Page Created: 7/28/2014   Last Modified: 12/30/2019   Last Generated: 5/5/2021
From the mid 80's to the mid 90's, my family was fairly poor, and the six of us subsisted on the retirement pensions and social security of my aging grandparents and my mother's part-time job that was near minimum wage with no benefits. My mother, father, brother and myself had no medical or dental insurance most of my life, and any medical treatments would sink whatever savings they had.
In the late 80's my mother was taking out loans for me to go to college. By 1994, one of my family member's medical bills exceeded $100,000. And my grandfather was in late-stage lung cancer by 1995.
When my grandfather was still alive, like clockwork, he would get out the monthly bills and an old 7-segment "vacuum fluorescent display" calculator, with a bright blue-green hue, and write out the checks. It's interesting I used the word clockwork, as he also wound a grandmother clock each day... like clockwork. In the last few years of his life, though, I begin paying attention to his bill-paying ritual, and on inquiry found out that they were about $25,000 in debt, taking out numerous credit cards. I then interrogated my parents and found that they were also in debt with the same amount and a large collection of credit cards. I was horrified. I hate bullies, and compound interest was bullying my family.
My years of mathematics and knowledge of compound interest told me that it would eat away at anything the family had, that saving money was actually working against them since it wasn't going toward paying down that debt. Anything they purchased was like taking out a loan with interest if the money didn't go to paying down that debt. Like my grandfather's cancer, it was a cancer that ate away at us. Mathematically, it was more akin to a virus that spreads with exponential growth, the growth that compound interest has for the credit card companies that unleashed it on a naive populace. My family members were teachers, educators, not financial or mathematics experts. I saw the exploitation.
They thought that they were paying off their debt, and they were, but the minimum payments were set so low, and the daily compounding interests set so high (some as high as 25%) that they were paying back twice as much as the initial loan, taking well over a decade. This is now widely known as predatory lending, and the US government has since tried to stop some of this, such as the Credit CARD Act of 2009, the year my father died, but it didn't help them back then. My grandparents survived the Great Depression, and lived frugally thinking it could always return, but ironically, predatory lending was one of the causes of the Great Recession.
That grandmother clock that my grandfather wound broke its spring and stopped working, and I replaced the internal mechanism with an electric quartz mechanism, but he no longer wound it. I did not know at the time that it was a harbinger of things to come, as his life stopped shortly after the clock.
I did a lot of stupid things like that, thinking that I was improving people's lives with technology. I replaced our rotary phone with Touch-Tone (DTMF), so we could dial faster and use automated services. But the magical feeling of "dialing" the phone was lost. I got them a carousel CD player, but that meant that they didn't use the old phonograph. I got my grandfather an electric screwdriver and electric tire pump, but what was wrong with a regular screwdriver and regular tire pump?
And I finally replaced that beautiful, 1970's-era, glowing, blue-green calculator that he used to pay his bills with a dim, grey-display LCD talking calculator.
But one thing I didn't do that was stupid was to find a way for them to pay off their debt.
I began researching compound interest and credit card rules such as APR, minimum balance, etc. I figured my mathematics knowledge would make this easy.
Finance is just math, right? Yes it is, but it is mathematics twisted and made confusing to all but those in the know. The mechanisms are hidden by their own jargon.
So I began a quest to find out how to optimize what little money they had to free themselves of debt as soon as possible. This was near the beginning of the World Wide Web and I knew of no online debt calculators available for this task.
So I thought: What cards do they pay off first, the ones with the highest balance, or those with higher interest rates? What about the cards that have the highest minimum balance? Should you pay those off first so you can apply that large chuck of money to cards with higher interest rates? What if one card had $10 on it with an 18% interest rate and another had $1000 on it with a 17% interest rate? Should you pay off one card and apply the rest to the other card?
It looked to me like a Linear Programming optimization problem, where you are looking for a maximum or minimum. So first I had to create a large set of linear equations that could be solved by the "simplex" algorithm.
The simplex algorithm was computationally intensive and would not always lead to answers. Occasionally, the problem would be "infeasible", and you wouldn't get an answer--the algorithm would just pivot back and forth, known as stalling and cycling.
At that time, I was using a Windows 3.11 computer, and I got simplex working using a BASIC dialect called QBASIC. But it was too slow, so I decided to rewrite it in C++ language and purchased Symantec C++. If I did the same thing today, I would use Linux and Perl, Python, or straight C (GCC), but back then, Linux was just invented, and most people (myself included) had never heard of it. I had no choice but to use Windows and leave my beloved Amiga behind. But I kept running into problems with the code and was wasting a lot of time. Here was my attempt in C++.
Since I kept hitting the infeasible problem, I researched mathematical journal articles at the library on Linear Programming to see if there were any better algorithms than simplex, and sure enough, a mathematician named Narendra Karmarkar had recently invented a new interior point method↗ that was said to be fast and didn't have the infeasible problem that simplex had. But the algorithm was complex. It reminded me of years prior when I tried and failed to integrate public key cryptography algorithms on a Commodore64. It is one thing to see an algorithm in a computer textbook, already sketched up in pseudocode, but entirely different when you are reading published papers by mathematicians, trying to translate their math into machine code. I eventually gave up on the Karmarkar algorithm, gave up on my C++ simplex program, and simply wrote a simple brute-force simulation program in Visual Basic using a small, hardcoded dataset. It took too long for the computer to go through every combination, but I felt I had enough data to come to a conclusion.
I knew of no one at the time that was trying to do what I was doing, to optimize the paying of credit cards from a fixed income. I couldn't talk about it to most people, because in doing so I would reveal all the debt my family had. I even thought I could market such software, but when I entertained this idea in more detail, I realized that I would be exploiting those very people, like my family, that were deep in dept, and the last thing they needed to do was get more in debt by buying a software program from me when they should apply their money to their credit cards. The idea made me feel sick.
But after weeks of work, I no longer had to worry about that, for my program failed...
Well, it didn't really fail, it just had an outcome that I didn't expect, like a scientist whose experiment didn't produce the results they wanted. It was still science, it still revealed the truth.
Every simulation I ran, varying up the balance, the APR, the minimum payment revealed that the optimal pattern was to put everything you can into the highest interest rate card first, and as soon as a card is paid off, put everything you have into the next highest interest rate card, etc. It doesn't matter the size of the balance or the closeness in interest rates, that algorithm wins, and it wins by a long shot.
This flew in the face of what I read in many financial self-help books of that time. Some of them had various ways they told people to pay back their debt. But those were wrong.
As the years went by, I realized that these computational engines, like the one I had built, are called "solvers". But they were not well known at that time or easy to use. Later, spreadsheets like Excel had them built in. I also realized that I probably didn't need to use linear programming at all to tell me this--simpler mathematical formulae probably could have done this, although I could not have constructed such formulae myself, let alone perform a proof that confirmed it was right. That was the domain of mathematicians.
I later found out that what I was trying to do, perform fast linear programming on a computer, is actually one of the unsolved problems in mathematics↗.
The day I discovered the answer, I excitedly provided the news to my grandparents and stressed to them to hit the high interest rates with all they had, but only weeks later, in May 1995, my grandfather died. All of my mental faculties, all of my determination, were meaningless. I was too late. And instead of working on that problem, I could have spent more time with him. Immediately, his pension stopped, and my grandmother had even less money to pay off the debt. Over the last 8 years of her life, she paid most of it off, and my mother finished off the rest. I assisted my mother with her debt and made sure she and myself were debt free as well.
My family never went into bankruptcy and ended up paying the banks far more than the initial loan, far more than they deserved.
Debtors prisons were abolished long ago (this is debatable in several states), but compounding debt is like being under house arrest, a ball and chain wrapped around your leg. It is a living prison.
The experience affected me greatly and made me question exactly what money is, what interest is, not from a financial perspective, not what society tells you it is, but what it really is.
I came to the conclusion that money is a tokenized version of energy; it passes through society like an organism. Some people hoard energy. Some people share it. Something first produces the energy (which ultimately comes from the sun or earth), and humans record it as money and pass it around.
Interest is just pure Evil, it is the sucking of energy from someone else, where the more energy one has, the more they can suck energy from other people. It creates "energy deficits" in people.
Most of the religions of the world have referred to this as "usury", a type of sin.
Compound interest is Evil exemplified. Even the Romans were against this one. I have kept my eye on this Evil, but unfortunately, it is controlled by powerful egregores, and my only tools are my words and my mathematics, tools the great educators gave me.
Only a few years after my grandmother had paid off her 30-year mortgage, she was forced to sell her house to Lambert airport which was then demolished along with my entire childhood neighborhood, the beautiful trees that I used to climb and the primary school where I first learned my multiplication tables. It now lies buried 50 feet under Runway 11-29.
So when I bought my house in 2004, the home buyer books at the library all said the same thing, that it almost never happens that a house in an average US neighborhood actually decreases in value, that real estate is one of the most secure investments a person can make, that you can make a profit by "flipping" the house in as little as two years.
But I didn't trust the books, since I knew from experience that people and books are sometimes wrong. I bought a small, old house, built in 1936 in an inner ring suburb, the cheapest house I could find that wasn't in a decaying neighborhood. I told people, "I didn't buy an expensive house with a large mortgage, in case we have another Great Depression. This house was built during the Great Depression. If it made it through that, it can do it again." People thought I was foolish.
And 2 years later, the Great Recession began. The books were wrong.
I later found an aerial photograph said to be taken in the 1920's by Charles Lindbergh who resided a few blocks away from where I now live, and he was an airmail pilot at Lambert Field when the airport was just a grassy field with worn-away dirt paths. Similarly, it shows an empty grassy field where my house now resides, before the great housing boom that would soon follow. I also discovered, to my melancholy surprise, that less than 2 miles away lies the actual house that became the basis for the movie The Exorcist, a house similar in construction that was probably built around the same time.
Evil moves in cycles, like the gears of that grandmother clock. Like winding, eroding river banks and twisting branches that blot out the sun, it distributes itself in a fractal, mathematical geometry, just like everything else. But it was those stories, the ones my grandparents told me, that survived Time, like an ancient map of the fractal, the map that Lindbergh captured, that reminded me that it was close.
Image Credit: St. Louis Mercantile Library
at the University of Missouri St. Louis