Wednesday, March 14, 2012

Encourage Entrepreneurship, Stop Teaching Math!

Encourage Entrepreneurship, Stop Teaching Math!

My homeschooled kids can’t get through a math worksheet.  No, really.  Not one single worksheet. If they solve one algorithm or word problem, that’s it.  My 10 year old will even get bored 75% through reading a word problem.  He’ll blurt out the answer, and never even bother to write out the solution. This issue lasted about 3 days in our first year of home education before we employed the solution:  I stopped teaching math.

Instead, our kids just lived alongside us, as we lived our lives as business people and entrepreneurs.  Luckily we took to home education freedom very quickly and soon abandoned all things schooly – especially when it came to math.  Though not our initial intention, abandoning conventional math opened us up to real-world entrepreneurial internships that our kids relish.

We played many games together.  We did it just for fun, not for homeschool.  But because we didn’t have to report to a ringing bell every 55 minutes or need to show up with no. 2 pencils at any particular place, we sort of gave in to our board game vice and played constantly.  Besides Monopoly, we played The Wonder Number Game, Sum Swamp, Dino Math Tracks, Pay Day and Money Bags.

My 6 year old could make change.  Well, of course he could make change! The boys loved to play with play money, and when the play money got lost or torn up, we started using real money from our wallets and piggy banks.  The irony was not lost on me the one occasion when a stranger, who noticed my kids not in school in the middle of a Tuesday, expressed her concern about “socialization.”  Luckily, I actually had a moment to engage her in conversation, because I was still at the table waiting, as my poor, unsocialized child navigated the social process of paying the cashier for our breakfast at the cash register.

Another time, a child of mine negotiated the best rate for our dinner.  He had reviewed the menu and after listening to all of us give our orders to the waitress, he spoke up and switched things up.  Instead of 2 child’s chicken strips meal (which only had 2 strips each), he changed it to one adult’s chicken strips (which came with 6 strips, unlimited fries and a side salad).  He continued to adjust the order for the rest of the family, leaving us with more food and almost $20 saved from our original order.  This child was 9 at the time.

Why am I irritated when my husband rearranges our restaurant order to maximize savings, but burst with heavenly pride when my child does the exact same thing?  What does a 6 year old need with the ability to calculate the economic loss of mortgaging vs. selling?  How does understanding the velocity of money allow an 8 year old to enjoy his passions?  Why did I waste 3 whole days of homeschooling with math worksheets?

Ok, not all parents, homeschoolers or no, are entrepreneurs.  However, kids interacting with you in your daily comings and goings, or spending time lounging, cooking, watching TV or Facebooking, can be a valuable entrepreneurial internship that parents can give their kids.

My husband will point out to the kids the kinds of ads he gets when he is logged onto his FB account as opposed to the ads I see when I am logged onto mine.  Social networking as the hottest new advertising model, as well as the record-breaking, Facebook IPO were all discussed.

We analyze why the kids love the Jack-in-the-Box, “Jumbaco” ad, while I have a strange admiration for the screaming JC Penny commercial.  Last month, my son asked why I was fast-forwarding through the football section of the Super Bowl that we DVR’d, just to stop and watch the commercials.  So, we explain 30-second prime time media ads in detail, while laughing through the commercials.  This fun-filled way of learning marketing, advertising and demographics in business has actually made my kids less susceptible to ads, even ads aimed specifically to children.  They can see right through them.

Volunteering, fund-raising and charity drives are fantastic entrepreneurial internships.  The kids understand the business structure of charities as well as the basics of charity R.O.I. because I volunteered as Secretary of a cancer charity this year.  Last year, the kids wanted to become micro-lenders through,  after seeing mine and my husband’s enthusiasm for granting small interest free loans to entrepreneurs in 3rd World countries.  The boys now lend their own money to people in Asia and Africa. I wrote about this activity in detail in a previous post.

Besides living alongside us, the kids have informally interned with their martial arts teacher that owns and operates his own dojo. I've done some marketing consulting for him, and my kids have made flyers, hung signs and other odd and ends.  Exposure to these owner-operators gives the kids insight on the entrepreneurial paradigm known as, “living above the store.”  They see how  people are accountable and invested, as opposed to the “entitled” attitudes that are often displayed from factory-model employee types.

Now 4 years into homeschooling and my kids still can’t/won’t do math worksheets.  However, on any given week, they are either lending to a new grocery store owner in Kenya, or selling their old toys and clothes on consignment, or brainstorming with their Tae Kwon Do master on how to get new students in the school, or trading properties with high equity with properties with high rental income, or criticizing the choice of spokesperson for the newest car insurance ad on TV.

Finally, the most important entrepreneurial internship we offer our children is “failure.”  My son attempted to earn some money for himself by setting up a gumball machine at his father’s office.  He used M&M’s because they were a lower cost, but the candy clogged the machine.  Fail. Great lessons learned.  Last year, my other son wanted to sell giant pumpkin seedlings, but he planted too late to market them for Halloween, and the pumpkins weren’t impressive enough for Thanksgiving.  Fail.  Great lessons learned.  March 1st of this year, he planted seeds for another run at “Grow Your Own Giant” for the 2012 fall holidays.  Stay tuned!

Give and Learn with

People are always talking about bringing education to life, literally, by living their lives and letting their children learn the ins and outs of living in our modern world.  Home Educators and Unschoolers are expert at this.  Those in the conventional education world are sometimes incredulous that simply living ones life is enough of an education for children.  So, I thought I'd take some time to illustrate our paradigm with just one example - Being KIVA Lenders. 

My husband and I got involved with KIVA in 2006. is a non-profit that networks worldwide to provide micro-loans for business and housing.  That sentence alone started a conversation with my children about micro lending and the state of business and housing in the world.  To be a lender, one can start with as little as $25.  You can connect with a borrower anywhere in the world.  Simply log on to and browse by loan type or country.

The loans you give are interest-free and will be paid back to you by each borrower.  No other guarantee is made.  We started with $100 to lend and have added more money to our account each year.  Although you can lend anonymously, we can correspond with the borrowers and they can send messages to lenders.  Their stories are posted as well as updates on their loan repayments and progress. As the loans are repaid, we have an opportunity to re-lend as many times as we want.

Each Christmas, my kids receive a certain amount of money through gifts.  By watching our example, the kids have chosen to lend some of their own gift money on Kiva.  We sit with each child and choose the borrowers that they would like to lend to.  They also follow their borrower's progress periodically throughout the life of the loan.  Lending is a cornerstone of the world's economy and our children now have a firm understanding of the consumption economy from being micro-lenders on Kiva.  

Esther Gire, Sudan, owns a general store on the refugee trail
Last May, 10 year old son chose a borrower named, Esther Gire, from Sudan.  Esther needed a micro-loan to stock her general store.  My son contributed $25 of his money, and along with other Kiva lenders raised the $425 that Esther needed. We tracked Esther's progress online and can see that she is able to repay her loan in increments of $25 per month.   However, this past October, Esther missed her last scheduled payment and is now delinquent for the remaining $10.12 of her loan balance.

Seeing this, my son became curious about the economic climate of Sudan to see if he could determine why Esther is late on her payment.  This led us to discover the awesome, albeit tragic history of Sudan.  At the tender age of 10, my son not only grasps the complexities of micro-financing and world economics, but has now also gained an appreciation for the struggles of families in Southern Sudan, the plight of refugee children and how he has a direct impact on the life of one Sudanese woman trying to rebuild from war. 

Of course, one could teach all this math, geography, world history, culture, economics, business and altruism with a few worksheets and a couple hours of homework a day, but I doubt it would have the same staying power.  Plus, my 10 year old in that class would have lost interest in 3 minutes and moved on to get himself in some kind of mischief.  Kiva lending is the alternative that my children chose on their own and with their learner-led interest in the endeavor have gained knowledge and been enriched with the experience.

 This month, my son is interested in lending to people with businesses in Jordan and Palestine.  Sharia (Islamic Law) prohibits the inclusion of interest or fees when lending, so we are now also exploring the Islamic Banking System.  A subject increasingly relevant, yet hardly covered in formal higher education, let alone elementary school.  

Let me conclude by saying that although my kids are exceptional for their age in their knowledge of economic systems, it is not something we intended to be so lofty when we started out as Kiva Lenders.  My children simply absorbed mine, and my husband's enthusiasm for micro lending in the Third World from our many conversations, and huddles around the computer gazing into the faces of entrepreneurs around the world.  My children love to be lenders because it is something they can do.  Of course they do spend some of their Christmas money on video games and toys, but I can honestly say that lending on Kiva gives them no less pleasure.

Alternative Education Reading List

Whether your kids are home educated or conventionally educated, or you are on the precipice of one or the other, it helps to know that there are alternatives.  Especially if your child is distressed or has lost the love of learning that they once had, take it seriously, don't ignore it and explore the alternatives to education that could save the sanity and restore the soul of your young ones.  

These books are just some of the wonderful resources available.  The first 3 books on the this list are MUST-READS for every single person responsible for a young person.

DISCOVER YOUR CHILD’S LEARNING STYLE Children Learn in Unique Ways – Here is the Key to Every Child’s Learning Success - by Mariaemma Willis, M.S., & Victoria Kindle Hodson, M.A.

Instead of Medicating & Punishing Healing the Causes of Our Children's Acting-Out Behavior by Parenting and Educating the Way Nature Intended by Laurie A. Couture

Hold On To Your Kids Why Parents Need To Matter More than Peers by Gabor Mate, M.D. & Gordon Neufeld, Ph.D.

Beyond The SlingA Real-Life Guide to Raising Confident, Loving Children the Attachment Parenting Way - by Mayim Bialik, PhD

The First Year of Homeschooling Your Child: Your Complete Guide to Getting Off To The Right Start by Linda Dobson 

Brain Based Learning The New Science of Treaching & Training by Eric Jensen 

The Brain Gym: Activities for Whole Brain Learning - by Paul & Gail Dennison

Feel-Bad Education: And Other Contrarian Essays on Children and Schooling by Alfie Kohn

The Edison Gene ADHD and the Gift of the Hunter Child by Thom Hartmann 

The Flat World and Education How America's Commitment to Equity Will Determin Our Future by Linda Darling-Hammond

Learning All the Time How Small Children Begin to Read, Write, Count, and Investigate the World, Without Being Taught by John Holt

Radical Unschooling: A Revolution Has Begun - by Dayna Martin

Scattered How Attention Deficit Disorder Originates and What You Can Do About It by Gabor Mate, M.D.

What Does It Mean To Be Well Educated by Alfie Kohn

Wild Things The Art of Nurturing Boys by Stephen James & David Thomas

The Minds of Boys Saving Our Sons from Falling Behind in School and Life by Michael Gurian

The Successsful Homeschool Family Handbook A Creative and Stress-Free Approach to Homeschooling by Dorothy Moore & Dr. Raymond Moore

The Schools Our Children Deserve Moveing Beyond Traditional Classrooms and Tougher Stardards by Alfie Kohn

The Waldorf Education Teaching From the Inside Out by Jack Petrash

Weapons of Mass Instruction A Schoolteacher's Journey Through the Dark World of Compulsory Schooling by John  Taylor Gatto

Guerrilla Learning How to Give Your Kids A Real Education With or Without School by Grace Llewellyn

The Unprocessed Child Living Withoug School by Valerie Fitzenreiter

On Being a Teacher by Jonothan Kozol

The Homework Myth Why our Kids Get Too Much of A Bad Thing by Alfie Kohn 

The Unschooling Handbook How to Use the Whole World As Your Child's Classroom by Mary Griffith 

Punished by Rewards The Trouble with Gold Starts, Incentive Plans, A's, Praise, and Other Bribes by Alfie Kohn

Fun Places to Go With Kids Los Angeles, Orange, Riverside, San Bernardino, San Diego and Santa Barbara by Susan Peterson


A Rogue Economist Explores the Hidden Side of Everything
by Steven D. Levitt and Stephen J. Dubner

Beware of National Financial Literacy Month - April 2011

Folks in Washington have announced that April is National Financial Literacy Month.  The highlights of the movement include such things as, "Teach Children to Save Day," "Money Smart Week," and "Credit and Debt Awareness Week."  Although ubiquitous among the 50 states, few are aware of National Financial Literacy Month's nefarious true nature.

 Proclaimed as official days, weeks and months of observance by governors throughout the U.S, Literacy Month is founded, managed and sponsored by banks.  Now ask the question, "What is the value of the financial literacy education given by financial institutions when these institutions specifically make their profit from issuing debt to the very people they mean to educate?"


This is of grave concern to me because I've observed the flood of 15 second PSA's during prime time news hour of banks coming into schools to teach children about financial literacy.  This usually involves giving the kids free plastic piggy banks sporting the institutions name and logo, and admonishments about the value of "saving" one's money.  Thus another generation of 2nd graders is thankfully indoctrinated into the consumer economy!

Consider instead getting for yourselves and giving to your children the true financial literacy education of knowing HOW MONEY ACTUALLY WORKS in today's world.  Unfortunately, this crucial information is sadly lacking in our school systems and we are left with only that which is spoon fed to us by entities that earn their living from our willingness to pay them interest each and every month.

Please check out the resources listed below.  The following list of books and DVDs are produced and written by non-financial institutions.  They are written by actual historians and economists.  It's simply an alternative source of information on the ever important, yet ambiguous subject of MONEY.

Did you know....

* ... that the amount of money in circulation today is made from someone willing to lend to someone willing to pay interest on a loan.  The less people willing to lend, the less money is in circulation and visa versa?

* ... that you are actually penalized for saving your money.  The modern economy requires money to be spent, either by paying taxes or by spending.  That's why you are taxed on the interest you make on cash you have in your savings?

* ... if you cut the massive government debt or curb government spending, so much money will be taken out of circulation that an employer will not have the money or credit to make the next paycheck, which means someone won't be able to get that Nintendo 3DS, which means, Nintendo won't sell as many, which means they will have to lay off people that normally get their clothes dry-cleaned at your laundry, which means you'll have to close your business and lay off your mother-in-law, which means, she'll have to move in with you, which means you'll have to get rid of the 4th car, so you can make her an apartment in your garage?

* ... the tax code changes every time Congress passes a law, even if the law has nothing to do with taxation?

* ... teaching your kids to save coins in a free plastic piggy bank from Wells Fargo Bank may be the worst thing you can do if you want your children to have financial literacy?

Is a bank visiting your child's school this month?  Well, just beware...

"Mama, what comes after 'In fourteen hundred ninety two, Columbus sailed the ocean blue'?"

"Mama, what comes after 'In fourteen hundred ninety two, Columbus sailed the ocean blue'?"

In fourteen hundred ninety two
Columbus sailed the ocean blue
The Taino people he did invade
And established the Transatlantic Slave Trade.

I'm just about finished with an incredible book called, "Rethinking Columbus: The Next 500 Years."  It was originally part of my son's 4th grade curriculum and I was planning to begin covering this material back in October, in conjunction with the national holiday of "Columbus Day."
However, I changed my mind about the time to introduce this material to my son after reading the first few chapters of this book, which is actually a teacher’s guide for elementary and middle school history.  I’ve decided not to participate in any celebration of Columbus after reading this.  I was also inspired to pen this poem. 

At first, I only taught my son the first paragraph, because he would always ask me… “What comes after –In fourteen hundred ninety two, Columbus sailed the ocean blue?”  I invented the following 2 lines myself, but decided to write more as I was moved to after reading this book.


In fourteen hundred ninety two
Columbus sailed the ocean blue
The Taino people he did invade
And established the Transatlantic Slave Trade.

3 million Taino sailed to Spain for the new enterprise
But slavery proved to be a business unwise
Not enough profit in slaves could keep Columbus fed
Because most of the Taino’s just ended up dead

Back over the ocean blue Columbus sailed
To take up trading gold, since slavery failed
No longer known to history as an invader and slaver
Columbus' new moniker was transatlantic “trader”

So in exchange for corn, potato and gold in great big lumps
Europe exported pertussis, measles, the pox and mumps
Columbus becomes a hero for evangelizing the “Indian”
While the Caribs, Seminole and Taino people are relegated to oblivion

A true American patriot leaves her children this legacy
to teach a balanced history of America, not hypocrisy
For the next 500 years of Americans lucky to call this country their place of birth
Ask the question: What did Columbus really do to the indigenous people known as Keepers of the Earth.


"Let us in the name of the Holy Trinity go on sending all the slaves that can be sold."  - Christopher Columbus

I can’t help but have a confusion of feelings about rediscovering the history of the Americas through this book.  I’m proud to be an American, and hold many American ideals, but I also feel guilty, and angry.   I feel guilty, not because I sympathize with the Europeans back in 1492, but because I so readily accepted the “Columbus as Hero” myth taught me as a child.  Then, I feel angry, that my education on this subject was short-changed.  It almost feels like I was taught a lie, by virtue of the fact that so much was omitted.

I’m so glad to have the opportunity, not only to learn this now, but to be able to teach my children what I missed out on.  I don’t want to preach anti- European history, or Indigenous people centrism, but I do want to give my children that history is perspective, and that there are many perspectives to learn about.

Prior generations in America learned hubris, imperialism and exclusion ideology from glorifying the actions of Columbus and reinforcing those attitudes in the Columbus myth history.  If a more complete history of the Americas are taught to our children, they will discover the Chippewa, the Hualapai, the Navaho, the Souix, the Osceola, the Seminole, the Taino, and all that we can learn from them.

Perhaps the hubris of war and imperialism that seems to be the hallmark of America from the perspective of the rest of world can be changed in the coming generations.  Perhaps my generation and my children’s will begin to turn the tide of sentiment. The indigenous people of this country were known as “Keepers of the Earth.”  Not only is learning from them a good idea, but may well mean our very future.

The Polar Express at the Grand Canyon Railway in Williams, AZ

*Originally contributed in 2010

I thought I'd share some on our recent trip to Williams, Arizona to ride The Polar Express, a special train ride available only during the Holidays at the Grand Canyon Railway.  I came upon a brochure of this on a stop-over at Kingman, AZ on the way to Chicago with my sisters last September.  After some research online, I decided to take the boys on it this year.

I went ahead and purchased the package deal, which includes 1 night stay at the Grand Canyon Railway Hotel, dinner buffet, ticket to train ride and breakfast buffet for the next morning.  You save about 20% by getting the package, plus any discounts you can apply from Triple AAA.

We arrived in Williams very early on the day of the ride, so we made a quick trip up to the South Rim.  We were able to drive up, take pictures, shop a little and visit the Yavapai Grand Canyon Museum to soak in some Geologic History.  We got back into Williams just after check-in at 4pm and had just enough time to throw on our PJ's and get to the dinner buffet at 5:00.

The dinner selection is a little weak for discerning adult diners, but extremely kid friendly.  Tons of mac-n-cheese, fries, chicken strips, etc.  You can have wine and beer, but it's not included in the regular buffet menu price of $25 per person.  We decided that next year, we would skip this dinner buffet and patronize one of the local steakhouses instead.  The famous one in Williams is Rod's Steakhouse.  I guess we've been spoiled by buffets in Vegas as we did not feel the buffet was worth the hefty price tag.  Don't eat too much dessert at dinner, because you get hot chocolate and cookies on the train.

After dinner, we got to the platform at the Depot at 6:00 and they boarded us at 6:15.  The seating is all assigned and you can make special requests to sit on a particular rail car (A thru O) or sit next to friends/family members.  The railcars were built in the 1920's, and have been beautifully restored, but not modernized.  So the seats are a bit narrow and the windows are heavy wood frames.

The train ride is just magical.  The atmosphere is positively charged with the excited squeals and laughter of children.  I think even the scroogiest heart will be melted by the wide-eyed anticipation on every child's face.  I myself could not help but get all caught up in it!  It really starts when you step out on the platform and take in the scenery.  Everything is lit up.  There are carols played over speakers that add to the atmosphere and everyone is dressed in cozy flannel pajamas.

Then, you hear the train whistle from the distance and look up to see the bright single headlight approach.  In years past, they used a gigantic steam engine that filled the platform with mist as it came in.  These days, it is the eco-friendly, vegetable oil powered engine that pulls the train.  Still, it does not fail to impress.  As the engine rolls past, the railcars appear and from the windows wave men and women dressed in white chefs coats and hats.  Everyone on the platform just cheers and cheers at the sight!

After the train comes to a stop, a dozen or so conductors come off the train onto the platform.  They are dressed in the exact same costume as the conductor on The Polar Express movie, complete with hand held lamp.  They greet the riders on the platform and manage to wrangle everyone into the right lines while taking pictures with children.

On the train, it is toasty, so we shed all our coats and get settled for the ride.  Once the train leaves the depot and the town, it is pitch black out the windows.  This adds to the mystery and magic of the ride.  The train rattles and sways to curves on the track and we all try to guess how fast we are moving.  Every so often, the darkness is interrupted by homes along the countryside that are lit up with Christmas lights.

On the ride, the chefs entertain the children and sing carols.  We also get chocolate chip cookies and hot chocolate to wash it all down.  If your child does not like chocolate (like my son, Harpo), you may want to pack a juice box and a snack.  I brought a small backpack with diapers, wipes, juice boxes and crackers, and of course the necessary motion sickness gear that always accompanies my children. There's no room for a stroller and you really won't need one.  Thankfully, no one threw up on this ride!

I won't give away too much of the rest of the ride, as I believe you need to experience it for yourself and I could not begin to capture it here in this written note.  I hope you have the opportunity to take this train some time.  Even if you don't have kids to take, it's a wonderfully romantic trip for a couple.  Dress up in cozy pajamas and join in on the fun.

We spent that night at the Grand Canyon Railway Hotel.  The hotel is only 2 stories and gets sold out quickly, especially on weekends.  Although a beautiful hotel and located conveniently in the same courtyard as the train depot, it is old and smells a bit musty.  They use sheet layers on the beds instead of bed spreads, so they're just as modern as regular hotels, but the bathrooms and carpets are really dated and tend to give off that musty smell.

I think next time, we'll stay at the nearby Marriott Fairfield.  It's only a category 2 for hotel points and was just built in 2006.  It's close enough to the train depot (less than a mile).  I recommend the breakfast buffet at the Grand Canyon Cafe (also located in the same courtyard as the hotel and train depot).  However, it is pricey at $25 per person (kids and adults, under 2 eats free).  Next time, we'll opt for dinner at the local hot spots, one of them being, Rod's Steakhouse in the town proper.

Here is the link to the site:

Happy Holidays, Everyone!

Answer to Poll Question: Of these four things, Lender, Borrower, Loan or Collateral, which is considered the "Asset?"

Correct Answer: LOAN
In the modern banking system (Fractional Reserve Lending), the Loan exists only when all three of the others (lender, borrower and collateral) come together. All three create the entity we know of as the Loan. It is considered an asset for 2 main reasons:

1) Of the four things, the Loan is the ONLY thing banks will buy and sell and trade with other banks.

2) Origination of Loans causes the total supply of money in circulation to expand. The total debt within an economy is exactly the amount of money in circulation within it.

If you are interested in reading more a further explanation is attached below.

Thank you for participating in our informal poll on Facebook. We're working on collaboration with local businesses and government to include a greater amount of financial literacy into classrooms - primarily within the subject of US history in elementary and high school. As a part of an ongoing project, this poll served to illustrate the common misconception that "collateral" is considered the asset in our Modern Monetary System.

So, why isn’t collateral considered an asset anymore?

By definition, collateral is encumbered and therefore of no “exchange” value to the borrower. Similarly, collateral is not an asset to the bank because they are deriving no “use value” from it (the house, car or boat is not in their direct possession and they are not using it, living in it or driving it on a regular basis).

The truth is, that those of you who answered, "collateral" would have been correct if the year was 1912 or earlier. School textbooks used to have a course in monetary theory that reflected the financial system in place in the U.S. At that time, a bank’s charter prevented it from selling loans to other banks – as such an act was deemed to be a breach in the original lender-borrower contract. That all changed in 1914 with the passing of the Federal Reserve Act in 1913, during the administration of President Woodrow Wilson. Once this law was enacted, the restriction was lifted and debt became the primary method of money creation, making the Loan the asset. Textbooks were not updated to reflect this change.

Simply put, in 1913, the creation of money transferred from government to central banks, and the process of increasing or decreasing the total supply of money in circulation was accomplished by creating debt. The debt or total of all the Loans in force = the total supply of money in circulation. Without the loans, there would be no money in the economy.

For example: You cut down a tree in your backyard and carved out a chair out of the wood. You then took the chair to the bank and mortgaged it for $100 cash. Your hand-made chair is appraised by the bank, and is determined to be worth about $100 to the highest bidder. The bank draws up a piece of paper, commonly referred to as a "note." On it, the bank spells out the terms of the loan. The moment you sign the bottom line, $100 is added to the total money supply in circulation in the economy. The bank hands you $100 cash at 10% interest. At the end of the loan, you would have paid a total of $110.
During the life of your loan, also known as the “term,” the bank may also charge you a periodic interest rate, which you have to pay on a monthly or yearly basis. If you fail to make a payment, the bank will go to your house, take your chair and sell it at auction to get the $100 back. If you faithfully make all the payments, at the end of 10 years, the bank will have received a total of $110 plus the periodic payments you made for the life of the loan. If your loan term was for 10 years at 10% per anum, you will have paid the bank a total of $210.*

The bank makes money in 3 ways from the creation of a Loan.

1) Interest payments: During that 10 years, the bank has taken your interest payments (made in cash by you) and re-loaned that cash to other borrowers using the same method.

2) Selling the Loan: At any point during the term of your loan, the bank can sell your promise to pay $10 a year for 10 years to another bank for a lump sum of money. For example. Your loan with bank A is sold to bank B for $90. Bank A now doesn’t have to wait 9 years for the $90 and can immediately re-lend to other borrowers. In the meantime, bank B can brag to shareholders that it made a $120 profit on the purchase of your promise to pay, because bank B will now receive your principal and interest payments every year for 10 years.

3) Credit Default Swaps: the bank makes money from the sale of its stocks and bonds. The most controversial of the profit methods because CDS’s are done “off the books.” No formal documentation is made that can be reviewed by shareholders or the SEC. Bank A and bank B agree to back each other up in case of defaults of their respective borrowers. This arrangement allows rating agencies to rate a bank’s financial performance within an exchange (bonds) or value based on performance (stock price).

Only the Loan allows banks to profit in this way, making it the most important “Asset” in modern banking. Again, as soon as the chair becomes collateral for an agreement between a lender and a borrower, the chair transfers any exchange value it once had as an unencumbered piece of property to the newly created Loan, which is exchanged over and over again reaping profits all the way. When all four things are present, Lender, Borrower, Loan and Collateral, the only one of the four that has exchange value is the Loan, making IT the Asset. As the new saying goes, “Debt makes the world go ‘round!”
So, while the answer, “collateral” was the most prevalent, it is also almost 100 years out of date. However, don’t despair, because once you have paid your loan back to the bank at the end of 10 years, the loan document is destroyed and your chair is “free and clear.” At this point it does indeed become YOUR asset. But remember, if you ever put your chair up for collateral again, it is no longer an asset.

Thanks again for participating. I welcome any questions or feedback.

* For those of you who noticed...
How can a total of $210 be paid to the bank if only $100 was put into circulation by the creation of the Loan in the first place? Where does the other $110 come from?

Warning: The answer is what economist refer to as "The Red Pill."
"You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill - you stay in Wonderland and I show you how deep the rabbit-hole goes. " - Morpheus from The Matrix