Jan292016
Do Americans possess healthy shame concerning consumer debt?
A majority of Americans hold a healthy disdain for consumer debt, but most carry debt anyway.
When you see an American Express Card commercial, do you see a sophisticated financial manager or an irresponsible spendthrift? The credit card companies want you to see a savvy money manager who wisely uses their products. But is it wise to use a costly product you don’t really need?
In a world without consumer credit, people would save money, and they would only spend what they had available. People would store their unspent earnings in banks who could loan that money to businesses that produce goods and services that benefit the economy. These savers would also earn money on their savings as lenders competed with each other for capital to make business loans.
Unfortunately, many people don’t have the financial management skills to save money, nor do they have the discipline to do so. In a world of instant gratification, consumer credit is a shortcut that permits people to have what they want now without needed to save to pay for it. However, this comes at a cost. Rather than earn interest on savings, people pay interest on their debt.
In effect, consumer debt is like a negative savings account. If a balance is above zero, people have savings, and they earn interest. If a balance is below zero, people have debt, and they pay interest. People with debt are forced to make monthly payments, which they become accustomed to. The only way people obtain savings is to be self-disciplined and make payments to savings even when not compelled to do so by a bill from a lender. Unfortunately, not everyone has this discipline.
Apparently, many people haven’t been fully indoctrinated by lender propaganda and they feel the shame associated with their lack of self-discipline. As a result, polls show people are embarrassed about their debts, but since self-discipline is difficult, most people aren’t embarrassed enough to change their ways.
These Americans are the most embarrassed about their credit-card debt
By Maria LaMagna, Published: Jan 26, 2016
When it comes to embracing credit-card debt, the Midwest isn’t so friendly.
Midwesterners are the Americans most embarrassed to admit they had credit-card debt and the least likely to actually have it, according to a survey the personal-finance website NerdWallet released this month. Some 38% of Midwesterners said they would be embarrassed to tell others about their credit-card debt versus 34% in the Northeast and West and 33% in the South.
Midwesterners were also most furtive about carrying any type of debt, with 61% saying they would not want to tell others about it compared to 56% in the South, 52% in the West and 47% in the Northeast. …
I’m one of those rubes who grew up in Midwest farm country. It wasn’t until I was in my 20s that I carried any consumer debt. There is a strong streak of self-reliance and a distrust of debt in rural America, and although I haven’t lived there in a long time, I still retain that part of my heritage. It’s one of the reasons I wasn’t able to suspend my disbelief and participate in the housing mania.
In 2015, the average American household carried $15,355 in credit-card debt, according to a separate NerdWallet study based on U.S. Federal Reserve and Census Bureau data, and another survey of 2,000 adults.
The average is $15,355? That’s an astonishing number. So what is the average in OC? $50,000? If you add in HELOCs, which is disguised consumer debt, it’s probably much higher.
The Midwest stands out for having high average credit scores, particularly in Minnesota. (Unlike the South, where credit scores, especially in Mississippi, Louisiana and Georgia are some of the nation’s lowest). The region also has the most residents in good financial shape….
The areas with the least debt are bound to be in the best financial shape. There is nothing positive about consumer debt.
There are several reasons why people may feel ashamed of carrying too much debt, said April Benson, a New York-based psychologist and the author of “To Buy or Not to Buy: Why We Overshop and How to Stop.”
“There’s so much baggage that goes with credit-card debt,” she said. “They could come from a family where there was a lot of credit-card debt and they suffered in some way as a result. They could be somebody who’s been chastised for overspending all of their lives, so there’s a big emotional build-up of shame around it.”
Or it could be that people are smart enough to recognize it’s a trap and refuse to take the bait.
Think about the ignorance behind this woman’s observation. She is implying that people are foolishly emotional and overreacting, which further implies credit card debt is good and people should use it.
Others may associate credit-card debt with being materialistic or shallow, said Tim Kasser, the chair of the department of psychology at Knox College in Illinois, and the author of “The High Price of Materialism.”
“There’s this underlying attribution that the person with the credit-card debt has some sort of impulsivity, is unable to plan ahead or unable to follow through on responsibilities,” he said.
Those traits are attributed to people who carry consumer debt because that’s how most of them obtained it. Consumer debt is never the result of careful planning, impulse control, or demonstrating responsibility.
But credit-card debt is often easier and faster to pay off than other types of debt, said Sean McQuay, a credit-card expert at NerdWallet, and doesn’t have to necessarily be a source of shame; it can be solved with a short-term plan.
Shame is a good motivator. If people felt no shame, they would succumb to all manner of vice. Those that feel shame may do something about it.
The “judgmental line of thinking” about credit cards doesn’t take into account the fact that since certain credit cards offer 0% APR periods, he added, and may in some cases be a better form of debt than others for that reason.
Yes, the “judgmental line of thinking” about credit cards recognizes the bait-and-switch of teaser rates as an appeal to the “sophisticated” financial manager. Lenders entice people into moving balances around in hopes that they incur fees or leave the debt in place past the teaser-rate period. It’s easier and more profitable to manage savings than to manage debt.
Midwesterners felt ashamed about their debt, and they were less likely to carry it, McQuay added, yet in the South, consumers also felt ashamed, but still found themselves in debt anyway.
“Shame and guilt doesn’t help pay it off,” he said. “The only way to pay off debt is to make a payment plan and do it.”
And the only way to stay out of debt is not to use it.
Consumer debt and housing
When people apply for a home mortgage, the lender will evaluate both their ability to make the mortgage payment (front-end DTI) and their ability to make all debt service payments (back-end DTI). Prior to the housing bubble, no limits were imposed on back-end DTIs, so people used both mortgage debt and consumer debt to run personal Ponzi schemes. Dodd-Frank changed all that by imposing a limit on a borrowers back-end DTI at 43% in the ability-to-repay rules.
Potential borrowers with excessive student loans, car loans, and credit card debt are unable to obtain home loans due to the back-end DTI limit. (See: The 43% DTI cap strongly favors those with no consumer debt) Consumer debt now has a much bigger impact on the housing market than in years past — and that’s a good thing because today’s homebuyers can afford their homes, and they will sustain home ownership far longer than the Ponzis of the housing bubble.
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After 25 years of their Keynesian nonsense, the Bank of Japan this morning has announced NIRP “negative interest rate policy”.
Like I said, there’s no escape from deflation. We must have a global economic reset. Stupidity and malinvestment must be punished, and prudence and hard work must be rewarded.
https://finance.yahoo.com/news/boj-adopts-negative-interest-rate-policy-stoke-growth-035547577.html
The trade of shorting the Yen and buying the Nikkei still has legs.
Japan is running a grand experiment. It will tell us a lot about the efficacy of Keynesian / expansionist monetary policy. It can’t feel good to senior citizens in Japan that spent their lives dutifully saving Yen to watch the government and central bank attack the value of their savings so aggressively.
Since indentured servitude is outlawed they needed some legal mechanism to get the plebs working for the wealthy until they drop dead. The very idea of people going into debt to buy fashionable luxury goods which are functionally worthless is insane.
“…legal mechanism to get the plebs working for the wealthy until they drop dead…”
I have to say that the marketing departments of the credit companies have done a bang up job.
When I was a kid (1950’s, 1960’s in Long Beach) using credit to buy *anything* (other than a house) was unthinkable.
Part of the reason is that the mechanics of obtaining credit was all manual paper based (even with Diners’ club cards) in that time frame.
The dam started to break open in the 1970’s as computer technology improved and the paper shuffling was slowly eliminated.
What the credit marketers have done is sell the notion that being in debt is very cool, just like any other addiction.
As noted in Larry’s piece, few people have the self-discipline to use credit tools correctly.
As a result we have morphed into a instant gratification, narcissistic, gimme gimme gimme, it’s always somebody else’s fault, finger pointing, buy an overpriced house, buy an overpriced car, nobody will love you unless you get a boob job [comment: Women only!], buy junk you don’t need society.
Hard to predict how all of this is going to washout, but I don’t believe it will be very pleasant, at least for the majority of people.
I feel fortunate that I grew up in a family that didn’t use consumer debt. It was never modeled for me, so I never felt it was a good thing or “sophisticated.”
The simple truth is that money flows from debtors to savers, and it will always be that way. While people use debt to live beyond their means, in the end, they live below their means as savers catch up and surpass them later in life.
Debt is like so many topics- in and of itself neither good or bad. It’s how it is used. If used to invest in something that returns more than the debt service, it is good. When used only to consume at a higher level, or for an asset that depreciates, it is bad.
For a “reasonable” large purchase, such as a vehicle or home (for an average consumer), especially when younger, taking on debt can be good. The home has to afford good shelter, etc., and allow the resident to do a good job at work; similarly for the vehicle- as a tool to allow the young person to work/earn a living.
As one gets older, it makes less sense, as these debts should amortize.
For debts that are taken out and do not meet these standards, yes, money flows from the debtor to the saver.
It’s as simple as the arithmetic.
Great comment octal77!
Nailed it.
The only saving grace is that if you have enough income to be above poverty, you can take a contrarion view and choose not to loose for mind and give all your money to Wall Street, but a quick look at So Cal real estate shows that’s not a popular choice. The company store is now very sophisticated.
[…] Read more from OC Housing News […]
Whoa! The featured property at 77 Quarter Horse is stunning! Too bad this lot has just a 10′ setback, which is the likely reason it’s one of the few in this development available.
Isn’t that like noticing a pretty woman on your honeymoon?
It’s a LOT like that.
5 bathrooms? is that really necessary?
I was fortunate to buy a new home in 2012 that has an 8000 sq ft lot that is shaped like a trapezoid with the largest portion being the back yard. 40 feet of spacing between houses and a view in the back… that is like finding a needle in a haystack with new homes. I don’t get these 10 feet set backs.
HSBC enforces new restriction to Chinese citizens in the U.S.
Chinese nationals living in the U.S. will have a tough time getting a mortgage with one of the world’s largest banking and financial services organizations, HSBC.
According to Reuters authors Elizabeth Dilts and Julie Gordon, an HSBC spokesman in New York said the new policy went into effect last week, roughly a month after China suspended the Standard Chartered and the DBS Group Holdings from conducting some foreign exchange business and as Chinese authorities try to limit the amount of money leaving the country.
From Reuters:
China’s stock market slump, slowing economic growth and weak real estate prices have encouraged Chinese individuals and companies to try to shift money offshore for higher returns, a headache for Beijing as the capital outflows undermine efforts to prop up the yuan and domestic investment.
Realtors of luxury property in cities like New York, Los Angeles, and Vancouver, said more than 80 percent of wealthy Chinese buyers have ties to China.
HSBC declined to clarify which clients would be affected by the change beyond describing the policy as impacting some Chinese nationals.
Luxury homes news website Mansion Global, which first reported the HSBC policy change, said it would affect Chinese nationals holding temporary visitor ‘B’ visas if the majority of their income and assets are maintained in China.
Per the Reuters report, in 2015, the National Association of Realtors reported that Chinese nationals purchased about $28.6 billion in properties, a significant rise from 2014.
Reuters also reports that China’s State Administration of Foreign Exchange said late last year it would soon launch a system to monitor foreign exchange businesses at banks and put people who tried to buy more foreign currency than is allowed on a watch list.
So Chinese nationals, if you are purchasing more than $50,000 in foreign currency, just know that you China will be watching you.
Pending Home Sales Decreased 2.1% in December in West
After a series of declines, pending home sales, while small, posted a slight increase, largely fueled by a surge in the Northeast, according to the National Association of Realtors.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, marginally increased 0.1% to 106.8 in December from a downwardly revised 106.7 in November and is now 4.2% above December 2014 (102.5).
This also marks 16 months consecutive year-over-year increases.
Lawrence Yun, NAR chief economist, explained that warmer than average weather and more favorable inventory conditions compared to other parts of the country encouraged more households in the Northeast to make the decision to buy last month.
However, without the Northeast, Yun said that contract activity closed out the year on stable footing but lost some momentum.
“Overall, while sustained job creation is spurring more activity compared to a year ago, the ability to find available homes in affordable price ranges is difficult for buyers in many job creating areas. With homebuilding still grossly inadequate, steady price appreciation and tight supply conditions aren’t going away any time soon,” said Yun.
Broken up regionally, the PHSI in the Northeast, which led the way, increased 6.1% to 97.8 in December, and is now 15.3% above a year ago.
In the Midwest, the index fell 1.1% to 103.6 in December, but is still 3.6% above December 2014.
Pending home sales in the South dipped 0.5% to an index of 119.3 in December but is 1.0% higher than last December, while the index in the West decreased 2.1% in December to 97.5, but remains 3.4% above a year ago.
On a positive note, Yun said, “The silver lining from the market turmoil in recent weeks is the fact that mortgage rates have slightly declined. Buyers looking to close on a home before the spring buying season begins may be rewarded with a mortgage rate at or below 4%.”
According to the latest Freddie Mac Primary Mortgage Market Survey, mortgage rates once again moved lower amid continuous market turmoil. This week marked the fourth consecutive week that mortgage rates moved lower.
CAr Propaganda and Spin on Declining Pending Sales
California housing positioned for strong 2016
A new report from the California Association of Realtors shows that California pending home sales continued to progress through 2015 with solid gains, which will position the market for a modest increase in home sales in 2016.
California pending home sales remained strong in December on an annual basis, with CAR’s pending home sales index increasing 8.3% from 71.9 in December 2014 to 77.9 in December 2015, based on signed contracts.
According to the CAR report, the annual increase was the smallest since January 2015.
On a monthly basis, California pending home sales fell from November, primarily due to seasonal factors. The PHSI decreased 22.4 percent from an index of 100.4 in November to 77.9 in December.
In the San Francisco Bay area, pending home sales fell 36.4% from November to reach an index of 81.7 in December, down from November’s 128.4 and up 12.4% from December 2014’s 72.7 index.
According to the CAR report, 18 of the 44 counties that C.A.R. reports showed month-to-month decreases in their share of distressed sales, with San Mateo having the smallest share of distressed sales at 1.7%, followed by Santa Clara (1.8%), and Marin (2.2%). Tehama had the highest share of distressed sales at 20.4%, followed by Siskiyou (18.8%), and Lake (15.6%).
According to a survey of California Realtors, respondents reported that listing appointments remained stable, while floor calls and open house traffic were down, mostly due to seasonal factors.
The Realtors stated that they were also optimistic about next year’s California housing market, with a vast majority (89%), expecting similar or better market conditions in 2016, the highest share since spring of 2015.
Making of Too-Big-Too-Fail
A chart showing how the bloodsucking lampreys of finance were created.
Cronyism at its best
War Party On The Run——-The Roots Of The Anti-Trump, Anti-Sanders Camps In Both Parties
I haven’t had this much fun in years – of course I’m taking about the US presidential election season, with The Donald taking on all comers, and winning (at least so far), and Berne Sanders burning up the self-satisfied mandarins of the Democratic party Establishment.
What’s great about this spectacle – and one must view it as a spectacle in order to gain maximum enjoyment from it – is that, as none other than Rush Limbaugh points out:
“Trump is so far outside the formula that has been established for American politics that people who are inside the formula can’t comprehend it. They don’t understand why somebody would want to venture so far outside it, because it is what it is, and there’s a ladder of success that you have to climb. And somebody challenging it like this in more ways than one, as Trump is doing, has just got everybody experiencing every kind of emotion you can: They’re angry, they are flabbergasted, they’re shocked, they’re stunned – and all of it because he’s leading.”
MORE …
It makes me happy every time I think of the $100 million that Bush’s donors have squandered on their candidate.
He’s simply too boring to be a viable GOP candidate in this field.
Many people might be surprised to know that Bush is actually contending for 2nd place in New Hampshire. Trump has a dominating lead, but after that you have a four-way tie between Kasich, Cruz, Bush, and Rubio. Christie is also not far behind.
http://www.realclearpolitics.com/epolls/2016/president/nh/new_hampshire_republican_presidential_primary-3350.html
63 percent of Americans have no emergency savings
Many Americans are still living on the financial edge. A recent survey found that 63 percent of Americans have no emergency savings. Forget about having a robust nest egg. The retirement plan for many Americans is to work until they fall over dead. While the last few years brought in spending with debt this of course was set to reverse once the market had its first tiny correction since 2009. Americans are about to feel and become poorer in 2016.
The old and young will feel the pain
Having an emergency fund is basic financial planning. But most Americans simply do not have a fund because they are too broke after paying basic bills. After all, we have nearly 46 million Americans on food stamps and this is happening during a time that we are supposedly in recovery. What will be the case when another recession hits? And for most Americans, the old recession never left. We have a record number of people not in the labor force making the unemployment rate seem artificially low.
The wealth effect will reverse and the stock market already had a dismal 2015. 2016 is off to a horrible start. Markets in China had to be halted twice because of steep drops already and we have yet to even hit the middle of the month. The US market is also feeling the pain.
http://www.mybudget360.com/wp-content/uploads/2016/01/net-worth-chart-USAtoday.jpg
To summarize, most under 35 have $6,682 or less. Those 35 to 44 have $35,000 or less. Those 45 to 54 have $84,542 or less. And those 55 to 64 have $144,200 or less.
But that data is misleading. Why? Because the vast majority of net worth figures are derived by equity in real estate and as you know, you can’t feed yourself through equity. How many older Americans are going to sell their homes to pay for food? And for younger Americans the net worth figures are dismal because they have been crushed out of the housing market as investors push prices up. The homeownership rate has crumbled for young Americans and this cuts into their ability to build up equity for later years in life (not that this is a silver bullet for older Americans either).
What to Do If You Get an Offer … But Your Home Isn’t for Sale
It’s the knock on the door that comes out of left field. Or the unexpected envelope in the mail. A stranger says he wants to buy your house, and for a great price.
Or what’s even more common is that a friend of a friend or acquaintance approaches you about her desire to purchase your home.
What should you do when you receive an offer from a buyer when your home isn’t even on the market?
Unless you want more solicitations, follow Clint Eastwood’s policy:
http://ochousingnews.g.corvida.com/wp-content/uploads/2014/04/realtor_gran_torino.png
‘Glimmer of Hope’ That Homeownership Rate Is on the Upswing
The homeownership rate ticked up slightly in the fourth quarter, bolstering economists’ hopes that it may finally be hitting bottom.
The homeownership rate, not seasonally adjusted, ticked up slightly to 63.8% from 63.7% in the third quarter, according to estimates published Thursday by the Commerce Department. It is also up from a 48-year low of 63.4% in the second quarter.
“It is certainly a little glimmer of hope that we are hitting bottom,” said Ralph McLaughlin, chief economist at real-estate information company Trulia.
Unfortunately, it’s a very faint glimmer:
http://si.wsj.net/public/resources/images/BN-MI181_HORATE_G_20160128114840.jpg
One reason the homeownership rate could be ticking up: Some of the 9 million owners who lost their homes to foreclosure, short sale or another distressed event could finally be returning to the market.
Mr. McLaughlin pointed to a significant improvement in the homeownership rate among people ages 35 to 44, who were among the worst hit during the foreclosure crisis. The homeownership rate among that group increased to 59.3% from 58.1%.
The quarterly estimates are viewed as not terribly reliable by some economists, but they see reason for optimism given that the homeownership rate has risen for two successive quarters.
Still, there are a number of reasons not to be too sanguine. The homeownership rate was still down slightly year-over-year, from 64%, not seasonally adjusted, in the fourth quarter of 2014. Seasonally adjusted it has improved more modestly from the bottom, increasing to 63.7% in the fourth quarter from 63.5% in the second quarter.
The rate at which new renter households are being formed has fallen off sharply. The number of renter households increased by just 300,000 year-over-year in the fourth quarter. In the third quarter, the number of renter households increased by 1.3 million.
Some 162,000 new owner households were formed between the fourth quarter of 2014 and 2015, up slightly from 123,000 new owner households in the third quarter.
The sharp rise in the number of renters in recent quarters helped to drive down the homeownership rate, which is measured as the percentage of households who own versus rent. If renter household formation is tapering off, that could also be helping to moderate declines in the homeownership rate.
Im glad you wrote about this topic. It kinda goes along with the discussion from yesterday’s blog. I suspect that many people are spending spending spending and not saving much. I truly believe that if you want to see how wealthy someone is, just look at their retirement accounts. In my humble opinion, that gives you a much better picture of someone’s financial health than anything else.
You need to see a household’s entire financial statement (cashflow statement and balance sheet) to understand their wealth. Just looking at retirement accounts provides a very incomplete picture and skews your results toward people beyond their 50s.
e.g. A firefighter married to an pharmacist, both 30, might have just $50K in retirement savings, but their income could approach $200K and non-retirement savings/investment could be bigger than retirement savings. They’re also limited every year as to how much they may contribute to retirement. So that $50K won’t grow to $500K overnight. However, the trajectory of the growth in their wealth could be huge. With good fortune and careful planning, they’ll be millionaires in their 40s, but today’s snapshot of just their retirement account suggests they’re not “wealthy.”
Firefighters also get a generous pension with early retirement options, so probably not the best example. My wife is a school teacher and will get one of those nice pensions one day, and I think most of her colleagues probably are not the best savers simply because they don’t have to be.
It’s possible for a public sector employee to be well off based on the present value of their pension even if they don’t have any liquid savings.
Right. An extreme example would be two married 55 year old federal government attorneys with a household income of $400K+ who have both worked for the government for thirty years. They could have $0 in retirement savings, but be entitled to huge pension payments starting very soon. Are they poor because they have $0 in retirement savings?
There are always exceptions to the rule. My statement above was not a rule, but rather a reasonable way to judge a persons wealth.
You would be surprised how much people are saving in the OC.
Having run several companies I have seen the 401K contribution data first hand. Over $100K most people are maxing out 401Ks. Even at $80K, 10% is typical.
Once you get below $80K it drops off a cliff.
You stated the obvious… but missed my point.
Sure if I look at a persons entire financials, its a no brainer. However when will you ever see another entire financial history? Will someone ever show you all his/her retirement accounts, bank accounts, investments accounts, etc, etc?
As a result many of us look at our friends or colleagues or strangers and judge their wealth on material things like homes and cars, etc.
Its human nature.
If there was any measure of wealth that was easily obtainable however, it would be looking at someones retirement accounts. I have many friends some who have very nice homes with little money for retirement, some who have tiny homes but have 7 figures in retirement accounts in their mid 30’s.
Obviously you cant compare it to looking at their entire financial and there may be exceptions such as govt workers with pension, but most likely it will be the only reasonable way you can judge…
CalPERS is underfunded and unrealistic. Can it save itself?
If you think the stock market’s steep slide this month hammered your personal portfolio or 401(k), imagine what it’s done to California’s state pension system, CalPERS. Years of overoptimistic stock purchases and inadequate contributions have left it terribly vulnerable, and just a few years of down markets could leave it insolvent.
Financial statements released last month (for the fiscal year ending June 30, 2015) showed that the pension system was only 77% funded — and that percentage has certainly dropped alongside all the stock indices in recent weeks. If taxpayers are going to avoid having to bail out CalPERS, the system needs an overhaul.
Two state laws are to blame for the system’s financial struggles. Proposition 21, passed in 1984, allowed CalPERS fund managers to move its investments from safe and predictable bonds to risky and volatile stocks and hedge funds to try to generate a higher return. SB 400, passed in 1999, increased pension payouts by 50% for California Highway Patrol employees, a move quickly replicated at other state agencies and local governments.
In the midst of a bull market such as the late ’90s tech bubble, perhaps that seemed fine. But it was irresponsible. At the top of a market cycle, a healthy pension system should be overfunded — and then should hold onto the excess to ride out bear markets. CalPERS didn’t do that, and so market corrections suddenly become an existential threat.
CalPERS actuaries rely on earning a 7.5% annual return on investment to meet the current and future pension obligations to 1.8 million participants. But current stock market conditions make achieving that goal much harder — if not impossible — over the next several years. And that will leave taxpayers on the hook for billions.
How much taxpayers contribute to the pension fund each year is determined by two factors: how much CalPERS owes in current and future benefits, and how much it expects to earn on its investments. If expected earnings are high, the hundreds of public agencies and school districts contribute less money up front. But later, when those mythical 7.5% returns don’t materialize, taxpayers are left to make up the shortfall.
Overturning prop13 would help close the gap/shortfall in a big way 😉
Even just overturning it for commercial property only.
Before Prop 13: Residential and Commercial real estate tax revenues were about equal
Now: Commerical real estate tax revenue is only 25% of Residential.
The other 75% are held back through intricate deals such that even during the sale of commercial property, the tax base stays constant. On paper the property never changes ownership. Except all rights, responsibilities, and control over the property is transferred.
This is the California equivalent of a corporate inversion for tax evasion purposes.
The author of this article is very confused about how stock market returns work. Investing in stocks is a good idea precisely BECAUSE of risky and volatile returns. When investing over the long term you accrue a risk premium for being in stocks which is needed to keep the fund solvent. If they had not allowed investing in stocks, the fund would have missed out on the lucrative bull market from 1984 to 2000. Switching to bonds right now as the bond bull market is ending would be a disastrous idea and lead the fund to insolvency much quicker.
Lots of good points.
The one thing I would say though is that the economy would actually be the most efficient if everyone’s bank balance were 0 which would show everyone was producing the same amount of work as the amount of work they consumed. That would mean everyone was constantly producing their amount of work.
I think when we begin piling up promises to work in the future or promises that someone else will work for you in the future that’s where inefficiencies develop.
Obvious not how our economy works or realistic and being a saver is much better than being a debtor because it then gives you access to many of the same priveleges as the wealthy (e.g. compound interest, stocks), but the rules certainly aren’t set up to be the most efficient economy.
You’re wrong. Sometimes it’s necessary to spend more than you earn.
Otherwise most of us wouldn’t have college degrees. Even McDonald’s would run out of empty positions.
You’re confusing efficiency and desireability.
I don’t agree that 80 year olds should have to work everyday as well, but the economy would be more efficient if they did.
And you are right, it was tough to work and go to school and still find time to get drunk and party, but somehow I managed.
I am not.
Maximum efficiency involves doing what creates the most goods and services with the least invested time in the long run.
Working 10 years flipping burgers is less efficient than studying 2 years and working 8 years as a mechanic.
Maximum efficiency frequently involves greater investment than owned wealth.
Look at any country where access to credit is near impossible and you can see the results. The Middle East, parts of Latin America, India, etc. Any place that does not embrace modern banking is, in general, not a desirable place to live. Lack of credit means an impoverished people that have no chance of escaping their circumstances.
Will those who led the financial system into crisis ever face charges?
http://www.abajournal.com/magazine/article/will_those_who_led_the_financial_system_into_crisis_ever_face_charges/?utm_source=maestro&utm_medium=email&utm_campaign=weekly_email
When federal prosecutors presented their evidence against real estate agent Yevgeniy Charikov and three others accused of bank fraud and money laundering in Sacramento, California, they had every reason to believe they had a pretty good case. They wove a story of brazen criminal greed, piecing together a scam in which the four lied on mortgage documents, set up straw buyers to purchase homes at inflated prices, and then walked away from the residential loans, leaving lenders $710,000 in the hole.
Then Bill Black took the stand for the defense and he made the jury laugh.
It was August 2014, and by then many if not most potential jurors likely knew that major financial institutions had been implicated in residential mortgage-backed securities fraud that played a big role in the global collapse of financial markets in 2008. But now the bankers themselves were in effect put on trial. Defense lawyers projected a flier on the screen in the courtroom that indicated the mortgage company the conspirators were accused of bilking was itself involved in the overall scheme.
The flier had been circulated by the alleged fraud victim, GreenPoint Mortgage Funding. A subsidiary of Capital One Financial Corp., GreenPoint specialized in making loans without verifying a borrower’s ability to pay—”stated income loans” in the language of regulators; “liar’s loans” in the wake of the 2008 financial collapse.
Under a drawing of the proverbial three wise monkeys, the ad’s text paralleled the original message of willful ignorance. But it did so touting the lack of scrutiny prospective borrowers could expect in getting a loan: “Hear no income, speak no asset, see no employment: Don’t disclose your income, assets or employment on this hot, new, flexible adjustable rate mortgage!”
As an expert witness for the defense, Black went straight at GreenPoint and the bankers behind them on direct examination. He was asked about the intended audience for the flier. “They were using it for subprime [borrowers], and that means people who have known credit defects, which means they have a history of not repaying their loans,” Black told the jury.
That got the laughs.
Black’s expertise long preceded the scandal at hand, making his defense testimony in U.S. v. Charikov all the more ironic. He made his bones prosecuting fraud back in the savings and loan crisis during the 1980s and early ’90s. As a senior financial regulator, he was a leader in bringing criminal and civil cases against individuals to clean up a then-unprecedented scandal involving officials looting their own financial institutions, largely through self-dealing and extreme risk-taking. More than 1,000 were convicted, many of them high-level.
When the defense team asked Black to be their expert, he not only agreed; he did so at no charge and spent two weeks in Sacramento and hundreds of hours on the case.
Black has been a constant critic of the Justice Department’s failure to prosecute lenders with the same verve they’ve gone after borrowers, and his testimony reflected that concern. The lenders didn’t care about misstatements on loan documents, Black testified and the defense argued, because they intended to make the loans no matter what. They wanted to push through as many mortgages as possible and collect their fees and bonuses, and then claim the loans met rigorous underwriting standards, selling them in large lots to other financial institutions and investors.
Black’s message was effective. The four defendants were acquitted.
“When the defense has the jury literally laughing at the government, it’s powerful,” says John Balazs, a Sacramento lawyer who represented defendant Vitaliy Tuzman. “You could just see it in the looks on the faces of prosecutors and FBI agents.”
In the years since the crash, federal prosecutors have used splashy press conferences to announce top banks’ multibillion-dollar settlements (typically paid by shareholders) in cases arising from the subprime mortgage mess. But criminal prosecutions have been reserved almost exclusively for the borrowers. And in Charikov, which Black believes is the only case in which the defense has been allowed to show that lenders could also be culpable, the jury reaction indicates that the issue hits a nerve.
“Not to excuse wrongdoing by some borrowers, but clearly these were the business plans of large financial institutions, undertaken by human beings within them and, I presume, at the direction of senior executives in furthering the business plan,” says Phil Angelides, a former California state treasurer who chaired the federal Financial Crisis Inquiry Commission’s probe of the causes of the meltdown of 2007-2010.
The Financial Crisis Inquiry Report, released in 2011, was particularly pointed in its criticism of Wall Street, which it found had taken advantage of unprepared regulatory agencies that had been methodically defanged through deregulation over several years. The report noted a term coined on Wall Street that captured the carefree wheeling and dealing in the run-up to the meltdown: “IBGYBG”—”I’ll be gone, you’ll be gone.” The term, the report states, “referred to deals that brought in big fees up front while risking much larger losses in the future.”
The report also pointed out that the three credit rating agencies failed to properly evaluate mortgage-backed securities, partly under pressure from the financial institutions that were paying for their own products to be rated. When many of the securities had to be downgraded in 2007 and 2008, the economic state of siege began. The FCIC report called the credit rating agencies “key enablers of the financial meltdown,” having allowed loans that were beyond risky.
For years the DOJ has come under withering criticism for not going after high-level executives and other officials in top banks and lending institutions. Black put it succinctly while discussing the Sacramento acquittals: “They’ve been chasing mice—in this case Russian-American mice—while watching the lions roam free.”
Last September, the department in effect admitted that it had been wrong all along when it announced a new policy prioritizing prosecution of individuals in corporations who might have engaged in criminal acts, and requiring the companies to provide any pertinent evidence before receiving credit in settlement negotiations for cooperating.
Then in November, news reports suggested that federal prosecutors were considering criminal cases against executives from two banks for selling toxic residential mortgage-backed securities in the years leading up to the 2008 financial meltdown. They are the Royal Bank of Scotland and JPMorgan Chase & Co. The latter entered into a $13 billion civil settlement in 2013 with the DOJ, the Securities and Exchange Commission and a host of other entities. Though the accompanying statement of facts didn’t say so, the investigation was built in part on internal documents from 2006 concerning bad GreenPoint loans.
Yet for many critics, questions remain: Why no criminal prosecutions? And if some now are in the works, what took so long?
“There should have been a serious investigative effort by prosecutors to see who made what decisions at what time and whether those individuals, from line personnel to the most senior executives, crossed a legal line,” Angelides says. “It’s like Bill Black says: If you don’t look, you won’t find.”
BLACK’S LONG LOOK
William K. Black, 64, got a sweet mix of validation and vindication in Sacramento. He suppressed glee on the witness stand, even as he made the jury laugh.
But Black is bemused that the hard lessons learned in the S&L crisis were lost—or, more precisely, suppressed down the memory hole—through resumption of deregulation of the financial industry by the mid-1990s, just as banks began to turn to more complex forms of structured finance. He had left his regulatory work with the Office of Thrift Supervision, which replaced the Federal Home Loan Bank Board, and moved to academia in 1993. Black did so, he says, soon after “we were told in an affirmative order that we were to refer to and think of the industry we regulate as our customers.”
As part of the renewed deregulation regime, criminal referrals were no longer deemed acceptable tools, he says, and thus there have been virtually none in the aftermath of the residential mortgage-backed securities debacle. The much smaller S&L crisis had accumulated more than 30,000 such referrals.
Black, having become an expert criminologist (albeit noncredentialed at the time) through hands-on experience in the S&L cleanup, decided to get a doctorate in the field and now is an associate professor teaching both economics and law at the University of Missouri at Kansas City. He and his wife, June Carbone, had gone there in a package deal, but in 2013 she took a position at the University of Minnesota Law School. Black regularly drives 6½ hours on Interstate Highway 35 between Kansas City and their home in Minneapolis, where he is also a scholar-in-residence at Minnesota Law.
In 2005, when the impending financial crisis was obvious to some and under the radar to many, he published a book, The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry. It lays out Black’s theory of control fraud, his criminological term for looting a corporation from the inside, and details the recipe that he believes diagnosed the subprime mortgage debacle early on.
For years Black has explained control fraud in news stories and scholarly articles, on television, by blogging, in court and through legislative testimony—and, given his passion and gift of gab, probably in elevators as well. In Black’s view, high-level executives receiving compen-sation based on short-term profits are able to devise ways to inflate assets while hiding risk—creating an illusion of profitability while often ensuring the inevitable collapse of those assets.
His basic recipe for mortgage-backed securities fraud includes rapid growth as the yeast (and likely telltale ingredient of crime):
• Appraisal fraud: Appraisers complained that from 2000 through 2007, lenders would blacklist them if they refused to inflate values of homes, with 11,000 of them signing petitions—including printed names and addresses—presented to government officials.
• Liar’s loans: These first surfaced during the S&L crisis under the name “low documentation” and caused some losses. They grew as if on steroids in the early 2000s as lending took on more and riskier features, and seemingly everyone got caught up in the fast-expanding bubble of home sales.
• Unsafe securities: Toxic loans were packaged into securities for sale to investors and, through fraudulent warranties and representations, marketed as high quality.
BLACKBALLED
While his expertise gained purchase in the FCIC report and the Sacramento trial, Black has largely been on the sidelines over the past decade—though with a prominent perch as a knowing expert in news stories and analysis, watching a catastrophe unfold in patterns and practices he recognized early on.
In the late 1980s and early ’90s, he was suing, and sometimes liquidating, financial institutions and was also training regulators—agents from the FBI, the IRS criminal investigation division, the Secret Service, and state and federal prosecutors.
These are just a few of Black’s various jobs and titles during those years: Federal Home Loan Bank Board litigation director, deputy director of the Federal Savings and Loan Insurance Corp., and senior deputy chief counsel of the Office of Thrift Supervision.
Today, Black is better received elsewhere as an adviser to countries such as Ecuador, France, Iceland and Ireland, where they’ve picked his brain for ways to handle their own financial crises. “I’m a serial whistleblower,” Black says in a verbal shrug, explaining that he was advised as an associate in the early 1980s at Squire Sanders & Dempsey (now Squire Patton Boggs) in Washington, D.C., to avoid career-limiting gestures, or CLGs.
Black mentions an example: After getting his PhD, he taught at a major university graduate school. The faculty voted to grant him tenure, Black says, but a former boss on an S&L commission sent in a galley review of his then-forthcoming book that got him blackballed. That former boss held fast to the theory that it was the moral hazard of deposit insurance that led to the crisis, and Black’s book refuted that idea.
For a while, events served to buffer him from more immediate consequences of CLGs. The need to both end and clean up the S&L crisis was important to many of those in power who otherwise might limit one’s career. Black says his efforts were aided by the fact that one high-level regulator had the ear of deregulator No. 1: President Ronald Reagan.
Though the Reagan administration pushed governmentwide deregulation as a top priority, the S&L crisis was getting so bad by the mid-1980s, Black says, that the president acceded to the wishes of the chairman of the Federal Home Loan Bank Board, Edwin Gray, who wanted to reregulate the industry and root out its problems. Black attributes this to the fact that Gray was a personal friend of the Reagans.
Black and other regulators at the Federal Home Loan Bank Board and the Federal Savings and Loan Insurance Corp. worked with the Justice Department to create a top-100 list of the worst S&L fraud schemes, and the prosecutions flowed. But the recent crisis began to take root soon after the Sept. 11 terrorist attacks, which led the FBI to reassign hundreds of white-collar crime investigators to antiterrorism efforts.
“You just don’t have as many competent FBI agents as there used to be doing white-collar,” says Solomon Wisenberg, who practices that specialty in the D.C. office of Nelson Mullins Riley & Scarborough. “It takes a few years for them to develop expertise. And you don’t have prosecutors with this experience.”
During the S&L crisis, Wisenberg was the chief of financial fraud investigations for the U.S. attorney’s office in the Western District of Texas, leading as many as 100 criminal investigations there and in North Carolina. He won the DOJ Director’s Award for work on the Victoria Savings Association scandal, which was on the top-100 list and in which he got nine convictions in 1993.
“Bill Black was my expert in that,” says Wisenberg. “It was my biggest case ever as a prosecutor.”
Another of Black’s possible CLGs brought him and his work into the public’s eye. He played a major role in revealing the Keating Five scandal, in which five U.S. senators tried to prevent regulators from taking Charles Keating’s Lincoln Savings and Loan into receivership. Keating had given significant campaign contributions to all of them; all were heavily criticized in an ethics investigation and one was formally reprimanded.
Keating, who wanted Black fired, went to prison and taxpayers spent more than $3 billion bailing out the financial institution he and others ran into the ground.
In a similar dustup, then-House Speaker Jim Wright of Texas tried to get Black fired for cracking down on Vernon Savings and Loan, which had a 96 percent default rate on its loans and later failed, requiring a $1.3 billion bailout. Wright resigned in disgrace after an ethics investigation that had included a look at his move against Black.
COMPLAINTS RAIN
Little more than a month after the not-guilty verdict in Sacramento, a similar case in Minnesota was dropped a couple of days before trial—just after Black was listed as a witness for the defense.
“It was going to be funny,” says Jordan Kushner, a Minneapolis lawyer who represented defendant Patrick Henry Adams. The government’s expert witness worked for Bank of America, which in January 2008 had acquired Countrywide Financial (which had made the loans in question). Pretrial disclosures indicated she would testify that liar’s loans are appropriate for borrowers who are self-employed because their incomes are hard to verify.
“And Bill Black was going to turn that around and say, ‘All you have to do is look at their tax returns. Who exaggerates income on their tax returns?’ “
Complaints about the failure to prosecute bank executives have come from many quarters: Congress, the public, former prosecutors, FCIC chairman Angelides, and in edgy essays by federal judge Jed Rakoff in the New York Review of Books. The DOJ’s own Office of the Inspector General, in a 2014 audit report (PDF), noted the agency fell short in its investigations, which were not “prioritized at a level commensurate with its public statements,” and had significantly inflated numbers in its claims of actions against individuals and in money settlements with financial institutions.
There has been just one conviction of a bank executive in the subprime scandal: Credit Suisse’s Kareem Serageldin, who pleaded guilty in 2013 to a scheme of hiding more than $100 million in losses on mortgage-backed securities. Judge Alvin Hellerstein of the Southern District of New York sentenced him to 30 months in prison, but in doing so suggested that Serageldin was a scapegoat for “an overall evil climate inside that bank.”
That same year, then-Attorney General Eric Holder told the Senate Judiciary Committee that criminal charges against a big financial institution might harm an already weak economy, launching the derisive “too big to jail” meme.
Though the government has secured a reported $190 billion in civil settlements, Black points out that this is a tiny fraction of the likely tens of trillions in losses. But within each settlement has been a tantalizing detail: no waiver of possible criminal charges, including against individuals.
In February 2015, not long before announcing he would resign and in an apparent attempt to bolster his flagging legacy, Holder made his boldest statement about pursuing individuals responsible for the subprime mortgage crisis. It came during the Q&A session after he spoke on criminal justice and sentencing reform at a National Press Club luncheon.
“I don’t know if I’m making news now or not,” Holder began, telling the audience that he’d asked prosecutors to re-examine pending cases “and report back in 90 days” on whether they might bring civil or criminal cases against individuals.
Though made as an aside, the announcement became the main story. But given the soft-touch approach to bankers as the mortgage scandal unfolded, Holder’s claim to increased aggressiveness was eclipsed immediately by here-we-go-again pessimism.
The 90-day period ended in May and went largely unnoticed, with no announcements and few if any news stories or follow-up.
“One would hope that having settled cases with the entity, DOJ would already have received an enormous amount of information on who did what,” says Brandon Garrett, who finds it odd that the attorney general would ask prosecutors to look in their closets to see if they had missed anything huge. Garrett’s 2014 book, Too Big to Jail: How Prosecutors Compromise with Corporations, details how federal prosecutors have largely ceased bringing criminal cases against individuals, instead offering deferred prosecution agreements to the corporations where the potential defendants work.
“So no small fish are charged and no big fish are charged, but there’s a deal with the aquarium,” Garrett says. “The agreement describes specific actions by individual fish: Middle Manager A or Supervisor B. You’d think the prosecutors know who they are.”
It was widely thought that a five-year statute of limitations on criminal fraud now trumps any possible criminal prosecutions. But a little-used statute enacted during the S&L crisis can stretch the time limit to 10 years.
Under FIRREA—the Financial Institutions Reform, Recovery and Enforcement Act of 1989—both civil money penalties and criminal charges can be brought under a 10-year statute of limitations against individuals whose actions “affected a financial institution.” In June, in U.S. v. Heinz, the 2nd U.S. Circuit Court of Appeals at New York City affirmed a trial judge’s ruling against defendants in a matter that closely tracked what happened in the subprime mortgage scandal. It knocked down some major questions about how broadly the statute can reach.
Three executives with UBS AG, a Swiss financial services firm, were convicted of rigging bids for municipal bond contracts. They argued that their employer, UBS, was a co-conspirator and had paid $160 million in a civil settlement with the Justice Department. But the judge ruled their individual actions affected the financial institution, and thus fell under the FIRREA exception.
On the heels of that ruling, the DOJ announced in September that it would be prioritizing white-collar crime, marking Attorney General Loretta Lynch’s first major policy initiative after succeeding Holder. In a guidance memorandum sent to federal prosecutors, Deputy Attorney General Sally Yates said that culpable individuals, as well as corporations, need to be a focus in any civil or criminal investigation. “Such accountability is important for several reasons,” she noted. “It deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public’s confidence in our justice system.”
But now, even that longer 10-year window is closing fast: The busiest period for packaging and selling residential mortgage-backed securities came in 2005 and 2006.
BLOWING THE WHISTLE
Even without fact-loaded criminal re-ferrals, there still is one way to build cases against individuals, Black says, and that involves whistleblowers. While not necessarily optimal, it’s the best available option and could lead to major criminal cases.
He ticks off the names of several whistleblowers. One is Richard Bowen, who ran Citigroup’s underwriting for purchasing mortgage loans. Bowen wrote a memo in 2007 warning several of the bank’s highest executives about shoddy loans—and was eventually eased out of the job. The following year he testified before the SEC about the problems and provided documents.
Citigroup paid $7 billion in a settlement with the DOJ in July 2014, and the statement of facts squared with what Bowen told the SEC.
“Bowen handed [the DOJ] that on a platinum platter, and they never credited him,” Black says.
Likewise, a significant piece of the investigation that JPMorgan Chase paid billions of dollars in 2013 to make go away came from a whistleblower. The scenario was sketched out in the statement of facts (PDF) accompanying the agreement.
The statement noted that an employee involved in a purchase of loans had warned an executive in charge of due diligence, as well as a managing director in trading, about a $900 million package of loans. The employee warned that the underlying loans were of such poor quality that they should neither be bought nor securitized. After the bank purchased them anyway, “she submitted a letter memorializing her concerns to another managing director, which was distributed to other managing directors. JPMorgan nonetheless securitized many of the loans. None of this was disclosed to investors.”
The whistleblower and the loan originator, GreenPoint Mortgage Funding, were not named in the statement of facts, nor were any of the bankers. But eventually Alayne Fleischmann’s whistleblower story was told and retold in news and opinion pieces that asked why there had been no indictments. Although she has freely discussed the issues before, Fleischmann has now withdrawn from the media spotlight. She declined to be quoted for this article.
For four years Fleischmann was an associate in the capital markets department at Cadwalader, Wickersham & Taft, a major New York City law firm that dealt with securities work for JPMorgan Chase. In 2006, she took a nonlawyer job with JPMorgan Chase handling quality control over mortgage-backed securities.
Two months after she started, her boss instituted a policy forbidding emails between the bank’s compliance and due diligence offices. To her, the order seemed designed to help push through bad loans.
Fleischmann’s warnings to the bank’s directors about the problems with GreenPoint loans became a crucial bargaining chip in the $13 billion settlement, and no doubt would loom large in any criminal investigation.
The negative reaction of a mock jury put together by a law firm working for JPMorgan Chase reportedly helped move the bank to settle. That jury read Fleischmann’s internal correspondence and knew of the email policy.
Fleischmann was let go in early 2008, along with other JPMorgan Chase employees in a layoff. A native of Canada, she now lives in Vancouver, British Columbia. Fleischmann is likely to be the DOJ’s star witness for possible criminal charges—should they ever happen.
BLACK’S BLASTS
Black is quick to vent about how little recognition and how much hassle befell several whistleblowers, despite the fact that “virtually every major DOJ [civil] case against the largest banks was made possible by whistleblowers,” he says.
“The most obvious way they can aid prosecutors is as fact witnesses about the actions of their bosses and reactions to the whistleblower’s warnings,” he says. “These were not disaffected employees. They were trying to protect their banks from harm. The retaliation they suffered should be a prosecutor’s dream for showing the guilty minds of senior people.”
Just ask Bill Black.
Sidebar
From S&L to RMBS
There are many differences between the S&L crisis and the residential mortgage-backed securities scandal: While S&L losses totaled about $150 billion, those from subprime mortgages are believed to be in the tens of trillions of dollars. And the S&L problems often arose because owners and executives of financial institutions treated them as personal piggy banks. The more recent mortgage mess came about as executives and lower-level functionaries in lending institutions acted as fee-and-bonus fetching cogs— of varying importance and knowledge—along big, moneymaking mechanisms in loan origination, processing, securitizing and subsequent sales.
U.S. Attorney Benjamin Wagner of the Eastern District of California acknowledges there was “a lot of recklessness in the real estate market in the 2000s and plenty of blame to go around,” but he defends his office’s targeting of hundreds of borrowers and no lending executives.
“It’s easy to generalize that bankers or appraisers are at fault, but in a criminal case you have to look at the facts of each case to see if you can determine who was intentionally committing fraud beyond a reasonable doubt,” Wagner says. “In every case you make difficult calls on who you can show committed fraud.”
SELF-DEFRAUDING?
In a 2010 Huffington Post story, Wagner was quoted as saying that, in part because lenders lose money when loans prove fraudulent, it would be difficult to convince a jury they are guilty: “It doesn’t make any sense to me that they would be deliberately defrauding themselves.”
That notion has proved significant in stemming indictments of lending executives. It had been the view of Alan Greenspan, chair of the Federal Reserve for nearly 19 years. In October 2008, two years after he stepped down, Greenspan told a congressional hearing that he had believed bankers would not engage in such practices, but he admitted later he could see a flaw in his reasoning.
“This modern risk-management paradigm held sway for decades,” Greenspan explained. “The whole intellectual edifice, however, collapsed in the summer of last year.” That was in the summer of 2007; the intellectual edifice may have crumbled at that point, but it would take another year before the chickens came home to roost with the collapse of Lehman Bros. in mid-September and the subsequent $710 billion bank bailout, which was announced by Treasury Secretary Hank Paulson on Oct. 13, 2008.
Greenspan seemingly would have learned a similar lesson in the ’80s. Before taking over at the Fed in 1987, he had represented Charles Keating in efforts to get regulators to back off from Lincoln Savings and Loan. As a consultant, Greenspan produced a report saying the lender posed “no foreseeable risk” for depositors. Keating was using S&L depositors’ money for direct investments in real estate projects. Greenspan also put his name on a study approving of such direct investments by S&Ls, looking at 34 of them that were doing so and were reporting greater profits than others.
“A year later,” Bill Black says, “half those S&Ls were dead; 20 months after the study, all 34 were dead. So these direct investments were not just riskier; they were cyanide.”
“The S&L crisis was completely different from this more recent one, where the regulatory agencies were paralyzed by reports of high profits,” Black explains. “Back then we realized the profits were too good to be true and prioritized that as the problem, so we used receiverships, lawsuits and criminal referrals.”
Is cash still king?