organized borrower revolts, usually associated with foreclosing family farms, so somewhat analogous to Barzon.

I would say that a lot of what I said in my note above is based on what I read in business newspapers a few years ago, especially when I was talking about the lack of credit rating agencies and the culture of non-payment. Obviously they are speaking from the perspective of the lender, not the borrower. Remember that the banks were also in crisis during the years after 1994, with forced mergers and bank rescues, and I understand that they have been reluctant to lend. With the peso more stable in recent years, it is not surprising that interest rates are down, which always frees up credit, so probably my information is out of date.

I was wondering if you had any view of the current situation in terms of loans for houses or cars, rather than the smaller ticket consumer items. I think that it is a good thing that businesses are financing their own products, to facilitate people buying them. I wonder if bank loans for houses are available on reasonable terms, outside of government subsidies.

http://www.fergusonsculpture.com

raferguson

Oct 15, 2003, 5:38 PM

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Re: [alex .] weren't mortgages floating then?

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Anytime you have adjustable rate loans, and interest rates go up dramatically, it is common for the principal owed to actually increase. If you are paying 1000 dollars a month, and the interest rate goes so high that interest alone is more than 1000 dollars, then your principal owed will increase. If you read the fine print on an adjustable rate mortgage that you sign in the USA today, there are usually some limits on how quickly the interest rate can increase, although recently those limits have gotten wider. This is a basic pitfall of the adjustable rate mortage. I suspect most people who have them, in the USA or Mexico, do not fully understand what can happen with interest rate volatility, and how they can easily get into a situation where they are unable to repay the loan.

Remember that if they took out a loan of 100,000 pesos, and then inflation suddenly cuts the value of the peso in half, if they pay back 100,000 pesos, they are not really paying back the value of what they borrowed, but maybe half of that value. But they say that they are paying back 100%. It is a matter of perspective.

The other issue is simply inability to pay back the loan at the new rates, since salaries increased less than the prices of everything else, including loans.

Economic ignorance is rampant everywhere, including among those who should know better, just think of the internet and telecom booms and busts, complete with bankruptcies. I am continually astounded at inteligent people who had most of their retirement savings in a single telecom stock, or a basket of similar stocks that had already gone up skyhigh, and then fell just as fast.

http://www.fergusonsculpture.com

alex .

Oct 16, 2003, 7:57 AM

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Re: [raferguson] greed trumps intelligence

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every time!

I did everything all wrong, according to the economic gurus. "Don't ever touch your 401K," they told me,"no matter what". Well, back in '99 I was holding some QCOM in my 401K, I sold it and bought a SUV to travel to Mexico. Paid regular taxes and a penalty. I still have that truck in my driveway. The 401K allows one to take out a loan against it and pay your account back with interest. So I did that and paid off our condo in Tijuana. We know what would have happened to that money had I left it alone. You see, I've been lucky all my life, even poor financial planning worked out in my favor!!

I didn't know that about ARMs.

Alex

(This post was edited by alex . on Oct 16, 2003, 7:59 AM)