The Coming Climate-Related Business Failures

Recently, Der Trumpenführer set about trying to challenge the findings of the government's own environmental experts rather than admit that climate change is real and that significant policy changes are needed.  Most Republicans in elected positions are little better and continue to bury their heads in the sand.  A piece in the New Yorker argues that it will be private industry which will ultimately force policy changes as the costs of climate change damage the corporate bottom line or force some businesses to file bankruptcy and/or go out of business. The industry that may force the most rapid change is the insurance industry which will either cease insuring certain properties or types of business operations entirely or drastically increase premiums.  Coastal real estate coverage may be one of the first areas where rising insurance costs and increasing storm damage take a toll on property values and savage municipal tax bases.  Here are article excerpts:

On January 15th, the World Economic Forum issued its annual Global Risks Report, which presents the results of a survey of what policymakers and experts perceive to be the world’s greatest challenges and threats. The report categorizes concerns by color: blue for economic risks, orange for geopolitical risks, purple for technological risks, red for societal risks. This year, green, which denotes environmental hazards, was dominant: the top three risks, listed by the “likelihood” that they would occur, were extreme weather events, failure of climate-change mitigation and adaptation, and natural disasters. . . . “Is the world sleepwalking into a crisis?” the report’s authors wrote. “Global risks are intensifying but the collective will to tackle them appears to be lacking.”

The same week, as if to illustrate the point, the California-based utility company Pacific Gas and Electric (P.G. & E.) announced that it would be filing for bankruptcy protection as a result of costs related to recent wildfires in the state. Between June, 2014, and December, 2017, P.G. & E.’s equipment helped start some fifteen hundred fires, according to an analysis by the Wall Street Journal. Many were caused by falling trees that toppled power lines, which then threw sparks onto the surrounding grass and forest.

In 2017, seventeen major wildfires in California were connected to P.G. & E.; the fires destroyed 193,743 acres in eight counties and led to the deaths of twenty-two people. The fire season of 2018 was worse; the California Department of Forestry and Fire Protection reported it as the deadliest and most destructive season on record. P.G. & E. said that it was facing approximately thirty billion dollars in liabilities as a result of its role in the 2017 and 2018 fires.                     P.G. & E. may be the most high-profile company to date to face collapse for reasons linked to climate change, but it won’t be the last. Coastal real estate is likely to be one of the first sectors of the economy to see values plummet due to rising seas and damage from storms. This hasn’t happened yet, because insurance companies are still willing to insure coastal properties, which means that property owners won’t have to bear the cost of the damage. But this is likely to change in the not-too-distant future. The National Centers for Environmental Information, which tracks U.S. weather and climate events, cited 2017 as “a historic year of weather and climate disasters,” which together cost more than three hundred billion dollars and included three tropical cyclones, eight severe storms, two inland floods, a crop freeze, drought, and wildfires. At some point, insurance and reinsurance companies will decide that writing policies in high-risk areas no longer makes financial sense, which could trigger a sharp decline in real-estate prices. Bruce Usher, a professor at Columbia Business School who studies climate change and investing, told me that he foresees three kinds of climate-related risks that may cause companies to fail in the future: physical risks, policy-related risks, and technological risks. The changing environment may cause damage to property or facilities owned by companies, or it could fuel lawsuits and liability payments related to damage caused by companies to others’ property, as was the case with P.G. & E.

[C]limate change itself will make certain products—most obviously cars using internal combustion engines, which are likely to be replaced by electric vehicles—obsolete. The insurance industry has been aware of these risks for some time and has been conducting studies to try to quantify them. The rest of the business world is increasingly focussing on them as well.

If the coming climate-related business crises will have one positive side effect, it’s that acute financial losses are likely to force policy changes in a way that environmental damage on its own has not. As one commenter on a recent Wall Street Journal article about P.G. & E. put it: “When capitalists decide the scientists are right, then the free market will adjust accordingly.”

What is lacking now, he said, is focus by policymakers in Washington on making changes that could actually turn things around. “People in this field say, ‘We know what the problem is, and we know how to solve the problem,’ ” Usher said. Our politicians, however, “don’t have the willingness to do something. That’s where we are.”

Is Trump Too Underwater to Divest His Business Interests?

During the presidential campaign there were some journalists - albeit far too few - who sought to shine a spotlight on Donald Trump's potentially precarious business empire, including Trump's rumored dependency on Russian money and/or loans from the Bank of China.  Sadly, these stories never got the traction they deserved and Trump's vulnerability to Russian extortion remains an open question.  Now, with critics demanding that Trump divest his business interests to avoid conflicts of interest and violation of the U.S. Constitution's emoluments clause,  Trump is refusing to do so.  A piece in Talking Points Memo suggests that he cannot do so because he is too "underwater" to divest. If such is the case, it underscores that Trump is not the business success he claims.  Here are column highlights:

Since Donald Trump's surprise election one month ago, there's been a bubbling conversation about the mammoth conflicts of interest he will have if he is running or even owning his far flung business enterprises while serving as the head of state. I've suggested that the whole notion of 'conflicts of interest' doesn't really capture what we're dealing with here, which is really a pretty open effort to leverage the presidency to expand his family business. But a couple things came together for me today which make me think we've all missed the real issue.

Maybe he can't divest because he's too underwater to do so or more likely he's too dependent on current and expanding cash flow to divest or even turn the reins over to someone else.

Late this afternoon we got news that Trump will remain as executive producer of The Apprentice, now starring Arnold Schwarzenegger. That is, quite simply, weird. The presidency is time consuming and complicated, even for the lazier presidents. Does Trump really need to do this? Can he do it, just in terms of hours in the day? Of course, it may simply be a title that entitles him to draw a check. But does he need the check that bad?

The idea that Trump is heavily leveraged and reliant on on-going cash flow to keep his business empire from coming apart and collapsing into bankruptcy was frequently discussed during the campaign. But it's gotten pretty little attention since he was elected.

After Trump got into that scuffle with Boeing, reporters asked about his ownership of Boeing stock. Trump replied that he'd already sold that stock. So there was no problem. But there's a bit more to it than that.

According to his spokesman, Trump sold all of his stock back in June, a portfolio which his disclosures suggest was worth as much as $38 million. Trump told Matt Lauer that he sold the stock because he was confident he'd win and "would have a tremendous ... conflict of interest owning all of these different companies" while serving as President.

Now, c'mon. Donald Trump sold off all his equities more than six months before he could become president because he was concerned about conflicts of interest? Please. That doesn't pass the laugh test.

But consider this. During the primaries Donald Trump loaned his campaign roughly $50 million. Over the course of the spring, as it became increasingly likely he'd be the nominee, that loan became increasingly conspicuous. 

It was only in June that Trump finally gave in and forgave the loan; this was confirmed in the June FEC disclosure that came out in late July. Who knows why Trump sold off all his stock holdings? Maybe he just had a feeling. Maybe he thought the market was too hot. Maybe he just had a spasm of prospective ethical concern. But let's be honest. The most obvious explanation is that forgiving that debt from his campaign required him - through whatever mix of contingencies - to free up more cash, either for the campaign or personal expenses or perhaps to have a certain amount of cash on hand because of terms of other debts. It does not seem plausible at all that the timing is coincidental.

Since we don't have Trump's tax returns, there's just a huge amount we don't know about his businesses. What we do know is that Trump appears to wildly exaggerate the scale of his wealth and exhibit a stinginess that is very hard to square with a man of the kinds of means he claims. A heavily leveraged business, one that is indebted and dependent on cash flow to keep everything moving forward, can be kind of like a shark. It has to keep moving forward or it dies.

This is all necessarily speculative because Trump has kept the details of his business empire hidden from the public. But behavior, circumstantial evidence and lots of evidence of tight reliance on cash flow to service debts of various sorts suggest that Trump may not be able to divest or separate himself from his business. Why doesn't he? Why does he court all this controversy? Because he can't.

If all this is true, the peril of Trump's foreign deals is larger than we may realize. It's not just a matter of hitting the billionaire big time. It could be a matter of staying afloat at all.

Spotlight - The Undue Defference Given to Religion

Yet another Roman Catholic diocese has filed for bankruptcy after being hit with a much deserved judgment in a sexual abuse case.  Religion News Service sums it up this way:

The Roman Catholic Diocese of Duluth announced on Monday (Dec. 7) that it had filed for bankruptcy protection following a jury verdict last month that held the Minnesota diocese responsible for more than half of an $8.1 million judgment on behalf of a victim of sex abuse by a priest. . . . jurors who deliberated for just a day following a trial last month said the diocese failed to supervise the priest, who worked in one of its parishes, and said that it should have known that he was dangerous.

Sadly, its a story line that has been repeated over and over again across America with the Church's policy of protecting sexual predators knowing no international boundaries.  I have no sympathy for clergy or parishioners who may find their fairy tale world turned upside down by the financial fallout to the diocese.

Meanwhile, the New Yorker has a lengthy piece that reviews the movie "Spotlight" that looks at the Boston Globe's breaking the story of the rampant sex abuse in the Archdiocese of Boston in January 2002, a story that finally forced police and others to stop closing their eyes and giving totally undeserved deference to the Roman Catholic Church and the criminal conspirators heading it up.  Of course, the Catholic Church is not the only denomination that has sexual abuse on a wide scale - e.g., the Southern Baptist Convention has engaged in similar cover ups and denials. One of the take awys of the article - I have yet to see the movie - is that had the Catholic Church (or any other denomination) not been afforded deference and facts not been ignored or hushed up, many victims of abuse would never have been abused in the first place.  Yes, freedom of religion is an American value, but it ONLY means one has the right to worship as one chooses.  It does not mean that churches and denominations get to be above the law.  It also doesn't mean that the rest of the citizens need to indirectly bankroll denominations through their tax exempt status.  Here are highlights from the New Yorker piece:

Since seeing the movie “Spotlight,” about the Boston Globe investigation of sexual abuse and coverups in the Catholic Church, I haven’t been able to stop thinking about it and the questions it raises—about how far institutions will go to protect themselves, about who we listen to and protect, about who and what we ignore, about the power of disclosure and even conversation. It begins with a portrait of institutionalized secrecy—at a police station in Boston in 1976, where cops, a bishop, and an A.D.A. are keeping a molestation accusation quiet—and shows us the process of how the truth came to be revealed. Spotlight, the Globe’s investigative team, published its first story in its series, “Church Allowed Abuse by Priest for Years,” on January 6, 2002; in the next year, it published over six hundred more, using the Church’s own documents to document extensive and almost systemic abuse by clergy.

I asked what they had heard about sexual abuse in the Church before working on the investigation. Not much, they said. Like most, they considered it to be individual cases about individual priests. “This is pre-Internet,” Robinson said. . . . The relative isolation of that era helped keep things quiet, made it harder for people to connect the dots. “So in a way, the Church was more protected. The bishops and the cardinals said, ‘Well, this is one aberrant priest.’ And they actually said this—‘We’re no different than the Methodists or the Lutherans or the Boy Scouts.’ ”

Robinson said, “So when we got the assignment, as an investigative unit, to look into the case of one priest who had eighty-four lawsuits against him, and a lot of speculation—how could they not have known what he was up to?—we took that on as ‘Find out about the one priest.’ ” . . . . all of a sudden we realized that it was some much larger number. And the much larger number we thought of was a tiny fraction of what it ended up being.”

 What was not in the documents was any indication anywhere of concern for the children who had been harmed. Not anywhere. It was all about protecting the reputation of the Church, and then, in parens, keeping it secret. It was always about the secrecy. If the crimes of the priest were mentioned, they were often referred to as ‘sins,’ for which the priest had repented and been forgiven.

[A]n idea that “Spotlight” had raised: that many priests are psychosexually stunted, on the emotional level of a twelve- or thirteen-year-old.  . . . . People, boys, used to go into the seminary in junior high school, and so were essentially deprived normal sexual development, important to any human being.” . . . . in a diocese of twenty-two hundred priests, was that some two hundred were abusive—a figure closer to ten per cent. 

Rezendes said, “Wherever institutions are operating in secrecy, and people aren’t accountable, you’re likely to find wrongdoing. The Church is literally a secret institution. It doesn’t have the reporting requirements of a corporation or a nonprofit. It doesn’t file tax returns. They just don’t have any disclosure requirements at all. And they’re protected in large part by the First Amendment.”

Pfeiffer said, “Institutions that seem virtuous—nonprofits, religious organizations—tend to get a pass.”

Pfeiffer said, “This is absolutely an example of what happens when for decades people didn’t question authority. We’ve all talked about this, because we were all raised Catholic. We understand the deference the Church got.

Read the whole piece and, better yet, see the movie as I plan to do. 

The Double Standards in Bankruptcies - Why Do Banks Get Special Treatment?

With the city of Detroit filing bankruptcy the spotlight is being focused on the unequal application of the bankruptcy laws to seemingly everyone else other than the big banks.  When the financial markets collapsed largely because of the utter recklessness and in some cases outright fraud of the big banks and mortgage companies, the big banks got bailed out with tax payer money and were supposed to pass along relief to beleaguered homeowners - something that from what I have seen in the real estate industry simply never happened.  The banks were quick to take the taxpayer funds but have made a practice of screwing over homeowners in loan modifications and have shown little regard for the properties they tossed off to HUD and the VA to deal with.  Yet in Detroit's case, we are seeing a whole different standard.  The New York Times looks at the troubling situation.  Here are excerpts:

Developments in the Detroit bankruptcy have exposed a double standard in federal bankruptcy law, an injustice in urgent need of congressional reform.

In Detroit, the judge has ruled that under Chapter 9 of the bankruptcy law, the city’s creditors include even municipal pensioners whose payouts are guaranteed under the Michigan Constitution. Accordingly, the pensioners have reached a tentative deal to reduce retiree benefits; along with concessions made by other creditors, the goal is to help the debtor, the city of Detroit, get a fresh start and move forward.

Contrast that with what happened in the housing bust. The creditors in that fiasco — including powerful banks — did not have to cut deals in court with bankrupt homeowners. Under Chapter 13 of the bankruptcy law, a section heavily influenced by the financial industry, lenders cannot be forced to rework most residential mortgages in bankruptcy.

That is where the legal double standard comes in. In Detroit’s bust, even pensioners have to negotiate new terms; in the housing bust, big banks did not have to negotiate, leaving many homeowners in the dust.

That special treatment for banks may have helped them recover from the financial crisis. But it made things worse for borrowers and the economy. Today, 8.6 million homeowners still owe more on their mortgages than their homes are worth, for a total of $430 billion in negative equity, according to Moody’s Analytics. Some 2.1 million of the underwater homeowners are in or near foreclosure, on top of 9.6 million who have lost their homes since 2007.

Congress could have changed the law early in the financial crisis to allow for bankruptcy court relief for homeowners. Its refusal to do so has contributed to unnecessary impoverishment and a protracted weak recovery.

Congress must change the bankruptcy law to ensure that banks have to modify mortgages in court for bankrupt borrowers. Anything less violates bankruptcy’s tough principles of shared pain for creditors and second chances for debtors.

 Yes, I hold the banking industry in low regard.  The banking system and Wall Street created the financial crisis and except in the cases of relative small banks where decision makers have been prosecuted and gone to jail, NO ONE in the big banks or on Wall Street has been similarly prosecuted.  Something is seriously wrong with this picture.

Most Milwaukee Sex Abuse Victims Will Receive No Money

Remember how it was claimed when the Catholic Archdiocese of Milwaukee filed bankruptcy that the move would allow the Archdiocese to honestly address the claims of sex abuse victims?  At the time those familiar with the details of the filing said that the real motive behind the filing was to (i) protect Church assets and (ii) screw the victims of sex abuse by priests.  These predictions have turned out to be right on the mark and as the National Catholic Reporter has indicted, the victims of priestly sex abuse will be screwed over and receive nothing for the harm they suffered.  Frankly, it is par for the course with the Catholic Church and shows the lie of Pope Francis' claims that the Church is going to get serious about sex abuse.   Absent dramatic action by Francis, we once again see that the true god of the Church hierarchy is - as it always has been - money.  Here are story details:

The Milwaukee archdiocese will walk away from bankruptcy relatively unscathed if its proposed reorganization plan is accepted by Judge Susan V. Kelley.

Although it was lawsuits brought by 570 alleged childhood victims of clergy sex abuse that forced the archdiocese into bankruptcy court, a close reading of the 337-page document shows that the vast majority of those claims will get no financial compensation from a $4 million fund for survivors.

Most other creditors in the case will be paid, although some will get less than they say they are due.

The archdiocese has no plans to reduce its annual $24 million operating budget or sell any property. It will have to put some property up as collateral to "borrow" $2 million from the controversial cemetery perpetual care trust fund -- the same $57 million fund church officials fought to keep out of the bankruptcy case that is now being appealed.

If the plan is not adopted, litigation could continue for another five years, cost another $14 million and mean that each individual survivor who filed a claim would have a separate trial, according to the archdiocese.

The judge has scheduled a hearing with lawyers for the claimants at 10:30 a.m. Central time Tuesday.
Monica Barrett is among the 80 percent of abuse claims that the archdiocese says is not eligible for compensation. Barrett said she was sexually abused in 1968 at the age of 8 by William Effinger, one of the archdiocese's most prolific abusers.

She likened the conduct of the archdiocese in the bankruptcy case to that of predators.  "They lure the victim in by saying, 'Come forward, and we will treat you fairly and put an end to all this,' and then they do this," she said. "They are revictimizing the victims."

Lawyers representing the majority of the survivors for nearly a decade said it is unlikely they will accept the plan. Kelley has the authority to "cram down" -- force the plan to be accepted by unwilling claimants -- but an appeal is likely.

The archdiocese says only 128 of the claims are eligible for compensation and could receive approximately $27,000 per person. The other survivors will get no financial settlement, but the archdiocese may provide therapy to some or work with others to get responsible parties to pay for therapy.

For those who do not understand why I left the Catholic Church, all I can say is open your fucking eyes and look at situations like this one in Milwaukee.  If you do not walk away form this morally bankrupt institution, you become complicit in these vile deeds and become guilty.  Moral and decent people will walk away.  Those who do not show themselves for the morally bankrupt people that they are.

 

What Mitt Romney Really Said About Allowing Detroit to Go Bankrupt

During last night's debate, Mitt Romney again tried to rewrite history in terms of what he said about allowing General Motors and Chrysler go bankrupt back in 2008.  Like almost everything the man says, last mights song and dance did not reflect reality.  Here are highlights from Romney's actual op-ed in the New York Times on November 18, 2008 which was captioned "Let Detroit Go Bankrupt":

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed. 

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check. 

I have several prescriptions for Detroit’s automakers. 

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

Second, management as is must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations. 

Starving research and development is like eating the seed corn.  

I believe the federal government should invest substantially more in basic research — on new energy sources, fuel-economy technology, materials science and the like — that will ultimately benefit the automotive industry, along with many others.  . . . .But don’t ask Washington to give shareholders and bondholders a free pass — they bet on management and they lost.

The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.  In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check. 

Of course, as Romney - a vulture capitalist himself - well knew at the time given the collapse of the financial markets, financing during a bankruptcy of either automaker such has he proposed was non-existent.  Giving "post bankruptcy financing" to companies that had collapsed and had ceased to operate would have been too little, too late and many millions of Americans would have found themselves unemployed.  In short, Romney's plan would have been a disaster and GM and Chrysler would be out of business had his approach been pursued.  So once again. last night we heard Romney suffering from "romnesia" and rewriting his own words.  Thankfully, Bush and Obama rejected Romney's plan.  The American people need to remember what Romney proposed for Detroit and reject Romney on November 6th.

Investigating Mitt Romney's Off-Shore Accounts

Vanity Fair has a lengthy article that looks at both Mitt Romney's business practices - which included encouraging employees to lie and engage in clandestine efforts against rival businesses - and also his preference of hiding money overseas so as to avoid paying U.S. taxes.  The picture that emerges from the article is unsettling: many questionable deals, hidden funds, brutal treatment of employees, and the dismemberment and closure of companies.  It's a picture quote different from the one being actively marketed by the Romney campaign to the general public.  Romney and his cronies seem to seek a return to the Gilded Age and seem happy to emulate the robber barons of old.  The practices certainly make one wonder what type of atmosphere would pervade a Romney White House. Here are article excerpts:

A person who worked for Mitt Romney at the consulting firm Bain and Co. in 1977 remembers him with mixed feelings.   .   .   .   Bain and Co., the person recalls, pushed employees to find out secret revenue and sales data on its clients’ competitors. Romney, the person says, suggested “falsifying” who they were to get such information.   .   .   .  “Mitt said to me something like ‘We won’t ask you to lie. I am not going to tell you to do this, but [it is] a really good way to get the information.’ … I would not have had anything in my analysis if I had not pretended.

This unsettling account suggests the young Romney—at that point only two years out of Harvard Business School—was willing to push into gray areas when it came to business. More than three dec­ades later, as he tried to nail down the Republican nomination for president of the United States, Romney’s gray areas were again an issue when he repeatedly resisted calls to release more details of his net worth, his tax returns, and the large investments and assets held by him and his wife, Ann. Finally the other Republican candidates forced him to do so, but only highly selective disclosures were forthcoming.

Even so, these provided a lavish smorgasbord for Romney’s critics. Particularly jarring were the Romneys’ many offshore accounts. As Newt Gingrich put it during the primary season, “I don’t know of any American president who has had a Swiss bank account.” But Romney has, as well as other interests in such tax havens as Bermuda and the Cayman Islands.

While the Romneys’ spokespeople insist that the couple has paid all the taxes required by law, investments in tax havens such as Bermuda raise many questions, because they are in “jurisdictions where there is virtually no tax and virtually no compliance,” as one Miami-based offshore lawyer put it.

That’s not the only money Romney has in tax havens. Because of his retirement deal with Bain Capital  .   .   .   Though he left the firm in 1999, Romney has continued to receive large payments from it—in early June he revealed more than $2 million in new Bain income. The firm today has at least 138 funds organized in the Cayman Islands, and Romney himself has personal interests in at least 12, worth as much as $30 million, hidden behind controversial confidentiality disclaimers. Again, the Romney campaign insists he saves no tax by using them, but there is no way to check this.

Bain bought companies, loaded them with debt, and paid itself extravagant fees, thereby bankrupting the companies and destroying tens of thousands of jobs.

Come August, Romney, with an estimated net worth as high as $250 million (he won’t reveal the exact amount), will be one of the richest people ever to be nominated for president. Given his reticence to discuss his wealth, it’s only natural to wonder how he got it, how he invests it, and if he pays all his taxes on it.

 Ed Kleinbard, a professor of tax law at the University of Southern California, says the Swiss account “has political but not tax-policy resonance,” since it—like many other Romney investments—constituted a bet against the U.S. dollar, an odd thing for a presidential candidate to do. The Obama campaign provided a helpful world map pointing to the tax havens Bermuda, Luxembourg, and the Cayman Islands, where Romney and his family have assets, each with the tagline “Value: not disclosed in tax returns.”

Romney’s personal tax rate is a particular point of interest. In 2010 and 2011, Mitt and Ann paid $6.2 million in federal tax on $42.5 million in income, for an average tax rate just shy of 15 percent, substantially less than what most middle-income Americans pay.

All the assets on Mitt’s financial disclosures are in blind trusts or retirement accounts held by him and Ann. Blind trusts are designed to avoid conflicts of interest for those in public office by having politicians’ assets managed by independent trustees. The Romneys’ blind trust was created when Mitt was elected governor of Massachusetts. Curiously, the Romneys appointed Bradford Malt as their trustee. It’s certainly true that under Malt the trusts don’t appear to be as blind as they might be . . .

Mysteries also arise when one looks at Romney’s individual retirement account at Bain Capital. When Romney was there, from 1984 to 1999, taxpayers were allowed to put just $2,000 per year into an I.R.A., and $30,000 annually into a different kind of plan he may have used. Given these annual contribution ceilings, how can his I.R.A. possibly contain up to $102 million, as his financial disclosures now suggest?

A report by Bain and Co. itself, looking at the period from 2002 to 2007, concluded that there is “little evidence that private equity owners, overall, added value” to the companies they took over: nearly all their returns are explained by broad economic growth, rising stock markets, and leverage. 


Bain engaged in startling penny-pinching with the laid-off employees. Their contracts stipulated that if they left early they would have to pay back the costs of relocating to Miami—but in spite of all that Dade had done to them, it refused to release the employees from this clause.   .   .   .   .   generous pensions were converted into less generous benefits, wages were cut, and more staff members were laid off. Some employees contacted Norman Stein, then the director of the pension-counseling clinic at the University of Alabama law school, with a view to challenging the conversions. Stein says the employees were “extraordinarily nervous,” so fearful, in fact, that they refused to let lawyers even make copies of pension documents. “I have been dealing with pensions issues for over 25 years and I never saw anything like this,” recalls Stein. The spooked employees did not go to court.

Nor was this an isolated incident: Kosman lists five other “formerly healthy” companies—Stage Stores, Ampad, GS Technologies, Details, and KB Toys—Bain helped drive into bankruptcy, while making big profits.  

The bottom line is that Obama's seemingly harsh ads attacking Romney have a strong basis in fact.  They underscore the reality that Romney cares nothing for average people and their financial well-being if he can make a buck out of screwing them over - in a careful legalistic way, of course.  Just because something is technically legal doesn't mean it's not immoral nonetheless.

If "Obamacare" is Struck Down, Will It Lead to a Single Payer System?

There's an old saying "be careful what you wish for" that may come back to bit the GOP and conservatives in the ass big time if the conservative faction on the U. S. Supreme Court succeed it killing what the far right derisively calls "Obamacare." And what might that be? Demands for a single payer system so derided by the far right. When asked about individual parts of "Obamacare," a majority of Americans support these programs/policies. Now imagine that the Supreme Court strikes down Obamacare and these benefits disappear and millions find themselves uninsured or unable to afford sky rocketing health care insurance premiums. The resulting chaos and unhappiness might reignite a demand for a total overhaul of the health care delivery system and calls for a Canadian or European style health care system. Personally, I am all for it. As should be those who actually believe in the Gospel message of caring for the sick and the unfortunate. Here are highlights from a Washington Post column that looks at the possible fallout:

If Obamacare is struck down, the short-term implications are uncertain. Conservatives may be buoyed by an election-year victory; progressives may be energized by a ruling that looks more political than substantive. The long-term consequences, however, are obvious: Sooner or later, a much more far-reaching overhaul of the health-care system will be inevitable.

At the heart of the legislation is the requirement that individuals purchase health insurance or pay a fine. It became clear by their questioning that the court’s five conservatives — including Justice Anthony Kennedy, the swing vote who sometimes crosses the ideological divide and votes with the liberals — see this mandate as a significant expansion of the federal government’s reach and authority.

Verrilli gave him [Justice Kennedy] one. The market for health insurance is inseparable from the market for health care, he argued, and every citizen is a consumer of health care. Those who choose not to buy health insurance require health care anyway — often expensive care at hospital emergency rooms — and these costs are borne by the rest of us in the form of higher premiums.

I think Verrilli made his case. The court is supposed to begin with the assumption that laws passed by Congress are constitutional. Justices don’t have to like the Affordable Care Act in order to decide that it should remain in effect.

[I]t’s going to be a close call. What if they strike down the law? The immediate impact will be the human toll. More than 30 million uninsured Americans who would have obtained coverage under Obamacare will be bereft. Other provisions of the law, such as forbidding insurance companies to deny coverage based on preexisting conditions and allowing young adults to remain on their parents’ policies, presumably would also be invalidated; if not, they would have to be modified to keep insurance rates from climbing sharply. The United States would remain the only wealthy industrialized country where getting sick can mean going bankrupt.

Eventually, however, our health-care system will be restructured. It has to be. The current fee-for-service paradigm, with doctors and hospitals being paid through for-profit insurance companies, is needlessly inefficient and ruinously expensive. When people talk about out-of-control government spending, they’re really talking about rising medical costs that far outpace any conceivable rate of economic growth.

Our only choice is to try to hold the costs down. President Obama tried to make a start with a modest approach that works through the current system. If this doesn’t pass constitutional muster, the obvious alternative is to emulate other industrialized nations that deliver equal or better health-care outcomes for half the cost.

I’m talking about a single-payer health-care system. If the Supreme Court strikes down Obamacare, a single-payer system will go from being politically impossible to being, in the long run, fiscally inevitable.

America's refusal to learn from the successes of other nations drives me crazy. Yes, a single payer system would mean that doctors would cease to make near obscene salaries in some cases. But the availability of preventive care and no need to pass the costs of the uninsured to everyone with insurance would lower costs in the long run. Moreover, families would no longer see their finances wiped out by a serious illness - something I experienced some years back when first my oldest daughter was stricken with bacterial meningitis and then my former wife was stricken with cancer. Medical emergencies should not mean bankruptcy or something close to it - even for those with supposedly quality insurance coverage.

Housing is Killing the Recovery

At the risk of beating a dead horse, it's time again to look at the engine that drove the Great Recession and which is now killing any real recovery: the housing market. Both the Los Angeles Times and FrumForum have pieces that look at the continuing debacle and the abject failure of Congress and the White House to do anything meaningful to address the problem. Dealing with distressed homeowners every day, I can testify that the so-called Home Affordable Modification Program is little more than a joke. And a sick joke at that. Lenders have no accountability and frankly, most personnel one deals with are utterly incompetent and have about as much reasoning skill as a trained circus dog - no offense intended towards dogs. For almost FOUR years now I have been railing about this issue and nothing meaningful has been done other than a huge bailout to lenders who have done nothing to assist homeowners with legitimate hardships. First, here are highlights from the LA Times:

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Almost anywhere you look, assessments of the state of the economic recovery are muddled — job growth is positive but fading, consumer spending ebbs and flows, corporate profits are surging but corporate spending is not. The exception is housing, on which everyone agrees. The housing market stinks.
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The latest national Case-Shiller index of home prices fell again in April from a year earlier. It was up modestly from March, but since that month marked a new recession low, pushing average prices back to levels not seen since 2002, at best we're bumping along the bottom. About 4.5% of all mortgages are still in foreclosure, more than four times the historical average . . .
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Yet housing is the area in which the government's remedial efforts have been consistently the weakest. The gap between the government's effort to bail out bankers and its effort to bail out homeowners is a national scandal. Under the Troubled Asset Relief Program, the government's bank bailout, some $50 billion was earmarked for mortgage relief; by late last year, according to the Congressional Budget Office, only $8 billion had been committed and much less had been spent.
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HAMP hasn't been a total flop. The redefault rate of less than 20% on its mortgages is about half that of other mortgage relief programs. But it's enough of a disappointment that Treasury officials recently took a step almost unique in their regulatory record: They penalized three big banks for their shortcomings in managing HAMP. The banks are Wells Fargo, Bank of America and JP Morgan Chase.
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The shame of HAMP is that federal mortgage relief didn't have to be so halfhearted. HAMP's drafters had a successful model to work from. That was the New Deal-era Home Owners' Loan Corp., or HOLC, a program that saved 1 million homes from loss in the depths of the Great Depression and completely remade the country's mortgage market in the process.
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What really enabled HOLC to succeed was that its incentives were all aimed at keeping borrowers in their homes. That's not the case with today's mortgage market, where the incentives are canted toward foreclosures. HAMP has done very little to correct that.
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The key to keeping a financially strapped borrower in a home is to modify the mortgage to cut the monthly payment, whether by cutting the interest rate or loan balance or by stretching out the repayment term. What makes this difficult is that often the loan servicer — the bank or office that bills the homeowner and tracks his or her payment history — doesn't own the loan, which has been packaged and sold to investors.
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In fact, servicers have powerful incentives to do the wrong thing — wrong for borrowers, wrong for investors, wrong for the economy. They make more money, and have better guarantees of payment, if they delay modifications, even if they force homeowners into foreclosure.
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[A] bigger flaw is that the government's housing policy doesn't acknowledge that a genuine, lasting solution to the housing crisis means reducing the loan balances of financially stressed homeowners to levels that make sense in terms of today's sharply reduced home values.
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No stimulus program would be as effective today as fixing the residential market. Yet, typically, the momentum in Congress is in the other direction, with House Republicans plotting to repeal HAMP. It's not that they have any better idea; it's that when it comes to helping the economy, they abhor anything but a vacuum.
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The FrumForum column repeats much of the same territory and flat out says that the continued housing disaster is killing the economy. Here are some highlights:
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For those who may think that the housing market has bottomed out and there is a light at the end of the tunnel, think again. That isn’t a light at the end and it’s not a train coming either. It might just be a blistering ray of solar radiation that could evaporate everything it is path, a wave of housing supply that will quickly overwhelm any hope for home price stabilization, much less an actual recovery. There is a shield, however, if politicians, policy makers and regulators can find the fortitude to redefine the American Dream.
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Over the last 6 months, the nation’s housing supply has been artificially (and temporarily) held at bay by moratoriums imposed on the big servicers over foreclosure practices while buyer demand has remained relatively constant. Econ 101 would instruct us that, under this scenario, home prices should rise. Instead, during the same period home prices continued their decline, falling an additional 4-5% on an adjusted basis. According to an increasingly number of economists, including Robert Schiller, we should expect to see this trend continue another 20-25% over the next several years. Why? Because the supply of homes expected to hit the market is more than double all of the homes sold in 2010 and YTD 2011 combined. Large banks, private investors and the GSE’s know this and are racing to the bottom to unload their existing homes before the tsunami hits.
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Recent CNNMoney headlines are telling. “Walk Away from your Mortgage: Time to Get Ruthless” (June 7) highlights the driving force behind all of this supply: underwater homeowners. The number of “strategic” defaulters is accelerating as more people make a basic economic decision to walk away.
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In a recent Fannie Mae survey, 27% of homeowners would consider walking away from their mortgage if home prices keep falling, nearly double from a year ago, and more than 50% no longer believe owning a house is a good investment.
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The number of people who fit into these buckets is staggering: More than 4 million mortgage borrowers are either in foreclosure or are seriously delinquent. Most of their houses will end up on the market as short sales or foreclosure sales. Private estimates put the figure, often referred to as “shadow inventory” at more than 6 million.
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Supply will increase and demand will decrease, driving home prices down, which in turn will create a self-perpetuating cycle. So how do we stabilize home prices if there is limited homeowner demand? The answer, of course, is to reduce the supply through other means.
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What are required are bold governmental initiatives to promote renting as a means to stabilize home prices. Start by accelerating the sale of entire GSE and FHA REO positions, which are worth on the order of $40-$50 billion, to private investors who could form large scale leasing portfolios. Divert what remain of federal and state funds from loan modification programs to rental-assistance programs. Rather than pay mortgage servicers to modify deeply delinquent borrowers who, after modification of the payment, are still underwater on their homes, reward servicers to convert them into tenants at reduced housing payments. Keeping people in homes and kids in schools while avoiding foreclosure signs on front lawns is almost always a good thing. Modifying borrowers to buy time without addressing negative equity is rarely an optimal outcome. And maybe, just maybe, adjust tax incentives to take into account all forms of housing payments, not just mortgage interest.
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I don't necessarily agree with the proposed solution, but at least it would be doing SOMETHING as opposed to nothing which is what is the current reality.

U. S. Bankruptcy Court: Rules DOMA Unconstitutional

Yet another federal court- this time the U.S. Bankruptcy Court for the Central District of California - has ruled that DOMA, the Defense of Marriage Act, is unconstitutional and violates the equal protection clause of the U. S. Constitution. In doing so, the Court found DOMA to be unconstitutional both under a rational basis test and the heighten scrutiny test. What's also interesting is that 20 out of the 25 judges on the court joined in the ruling that DOMA was unconstitutional and violated the rights of the same sex couple seeking a joint filing for protection in the court. Frankly, it ought to be painfully obvious to anyone other than a cretin or a theocrat seeking to destroy constitutional government that DOMA is a discriminatory law based solely on religious prejudice. Metro Weekly has coverage on the ruling and here are some highlights (The Court's opinion can be found here):
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Today, the U.S. Bankruptcy Court for the Central District of California, in Los Angeles, released an opinion finding Section 3 of the Defense of Marriage Act unconstitutional in a bankruptcy filing brought by a same-sex married couple, Gene Douglas Balas and Carlos A. Morales.
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The underlying basis for the challenge was described by the court: This case is about equality, regardless of gender or sexual orientation, for two people who filed for protection under Title 11 of the United States Code (Bankruptcy Code). Like many struggling families during these difficult economic times, Gene Balas and Carlos Morales (Debtors), filed a joint chapter 13 petition on February 24, 2011. Although the Debtors were legally married to each other in California on August 20, 2008, and remain married today, the United States Trustee (sometimes referred to simply as “trustee”) moved to dismiss this case pursuant to Bankruptcy Code § 1307(c) (Motion to Dismiss), asserting that the Debtors are ineligible to file a joint petition based on Bankruptcy Code § 302(a) because the Debtors are two males.
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After reviewing the law as it relates to DOMA, the court concluded: This court cannot conclude from the evidence or the record in this case that any valid governmental interest is advanced by DOMA as applied to the Debtors. . . . . In the court’s final analysis, the government’s only basis for supporting DOMA comes down to an apparent belief that the moral views of the majority may properly be enacted as the law of the land in regard to state-sanctioned same-sex marriage in disregard of the personal status and living conditions of a significant segment of our pluralistic society. Such a view is not consistent with the evidence or the law as embodied in the Fifth Amendment
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The opinion is then signed by 20 of the 24 (or 25) bankruptcy judges in the district, presumably to show that a majority of the bankruptcy judges in the district approved of this method of addressing the question in the district.

Let Me Tell You a Story

Some have questioned as to why I wrote the post yesterday on this blog and a similar story on The Bilerico Project about Equality Virginia’s promotion of a law firm with what I consider to be a confirmed anti-gay history. One EV board member even chastised me for "tearing others apart" “over personal agenda items” and complained that I refused to remain quiet when I “don’t like the resolution.” The best way to respond to these questions and criticisms is to tell a simple story. It’s a story of what this EV promoted law firm did to me. Here it is:
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It was 2004 and for many months my Norfolk based law firm, Payne, Gates, Farthing & Radd, had been in merger discussions with Virginia Beach based Wolcott Rivers. While the transaction was described as a merger, a takeover of my firm by Wolcott Rivers was a more true explanation of what was happening. The consolidation of the firms was to be effective December 1, 2004.
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I had finally come out at work during 2003 – partly because some of the staff had inadvertently discovered my secret and partly because I could not take the stress of being in the closet at work. For the most part, the firm did not treat it as any big deal. Before events that would later take place in November, 2004, the only time it was an issue was in the spring of 2004 after I had written a letter to the editor opposing the statute then pending in the Virginia General Assembly that was the precursor to the Marshall-Newman anti-gay amendment to Virginia’s Constitution. It seems the folks at Wolcott Rivers did not like my letter and I received a reprimand. But for that, things seemed to progress uneventfully toward the so-called merger.
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Then, on or about November 3, 2004, I was called into a meeting and summarily told that the decision had been made that I was not to be included in the new combined firm. Apparently, the powers that be at Wolcott Rivers thought that having an openly gay attorney in the firm would “offend the sensibilities” of conservative firm clients. In moments I was unemployed in my 50’s. Never mind that I had two children I was still supporting and not insignificant support payments I had to make each month to my former wife. I was devastated and distraught. But only the “sensibilities” of unnamed homophobic clients mattered to the folks at Wolcott Rivers.
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I briefly took the only position I could find with a law firm of much lesser quality which in short order blew apart and I again found myself with no firm and no income. Surviving on IRA withdrawals I started my own firm – no Hampton Roads law firms to date to date have hired any openly gay attorneys, so I had no alternative – and I have struggled to build a practice in a very much down economy. Along the way, I had to file personal bankruptcy and engaged in two suicide attempts because of depression largely brought on by my financial meltdown. My level of income has never recovered and possibly never will. All thanks to the powers that be at Wolcott Rivers.

Yes, in some ways this might be called a “personal agenda” item since my career was largely destroyed to protect the sensibilities of bigots both within and outside of Wolcott Rivers. But looking at the larger picture, I find it unconscionable that EV can in any way hold a firm such as Wolcott Rivers out as a resource to the LGBT community.

S&P Lowers Outlook for U.S. Securities Based on Deficit; GOP Seeks More Tax Cuts That Will Increase Deficit

There are times when I ask myself WTF has happened to the Republican Party? Years ago when I was active in the GOP, the party stood for fiscal responsibility and reasonable, responsible small government. Now? Fiscal insanity - and insanity in general - are prerequisites to membership in the GOP. Today, Standard and Poors ("S&P") downgraded the outlook for U.S. issued securities - e.g., Treasury bonds, etc. - because of the refusal of Congress to responsibly address the nation's budget deficit. When I say "responsibly" I mainly am targeting the Republican Party which wants more and more tax cuts for extremely wealthy Americans (who as noted below, are paying historically low tax rates) and corporations which will only further exacerbate the budget deficit. One can only hope that independents and moderates will open their eyes and wake up to the fact that the current GOP will be the ruin of this country if people do not wake up to the extremism of the GOP and its base. Here are highlights from the New York Times:
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Washington’s deficit reduction debate came to Wall Street on Monday, after the Standard & Poor’s rating firm lowered the outlook for the United States to negative, saying there was a risk that lawmakers might not reach agreement on how to address the country’s fiscal issues.
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Indexes fell sharply as the S.&P. revision pushed the federal deficit problems out of the political arena and into the financial one. By noon, Wall Street indexes were down at least 1.6 percent in afternoon trading as bond prices rose and yields declined.
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Many analysts were surprised by the market response to the revision, which cut the long-term United States debt rating to negative from stable.
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Stanley Nabi, chief strategist at Silvercrest Asset Management Group, said the policy makers and lawmakers should “realize there is a very serious problem, and you are going to see more consideration on how to rein in expenditures.”
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For their part, administration officials played down the revision while reiterating Washington’s determination to act. Treasury officials “believe S.&P.’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” an assistant secretary for financial markets, Mary J. Miller, said in a statement.
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As I noted, while the GOP continues to pretend that tax rates are high, the real truth is quite the opposite (I guess the Christianist control of the GOP has Congressional Republicans thinking that they are now exempt from the Commandment against lying and bearing false witness just like the Christianists themselves). Indeed, tax levels at the highest brackets are at the lowest level since the 1950's - that's right 60 years. Here are highlights from the Virginian Pilot on the real story on tax rate levels:
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The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992.
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Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent.
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The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation's tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.
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There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.
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In all, the tax code is filled with a total of $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the National Taxpayer Advocate, an independent watchdog within the IRS.

Will "MERS" Create Another Blow to Residential Real Estate?

As homeowners, realtors and others continue to struggle with the the consequences of the residential real estate market meltdown (my firm's real estate related revenues are down over $100,000 and many realtors are facing bankruptcy) another possible issue of earth quake like proportions lurks over the horizon which could deal another huge blow to the industry and the economy. What is it? It's called MERS, which stands for Mortgage Electronic Registration Systems, and typifies the chaos in the mortgage industry where far too much documentation is missing and the actual owners of loans - i.e., those with the real legal right to foreclose on defaulted loans - may be unascertainable. It's a mess and is particularly ominous for those trying to effect loan restructures since servicers of loans are not the real noteholders who are the only ones who can agree to loan modifications. The result is that struggling homeowners cannot get answers or approval of restructures and find themselves with two options: bankruptcy and/or foreclosure - even though many of the foreclosures may in fact be invalid. Here are highlights from a New York Times article that looks at the looming debacle:
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[T]he MERS Corporation, claims to hold title to roughly half of all the home mortgages in the nation — an astonishing 60 million loans. Never heard of MERS? That’s fine with the mortgage banking industry—as MERS is starting to overheat and sputter. If its many detractors are correct, this private corporation, with a full-time staff of fewer than 50 employees, could turn out to be a very public problem for the mortgage industry.
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Judges, lawmakers, lawyers and housing experts are raising piercing questions about MERS, which stands for Mortgage Electronic Registration Systems, whose private mortgage registry has all but replaced the nation’s public land ownership records. Most questions boil down to this:
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How can MERS claim title to those mortgages, and foreclose on homeowners, when it has not invested a dollar in a single loan? And, more fundamentally: Given the evidence that many banks have cut corners and made colossal foreclosure mistakes, does anyone know who owns what or owes what to whom anymore?
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[T]he legal challenges to MERS, its practices and its records are mounting. The Arkansas Supreme Court ruled last year that MERS could no longer file foreclosure proceedings there, because it does not actually make or service any loans. Last month in Utah, a local judge made the no-less-striking decision to let a homeowner rip up his mortgage and walk away debt-free. MERS had claimed ownership of the mortgage, but the judge did not recognize its legal standing.
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“The state court is attracted like a moth to the flame to the legal owner, and that isn’t MERS,” says Walter T. Keane, the Salt Lake City lawyer who represented the homeowner in that case.
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And, on Long Island, a federal bankruptcy judge ruled in February that MERS could no longer act as an “agent” for the owners of mortgage notes. He acknowledged that his decision could erode the foundation of the mortgage business.
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[B]y the 1990s, the centuries-old system of land records was showing its age. Many county clerk’s offices looked like something out of Dickens, with mortgage papers stacked high. Some clerks had fallen two years behind in recording mortgages. For a mortgage banking industry in a hurry, this represented money lost. Most banks no longer hold onto mortgages until loans are paid off. Instead, they sell the loans to Wall Street, which bundles them into investments through a process known as securitization.
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MERS’s legal troubles, however, aren’t going away. In August, the Ohio secretary of state referred to federal prosecutors in Cleveland accusations that notaries deputized by MERS were signing hundreds of documents without any personal knowledge of them. The attorney general of Massachusetts is examining a complaint by a county registrar that MERS owes the state tens of millions of dollars in unpaid fees.
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Federal bankruptcy courts and state courts have found that MERS and its member banks often confused and misrepresented who owned mortgage notes. In thousands of cases, they apparently lost or mistakenly destroyed loan documents. The problems, at MERS and elsewhere, became so severe last fall that many banks temporarily suspended foreclosures.
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Alan M. White, a law professor at the Valparaiso University School of Law in Indiana, last year matched MERS’s ownership records against those in the public domain. The results were not encouraging. “Fewer than 30 percent of the mortgages had an accurate record in MERS,” Mr. White says. “I kind of assumed that MERS at least kept an accurate list of current ownership. They don’t. MERS is going to make solving the foreclosure problem vastly more expensive.”
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MERS is a legal fiction. If MERS owned nothing, how could it bounce mortgages around for more than a decade? And how could it file millions of foreclosure motions?
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The situation is a disaster. We are routinely asked to provide copies of documents from closings that occurred 4 0r 5 years ago - I suspect because entire loan files have been lost. In Virginia and many other states, to foreclose, one technically needs to be the holder of the ORIGINAL signed note - a standard that cannot be met when the loan file no longer exists or has been irretrievably lost.

Bishop Eddie Long Now Faces Mortgage Fraud Charges in Addition the Molestation Lawsuits

In my experience in the legal profession and the area of real estate law in particular, typically, the biggest crooks are those who always wear religion on their sleeves and somehow work religion into what ought to be a purely business/legal matter. Now, Bishop Eddie Long - who is already facing lawsuits brought by four young men who accuse him of sexual coercion while using his church position to gain their confidence - has reportedly been linked to a mortgage fraud operation being run from his church. Apparently, Long was not satisfied with the $3 million salary he was drawing from his church. CBS Atlanta is reporting that thousands of homeowners may have lost their homes after paying an upfront $1500 foreclosure rescue fee during church sponsored seminars - surprisingly, even Virginia has legislation that bars such up front fees - only to end up losing their homes and/or ending up in bankruptcy. Here are some story highlights:
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CBS Atlanta News has found Bishop Eddie Long and another local megachurch leader, Gary Hawkins, are linked to a questionable mortgage venture that is being investigated by the feds. CBS Atlanta was the first to report on Matrix Capital's long list of victims. The company promised to lower people's mortgages for $1,500 upfront. Police say thousands of homeowners paid Matrix money, but according to investigators, most of them ended up in bankruptcy and losing their homes.
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So many people trusted Matrix Capital front man Fred Lee because he made promises of lowering people's mortgages in the sanctity of their local church. CBS Atlanta first tracked down Fred Lee on the campus of New Birth, Bishop Eddie Long's church.
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On Wednesday nights, New Birth is where Lee convinced church members to pay him instead of their mortgages. That is where people started the process that would eventually cost many their homes. "Where is Eddie Long? Because we would like to talk to him about why he is holding these seminars on his property here," Saltzman asked the security guards at New Birth. "You have to leave the property," the officer responded. The case against Lee is now being investigated by DeKalb County police and the Secret Service.
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In a statement, Long said Matrix Capital is no longer holding seminars at New Birth. But CBS Atlanta has learned another Matrix executive has continued making those same presentations in Lee's place.