Movie Review: "Maxed Out" documentary

Over the weekend, I rented the movie "Maxed Out", which I thought would be a fairly amusing look at the American credit card debt addiction.

Boy, was I wrong.

I knew something was immediately wrong when it started by following along a woman in Las Vegas. She's drives around in her Mercedes, giving a tour of the fancy new developments in Las Vegas. Then she starts talking about her house. "I couldn't afford to build it if they hadn't have given me a loan based on it's value when it was completed." Then the screen goes black and in a nearly unreadable font it says "This is the same accounting technique used at Enron..."

I believe the accounting technique they are referring to at Enron was "mark-to-market" in which Enron booked the entire present value of a contract immediately.

Example: Enron signs a 10 year contract to deliver 1,000,000 MMBtu of natural gas to a factory per year. The contract is booked at $6.45 per MMBtu and they use a 6% discount rate. The total present value of the contract is $49,598,875 - and so instead of booking $6.45MM in revenue per year you book the entire present value now.

This woman had a construction loan for her new house. This is WILDLY different than booking the present value of future revenues. For starters, the bank releases the money in segments. If construction stops, or something goes wrong, the bank stops releasing money and the total value of the loan is much lower than it would be if they had just handed the home owner a big check. Furthermore, it's a pretty safe assumption that the completed house will be similar in value to other houses in the market. And this is a secured loan, which means if the woman fails, the bank can take possession of the house and resell it (at a loss, but a much smaller one than an uncollectible unsecured loan.)

So already I wasn't too impressed. It got much worse from there. It followed the stories of three people that apparently ended up committing suicide over credit card debt, and made it seem like the big bad banks were dealing crack cocaine. It then mixed in some loans made to a boy with mental problems, then went off on a wild tangent about the national debt.

You might enjoy this poorly researched, poorly edited, poorly captioned film if you are uneducated and possibly intoxicated. Or if you're a film critic (same thing?)

Otherwise, save your money. If you're like the people in the film, you probably need it to make the minimum payment or to increase your collection of collectible plates.