I'm sorry that the curtain has been pulled from your eyes this morning. But this has been the case for a very long time.
I used to work in the home alarm industry. Nearly every company operates this way. They have big banks behind them (the one I had worked with used Blackstone Capital and Goldman Sachs) who would pay out a 5 year contract up front. So when they sold you a new alarm in your home for $30-$50 a month, they would take your contract to the bank and get a 5 year payout on that instantly.
This is why it is so hard to get an alarm company to go away. If you cancel, they have to give back several years of your money that you haven't even paid them yet. Essentially the alarm company has already spent the money that you aren't even going to pay them for another 3-4 years. So when you cancel, they need to go sell another contract in order to pay the bank back for your cancellation. Now imagine if the guy who's contract they sold to cover your cancellation also cancels... yeah, its pretty darn close to a Ponzi scheme.
I know a guy who operates a commercial water delivery company. It works the same way. He gets 24-36 month payouts on water delivery contracts. He gets paid upfront by a bank before the customer has even made their first payment.
Car dealerships are selling credit notes and trading inventory that they don't even own. Home mortgage companies take your mortgage, bundle it up with a bunch of other people, some who have worse credit than you, and some who have more credit than you, and they sell it off to a bigger bank as a nice beautiful collage of mortgages called a mortgage bundle.
Sometimes you don't want to know how the sausage is made. And in today's economy, banks are making sausages with some pretty nasty shit.
I used to work in the home alarm industry. Nearly every company operates this way. They have big banks behind them (the one I had worked with used Blackstone Capital and Goldman Sachs) who would pay out a 5 year contract up front. So when they sold you a new alarm in your home for $30-$50 a month, they would take your contract to the bank and get a 5 year payout on that instantly.
This is why it is so hard to get an alarm company to go away. If you cancel, they have to give back several years of your money that you haven't even paid them yet. Essentially the alarm company has already spent the money that you aren't even going to pay them for another 3-4 years. So when you cancel, they need to go sell another contract in order to pay the bank back for your cancellation. Now imagine if the guy who's contract they sold to cover your cancellation also cancels... yeah, its pretty darn close to a Ponzi scheme.
I know a guy who operates a commercial water delivery company. It works the same way. He gets 24-36 month payouts on water delivery contracts. He gets paid upfront by a bank before the customer has even made their first payment.
Car dealerships are selling credit notes and trading inventory that they don't even own. Home mortgage companies take your mortgage, bundle it up with a bunch of other people, some who have worse credit than you, and some who have more credit than you, and they sell it off to a bigger bank as a nice beautiful collage of mortgages called a mortgage bundle.
Sometimes you don't want to know how the sausage is made. And in today's economy, banks are making sausages with some pretty nasty shit.