About a week and a half ago, Friday the 25th I believe or Saturday, I was listening to Barney Frank give some quick responses to a Q&A session on the steps in Washington regarding recent financial legislation.

A couple comments Mr. Frank made referenced banks which would require them to hold more loans versus selling them on the secondary market. Another topic referred to YSP and mortgage brokers.

I’ll leave the second topic to be discussed in the chapter “The Banker’s Secret” in my book, “Barking With The Big Dogs”, but for now, let’s see if the new legislation is really good for you and me and America as a whole.

When I heard his comments, I immediately thought the comments are good talking points, but more to the story exists which probably won’t be heard on CNN or Fox.

So, here is my take on just parts of the recent financial overhaul.

The new recent proposed legislation requires banks to hold more cash on hand, and is not a bad idea. However, new changes may require banks to hold more mortgages too thus affecting the transfer of loans to the secondary market. (The secondary market is where mortgages are in investments such as mutual funds for example which the Average Joe may own.)

The secondary market helps the big banks and small banks and individuals too regarding the flow of money and money earned. However, small and regional banks may not have the ability to sell as many loans or do as much business, thus potentially hurting the local banking community.

If banking laws require lenders to hold loans and keep larger deposits, the changes could be a huge benefit to the largest banks since smaller institutions may not have the balance sheet requirements to compete. Holding loans also reduces liquidity, the free flow of markets and the ability to loan money to more people can diminish.

In the Chapter, It’s No Laffing matter, topics such as interest rates are continued. What may affect lending, however, is taxes and the Laffer Curve, not just lower rates. See if it is worth working much harder.

Okay, Radio Gaga has nothing to do with Lady Gaga. Actually, Radio GaGa Radio Goo Goo are lyrics from an old Queen song. However, the title of this article has to do with the gaga and goo goo of advertising.

While driving, I was listening to a commercial about mortgages. The ad started out saying something like this. “Mortgages should be illegal.”

Then the ad went on to mention that on an average of loan of $200,000 over thirty years, the borrower would send in over $400,000 to the bank including interest. That’s almost half a million dollars!

Obviously sensationalizing half a million dollars going to the bank makes a borrower want to pursue the product the commercial is pitching – a get out of debt and build wealth scheme.

Without debating whether or not wealth can be built using debt is another topic for discussion, the focus here is to cut through the hype of the commercial.

To begin, on a $200,000 mortgage for thirty years at 6% interest, the payment is $1,199 – call it $1,200 for simplicity purposes. Over thirty years, or 360 payments at $1,200 per month, the total outlay by the borrower is $432,000. And yes, this money goes to the bank. However…

$200,000 of the $432,000 goes to principal reduction; or to put the example in another context, the borrower is reimbursing the bank for paying for the property in the first place as opposed to the individual paying the seller.

If cash had been paid for the house, the amount $200,000 is paid by the homeowner anyway. Therefore, $200,000 is a wash for buying the house. This money is spent regardless of getting a loan or paying cash. Therefore, the remainder $232,000 is interest.

Now is paying $232,000 a lot of interest? Sure it is.

Is it wise to pay such an enormous amount of interest to the bank? Maybe.

What will determine if paying interest is wise depends on a couple of questions.

First, is saving money important or making money important?

If saving money is important, paying off a mortgage quickly reduces the amount of interest owed.

Second, if making money is important, then consider “what are you doing with your money?”

If you are making money and creating more income and wealth, sending money in those asset and income directions may be more important than saving the interest. After all, businesses borrow money to make money and without OPM (other people’s money), generating income may not be possible.

If the gains are greater than the amount of money paid, paying large amounts of interest is a wise choice.

Just as paying interest is a choice, individuals have the choice whether or not to believe the hype pitched in advertising, but a little financial education require one to think just a little…and that leads us to my next topic…

Save more, think less.

Here, you can see the Chapters contained in Barking With The Big Dogs. Many chapters are available online, with more to come.

Although it is best to read from start to finish, this will give you an idea about the topics contained within the book and you may want to read certain chapters more than once, twice or three times.

Read the Foreward section HERE

In this chapter, you’ll see that a home and a mortgage are actually separate topics. Buy a home for what purpose it serves, i.e. a place to live or an investment; and get a mortgage for the purpose it serves – buying money, not the house.