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Why Grant Cardone was Almost “Wiped Out” in 2009

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Almost no one is free from the financial control of banks, including the prominent internet-marketer Grant Cardone. This short note recounts this particular episode of an avoidable plight.

In conducting research for another project (the interview source link might give away what that is), I discovered that the great, uber-famous Grant Cardone was nearly “wiped out” (his words) less than ten years ago.

It turns out that in 2009 the commercial banking system halted what had been a 14-year up-trend in lending to small business (see the shaded bar in the graph below from this Small Business Administration publication).

See link above for source — red markings are mine.

In the interview (linked above) Grant Cardone tells the audience that he came face-to-face with one potential consequence of the sort of credit contraction illustrated in the graph: loan calls.

At about the 21:53 mark, Cardone says:

2009 scared me. It terrified me. I had a couple [of] businesses that were very successful and I had some money. I had done better than my dad did, ya know. People admired me, “Oh my God!’ I was speaking all over the country [a] couple hundred times a year to audiences. And all the sudden, I had some real estate, I had a few properties, and 2009 happened dude and I almost got wiped out.

And it’s not that I was doing anything bad. It’s that it got so bad, right! Millions of people were affected that had nothing to do with what happened there.

The bank that I owed a bunch of money to went under. Well when your bank goes under, the new bank comes in and says, “We need the money, man. We didn’t make a deal with you.” I’m like, “Bro I ain’t got, I mean c’mon man, there’s no money right?! The system was freakin’ [vacuum noise] — it was a vacuum.”

So it scared me so bad that I went to my wife and I said, “I will never ever put us in this position again” and that’s when I got real disciplined.

Millions of people all over the world know that Cardone is one of the most successful entrepreneurs in the world. Yet even he was at the mercy of the bankers.

Of course, Cardone bounced back. Although, as he puts it, he came close to being totally “wiped out.”

Many people aren’t aware that the vast majority (most likely all with only a few minor exceptions) of loans from banks are what’s known as “callable.” This means that the bank can lawfully demand that you, the borrower, repay the entire balance due on the loan immediately.

This is true regardless of whatever repayment schedule you might have seen when you first took out the loan. This is true regardless of whether you have the money on hand to pay off the loan. This is true regardless of whether you have sufficient, stable income in order to pay the loan off over time as you originally intended.

In other words, when push comes to shove and the bank wants its money back, your circumstances don’t matter.

What happens when a bank calls a loan due and you don’t have the money to pay it all back?

Answer: start selling assets.

This means that if the bank calls your mortgage due and you don’t have the money to pay it off, you sell the house. It means that if the bank calls your business loan due and you don’t have the money to pay if off, you sell business assets (which may mean the business).

This is likely why Cardone was nearly wiped out. His bank went bankrupt, the new bank that bought the assets of the old bank called Cardone’s loan, and he may have had to sell assets in order to meet their demands. Even if he didn’t, he would have had a new, major obligation and proportionately heavy strain on cash-flow.

The problem of callable bank loans is the consequence of a deeper problem of a lack of financial control among the American public. The bottom line is that the vast majority of Americans — employees, small business owners, entrepreneurs, and even investors — have little to no control over capital.

Americans have so little control over capital because they don’t have capital of their own. Consequently, we are reliant on the capital of others, or what is popularly called “OPM: Other People’s Money.”

Depending upon OPM may be profitable at times, but that profitability comes at a cost. It’s the cost Cardone had to pay. The ultimate cost of dependence upon OPM is not a quantifiable sum of money. It is the loss of control.

My business mentor and partner James Neathery uses a particular phrase to describe the state of affairs when it comes to capital and finance today. Though it might be tough to hear, what has happened in America is that we have abdicated responsibility to look after our own financial situation.

Building capital isn’t a walk in the park. You have to have discipline. You have to make more than you spend. You have to intentionally strategize about how to optimally steward your savings. In a world of instant gratification, implementing discipline and educating ourselves about what capital is and how to grow and control it is a tough job.

Since most don’t build capital themselves, they rely upon the capital of those who do.

Nelson Nash’s Golden Rule comes to mind: Those who have the gold make the rules.

In other words, those who provide the capital today — the major financial institutions — decide how the financial world runs. They have the “gold.” They make the rules.

It’s not necessarily that there’s some evil plot on behalf of the financial elite to control you and your property. In fact, as you see in Cardone’s case, a bank typically won’t exercise its tremendous authority unless something goes wrong. Usually, things don’t go wrong.

But sometimes they do.

That is why the rules are written the way they’re written. No bank executive wants to punish his customers. However, when it comes to either displeasing shareholders or “restructuring the balance sheet,” it is the customer, not the shareholder, who will likely find himself with the short end of the stick.

Cardone’s 2009 case is an illustration of the fact that almost no one is immune to the authority of the bankers when things go awry.

This is unpleasant news, no doubt, but it is urgently important. Building capital under the control of the individual, instead of the banking system, takes time and effort.

It is possible, though.

See here for more.

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