Juggling Dynamite

Lots of hyperbole and gnashing of teeth this morning about the resignation of ex-Goldman Sachs President, Gary Cohn as Trump’s Chief Economic Advisor.  See:  Dow drops more than 300 points at the open on Gary Cohn’s resignation. 

The manically inflated stock market has seized this occasion for another well deserved nervous breakdown.  But popular commentary aside, this is not about the emergence of anti-free trade policies out of the White House.  Make no mistake.  This is about the financial sector losing its inside man at the President’s elbow.  And that is a necessary development in the status quo disruption needed to get the finance sector back in service to the real economy, rather than the other way around.  This is one small step in the right direction.

Same old playbook:  Up front fees and commissions for lenders and realtors come at a heavy cost for everything else.  Note to Canada and other ‘hot property’ markets, the same destructive behaviors and policies have been driving our realty prices up and financial strength down. We know how this ends, thanks to numerous historical precedents, its always just a matter of when.  See  A focus on responsible lending will uncover huge problems for the banks their customers, the economy and ultimately taxpayers.  Will we let the banks off with their crimes and profits this time too?

The banks’ Achilles heel — irresponsible lending — is shaping up as a major threat to the banks and financial system, depending on the outcome of the banking royal commission and a low-profile battle currently being waged in courts.

“Irresponsible lending is endemic in Australia,” Digital Finance Analytics director Martin North said.

“More than 900,000 households are already in mortgage stress.
Here is a direct video link.

The past decade of escalating debt has led to falling due diligence and investment return prospects, and fueled rampant speculation in so many areas– especially real estate.  Somehow the more expensive and opulent the projects appear, the more gullible and trusting the ‘investors’.

Whether its condo developers and board members siphoning off funds for their own personal spending, mortgage fraud in Canadian lenders, or ridiculous schemes building multi-million dollar homes on ‘spec’, the end result is typical:  lost funds and lawsuits.  See this one  The alleged $1.2 billion Ponzi scheme sapping LA’s property market:

When real-estate developer Woodbridge Group of Companies bought the famous Owlwood estate in Los Angeles in September 2016, the $90 million transaction marked the pinnacle of a nearly four-year property acquisition spree. The company announced it planned to preserve the 1930s-era, Holmby Hills property—once owned by Tony Curtis and later by the pop duo Sonny & Cher—renovate it and add square footage before relisting it.

By July 2017, with none of the work completed, Woodbridge put the property back on the market for $180 million, far above the record price for a Los Angeles home. In a statement announcing the listing, Woodbridge chief executive Robert Shapiro said he’d assembled a team of well-known architects to convert and upgrade the property. He said the home had gotten significant market interest after the music mogul Jay-Z hosted a Grammy Awards party there earlier that year.

According to the Securities and Exchange Commission, Mr. Shapiro was actually operating the company as a $1.2 billion Ponzi scheme, in which storied estates like Owlwood were a lure to draw investors. The SEC lawsuit, filed in December, claims that the company, controlled by Mr. Shapiro, sold unregistered securities to an estimated 7,000 retail investors—many of them elderly—who were told their funds would provide secured, short-term real-estate loans. Instead, most of the invested money funded real-estate purchases made by Shapiro-controlled shell companies, from luxury homes in L.A. to vacant lots, court papers allege. Investors collected “interest” checks that were largely funded by money from newer investors, the SEC alleges.