Conference 7.286::dcu

    I am afraid that you have been unwittingly caught in the same bind
    as many of the margin traders.  By taking a loan out on your stock,
    you have actually begun trading your shares "on margin".  As such,
    the federal government has certain regulations which require minimum
    balances.  I believe that the government allows margins up to 50%
    of the value of the stock, meaning that you only have to have 50%
    of the value of the stock on account.  However, it is quite possible
    that the DCU has a higher balance (it sounds like you said 70%).
     With this being the case, you have little in the line of options.
     One suggestion - is it possible for you to get a cash advance from
    your credit card for the amount needed, and pay that back later?
    
    This is a case of protections intended to prevent a similar crash
    as happened in 1929 burning a "little guy".  Sorry to hear about
    your plight though.
    
    Ed..
    

    RE: .0
    
    Are they going to sell all of the stock or just enough to get you
    back to the 70% mark?
    
    Didn't you understand that something like this could happen?  I
    know the possibility of a 42 point loss in one day was never considered
    to be possible!
    
    Good luck, and believe me, you are not the only person losing sleep
    over this latest turn in the market.  Know a good tall building
    I can use???

	The 48 hour stuff was incorrect.  The DCU person who told me that 
	was wrong.  I got in touch with someone in charge of this stock 
	loan business and they said that they need "notification" of how 
	the additional collateral will be supplied by the end of this
	week.  Then resolve it next week.  Still not good but better.

	Choices:

	   Supply additional shares as collateral and the loan remains 
	   as is.

	   Supply actual cash to be applied as principal against the 
	   loan so that the shares used as collateral equal the 70%.
  	   The payments remain the same but the length of the loan is 
	   decreased appropriately.  
	
	   If neither of these are satisfied, they will sell all stocks
	   to pay off the loan.

	Hopefully the stocks will go up a little more by next week so that
	I may not need to pay the full $1000 ransom.  They (DCU) would
	not go for a weekly $100 direct deposit payment plan, nor accept 
	the fact that I could turn over my ESPP shares in December.  
	I wish they would be a little more reasonable.  What's a few weeks.

	
	P.S.  I've gotten 3 calls from people in the same boat with DCU.
	      Why not put your 2 cents worth in here....strength in numbers.

	
>	P.S.  I've gotten 3 calls from people in the same boat with DCU.
>	      Why not put your 2 cents worth in here....strength in numbers.

Wait a minute.  I'm sympathetic to your situation (and that of the other 
people) BUT...

How can you accept the rules, then complain about them?  This is how
margin trading works.  DCU is doing nothing more than what is clearly
stated that they *will* do.

You either knew what the rules were, or didn't know.  In neither case can 
you blame the DCU for *anything*.

.jim

re -1:  
 > You either knew what the rules were, or didn't know.  In neither case can 
    you blame the DCU for *anything*.

	Don't get me wrong, I'm not blaming the DCU for asking for
	additional collateral.  That is legally, rightfully theirs to 
	require.  A "normal" drop in stock value could easily be handled, 
	and would not create such a problem.

	But this is such an extrordinary circumstance.  To come up with 
	that substantial an amount in one lump sum in so short a time is,
	for many like myself, nearly impossible.  What I'm dissapointed 
	in is the fact that they are unwilling compromise by letting the 
	adjustment be made in a few payments.

	Point is that DCU could help to keep this bad dream from turning 
	into a real financial nightmare for some of us not-so-independently-
	wealthy employees.

	They still get their loan payments, and will get the additional 
	collateral in a short period of time, and everyone will come
	out of this ok.

With all due respect to your situation....if banks DIDN'T follow their 
side of the agreement in these sorts of situations, then we could have 
a real financial nightmare.  It sounds like DCU is trying to be 
reasonable by giving you as much time as they can, but if banks 
started saying 'its ok if you don't pay us what you're supposed to' 
confidence in the banking system would drop (as it has somewhat due to 
third world loans) which could be very bad news.  I agree that, with
an extraordinary drop, 48 hours notice is tight (even though that sort
of situation is happening to speculators all over the country this 
week), but 1-2 weeks sounds reasonable - DCU has books to balance too. 

I know you don't want to hear altruism or idealism now, but just 
wanted to make the point for what its worth.

    
    I too knew what I was doing when I applied for such a loan. I did
    however keep a few shares in case such a situation came up. Being
    out in the field with out network down, it took me two weeks to
    get the paperwork. Then when they finally sent me the stuff for
    signatures, it was the Black Monday. I wavered for a day and then
    finally sent it back signed. I got the money, but I'm still waiting
    for notification. My first reaction was, Murphy's law. How come
    this has to happen just when I wanted to take a loan.
    
    A remedy might be to ask them if you can apply for a personal loan
    for getting cash for additional collateral. Unfortunately banks
    and DCU don't realize that if we had some of the money we want to
    borrow from them, we wouldn't be borrowing for them in the first
    place.                                               

Don't feel so bad.  A friend of mine was called by his bank monday night
and told to report at 9am tuesday to resolve the margin situation.  Based
on what this and other commercial banks did, you are lucky DCU is giving you
a week.

    re .0
    If I understand you that the current value of the stock is still
    more than the OUTSTANDING BALANCE as opposed to 70 of the ORIGINAL
    VALUE of the loan then I think I would be talking with one of the
    managers and not one of the clerks.
    
    I would also review the contract I signed and see if the requirement
    is based on the Outstanding Balance or the Current Balance.  I would
    like to know in either case for future reference.
    
    If the current value of your stock is not sufficient to pay off
    the loan and they take your collatteral as payment, do that then
    satisfy the loan in full ?
    
    

    To ask DCU to allow you to wait until the ESPP purchase, or even
    just a few days is asking them to take on the risk of trading the
    shares on the market.  This is unfair to them and by default to
    the DCU members.  If they were to give you several weeks to resolve
    the situation, then they would be taking the chance that the stock
    market will continue going down.
    
    As for cancelling out the loan, just selling the collateral does
    not cancel out the loaan, I believe.  After all, it would not seem
    to be much different than using a house or car for collateral. 
    If the collateral is taken, doesn't the outstanding balance remaining
    still have to be paid?
    
    By the way, for those interested, DEC stock dropped about 12 points
    yesterday and closed at $132 per share.  This will not help any
    of you hoping to avert margin calls by the stock returning to a
    sane level.
    
    Good luck
    

    
    I just talked to DCU. They want people to contact them within 48
     hours of receiving the letter to discuss how each person intends
    to resolve the situation of increasing the collateral. When you
    call them, they will tell you how much extra collateral they need
    as of that mornings opening price. I was told that at the time you
    increase the collateral, the difference may change based on that
    day's price, so they are willing to forgive a few dollars (NOTE:
    not hundreds). They also told me that if the value of the stock
    increases so that they are holding more than the loan, they will return
    the extra shares to you. (Should we trust them in this to not screw up?).

    RE: .0: The person I talked to said that you can submit more
    certifcates and/or extra payment. If you chose to do both, the extra
    payment will be billed to you (which can buy you time) or you can
    have them billed to you checking account with DCU.
    
    The one thing I found amazing is that being out in the field it
    took me almost two weeks to get this thing thru. They approved the
    loan and sent me the papers to sign via mail, I mailed them back
    Tuesday of this week (FD), the amount was deposited in my checking
    account with DCU on Wednesday as per my request. I got my paycheck on
    Thurs, and they had already started the deductions for the payments.
    I've had to deal with personnel about things showing up on my paycheck
    and as far as I know, the fastest was 2 weeks to show up on my
    paycheck. I guess DCU knows how to cut thru paper work when it's
    to their benefit.

.10>    By the way, for those interested, DEC stock dropped about 12 points
.10>    yesterday and closed at $132 per share.  This will not help any
.10>    of you hoping to avert margin calls by the stock returning to a
.10>    sane level.
        
        Unfortunately, it's altogether possible that what has happened
        is that the stock market in general, and DEC stock in particular,
        already HAS returned to a sane level.  Only time will tell.
        
        Re: an earlier reply that talked about DCU requiring more
        collateral, it's not the DCU that's doing this, it's Federal law
        that's doing it.  It is one of the controls put in place after the
        1929 crash to avert economic disaster.  While you may not have
        borrowed against the "value" of your stock to buy yet more stock,
        some people choose to do this.  It's a rather perverse form of
        gambling.  The "value" of stock, after all, is based in part on
        the confidence of investors, both in the specific company and in
        the economy at large. 
        
        I sometimes think of the stock market as a truly impressive
        confidence scheme..
        
        Tom

>    If the collateral is taken, doesn't the outstanding balance remaining
>    still have to be paid?

The collateral is taken for the purpose of satisfying the loan.  If the 
sale of the collateral covers the outstanding value of the loan plus the 
bank's expenses for selling it, any excess must be returned to the 
person who took out the loan.  If the sale does not net enough to cover 
the loan and the foreclosure expenses, then the person who took out the 
loan is responsible for the shortfall.  (In practice, foreclosure 
expenses always seem to eat up any amount remaining after the loan is 
paid...)
					>>>==>PStJTT

	Thanks to some very concerned and helpful people in the DCU
	I am working out a reduction to my loan to bring the principal 
	balance to a more acceptable level in relation to the value of 
	the stock collateral. 

	Thanks to those people.
	Mike

    I too got a letter. 
    
    HOWEVER-when I contacted DCU they informed me that they were
    valuing the stock at $110 pershare even though by the time
    I got the letter it was back up.
    
    I was told that the President of the DCU made the deceison to
    "fix" the value at 110 and that all loans would be based on
    this value.
    
    I have two questions-
    
    1. Can this type of thing be done legally?
    2. Is it in the best interest of the members?
    
    At the 70% margin I have more than enough stock to cover the
    balence if any price over the past couple of weeks is used
    but the 110.
    
    

    re:.7
    
    > Unfortunately banks and DCU don't realize that if we had some
    > of the money we want to borrow from them, we wouldn't be bor-
    > rowing for them in the first place.
    
    Isn't that also the case with credit? If you pay all of your
    bills and don't owe anyone any money, you're a bad credit risk.
    The only way to get credit is to owe lots of money. Sounds
    bassackwards to me.
    
    --- jerry

re:
< Note 66.16 by 57584::BOYAJIAN "The Dread Pirate Roberts" >

>    Isn't that also the case with credit? If you pay all of your
>    bills and don't owe anyone any money, you're a bad credit risk.

As a digression, you are not a bad credit risk, just an undesirable
customer.  As you point out, the lender may not make money on you. 
There are really four ways this works:


The American Express (Diners Club, Carte Blance) way:

These cards actually don't lend you the money.  They lend the money
to the organization that sold you the goods and then bill you for what
they lent you.  They also bill the establishment for the privelage of
getting their money in a timely manner.  Your fee for this is your annual
charge.  BTW, this is why you *CAN'T* borrow money from American Express
or use your Amex card to "Buy" travelers cheques (they would be lending
money to themselves which they'd bill you for - effectively a loan).


The "you have 30 days to pay your balance" revolving charge card.

Many credit cards work this way.  If you pay the "minimum" balance,
they will continue billing you in equal chunks in perpetuity and will
charge you interest on the outstanding balance starting 30 days after
you get the bill.  These usually charge higher fees ($25-35) and higher
interest (18.5%-21%).  That's because you can pay off your bill and
they don't make any money on you (yes, they charge 4% to the vendor).

This is the kind of card that doesn't like you if you pay off your bills.
This is also the kind of card that loves you the most if you NEVER charge
anything because they sit back and collect their fees.


The "you start accruing interest as soon as we get the slip" kind of
card:

You buy something, the seller sends in the piece of paper (or the
electronic order), and you start collecting interest.  These usually
have lower fees ($0-20) and (sometimes) variable rates.  The rates are
often tied to the Prime rate (as in 8% over).  If its fixed rates, its
lower (like 15%).  These cards have the benefit of lower rates, but
they get compensated for your use of their money.  Obviously these cards
have major advantages and disadvantages.  "Paying off" your bill with
these cards doesn't affect your credit profile because your use of the
card makes money for the card company anyway.


Debit cards:

You charge something and its effectively as if you wrote a cheque. 
The point about paying it off is moot because it was your money to begin
with.  This is very low-risk to the card issuer and so there are low
fees ($0-10).  The card issuer still charges the 4% to the vendor. 
Also, you dont need to qualify for credit because (as I said) it comes
from your funds, not the card issuer's.


How's that for a synopsis?

BobW (Who_Used_To_Work_For_Citicorp_Credit_Services)


BTW, does anyone know which kind of card the DCU is planning?

>>    > Unfortunately banks and DCU don't realize that if we had some
>    > of the money we want to borrow from them, we wouldn't be bor-
>    > rowing for them in the first place.
>    
>    Isn't that also the case with credit? If you pay all of your
>    bills and don't owe anyone any money, you're a bad credit risk.
>    The only way to get credit is to owe lots of money. Sounds
>    bassackwards to me.
>    

Not exactly.  When a lender makes you a loan, he wants to feel 
comfortable that you will pay it back.  One indication of this is 
whether you have paid past debts in a timely manner.  If you have 
never had credit, the first lender has no direct experiencial data to 
predict whether you will pay your debts on time.  Apparently this sort 
of data is a great predictor, as many creditors won't lend without it.
What some people do to get around this is to take out a passbook loan 
froam a bank, and then pay it monthly, to create a 'credit history', 
i.e., prove you are mature enough to pay debts properly and regularly. 
After doing this, creditors are more likely to take a risk on you.

    re:
    < Note 66.17 by COOKIE::WITHERS "Same Sow, Same Ear, Same Silk, Same Purse" >
                        -< Bad risk?:  How cards work >-
    
>The "you have 30 days to pay your balance" revolving charge card.

>Many credit cards work this way.  If you pay the "minimum" balance,
>they will continue billing you in equal chunks in perpetuity and will
>charge you interest on the outstanding balance starting 30 days after
>you get the bill.  These usually charge higher fees ($25-35) and higher
>interest (18.5%-21%).  That's because you can pay off your bill and
>they don't make any money on you (yes, they charge 4% to the vendor).

    Competition is starting to eat away at the fees and %'s you quote; I've
    seen "premium" cards offered for $15/17.5%; I have been lucky enough
    to find a $0/15.5% "regular" card through another credit union.
    Credit cards are a competitive commodity; take advantage of your
    market power!
                                                                   
>    How's that for a synopsis?
 
    It's an excellent summation.

>   BTW, does anyone know which kind of card the DCU is planning?
    
    Based on their recent behavior and loan rate offerings, I'd speculate
    $20/17%, which they'll no doubt advertise as "competitive."
    

RE:< Note 66.17 by COOKIE::WITHERS "Same Sow, Same Ear, Same Silk, Same Purse" >
                        -< Bad risk?:  How cards work >-

> The "you have 30 days to pay your balance" revolving charge card.

> ...  These usually charge higher fees ($25-35) ...

	It is my experience that American Express (for instance) charges much
more than this ($45-50) which would make these (revolving) cards less
expensive (lower fees). This doesn't make much sense. Since with Am. Ex. you
have to pay the whole balance at the end of the month (they don't let you
slide), wouldn't that be less of a risk and therefore less expensive as you
have implied? Do you have different experience with Diners Club for instance
(does that card or others like it truly have lower fees)?

Chuck

    re:.17 & .18
    
    Yes, I'm well aware of *why* they do it. It *does* demonstrate
    that you can handle paying debts. I *still* find the resulting
    situation ironic.
    
    I've had at least one friend who was turned down for credit even
    though he had a good credit history. He'd had a few loans in his
    time and he paid them off. But he was turned down because he didn't
    *at the time* owe anyone money! What's wrong with this picture?
    
    --- jerry

    We seem to have strayed from the original topic, but I'd like to
    add my personal experience:
    
    I applied for a low cost credit card ($0 fees, I don't remember
    the interest, since I wouldn't use it that way).  I was turned down
    because "I have too many other credit sources", even though the
    total of all my other cards is always 0 at the end of each month!
    (in other words, I pay every card completely when billed)  What
    I had planned to do was to get the new card and then cancel the
    one on which I'm paying fees...

Re:    < Note 66.20 by COOKIE::DOUCETTE "Chuck Doucette, Database A/D @CXO" >
                    -< Is a revolving card less expensive? >-

    
>    It is my experience that American Express (for instance) charges much
>more than this ($45-50) which would make these (revolving) cards less
>expensive (lower fees). This doesn't make much sense. Since with Am. Ex. you
>have to pay the whole balance at the end of the month (they don't let you
>slide), wouldn't that be less of a risk and therefore less expensive as you
>have implied? Do you have different experience with Diners Club for instance
>(does that card or others like it truly have lower fees)?
 
    Cost of extending credit is not the sole factor in determining
    membership fees. American Express has 100's of travel offices, a
    new (and expensive) world headquarters in lower Manhattan, and spends
    mucho bucks on cultivating the snob appeal of their green, gold,
    and platinum cards.
    
    The $45/year green card fee pays for 10-page full-size ads in the Wall
    Street Journal (Membership Has Its ....) and television spots with
    famous people (Don't Leave Home....). I fell for this mutual admiration
    scam for awhile (you send us money, we place ads reminding you how
    important and exclusive you are), but the full-page ads in the Journal
    opened my eyes. I decided if they could afford to do that, they
    were charging too much for the service they provided.
    
    Diners Club charges similar fees for personal accounts for the same
    reasons as stated above.
    
    Jon (who now feels more exclusive (and wiser) as a NON-member) 
    

>    I applied for a low cost credit card ($0 fees, I don't remember
>    the interest, since I wouldn't use it that way).  I was turned down
>    because "I have too many other credit sources", even though the
>    total of all my other cards is always 0 at the end of each month!
>    (in other words, I pay every card completely when billed)  What
>    I had planned to do was to get the new card and then cancel the
>    one on which I'm paying fees...
>

When this has happened to me, and I have explained this to them, I 
have had no problem.

    
    	Back to the original subject --
    
    	Calls for leniency and compassion because of the extreme and
    	sudden nature of the stock price drop are unreasonable.  The
    	magnitude of the drop is nothing new to DEC stock and to DCU
   	stock loan participants.  Exactly the same thing happened back
    	in 1983 (wasn't that in October too?) when DEC stock also
    	tumbled badly.  When I began taking out stock loans instead
    	of selling the stock, and especially when I began to "refinance"
    	my loans to get out additional appreciation in my collateral,
    	I was repeatedly warned by DEC "old timers" about what happened
    	"in the old days".
    
    	I guess it was just dumb luck that I paid off my loan in September
    	to protest the interest increase.  How did I pay it off?
    	With a SAVE loan (effectively removing my SAVE funds from the
    	market and protecting them from the drop in the market.)
    
    	Although it takes a long time to complete the SAVE loan process,
    	that may be a future source of funds if you need to continue
    	to support your DCU stock loan.
   

    	Joe Oppelt

    Carl Leeber
    {maintainer_of_batch_mailing_of_new_entries_to_DCU_BOD_Chair}