6 ms·

"Developmental problems" is a funny way of describing people who understand the concept of present value.

by hsod 11y ago

douche 11y ago
The linked article (which was on the front-page some time ago) was about scammers going after people who had structured settlements that they had won due to suffering brain-damage and developmental disabilities from lead-poisoning. So literally true...
mikeash 11y ago
Accepting $20,000 for a cash stream worth $180,000 doesn't indicate much understanding of present value.
- viraptor 11y ago
  It may make perfect sense. For example, if you're unemployed and receiving 20k right now would give you a chance to move + finish a course + get stable employment. That may be a much better solution than getting regular small payments that only give you a bit of breathing space every month on top of your benefits. But that's only assuming you can invest the 20k in a reasonable way.
  - mikeash 11y ago
    Even if it's totally worth it, surely you can get a better deal than effectively taking out a loan with a 100% interest rate, or whatever it works out to. Edit: 30%. Not quite 100%, but still really bad.
    - viraptor 11y ago
      Can you get a 30% APR loan if you have no job or savings and credit rating close to 0? Payday loans are 300%-1000%. People would go for the 30% loan you mention instead if they could.
      - mikeash 11y ago
        In a typical situation, no. But this is very much atypical. The person in question has a guaranteed source of long-term income. It's better than any job; they'll never get fired, or get fed up and decide not to come in anymore. It sounds like you can even redirect the payments so they go directly to the company making the lump-sum payment. The only risk is bankruptcy by the payer. It ought to be safer than a high-quality mortgage or car loan, which right now are available at 4% or less. (My car loan is 1.11%, which is completely ridiculous and not all that unusual.)
        viraptor 11y ago
        "It may make perfect sense." I didn't say it makes sense in most situations.
  - deleted 11y ago
    [deleted]
    - nevdka 11y ago
      The $180k isn't NPV, unless you have a 0% discount rate. The payment schedule from the root comment was $500/month over 30 years, which comes to $6k/year. So this year you would have $14k more by accepting the $20k. For the $20k lump sum to be worth the same as $6k/year for 30 years, you would need a rate of return of 43% (if my Excel-fu is correct). It would be better to take the $6k/year and take $20k as a cash advance on a credit card.
      - jessaustin 11y ago
        Sorry, I misinterpreted the meaning of the verb "worth" and worked backwards from what I assumed was the NPV. (and pulled a 20-yr term out of an orifice instead of the 30 years in TFA, whoops)
  - bitJericho 11y ago
    You could put it on eBay and get a better deal than that!
- cellis 11y ago
  Perhaps they have an opportunity that they can't get financing for against the 180k cashflow? It could definitely make sense. A question I love to ask people is, "would you take 1m cash today (post-tax), or a 1mm salary at a job for 10 years where you have to do the work?". For instance, I might take the 1mm and found a startup/speculate (unlimited upside, and -5mm downside), while someone else might take the 6mm (after taxes) over 10 years. It's simply a matter of opportunity cost.
  - lifeisstillgood 11y ago
    Will you take 111k today or a job paying you 33k pa for the next thirty years? That's the ratio 20k : 180k. Oh and you can't go out and get another job - that 110k has to last the next three decades. It's clear cut throat exploration. And I utterly refuse to believe this paralegal just suddenly took it into his head to forge those signatures and everyone else at the company were poor naive innocent dupes
    - mikeash 11y ago
      Companies love to set things up such that illegal activity is never ever ever tolerated, but at the same time set up metrics and goals that are impossible to meet legally. Then you just keep firing people who underperform, and the rest happens by magic. This lets them reap all the benefits of illegal activity, while letting low-level employees shoulder all the blame.
  - mikeash 11y ago
    Your question is an interesting hypothetical, but I don't see how it's relevant here. How does "where you have to do the work" fit in? Sure, it's a matter of opportunity cost, but taking $20,000 today instead of $500/month for 30 years is effectively taking out a loan at 30% interest. Even if it's worth it, you can do a lot better.
  - jrochkind1 11y ago
    Perhaps. Or perhaps they got ripped off. We don't know enough from the hypothetical with no details except a hypothetical present value and full value. We could know more if we looked into details of individual cases. Like, say, the Washington Post did. https://www.washingtonpost.com/local/social-issues/how-companies-make-millions-off-lead-poisoned-poor-blacks/2015/08/25/7460c1de-0d8c-11e5-9726-49d6fa26a8c6_story.html https://www.washingtonpost.com/local/social-issues/how-compa...
- deleted 11y ago
  [deleted]
  - mikeash 11y ago
    Huh? $20,000 at 7% would be a $133 monthly payment. If you get $20,000 up front in exchange for $500/month for 30 years, that's an effective interest rate of 30%. Quite unreasonable.
    - fredkbloggs 11y ago
      So offer more. It seems like, this case of fraud notwithstanding, there's plenty of room for new participants in this market. Suppose you were to show up and offer these people an effective interest rate of 12% instead. Surely even someone with a mental disability would take $100 instead of $50 for the same thing.
      - mikeash 11y ago
        I don't really feel like being a bank, though. There's already plenty of competition for loans, this is just a case where predators are soliciting customers who don't understand that, and probably don't even know that the product they're signing up for is a loan. Maybe it means there's room for better marketing by banks in this space, although there can't be that many clients. It may be that it's only worth targeting this group if you rip them off outrageously.
        fredkbloggs 11y ago
        Possibly. I know for sure that I would love to have access to this market. I would be happy to offer a much more fair price than the existing players are paying. In a ZIRP world, who wouldn't love 12%? Or even 8%? We're all banks, whether we like it or not. It might not be worth it for Citigroup, but a $100m market is definitely worth it for you and me. Just look at LendingClub and Prosper.

"Developmental problems" is a funny way of describing people who understand the concept of present value.

by hsod 11y ago

"Developmental problems" is a funny way of describing people who understand the concept of present value.

The linked article (which was on the front-page some time ago) was about scammers going after people who had structured settlements that they had won due to suffering brain-damage and developmental disabilities from lead-poisoning. So literally true...

mikeash 11y ago

Accepting $20,000 for a cash stream worth $180,000 doesn't indicate much understanding of present value.

viraptor 11y ago
It may make perfect sense. For example, if you're unemployed and receiving 20k right now would give you a chance to move + finish a course + get stable employment. That may be a much better solution than getting regular small payments that only give you a bit of breathing space every month on top of your benefits. But that's only assuming you can invest the 20k in a reasonable way.
- mikeash 11y ago
  Even if it's totally worth it, surely you can get a better deal than effectively taking out a loan with a 100% interest rate, or whatever it works out to. Edit: 30%. Not quite 100%, but still really bad.
  - viraptor 11y ago
    Can you get a 30% APR loan if you have no job or savings and credit rating close to 0? Payday loans are 300%-1000%. People would go for the 30% loan you mention instead if they could.
    - mikeash 11y ago
      In a typical situation, no. But this is very much atypical. The person in question has a guaranteed source of long-term income. It's better than any job; they'll never get fired, or get fed up and decide not to come in anymore. It sounds like you can even redirect the payments so they go directly to the company making the lump-sum payment. The only risk is bankruptcy by the payer. It ought to be safer than a high-quality mortgage or car loan, which right now are available at 4% or less. (My car loan is 1.11%, which is completely ridiculous and not all that unusual.)
      - viraptor 11y ago
        "It may make perfect sense." I didn't say it makes sense in most situations.
- deleted 11y ago
  [deleted]
  - nevdka 11y ago
    The $180k isn't NPV, unless you have a 0% discount rate. The payment schedule from the root comment was $500/month over 30 years, which comes to $6k/year. So this year you would have $14k more by accepting the $20k. For the $20k lump sum to be worth the same as $6k/year for 30 years, you would need a rate of return of 43% (if my Excel-fu is correct). It would be better to take the $6k/year and take $20k as a cash advance on a credit card.
    - jessaustin 11y ago
      Sorry, I misinterpreted the meaning of the verb "worth" and worked backwards from what I assumed was the NPV. (and pulled a 20-yr term out of an orifice instead of the 30 years in TFA, whoops)
- bitJericho 11y ago
  You could put it on eBay and get a better deal than that!
cellis 11y ago
Perhaps they have an opportunity that they can't get financing for against the 180k cashflow? It could definitely make sense. A question I love to ask people is, "would you take 1m cash today (post-tax), or a 1mm salary at a job for 10 years where you have to do the work?". For instance, I might take the 1mm and found a startup/speculate (unlimited upside, and -5mm downside), while someone else might take the 6mm (after taxes) over 10 years. It's simply a matter of opportunity cost.
- lifeisstillgood 11y ago
  Will you take 111k today or a job paying you 33k pa for the next thirty years? That's the ratio 20k : 180k. Oh and you can't go out and get another job - that 110k has to last the next three decades. It's clear cut throat exploration. And I utterly refuse to believe this paralegal just suddenly took it into his head to forge those signatures and everyone else at the company were poor naive innocent dupes
  - mikeash 11y ago
    Companies love to set things up such that illegal activity is never ever ever tolerated, but at the same time set up metrics and goals that are impossible to meet legally. Then you just keep firing people who underperform, and the rest happens by magic. This lets them reap all the benefits of illegal activity, while letting low-level employees shoulder all the blame.
- mikeash 11y ago
  Your question is an interesting hypothetical, but I don't see how it's relevant here. How does "where you have to do the work" fit in? Sure, it's a matter of opportunity cost, but taking $20,000 today instead of $500/month for 30 years is effectively taking out a loan at 30% interest. Even if it's worth it, you can do a lot better.
- jrochkind1 11y ago
  Perhaps. Or perhaps they got ripped off. We don't know enough from the hypothetical with no details except a hypothetical present value and full value. We could know more if we looked into details of individual cases. Like, say, the Washington Post did. https://www.washingtonpost.com/local/social-issues/how-companies-make-millions-off-lead-poisoned-poor-blacks/2015/08/25/7460c1de-0d8c-11e5-9726-49d6fa26a8c6_story.html https://www.washingtonpost.com/local/social-issues/how-compa...
deleted 11y ago
[deleted]
- mikeash 11y ago
  Huh? $20,000 at 7% would be a $133 monthly payment. If you get $20,000 up front in exchange for $500/month for 30 years, that's an effective interest rate of 30%. Quite unreasonable.
  - fredkbloggs 11y ago
    So offer more. It seems like, this case of fraud notwithstanding, there's plenty of room for new participants in this market. Suppose you were to show up and offer these people an effective interest rate of 12% instead. Surely even someone with a mental disability would take $100 instead of $50 for the same thing.
    - mikeash 11y ago
      I don't really feel like being a bank, though. There's already plenty of competition for loans, this is just a case where predators are soliciting customers who don't understand that, and probably don't even know that the product they're signing up for is a loan. Maybe it means there's room for better marketing by banks in this space, although there can't be that many clients. It may be that it's only worth targeting this group if you rip them off outrageously.
      - fredkbloggs 11y ago
        Possibly. I know for sure that I would love to have access to this market. I would be happy to offer a much more fair price than the existing players are paying. In a ZIRP world, who wouldn't love 12%? Or even 8%? We're all banks, whether we like it or not. It might not be worth it for Citigroup, but a $100m market is definitely worth it for you and me. Just look at LendingClub and Prosper.