Rusty Law

This is NOT the End

By October 21, 2010 all lawyers will be abolished according to the movie, Back to the Future II.  The CERN may accelerate the apocalypse, though the ancient Mayans have annihilation engraved for 2012.  Right now, though, this is NOT the end of the world.  

Shakespeare has been trying to get rid of lawyers since Henry VI, yet the American Bar Association membership is at about 400,000.  Not everything people say comes true.  Even Nostradamus missed the creation of his own website.  

The unemployment rate is over 11%, which is not the 25% of the Great Depression.  Over 100 banks have failed this year, but we do not have a run on the banks.  Since the creation of the FDIC, money is more secure.  

Leave science and technology to manufacture the end of the world, not the economy, and certainly not the lawyers!  

Have a safe and happy New Year!  

Stretching the TARP

Bank of America repaid its $45 billion debt, an action expected to prompt other banks to repay their bailout money, and now the Treasury Department will extend the Troubled Asset Relief Program beyond Christmas and New Year’s Eve, past Easter straight through to Halloween of 2010.  

Just as homeowners face new requirements in the extended version of the first-time home buyer tax credit, TARP will be striped with updates to its coverage.  While TARP is now projected to cost less over a 10 year period, it will be limited to foreclosure prevention and providing capital to small banks and businesses, hoping to shade business and consumer loans from the sun of a harsh economy.  

It may not be a new bank holiday, but the Treasury Department vows to give out goodies into Fall of 2010.  

Cyber Monday Sales

Online versus in line is appealing to consumers, especially those stuck in a snowstorm.  People can navigate a website rather than a phone tree or icy roads, and for retail sales, the consumer can zoom straight to the product instead of wading through the whole mall.  

The Monday after Thanksgiving has been designated “Cyber Monday.”  Online sales tend to be spread over the holiday season instead of being tied to a particular day, as with Black Friday, but Cyber Monday gets its own name anyway, as well as tracking which showed that sales rose by 5% over last year’s figure.  Consumer spending makes up 70% of America’s gross domestic product, and online sales account for 5-7% of retail sales.  

Optimists have cited heavy use of Google as hopeful for the economy because unlike its competitors, Yahoo and AOL, Google carries more consumer ads.  In other words, what is good for Google is good for revolving credit.  Indeed, the number of online shoppers increased 6% Cyber Monday; however, the amount spent per customer decreased 2%, indicating that shoppers are still cash-strapped.  (Consumers spent $102.19 per person online Cyber Monday.)  Maybe they would have spent more if discounts had not dropped by more than 3% from last year.  Still, Americans spent $887 million on November 30.  Now, if we can only get non-revolving credit moving…and maybe the airports and highways along the east coast.  

Trump Card

Beal’s Conjecture states that if two addends and sum are positive integers with positive integer exponents each greater than two, then the addends and sum must have a common prime factor.  What Beal did not count on was Donald Trump dropping out of the equation.  

Andrew Beal is a Texas banker, a college drop-out, but with a math theory named for him, and a big stakes gambler who just got Trumped.  Donald Trump is…Donald Trump.  The two of them were partners in a triad of casinos, trying to bluff their way through bankruptcy court.  The bondholders made progress over the summer and managed to gain leverage on the Trump-Beal stronghold.  Depositions were underway and Beal was none the wiser when Trump announced publically that he had joined forces with the bondholders.  Et tu, toupee?  

The quality of mercy lies in the lesson to be learned:  All is fair in love in bankruptcy.  Or don’t do business with a bad hairpiece (no doubt there is a clever Latin phrase for that).  Never was there a friendship of less zeal than that of Donald Trump and Andy Beal.  

Fraud

“Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws.”  Plato said that, but he said it a very long time ago.  Today fraud is up in the air and home-based as well.  

Nine pilots were married and had lovely pensions coming to them when they retired, but they wanted a slice of pie in the sky a little early.  All nine got divorced, which immediately entitled their spouses to half their pensions up front.  Then all nine couples got remarried.  The company made them pay the money back.  

A more popular form of fraud comes from first-time homebuyers’ credit.  Jacksonville’s James Otto Price III recently pled guilty for falsely preparing 15 tax returns to reap the new home buyer credit.  In his case, the Price was wrong!  But his case covers only 15 out of tens of thousands of suspicious claims, representing over six million dollars.  Abuse of this program has been spiked on lack of safeguards and lack of documentation requirements.  

The tax credit, valued at up to $8,000, is for first-time home buyers purchasing a primary residence.  There are maximum income requirements; however, there is no minimum age requirement.  A four-year-old is one of 500 applicants for the credit under age 18.  

While this program has inspired many first-time home buyers to take advantage of the great deals the market currently has to offer, it has also created an incentive for fraud.  “All’s well that ends well,” said Shakespeare, and this program is scheduled to end November 30.  Meanwhile, the IRS is investigating over 100,000 claims and will be looking for pay back.  

Ripe Mellon

Can you sue the Treasury Department for the Recession?  The short answer is No.  However, two investors are suing the US Government for the failed oversight of Bernie Maddoff’s fabulous scheme, claiming Uncle Sam did not behave in an avuncular manner to protect his nieces and nephews amid many tips that things were contrary to right.  The Madoff scandal was one of those overripe situations.  

A ripe melon should sound hollow when thumped but be heavy for its size so you know it is not empty.  

Investors at Bank of New York Mellon thumped.  Then they asked the bank to reduce risk through sales and restructuring.  While this cost $4.8 billion in investment losses, it should encourage BNY Mellon to vine ripen and be more robust against future losses.  

In the meantime, if you missed the Bernie Madoff auction at World Golf Village yesterday, the Madoff helpline is standing by to liquidate your fine art or jewelry at an upcoming sale.  At this point, you may have to make the best of a bad melon.  

Real Estate Trades

A real estate trade is not the same as wife swapping, but it does involve a specialized service, matching people and their property interests.  

Nobody fully appreciates the very hard work realtors do, and this particular area of expertise in the real estate market is another example.  Real estate trading is not a standard MLS; it involves a two-sided transaction, not just one, but does not cost any more than a regular transaction, and can cost less.  

A real estate trade involves a direct exchange of properties, generally with a simultaneous closing.  It entails very close matching and a large dose of mutual benefit.  

The legal issues of real estate trading are as follows:  disclosure disclosure disclosure.  (Comes right after “location location location.”)  

A dollar only has value because we say it does.  If someone has a home for sale in Jacksonville and wants to move to St. Augustine, while a homeowner in St. Augustine is trying to move to Jacksonville, then that exchange of properties could have great value for both parties.  Providing that disclosure is fully satisfied, a real estate trade can be a very good, and equitable arrangement.     

Libby Wiseman is a resource for real estate trades in Jacksonville and St. Augustine.  I recently spoke with her on “Land Title Talk,” which airs Wednesdays at 7:30 on WFOY 1240 AM.  If you missed our conversation, you can learn more about real estate trades at www.libbywiseman.com, or contact Libby at 1-800-853-0771.  

Economy of Science

The Fed has employed an economy of science in their trial and error to resolve the credit crisis.  The result has turned out more like a Jackson Pollock approach:  a variety of solutions for a colorful canvas of recovery.  

The scientific method has been around since the time of the Ancient Egyptians.  It is a problem-solving process, applied consistently for every problem to yield clarity in results.  While the Fed has employed trial and error testing to the economy, the results are not clear.  We have had HAMP and HARP, Cash for Clunkers and Money for Maytags.  The banks have endured stress tests and bailouts and a Federal TARP held over their frail assets.  There are too many variables applied at once to accurately identify the exact titration point when the economic solution changed color.  

The economy does not have the luxury of a sterilized laboratory environment in which each element can be carefully controlled.  The economy has to be field-tested on Wall Street, in the banks, and in the houses of the American homeowner.  This substrate is super-saturated with unknown consequences.  

Albert Einstein said, “We can’t solve the problems by using the same kind of thinking we used when we created them.”  In the absence of arduous scientific rigor, the Fed employed a gamut of new solutions.  It may be less science, more art, looking to achieve a masterpiece of lasting value.    

Musical Shares

The music has stopped.  Shareholders are not holding very much, and anyone without a seat is in a vast majority.  Wealthcare reform is in session, and consumers are putting their heads down on their debt, shrinking credit card spending, and bringing borrowing to a crocodile metabolism.  

An atlatl is a labor-saving device that allows a user to throw something much faster much farther, like a credit card that allows you to buy something you cannot immediately afford—it extends your purchasing power.  But no one is throwing credit around these days.  Consumers are instead de-leveraging themselves, reducing their amount of revolving credit at a rate of 13% annually. 

A crocodile can stay under water for two hours without coming up for air, reducing its heart rate to 2 or 3 beats per minute, and it can live for 115 years.  That is where nonrevolving consumer credit is now.  Nonrevolving consumer credit includes auto and student loans and has slowed to a 1.5% annual rate.  

While consumers have embraced more primitive forms of spending, that is not necessarily helpful in the modern world, seeking rapid economic recovery.  Consumer spending makes up about 70% of the US gross national product.  Conservative attitudes towards spending and borrowing contribute to a slower ballad of recovery, but may better support long-term growth.  

Bank History in Brief

The first Bank of the United States failed in 20 years.  Opened in 1791 it was gone by 1811.  The second one lasted only sixteen years.  After that followed a time known as the Wildcat period in banking until 1864 when Congress passed the National Bank Act, solidifying regulations and stamping “In God We Trust” on the two-cent piece.  National banking took off since then.  

The roots of modern banking began in Venice, Italy in 1587, where the housing market has been underwater for quite some time.  Banking made a significant development in the 1600’s when goldsmiths in England began issuing notes for money deposited in their strong vaults.  These notes came to be accepted as money.  

The Greeks coined money in the 700’s B.C.  The US Bar Cent of 1785 with a “USA” insignia was probably coined in England, where banking had been around since 1694.  If the one dollar bill has George Washington on it, why isn’t Abraham Lincoln on the sixteen dollar bill?  Most people don’t realize the US mint is still printing the two-dollar bill.  It’s the three dollar bill that’s out of circulation.  

Mortgage lending became popular after the Great Depression, when Roosevelt instituted a means by which homeowners could pay over time for their American dream.  This system of mortgage lending has enjoyed mixed results lately, but has outlasted the first Bank of the United States.  

We may be in for a Revised New Deal, but the nation lives on, as does its banking.