Real-estate investors and fraud

Bill Bonner - Mon 10 Apr, 2006

...Fraudsters will find novice real-estate investors and convince them to sell their good name and credit record...

“Home is where the fraud is,” reads a recent headline on
CNNMoney.

Everything in nature matures, ages, degrades,
degenerates and deflates – even a real estate bubble.
Near the end, the parasites, swindlers, and scammers are
in the news. When the tech bubble blew up, for example,
the papers were full of stories about dot.coms without
even a website. No assets, no business plan, no
customers, no staff, no clue...not a prayer. Yet, they
raised millions of dollars from hopeful investors, just
before they unravelled like a cheap suit.

Thus, we keep a close watch on this house of ours,
we keep our eyes wide open at all hours. Because when  
houses go down, so goes the consumer economy with it.
Not that it's a goner yet although a report from the
Financial Times for example tells us that the New York
City property market is ‘cooling.’

But now we’re reading about property swindles, such as
the one we mentioned in our lead:

“Fraudsters will find novice real-estate investors and
convince them to sell their good name and credit record.
In return, scammers promise to arrange a loan on an
investment property, find tenants, make mortgage
payments and sell the property for huge profits once it
appreciates,” reports CNN MONEY.

“Instead, the fraudsters use the borrower's name on loan
documents - and then walk away with hundreds of
thousands of dollars in loan proceeds.

“No tenants are found, no rental payments are collected,
no mortgage payments are made, the house goes into
default, turns out it's not worth anything, and the
borrower is left holding the bag and their credit is
destroyed,” said Rachel Dollar, an attorney in Santa
Rosa, Calif. who represents lenders in mortgage-fraud
cases.

Last year, this kind of fraud cost about $1 billion –
twice as much as the year before and nearly 7 times as
much as 2000.

Parasites, swindlers, scammers, hustlers, have we
nothing good to say about anyone or anything? Yes, dear
reader, as we promised, we bring you good news – below.
But it is a funny kind of good news. It turns out that
the bad news is not so bad after all. Or, to put it
another way, eventually, everything is such a swindle
that even the swindles are phoney. From the report on
property fraud, for example, comes a gem; until recently
the fraudsters were rarely caught because prices tended
to rise so quickly that their phoney appraisals were
exceeded by actual market prices! The swindlers had to
work overtime to keep up with imaginations run wild.
But now comes another case:

“Health care is top financial concern for the rich,”
says an AP headline. Well, the rich can stop sweating;
they may be better off without it anyway, as you will
see later in this column.

In the meantime, we note that the Exodus of power and
money from West to East continues without interruption.
Wages in China rose 12% annually from 1999 to 2002. In
2003, the labouring classes in the middle kingdom earned
13% more than the year before, and by 2004 and 2005,
wages were rising at a 14% clip. Yes, they are rising
from a low base; they have a lot of rising to do. But
why shouldn’t they eventually rise to meet wage levels
in Minnesota or Manchester? Productivity in China is
rising at 20% per year. And the Chinese are graduating
550,000 scientists and engineers every year. India is
turning out even more – 700,000 per year. Together, the
labour pool of very skilled professionals, in those two
countries alone, is growing three times faster than the
US.

*** “Yes, we could do that a lot cheaper. There are a
lot of people in India who are good journalists. We
could easily produce a lot of materials for you,
whatever you want, in fact.”

Your editor was sitting in a London café on Sunday
afternoon, speaking to an Indian woman about
outsourcing. The woman was headed to Delhi. The subject
of our conversation was an idea; setting up an office in
India to produce financial research reports.

We had explained how much we spend in London on
editorial work – researching, writing, editing. She
looked shocked. “You could get a lot more for your money
in Mumbai,” she explained.

Maybe. We don’t know. In our line of work quality is
hard to determine. Ideas count and who knows who has
good ideas? But we presume we weren’t the only people in
the world thinking about outsourcing yesterday. The same
conversation must be happening all over the world.
Everywhere and always businessmen seek to lower costs.
They can do nothing about the price of oil or other raw
materials. But they can reduce labour costs by replacing
Western workers with Asians. Pity the working man in the
West.

*** Even the swindles are phoney. American backs are to
the wall, we are told. They can cut out the gadgets from
Asia to reduce their living expenses. But the big
expenses don’t come from Asia – and they’re rising fast
– health care, education and housing. Nothing can be
done about them, right?

Wrong. Take health care, for example. It is said to be
retirees’ biggest concern. Health care costs are
soaring. People spend hundreds of dollars each month on
health care insurance. Can’t do without it, right? We
don’t know, but we’re beginning to wonder. Maybe you’re
better off not worrying about it.

We have on our desk a report from a group of doctors.
They point out that health care may not be as effective
or as safe as it is supposed to be. It may be a bit of a
scam, in other words. Which is very good news to us; it
means we don’t really need so much of it.

Who do you think is most likely to put you in the grave
prematurely? A terrorist? Or a doctor? According to the
estimates in this report, you’re about 10,000 times more
likely to be done to death by a licensed medical
professional than by a guy with a towel on his head.
There are a number of different estimates:

- about 2.2 million people each year have adverse in-
hospital drug reactions
- about 20 million doses of antibiotics prescribed for
viral infections, again which they are useless
- the number of medical and surgical procedures judged
to be unnecessary is estimated at 7.5 million per year
- about 8.9 million people go to the hospital
unnecessarily
- the number of people who die as a result of medical
intervention is probably about a million a year

Death by Medicine is the name of the report. It tells us
what we always suspected: a large part of what your
‘health care’ expenses actually pay for is quackery.
Much of the rest is merely ineffective.

We’re not a doctor. We do not even pretend to be one on
television. But we know a good swindle when we see one.
Modern medicine, like modern education, is probably one
part useful, one part wishful, and one part scamola.
And why shouldn’t it be? Is not the health care industry
like every other institution, society, organization or
business that ever was? Isn’t it entitled to degenerate,
to degrade, to get invaded by hustlers, to be subverted
by special interests and suborned by special agendas, to
be infested with parasites and incompetents? Why should
health care be different from the Pentagon or the
Teamsters Union?

And at this point, we brace ourselves for the onslaught
of health professionals and insurance salesmen who will
flood our mail here at the Daily Reckoning with the
redundant information that we don’t know what we’re
talking about. Tell us something we don’t know!
We have no doubt that health care has its share of
angels of tender mercy and geniuses of scientific
enlightenment. No doubt, there are lucky patients
ministered to by Florence Nightingales and Clara Barton
and honest Louis Pasteurs and Thomas Flemings coming up
with new cures and treatments. Nor do we doubt that we
will be glad they are there when we need them.

But how much health care really pays off? Over the long
run, none of us are good insurance risks. The final
chapter of our little dramas was written long ago; it is
not subject to emendation by the health care industry.
We are all doomed; the best we can hope to do is to meet
our fate with dignity and good humour.

No one doubts that health care can be useful from time
to time. So can calories, universities, politicians, and
televisions. On the evidence, Americans might now be
better off with less of all of them...

Regards,

Bill Bonner
The Daily Reckoning