A Black woman among the working-poor is faced with a dilemma. She is its sole wage-earner and has a family to feed. She also has an electricity bill that is past due, and if she does not pay it by the next day, her power will be cut off, and there is $100 in penalties and reconnection-fees that will be added to the bill.
She has been working nights at a second job and is expecting $400 but will not receive it for another ten days.
Her only practical option is one of the local micro-loan or payday-loan stores. She has made some enquiries and the best deal that she can get is $335 cash today for her net $400 paycheck in 10-days. The $65 in total charges seems very high, but it is better than incurring the $100 in total penalties on the electricity bill, and so she takes the deal.
Question: Is it more inherently racist for the payday-loaner to tell the woman that the rate of interest is 708% per annum on the implied assumption that she is not well-educated in math, and likely does not know how to do the rate calculation herself?
Or is it more inherently racist to simply tell her the truth that the rate of interest is 64,622% per annum, and that she can take-it or leave-it?
Or perhaps it has little to do with race at all?
If you are among the vast majority who don’t have a clue what I am talking about – then read on, because that in a sense is the whole problem.
The nominal method – Another glitch-in-the-matrix of Financial Apartheid
There is a procedural math-error in the way lenders and creditors determine interest charges under loan contracts, and which at its current upper-level is so ridiculous as to reveal a total fantasy-fiction-world on a par with that in the film The Matrix.
When the agreed interest rate is absolutely low or close-to-zero, the math-error-amount is very small. Under the nominal method, so-called, and which is itself short-for “nominal approximation method“, an agreed or stated rate of 3% per annum is converted into a real rate of 3.0416% per annum, and vice versa. Accurately stated, the nominal approximation method is the “Well-it’s-pretty-close-as-long-as-the-real-rate-is-really-low-method”.
In practical terms it means that based on the required monthly payment on a 30-year mortgage, the same mortgage principal amount that is paid off in 30-years at a nominal 3% per annum, is paid off in only 29.75 years at a real 3% per annum.
It works the same on all debt, but a 30-year mortgage is a good and consistent way to demonstrate the significance of the relative differences at different rate-levels. Just think of all debt in the economy as one big rolling 30-year mortgage to appreciate what it means to the bankers and other alleged financial-middlemen.
While it remains what the law calls malum in se or evil / wrongful-of-itself (and a fraudulent act) for a financially-sophisticated lender to cheat a less-sophisticated borrower of any amount using mathematical-trickery, at a stated 3% per annum it is not something that the masses are going to start a civil war over.
At an agreed or stated 6% per annum, however, the nominal approximation method converts it to a real 6.167% per annum. Note especially that by doubling the agreed rate from 3% to 6%, the additional amount or overcharge is increased by just over four-times from 0.0416% to 0.167%. That is because the math-error in the nominal method is an exponential math-error.
In practical terms it now means that based on the required monthly payment on a 30-year mortgage, the same mortgage that is paid off in 30-years at a nominal 6% per annum is paid off after only 28.6 years at a real 6% per annum. Now the error and extra amount accounts for an extra 1.4 years of payments and about 8% of all the interest money to be paid over the 30-year period.
Now, at this point we hit a kind of general historical limiting-factor because for about its first 100-years the Bank / Banking Act, at various times, limited the rate of interest on a nominal bank loan to a maximum of either 6% or 7% per annum.
Up until this point the general approach had been for the financial-people to admit the fact of the difference while avoiding any discussion of its fraudulent substance, and by asserting that the difference is trivial.
Testifying in Canada under oath before the Select Standing Committee on Banking and Commerce in 1928, for example, the spokesman for the private chartered banks (Mr. M. W. Wilson) said of the nominal approximation method discrepancy / overcharge:
Mr. Wilson: It [use of the nominal method] makes an infinitesimal difference. That is not the reason it is done, I give you my word for it. (Parliament of Canada – Select Standing Committee on Banking and Commerce hearing transcripts,  p. 464.)
Likewise the (mostly banker-written) Encyclopedia of Banking and Finance (Munn, Glenn G.) technically acknowledged the fact of the math-error, and of the at-least-constructive fraud, in its 1937 Edition under the general heading of Interest:
…if the interest period is less than one year, the [amount of interest determined under the] nominal…interest rate is greater than the true interest rate… Practically, however, the difference is disregarded.
Really? Can anyone seriously imagine bankers disregarding a factor that at-the-time accounted for up to 8% of all the interest money to be paid on a mortgage or any other loan over its entire 30-year term?
Let us now regardless continue into the post-1968 era after the interest rate limits were removed from the Bank Act. And bearing in mind that bank Prime in Canada peaked at a nominal 22.75% in August of 1981. And at 20.5% in the U.S., also in August of 1981.
By a stated or agreed 15% per annum, the nominal method increases the real rate to 16.1% per annum and the math-error or overcharge is now 1.1 percentage points or 6.65-times greater than at a stated or agreed 6%. At this level, a two-and-a-half-times (2.5-times) increase in the stated rate from 6% to 15% results in a 6.65-times increase in the relative math-error.
In practical terms it now means that based on the required monthly payment, the same mortgage (or aggregate debt) that takes exactly 30-years to pay off at a nominal 15% per annum, is paid off in only 18.7 years at a real 15% per annum.
The math-error and fraud now increases the total amount of interest money to be paid under the contract by 93%, per se, and accounts for 48% of all the interest money to be paid over the entire 30-year period. By a stated 15% per annum, we have reached the fringe of what is called the exponential-runaway-point.
Still think the bankers maybe haven’t noticed?
At about this point, in 1974, three critical events occurred.
The first is that in the U.K., the U.S. and Canadian nominal approximation method was recognised and banned as criminal fraud on the grounds that it is “false and seriously misleading”; and which was itself the understatement of the century.
The second is that creditors in the U.K. more or less immediately reacted to it by switching to a different but equally criminal means of achieving the same result. Whatever it took to avoid declaration or disclosure of the real interest rate to the people whose wealth they were harvesting by criminal means.
And third is that there was no material public recognition of it in the U.S. or Canada. No screaming headlines like:
U.K. bans U.S. method of interest calculation as criminal fraud!!!
The same families who were (and remain) the primary owners of both the banks and the broadly-defined media decided that the public had no pressing need-to-know – and the creditors in both countries simply carried on systematically lying about the real interest rate as if nothing had happened.
When the nominal / alleged U.S. Fed Rate peaked at 20.5% in August of 1981, the same mortgage (or total debt in the economy) that takes 30 years to pay off at a nominal 20.5%, is paid off in just 13 years at a real 20.5%. Based on the identical physical contract, if the lender merely claims to have interpreted the agreed and declared interest rate as nominal and not real, then the borrower is condemned to pay three times as much interest money on a 30-year debt that is technically paid off in-full by the same monthly payment after 13 years at the same real rate.
And yet the then equivalent of what is today 25,000-plus PhD’s in Economics worldwide remained oblivious to it. How is that even possible?
This cognitive-cancer then regardless continued to metastasize near unabated through the 1980’s until I challenged it in the Canadian Courts in 1989 on the grounds of its prima facie fraudulent substance.
In April of 1990 I won the case (Edmonton Journal, April 27, 1990):
(26.8% in the fifth paragraph is a typo by the reporter – it should read 28.8%).
But my legal win in the Courts was relatively short-lived.
It was fully and finally negated / overturned at the Supreme Court in Canada in 1995 after the lawyers realised that if allowed to stand it was going to cost the banks and the legal profession in Canada a minimum of $100 billion in refunds and write-downs just to pay back the overcharges, and as much as $1 trillion ($1,000,000,000,000) if all creditors in Canada were restricted to 5% per annum for non-compliance as provided under the federal securities law of 1897 that had made the nominal approximation method illegal without concurrent disclosure and declaration of the real interest rate.
The (Hansard) Parliamentary records of debate also make it clear that the legislators in 1897 recognised the nominal approximation method as both increasingly-inaccurate and fraudulent when they enacted the law against it. Such also directly defeated the creditors’ official position in my case that there are two equally valid ways of doing it, and that the creditors merely choose the one that is more advantageous to themselves.
Because the creditors had then been simply ignoring the federal securities law for almost 90 years, their lawyers and their malpractice / negligence underwriters would become co-liable for all of the constructive losses and costs of paying it back.
And so aided and abetted by the former-bank-lawyers who had been directly appointed or elevated as judges to the Appellate Courts and the Supreme Court by the former bank-director (Brian Mulroney of the Canadian Imperial Bank of Commerce (CIBC)) then occupying the Office of the Prime Minister, the entrenched-money-power led us to cross the Rubicon and into the Financial Twilight-Zone of modern Payday-Loans and Micro-Loans.
As a general frame-of-reference, between a stated rate of 1% per annum and a stated rate of 30% per annum, the relative error in the nominal approximation method increases exponentially by a factor of (almost exactly) 1,000-times. It is 1,000-times greater at 30% than at 1%.
Above that it gets ever more ridiculous.
Consider the following (and typical) CBC (Canadian Broadcasting Corporation) article nominally advising Canadians on the high cost of payday-loans (cbc.ca website, Payday Loans: Short-term money at a hefty price. October 4, 2006) (in material part):
How much do payday loans cost?
They are the most expensive legal way to borrow money
Typically, you can expect to pay up to $100 in interest and fees for a $300 payday loan. The Financial Consumer Agency of Canada says that amounts to an effective annual interest rate of 435 per cent on a 14-day loan [33.3% for 14 days].
The interest rate objectively defined by that transaction is 180,754% per annum.
= 1807.54 or 180,754% per annum.
If you had an effective / real-interest-rate daily-interest-accrual savings account, then it would have to pay interest at an annual rate of 180,754% for you to earn 33.3% over 14 days (i.e., to earn $100 of interest on a $300 deposit over 14 days).
If you go to any medical professional with a virus that grows at an observed rate of 33.3% over 14 days, they will tell you that its rate of growth per annum is 180,754%.
If you ask any competent economist for the annual rate of price-inflation if the observed rate is 33.3% over 14 days, they will tell you 180,754%.
And if price-inflation is occurring at 100% per month, also for example, then something that costs $100 today will cost $409,600 one year from now, because the annual rate is 409,500% and not 1,200%.
If I were to respond to the reality of it with: “Yes but 100% times 12 is 1,200%, and there are in fact twelve months in a year”, then I would be sent back to junior-high-school for not paying attention and / or for not doing my homework. It is just plain stupid yet this flat-out-embarrassing logic-flaw has been engrained into the global finance system owned and operated by the same entrenched-money-power that also gains the benefit of the deceit and deliberate mal-education of the masses.
It is only with respect to this uniquely-special-virus called debt-or-loan-interest, that if it grows at an actual rate of 33.3% over 14 days, then the entrenched-money-power that feeds upon it, and otherwise measures financial performance by the basis-point or 1/100th of 1%, will tell you with a straight-face that it is only 435% per annum, even though they are in the business of knowing that it is 180,754%.
The CBC example serves also to expose the psychiatric phenomenon that underlies the nominal approximation method, and which should be readily apparent even to those who otherwise have trouble with the math.
The nominal method is founded upon three clinically-insane propositions:
- The borrower in a loan transaction does not need to know the interest rate defined by the transaction.
- The borrower in a loan transaction does need to know something that is not the interest rate defined by the transaction.
- The borrower in a loan transaction needs to believe that the thing that is not the interest rate is the interest rate.
Substituting the details from the CBC article ($300 for $400, due in 14 days):
[1.] The borrower in a loan transaction does not need to know the interest rate defined by the transaction.
The borrower in a loan transaction ($300 for $400, due in 14 days) does not need to know that the interest rate defined by the transaction is 180,754% per annum.
The CBC article accordingly makes no mention of it.
[2.] The borrower in a loan transaction does need to know something that is not the interest rate defined by the transaction.
The borrower in a loan transaction ($300 for $400, due in 14 days) does need to know something (a nominal rate of 870% per annum) that is not the interest rate defined by the transaction.
The (full) CBC article directly implies that the nominal rate is 870% per annum, but then takes the position that because half the $100 difference is labelled a loan fee, the interest rate is only 435% per annum. In substance the article implies that the borrower needs to know one of two things – both of which are nominal, and neither of which is the interest rate.
[3.] The borrower in a loan transaction needs to believe that the thing that is not the interest rate is the interest rate.
The CBC article directly provides that the “effective annual interest rate” is 435% per annum, while attributing it to the Financial Consumer Protection Agency of Canada.
So we see also that the Financial Consumer Protection Agency has now also entirely dropped or abandoned the nominal-rate pretence and is now also directly lying by claiming that 435% (and / or 870%) is the “effective [real] annual interest rate”.
But we also see clearly the larger insanity of a system that does not just recognise the three clinically-insane postulates / propositions, but actively acts upon them virtually always and everywhere.
Regardless, after the CBC had directly featured and understated the real interest rate by a factor of 400-times on its national and international website, no one seems to have complained or even mentioned the fact of it.
At this point it should also be noted that none of the financial institutions use the nominal method for internal purposes, nor could they even if they wanted to (except through some form of conversion to the (real) interest rate).
In practice, the sole real purpose of the nominal approximation method is to understate the interest rate to the borrower, and the greater the real rate, the exponentially-greater the relative understatement.
Assume for example, and to make it easy, that you are a micro-lender who has invested $36,500 into 365 different $100 loan contracts. In each case the interest charge is determined in the amount of $1 per day, for each day in the term, and each of the 365 contracts has a different term of from 1 to 365 days.
And so, for example:
The interest rate defined under the first contract with an interest charge of $1 payable after one day is 3,678% per annum.
The interest rate defined under the tenth contract with an interest charge of $10 payable after ten days is 3,142% per annum.
The interest rate defined under the 100th contract with an interest charge of $100 payable after one-hundred days is 1,155% per annum.
The interest rate defined under the 200th contract with an interest charge of $200 payable after 200 days is 643% per annum
The interest rate defined under the 300th contract with an interest charge of $300 payable after 300 days is 440% per annum.
And the interest rate defined under the last contract with an interest charge of $365 payable after 365 days is 365% per annum.
Each of the 365 contracts defines a different rate of interest, and which ranges between 365% per annum and 3,678% per annum.
Yet in all 365 cases the nominal interest rate remains 365% per annum. Why is that?
Because there are 365 days in a year, and that is all that the nominal rate allows you to determine.
And if the interest rate can range between 365% and 3,678% per annum, while the nominal interest rate remains unchanged at 365% per annum, then how can the nominal interest rate be an interest rate at all?
It can’t and it isn’t. It never has been, and it never will be. Technically the nominal rate is a non-exclusive logarithmic derivative of the interest rate, and not the interest rate, per se.
For those whose right-brains are more dominant than their left-brains, the nominal method is a purported measuring device for the time-value of money, used almost exclusively for periods of less than a year, that is based on the presumption that money has no incremental time-value for any period less than a year.
Whether expressed mathematically or in words, it is equally insane, and the reason regardless why the nominal creditors cannot use it internally, but only use it to misrepresent the rate of interest to the nominal debtor.
Even at the barest technical level, and ignoring all of the criminal law offences, the nominal method is unfit for purpose.
I have not been keeping track of the grand-totals for a few years, but according to the 2016 report from the Financial Health Network in the U.S.:
“This year , we report that financially underserved consumers [mostly the working-poor] in the U.S. spent approximately $173 billion [$173,000,000,000] in fees and interest during 2016 to borrow, spend, save, and plan across 29 financial products in this diverse and continually growing marketplace.”
So in most simple terms, a very disproportionately-large number of the working poor in the U.S. are being systematically looted of at least tens of billions of dollars annually at average interest rates of about 30,000% per annum.
A very disproportionate number of these people are Black, but they are not being looted and exploited because they are Black. They are being looted and exploited because they are poor. The same goes for the disproportionate number of working-poor who are Hispanic. And an ever-growing number and proportion of White people are being systematically looted as they too are just as systemically pushed into the ranks of the working-poor.
If we had real truth-in-advertising there would be signs everywhere that say:
Access to short-term working-capital:
Wealthy Asians: 3% per annum.
Wealthy Blacks: 3% per annum.
Wealthy Hispanics: 3% per annum.
Wealthy Whites: 3% per annum.
Poor Asians: 30,000% per annum.
Poor Blacks: 30,000% per annum.
Poor Hispanics: 30,000% per annum.
Poor Whites: 30,000% per annum.
The real trick being pulled is getting us all to believe that it has much to do with race at all. Actually the real trick is getting us all to not think about it at all.
And the unstated real justification of the entrenched-money-power doing the looting is: But if we told the truth there would be massive social unrest, and so we are really doing everyone here a favour by telling them that the rate of interest is 100-times lower than it really is.
If the reader is confused or not quite grasping what is going on – just think Bernie Madoff / Madoff Investments.
You may recall that Mr. Madoff ran one of America’s premier Wall Street investment companies for 25 years as a naked-ponzi / pyramid scheme that collapsed with the late 2008 financial panic.
Once caught, he admitted that from Day-One and for 25 years he had never made a single investment on behalf of a client, and had paid all returns to his then current investors from the new and ongoing investment money that he received from new investors.
Here yet again, how is that even possible? Let alone in the most allegedly intensely-regulated financial environment on Earth where the primary function of the entire SEC (Securities and Exchange Commission) is to make certain that alleged investment firms are not running ponzi schemes?
Answer: It isn’t. It is not possible at all. That’s the point.
It is just another glitch-in-the-matrix revealing that it is all fraud, all the time. The nominal method is just one of myriad instruments of de facto financial-apartheid that ensure that ever-increasing numbers of the working-poor representing all races are drained of their working capital at average rates of 30,000% per annum while the entire financial and academic worlds remain oblivious to it.
They don’t want to see it, and so they don’t see it.
The object and intent of it is not greed – it is to deliberately plan and ensure that the working-poor stay that way – forever.
It is not about greed – it is about domination for its own sake.
If we could go-back-in-time and put-back the minimum $1 trillion-plus of math-error-money that these financially underserved families have been looted-out-of over just the past 20 years (just in the U.S.), there would almost certainly be no rioting today. And – as an added bonus – there very likely would be vastly reduced excessive use of force by the police.
The stark reality is that those who comprise our global-political-and-financial-management-superstructure possess a genuine and sincere belief that you can avoid the real and brutal consequences of exacting interest at 30,000% per annum from the working-poor by merely convincing the target / victim that it is only 300%.
Or rather more likely, at the highest levels they know exactly what they are doing – and they just don’t care.
It is not that Black Lives and Hispanic Lives and White Lives don’t matter – it is just that, if and when they are poor lives, they are practically disregarded.
Either way, at what point do you think that the entrenched-money-power-parasites are going to come-clean on the math-error in the nominal method and tell the masses that, by total amount, the cumulative overcharge is now greater than all debt everywhere in the world – and by several times over?
How about: Never.
And that is just since 1974 when the nominal method was legally-banned in the U.K. as criminal fraud on the grounds that it is “false and seriously misleading” (here again itself the understatement of the century). From that point on it became impossible to even feign ignorance of its egregiously fraudulent substance. That is what caused the former-bank-lawyers running the Appellate Courts in Canada to panic when confronted with it in 1994 / 95, and then to answer it with:
The United Kingdom has devised a complicated formula which is incorporated into statute law for dealing with disclosure requirements in similar circumstances.
Lawyers are trained in how to deceive humans by stringing together statements that are not categorically false. The ones who are really good at it are appointed judges.
It is regardless very likely somewhat more than coincidence that the ever-building number of these glitches-in-the-matrix had crossed a critical threshold right before the real or imagined Coronavirus outbreak, and which was itself then near-inconceivably simply abandoned in favour of the George Floyd riots.
The good news is that based on my own extensive research and observations over the past thirty years – these people – the entrenched-money-power and their de facto administrative agents – are not master manipulators – they are simply criminally-incompetent language-manipulators who are making it up as they go along.
The bankers and their solicitors and the rest of them are not that bright. The only reason they appear to own and control everything is because their great-grandfathers accidentally discovered The Great Stupid-Ray that keeps the rest of us believing whatever they tell us no matter how transparently fraudulent and ridiculously stupid.
But it is critical to exercise a little restraint because if anyone ever accidentally trips over the power-cord to The Great Stupid-Ray, you don’t want to be caught systematically harvesting interest money at up to 180,000% per annum from the working-poor at the moment the masses cognitively wake-up.
They might even be a little pissed about it.
Timothy Paul Madden, forensic-financial-economist, and historian of equity, law, and policy.
Johannesburg, Republic of South Africa, June 26, 2020.
Footnotes / Endnotes
Based upon monthly payment, which I will remain with throughout except where specifically noted. ↑