Monday, June 09, 2008
Tuesday, March 13, 2007
Don't Trust Nobody
Harry Browne, in his book Fail Safe Investing, advises us as follows:
"We live in an uncertain world. Whenever you make a decision... You may make the best choice you can, but you know you can't control the actions of other people"
In this investment book, Browne lays out good arguments for his (25/25/25/25) plan of investing (see previous posts). Browne was an advisor to the Permanent Portfolio, a mutual fund that was established to further the (25/25/25/25) investment plan. Although Browne in one instance recommends that we trust no one, he then also advises us that his Permanent Portfolio would be a good investment option.
How ironic then that the Permanent Portfolio has been besieged by lawsuits and fraud allegations. The SEC investigated Terry Coxon, the former general partner of the Permanent Portfolio. Coxon absconded with between 1M and 3M of the fund's money. The litigation continued for many years, finally reaching an end in Coxon v. SEC, 137 Fed.Appx 975 (9th Cir 6/29/2005), when Coxon was finally ordered to repay $850,000.00 back to the Permanent Portfolio.
In other litigation filed in King County Superior Court (Layman v. The Permanent Portfolio Family of Funds, Inc.), the fund was accused of reneging on Warrants preferentially given to an insider. The fund settled this dispute and: "As a result of the Settlement, total net assets of the Fund's Permanent Portfolio were reduced by approximately $505,000.00" See Note 8 to Financial Statements 7/31/2006.
The lesson: as Browne originally said, don't trust anyone. Once you give you money to a fund manager, much is out of your control. How do you know there isn't fraud or mishandling of your funds? If you don't sit on your investment you need to rely on other humans who may be beset with that very dangerous of human emotions: Greed.
For those of us who have a hard time giving up control, there aren't many investment options left:
"We live in an uncertain world. Whenever you make a decision... You may make the best choice you can, but you know you can't control the actions of other people"
In this investment book, Browne lays out good arguments for his (25/25/25/25) plan of investing (see previous posts). Browne was an advisor to the Permanent Portfolio, a mutual fund that was established to further the (25/25/25/25) investment plan. Although Browne in one instance recommends that we trust no one, he then also advises us that his Permanent Portfolio would be a good investment option.
How ironic then that the Permanent Portfolio has been besieged by lawsuits and fraud allegations. The SEC investigated Terry Coxon, the former general partner of the Permanent Portfolio. Coxon absconded with between 1M and 3M of the fund's money. The litigation continued for many years, finally reaching an end in Coxon v. SEC, 137 Fed.Appx 975 (9th Cir 6/29/2005), when Coxon was finally ordered to repay $850,000.00 back to the Permanent Portfolio.
In other litigation filed in King County Superior Court (Layman v. The Permanent Portfolio Family of Funds, Inc.), the fund was accused of reneging on Warrants preferentially given to an insider. The fund settled this dispute and: "As a result of the Settlement, total net assets of the Fund's Permanent Portfolio were reduced by approximately $505,000.00" See Note 8 to Financial Statements 7/31/2006.
The lesson: as Browne originally said, don't trust anyone. Once you give you money to a fund manager, much is out of your control. How do you know there isn't fraud or mishandling of your funds? If you don't sit on your investment you need to rely on other humans who may be beset with that very dangerous of human emotions: Greed.
For those of us who have a hard time giving up control, there aren't many investment options left:
- Real Estate (with minimal or no debt) - either in the U.S. or outside thereof for diversification purposes,
- Precious Metals (under your own possession or control),
- Treasury Notes and Bonds purchased directly from the Federal Government without a middleman (treasurydirect.gov),
- Direct ownership of foreign currencies or ownership of foreign government debt obligations,
- Promissory Notes and Mortgages (with the investor as the lender).
- CD's that are FDIC insured, and
- Index Mutual Funds which will only track the general market and charge a minimal advisor fee of less than .2%.
Tags:
Wednesday, February 28, 2007
The Intelligent Investor
I don't believe anyone can dispute that Benjamin Graham was one of the most successful and knowledgeable investors of his time. Although Graham died in 1976, many, if not all, of his books are still in publication. His book, "The Intelligent Investor" was recently revised and re-issued in 2006. This edition includes the original text as written by Graham, and then each chapter includes a "comments" section to attempt and compare the original text to the current investment world.
Warren Buffet endorses this books as: "By far the best book on investing ever written". Rolandovich seconds that endorsement.
Of particular interest is Graham's philosophy that most investors should split their portfolios 50-50 between stocks and bonds.
"We are thus led to put forward for most of our readers what may appear to be an oversimplified 50-50 formula. Under this plan the guiding rule is to maintain as nearly as practicable an equal division between bond and stock holdings." (pg. 90).
In today's investment climate and constant marketing to investors by the brokerage houses, Graham's approach may appear overly conservative. But is it? Perhaps Graham's philosophy is worth heading.
Graham makes the ever important distinction between "investing" and "speculating".
He defines investing as:
"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return." (pg. 35).
This sentence is further broken down as follows:
"thorough analysis" means "the study of the facts in the light of established standards of safety and value".
"safety of principal" signifies "protection against loss under all normal or reasonably likely conditions or variations"
and "adequate" return refers to "any rate or amount of return, however low, which the investor is willing to accept, provided he acts with reasonable intelligence."
Let us all strive to become investors and not gamblers or speculators with our money.
Warren Buffet endorses this books as: "By far the best book on investing ever written". Rolandovich seconds that endorsement.
Of particular interest is Graham's philosophy that most investors should split their portfolios 50-50 between stocks and bonds.
"We are thus led to put forward for most of our readers what may appear to be an oversimplified 50-50 formula. Under this plan the guiding rule is to maintain as nearly as practicable an equal division between bond and stock holdings." (pg. 90).
In today's investment climate and constant marketing to investors by the brokerage houses, Graham's approach may appear overly conservative. But is it? Perhaps Graham's philosophy is worth heading.
Graham makes the ever important distinction between "investing" and "speculating".
He defines investing as:
"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return." (pg. 35).
This sentence is further broken down as follows:
"thorough analysis" means "the study of the facts in the light of established standards of safety and value".
"safety of principal" signifies "protection against loss under all normal or reasonably likely conditions or variations"
and "adequate" return refers to "any rate or amount of return, however low, which the investor is willing to accept, provided he acts with reasonable intelligence."
Let us all strive to become investors and not gamblers or speculators with our money.
ThriftBooks
Investment theories come and go. It's amazing how many books have been written on investments that are now discarded. Further, it's fascinating to see what current "hot" authors in the investment field wrote about ten or twenty years ago.
A great resource of cheap books that no-one wants any more is ThriftBooks.
We recently purchased numerous books by Harry Browne and Doug Casey. Each book was only 1 cent with $2.49 shipping and handling. We received such quality publications as "The Economic Time Bomb: How You can Profit from the Emerging Crisis" written in the early 1980's by Harry Browne.
We have all lived through cycles of bubbles and mass investment hysteria. During each period there are bestseller books glorifying the current investment trend. For example, do you remember the book Dow 36000?
After the relevant bubble or crisis passes, these books eventually end up at ThriftBooks where you can pick them up for a song. The purpose of purchasing such books, of course, is to study what the popular media during a given time-period predicts as the "next hot thing", and then to compare their predictions with reality.
As you may imagine, the "experts" generally had no idea what they were talking about.
A great resource of cheap books that no-one wants any more is ThriftBooks.
We recently purchased numerous books by Harry Browne and Doug Casey. Each book was only 1 cent with $2.49 shipping and handling. We received such quality publications as "The Economic Time Bomb: How You can Profit from the Emerging Crisis" written in the early 1980's by Harry Browne.
We have all lived through cycles of bubbles and mass investment hysteria. During each period there are bestseller books glorifying the current investment trend. For example, do you remember the book Dow 36000?
After the relevant bubble or crisis passes, these books eventually end up at ThriftBooks where you can pick them up for a song. The purpose of purchasing such books, of course, is to study what the popular media during a given time-period predicts as the "next hot thing", and then to compare their predictions with reality.
As you may imagine, the "experts" generally had no idea what they were talking about.
Sunday, February 25, 2007
What If?
At the risk of contradicting my previous statement about the value of articles about the Civil War, I read this fascinating piece on General George Henry Thomas this morning.
I suppose a simplistic summary of this article lies in General Thomas's unfair characterization only as the Rock of Chickamauga even though he was actually a much more important figure. Perhaps he was distrusted due to his Southern origins, or as the author opines, he lacked only a Congressional sponsor like Sherman and Grant had.
Thomas, as a young man, taught his slaves to read, his HQ in the war was the picture of effeciency and discipline. He bested Stonewall Jackson in an early skirmish, and of course, saved the Union army from disaster at Chattanooga. The author points out:
Thomas "comes down in history...as the great defensive fighter, the man who could never be driven away but who was not much on the offensive. That may be a correct appraisal," wrote Catton, an admirer and biographer of Grant. "Yet it may also be worth making note that just twice in all the war was a major Confederate army driven away from a prepared position in complete rout—at Chattanooga and at Nashville. Each time the blow that finally routed it was launched by Thomas."
As I finished the rather depressing demise of General Thomas, the inevitable question arose: what if Thomas had his sponsor and even earlier assumed the rank Grant eventually took. Would the disaster at Cold Harbor occured? Is it possible that 100,000 lives would have been saved? What if Thomas would have been elected president instead of Grant, bringing his organizations abilities, and sympathies for all southerners, (after all, he was one) not just those who were white. Reconstruction might have succedded, the civil rights movement might have occured 100 years earlier. What if Thomas had joined Robert E. Lee? Would we ever remember James Longstreet? Would this country be called the CFA now? The possibilities are fascinating and tragic to consider, but ultimately, it is a futile exercise.
I suppose it comes down to the fact that the best people do not always win. The same can be said for the best ideas. Every day the most effecient systems, the best products, the most profitable ideas are cast aside, down into the dustbin of history. Those that prevail often have little to do with merit. It seems like these days, most of them have must more to do with proximatey to power. This author might agree with that assertion, at least for generals in the Civil War. I don't think anyone who ever worked for a boss who always followed his favorite employee's advice would disagree either.
I suppose a simplistic summary of this article lies in General Thomas's unfair characterization only as the Rock of Chickamauga even though he was actually a much more important figure. Perhaps he was distrusted due to his Southern origins, or as the author opines, he lacked only a Congressional sponsor like Sherman and Grant had.
Thomas, as a young man, taught his slaves to read, his HQ in the war was the picture of effeciency and discipline. He bested Stonewall Jackson in an early skirmish, and of course, saved the Union army from disaster at Chattanooga. The author points out:
Thomas "comes down in history...as the great defensive fighter, the man who could never be driven away but who was not much on the offensive. That may be a correct appraisal," wrote Catton, an admirer and biographer of Grant. "Yet it may also be worth making note that just twice in all the war was a major Confederate army driven away from a prepared position in complete rout—at Chattanooga and at Nashville. Each time the blow that finally routed it was launched by Thomas."
As I finished the rather depressing demise of General Thomas, the inevitable question arose: what if Thomas had his sponsor and even earlier assumed the rank Grant eventually took. Would the disaster at Cold Harbor occured? Is it possible that 100,000 lives would have been saved? What if Thomas would have been elected president instead of Grant, bringing his organizations abilities, and sympathies for all southerners, (after all, he was one) not just those who were white. Reconstruction might have succedded, the civil rights movement might have occured 100 years earlier. What if Thomas had joined Robert E. Lee? Would we ever remember James Longstreet? Would this country be called the CFA now? The possibilities are fascinating and tragic to consider, but ultimately, it is a futile exercise.
I suppose it comes down to the fact that the best people do not always win. The same can be said for the best ideas. Every day the most effecient systems, the best products, the most profitable ideas are cast aside, down into the dustbin of history. Those that prevail often have little to do with merit. It seems like these days, most of them have must more to do with proximatey to power. This author might agree with that assertion, at least for generals in the Civil War. I don't think anyone who ever worked for a boss who always followed his favorite employee's advice would disagree either.
Tags:
Interesting thoughts on the world
It never ceases to amaze me that thoughtful analysis is not found in the places where conventional wisdom would dictate.
It goes back to the adage that in today's print media, we are the product and the organizations that advertise therein are the customers. You can still compartmentalize things to find good reading (aside from the instances where it does not matter much like articles about the Civil War, which are often nonetheless very interesting).
The blogosphere (as much as I dislike its mostly derisive connotation) is the great exception and still in its infancy. You can probably find out more about the state of the economy by talking to a someone on the street than by reading an article about it in Business Week. However, it is important to understand what you are supposed to believe. It is much easier to learn the truth that way.
It goes back to the adage that in today's print media, we are the product and the organizations that advertise therein are the customers. You can still compartmentalize things to find good reading (aside from the instances where it does not matter much like articles about the Civil War, which are often nonetheless very interesting).
The blogosphere (as much as I dislike its mostly derisive connotation) is the great exception and still in its infancy. You can probably find out more about the state of the economy by talking to a someone on the street than by reading an article about it in Business Week. However, it is important to understand what you are supposed to believe. It is much easier to learn the truth that way.
Saturday, February 24, 2007
Wade B. Cook - cooking the books cooked his goose
Real Estate Investment Guru Wade Cook was recently found guilty by jury trial in the Federal Court for the Western District of Washington. Look's like Cook's cooking of the books got him thrown in the slammer. Check out this great bookcover from one of Cook's books from the 1980's. Rolandovich found it in a used book store, and just couldn't help buying it:
John T. Reed - a different sort of Real Estate guru
For the last 2 years I have been an avid reader of John T. Reed's investment newsletter. Reed produces a wonderfully insightful real estate newsletter that provides some great tips on how to avoid being an "appreciation-lord" and instead investing in real estate for double-digit cap rates or using one's expertise to increase the value of real estate by 20%.
Reed is well known for his vehement attacks on "Real Estate Gurus". All those 0-Down people and the like. Check out his "review" of Real Estate Gurus here:
http://www.johntreed.com/Reedgururating.html
To get more of a flavor of Reed's adivce, check out some of his free articles on subjects such as "lease-options" and the truste of "due-on-sale clauses":
http://www.johntreed.com/rateseminars.html
If anyone wants a sample issue of Reed's newsletter, feel free to email Rolandovich.
Reed is well known for his vehement attacks on "Real Estate Gurus". All those 0-Down people and the like. Check out his "review" of Real Estate Gurus here:
http://www.johntreed.com/Reedgururating.html
To get more of a flavor of Reed's adivce, check out some of his free articles on subjects such as "lease-options" and the truste of "due-on-sale clauses":
http://www.johntreed.com/rateseminars.html
If anyone wants a sample issue of Reed's newsletter, feel free to email Rolandovich.
Friday, February 23, 2007
The Permanent Portfolio
Harry Browne, the former Libertarian candidate for President and Investment Advisor is well known for his "Permanent Portfolio" theory.
According to Browne, one's assets should be invested:
25% in long term Treasury Bonds;
25% in short term Treasury Notes or Money Market accounts;
25% in a stock market Index Fund, such as the Vanguard S&P500 Fund. Said index fund should have the lowest possible cost to the investor;
25% in physical Gold - preferrably under your control and/or partially located in the safety deposit box of a foreign country.
In the 1970's Browne predicted the end of the U.S. Dollar and the rise of gold. Although he was partially correct in his prediction, he changed his investment philosophy in later years. Browne became convinced that it was impossible for anyone to predict the market or future events. As such, the Permanent Portfolio was designed to be simple and accomodate almost any possible future economy.
The returns over the years have been quite good: Perm Portfolio Returns
According to Browne, one's assets should be invested:
25% in long term Treasury Bonds;
25% in short term Treasury Notes or Money Market accounts;
25% in a stock market Index Fund, such as the Vanguard S&P500 Fund. Said index fund should have the lowest possible cost to the investor;
25% in physical Gold - preferrably under your control and/or partially located in the safety deposit box of a foreign country.
In the 1970's Browne predicted the end of the U.S. Dollar and the rise of gold. Although he was partially correct in his prediction, he changed his investment philosophy in later years. Browne became convinced that it was impossible for anyone to predict the market or future events. As such, the Permanent Portfolio was designed to be simple and accomodate almost any possible future economy.
The returns over the years have been quite good: Perm Portfolio Returns
Thursday, February 22, 2007
Seattle Viaduct
Lawgavulon is a small office consisting of a Rabid Liberal, a Rabid Republican and a wishy-washy Libertarian. Surprises never cease as we all agree that the Seattle Viaduct should be torn down and not replaced with anything other than a surface boulevard.
The question of whether the Seattle Viaduct will be replaced or built as a tunnel is heading to the Seattle voters in March 07.
Rolandovich urges you to vote NO in the upcoming Viaduct special election.
As loosely quoted from Suburban Nation (by: Duany, Plater-Zyberk & Speck): "You don't solve transportation problems by building roads any more than you lose weight by loosening your belt."
The question of whether the Seattle Viaduct will be replaced or built as a tunnel is heading to the Seattle voters in March 07.
Rolandovich urges you to vote NO in the upcoming Viaduct special election.
As loosely quoted from Suburban Nation (by: Duany, Plater-Zyberk & Speck): "You don't solve transportation problems by building roads any more than you lose weight by loosening your belt."
Sunday, February 11, 2007
Olive 8 Status?
On or about January 31, 2007 the Seattle Times reported that "The developer of Seattle's tallest residential tower and its general contractor are parting ways".
The article is in reference to the 39-store hotel and condominium project on Olive Way and 8th Ave (the "Olive-8").
The contractor, Skanska USA, will continue construction through mid-March 07. Supposedly at that time another contractor will complete construction - although the developer has not released information on who this contractor will be.
Curious minds want to know, will the Olive-8 actually finish construction or will we be left with a huge construction pit for years to come?
If the Olive-8 developer cannot find a replacement contractor for Olive-8, then Rolandovich predicts the beginning of the end for Seattle's Condo Market.
A poster on UrbanLiving explained that the parting of ways between the developer and contractor had been planned for months and that the press release was a mere marketing ploy.
Why would any developer want to advertise that they can't keep their construction contract together? If I had pre-leased a condo in the Olive-8, then I would be worried about what is actually going on... and hopefully the "reservation fee" was paid to escrow and not directly to the developer (as has actually happened with past projects in Seattle).
The article is in reference to the 39-store hotel and condominium project on Olive Way and 8th Ave (the "Olive-8").
The contractor, Skanska USA, will continue construction through mid-March 07. Supposedly at that time another contractor will complete construction - although the developer has not released information on who this contractor will be.
Curious minds want to know, will the Olive-8 actually finish construction or will we be left with a huge construction pit for years to come?
If the Olive-8 developer cannot find a replacement contractor for Olive-8, then Rolandovich predicts the beginning of the end for Seattle's Condo Market.
A poster on UrbanLiving explained that the parting of ways between the developer and contractor had been planned for months and that the press release was a mere marketing ploy.
Why would any developer want to advertise that they can't keep their construction contract together? If I had pre-leased a condo in the Olive-8, then I would be worried about what is actually going on... and hopefully the "reservation fee" was paid to escrow and not directly to the developer (as has actually happened with past projects in Seattle).
Thursday, February 08, 2007
Iran
The justifications of our foreign policy in the
However, the saber-rattling over
Russia,
It seems that the last six years in
That's the best case scenario, if the rest of the world continues to switch out their dollars for Euros or whatever else, and the superficially inflated wealth of millions of flipped houses becomes worthless, well then you might even have the old new
Tags:
LLCs and Small Investment Properties
In a comment posted on seattlebubble it was asked why someone would quitclaim a home into a Limited Liability Company.
This is truly a pet peeve for us at Lawgavulon. Almost every other week Rolandovich gets a call which invariable has the following tale: "Hi, I'm a small investor in real estate. I want to shield my personal assets from liability and therefor transfer my home/duplex/tri-plex into an LLC. My real estate agent said it really wasn't a big deal, can you quitclaim my home/duplex/tri-plex to my LLC? What, ohh, you want to know whether my loan is in the name of the LLC. Well actually it's not. You see my real estate agent told me that it would be cheaper to obtain an owner-occupied FNMA loan. As a result we couldn't close in the name of the LLC, but I saved a lot of money. My loan officer even helped me set up the LLC and said I should quitclaim the property after closing. Why, is there a problem?"
Here are the problems:
(1) DUE ON SALE CLAUSE. Practically every single loan has a "due-on sale" clause in it. These clauses state that if the current property owner sells the property without seeking lender approval, then the lender may call the loan due. Thus, a transfer of your home/duplex/tri-plex into an LLC will violate the due-on sale clause and the lender could foreclose on you on any time.
"But Rolandovich, it's not illegal to transfer my home without lender approval."
Yes, that's true. It's not illegal. You are merely breaching your contract that you have with your lender. So feel safe, you won't go to jail, you might just lose your investment property.
"But Rolandovich, everyone tells me that banks have no way of knowing that I've transferred the investment property."
Yes and No. It's true Lenders generally have no knowledge of what is recorded subsequent to their loan. They generally do not check the recorder's office after the loan is collateralized and the lender has earned their points. But one should be careful. Back in the last 1970's when interest rates were rising and lenders had nothing to do they decided to "audit" their loan files. Invariably they found many properties that had been transferred without their approval. This allowed the loan officers to "call due" the loan and force the borrower into a much higher interest rate loan. (i.e. you are in default. So we will foreclose and you the investor will have to refinance). During the late 1970's interest rates had shot up to 15-18%. Thus the incentive was high for lenders to get people out of those loans that didn't earn much money for them.
Lenders receive a copy of your homeowner's insurance policy. If you want to keep any kind of insurance on the property then the "named insured" would have to be changed to the LLC and as such the lender will find out that the property was transferred when they receive their certificate of insurance coverage. This could be the trigger forcing the investor to refinance. Or I suppose we can all hope that lenders receive so much paperwork that they just won't read or review the insurance certificates sent to them.
"But Rolandovich, I was told that the Gairn-St. Germain Act allows me to transfer my property into an LLC without lender approval."
No. That is false. The Gairn-St. Germain act is a federal law that allows borrowers to transfer their homes into a Revocable Living Trust of which they are the trustee without the loan being called due. This federal law does not apply to LLCs or other corporate forms and a living trust is an estate planning tool, it doesn't actually protect any of your assets from creditors.
(2) HOMEOWNERS INSURANCE. As briefly mentioned above, your homeowners insurance will have a "named insured" and that will be the property owner. Once you transfer your property into an LLC, you need to either change the insurance policy to cover the LLC or you will be paying insurance that does not actually cover you. For example, if you transferred your investment property into an LLC and did not change the "named insured" and then the property burned down - well I can almost guarantee you that the insurance company will not pay that claim as they never insured your LLC - only you and you no longer own the property.
So as an alternative you can transfer the investment property into an LLC and change your homeowner's insurance - but then you run into potential problems with your lender, as explained above.
As a result some people transfer their properties into an LLC without lender approval and continue paying homeowner's insurance which won't actually cover them if a claim is filed. I'm sorry, but isn't that just ludicrous?
(3) TITLE INSURANCE. At closing you will have received Title Insurance insuring you against loss from title defects. That insurance will also be issued in your personal name. If you transfer the property into an LLC without obtaining a "rider" on your Title Insurance policy to insure the LLC, then once again you will be without insurance if there is a title claim.
This problem can be remedied relatively easily. A Title Insurance rider to cover your LLC should only cost $75.00 or so and the good news is that such a rider is not sent to your lender and so you won't inform your lender of what you have done by this move.
(4) DO YOU REALLY HAVE LIABILITY PROTECTION? The whole purpose of transferring the investment property into an LLC was to create a liability shield. However, if you transfer property into an LLC but the loan on the property is in your personal name, are your personal assets actually protected? In most states a plaintiff who sues you will check to make sure that you have met all corporate formalities. The easiest way to "pierce the corporate veil" is to show that someone has not kept their personal finances separate from their business finances. If your loan is still in your personal name but the LLC own the property, I posit that your liability protection is more illusionary than anything. It's a corporate veil waiting to be pierced.
So the lesson is to either (1) Form an LLC prior to closing on an investment property + get the lender on board with the concept. Do not obtain an owner occupied FNMA loan, but rather an investment grade loan that will close in the name of the LLC. You will be above board. There will be liability protection and far less risk; (2) Don't close in the name of an LLC. Just buy the property in your own name and carry a good insurance policy. Don't bother transferring into an LLC. It's just not worth it.
The above is not to be construed as legal advice. Do no rely on it. Seek the advice of an attorney before closing a real estate transaction. Relying on the advice of your attorney will keep you out of hot water much better than relying on the advice of your real estate agent or loan officer whose only true goal is to close the deal and thereby earn a commission. The attorney, who is generally paid by the hour, will only have your best interests in mind.
This is truly a pet peeve for us at Lawgavulon. Almost every other week Rolandovich gets a call which invariable has the following tale: "Hi, I'm a small investor in real estate. I want to shield my personal assets from liability and therefor transfer my home/duplex/tri-plex into an LLC. My real estate agent said it really wasn't a big deal, can you quitclaim my home/duplex/tri-plex to my LLC? What, ohh, you want to know whether my loan is in the name of the LLC. Well actually it's not. You see my real estate agent told me that it would be cheaper to obtain an owner-occupied FNMA loan. As a result we couldn't close in the name of the LLC, but I saved a lot of money. My loan officer even helped me set up the LLC and said I should quitclaim the property after closing. Why, is there a problem?"
Here are the problems:
(1) DUE ON SALE CLAUSE. Practically every single loan has a "due-on sale" clause in it. These clauses state that if the current property owner sells the property without seeking lender approval, then the lender may call the loan due. Thus, a transfer of your home/duplex/tri-plex into an LLC will violate the due-on sale clause and the lender could foreclose on you on any time.
"But Rolandovich, it's not illegal to transfer my home without lender approval."
Yes, that's true. It's not illegal. You are merely breaching your contract that you have with your lender. So feel safe, you won't go to jail, you might just lose your investment property.
"But Rolandovich, everyone tells me that banks have no way of knowing that I've transferred the investment property."
Yes and No. It's true Lenders generally have no knowledge of what is recorded subsequent to their loan. They generally do not check the recorder's office after the loan is collateralized and the lender has earned their points. But one should be careful. Back in the last 1970's when interest rates were rising and lenders had nothing to do they decided to "audit" their loan files. Invariably they found many properties that had been transferred without their approval. This allowed the loan officers to "call due" the loan and force the borrower into a much higher interest rate loan. (i.e. you are in default. So we will foreclose and you the investor will have to refinance). During the late 1970's interest rates had shot up to 15-18%. Thus the incentive was high for lenders to get people out of those loans that didn't earn much money for them.
Lenders receive a copy of your homeowner's insurance policy. If you want to keep any kind of insurance on the property then the "named insured" would have to be changed to the LLC and as such the lender will find out that the property was transferred when they receive their certificate of insurance coverage. This could be the trigger forcing the investor to refinance. Or I suppose we can all hope that lenders receive so much paperwork that they just won't read or review the insurance certificates sent to them.
"But Rolandovich, I was told that the Gairn-St. Germain Act allows me to transfer my property into an LLC without lender approval."
No. That is false. The Gairn-St. Germain act is a federal law that allows borrowers to transfer their homes into a Revocable Living Trust of which they are the trustee without the loan being called due. This federal law does not apply to LLCs or other corporate forms and a living trust is an estate planning tool, it doesn't actually protect any of your assets from creditors.
(2) HOMEOWNERS INSURANCE. As briefly mentioned above, your homeowners insurance will have a "named insured" and that will be the property owner. Once you transfer your property into an LLC, you need to either change the insurance policy to cover the LLC or you will be paying insurance that does not actually cover you. For example, if you transferred your investment property into an LLC and did not change the "named insured" and then the property burned down - well I can almost guarantee you that the insurance company will not pay that claim as they never insured your LLC - only you and you no longer own the property.
So as an alternative you can transfer the investment property into an LLC and change your homeowner's insurance - but then you run into potential problems with your lender, as explained above.
As a result some people transfer their properties into an LLC without lender approval and continue paying homeowner's insurance which won't actually cover them if a claim is filed. I'm sorry, but isn't that just ludicrous?
(3) TITLE INSURANCE. At closing you will have received Title Insurance insuring you against loss from title defects. That insurance will also be issued in your personal name. If you transfer the property into an LLC without obtaining a "rider" on your Title Insurance policy to insure the LLC, then once again you will be without insurance if there is a title claim.
This problem can be remedied relatively easily. A Title Insurance rider to cover your LLC should only cost $75.00 or so and the good news is that such a rider is not sent to your lender and so you won't inform your lender of what you have done by this move.
(4) DO YOU REALLY HAVE LIABILITY PROTECTION? The whole purpose of transferring the investment property into an LLC was to create a liability shield. However, if you transfer property into an LLC but the loan on the property is in your personal name, are your personal assets actually protected? In most states a plaintiff who sues you will check to make sure that you have met all corporate formalities. The easiest way to "pierce the corporate veil" is to show that someone has not kept their personal finances separate from their business finances. If your loan is still in your personal name but the LLC own the property, I posit that your liability protection is more illusionary than anything. It's a corporate veil waiting to be pierced.
So the lesson is to either (1) Form an LLC prior to closing on an investment property + get the lender on board with the concept. Do not obtain an owner occupied FNMA loan, but rather an investment grade loan that will close in the name of the LLC. You will be above board. There will be liability protection and far less risk; (2) Don't close in the name of an LLC. Just buy the property in your own name and carry a good insurance policy. Don't bother transferring into an LLC. It's just not worth it.
The above is not to be construed as legal advice. Do no rely on it. Seek the advice of an attorney before closing a real estate transaction. Relying on the advice of your attorney will keep you out of hot water much better than relying on the advice of your real estate agent or loan officer whose only true goal is to close the deal and thereby earn a commission. The attorney, who is generally paid by the hour, will only have your best interests in mind.
Tags:
Tuesday, February 06, 2007
Tuesday, September 26, 2006
Another Soviet Farewell
Though I never saw the Soviet Union when it was actually the Soviet Union, I had my turn to view its rotting carcass in the mid-90's. As the economic picture in Moscow continues to brighten, more and more of the old believer's relics are falling victim to the wrecking ball. In many ways, I should not be sad, but rather should rejoice in the return of Russia to the Soviet Capitol. However, I still get a touch of nostalgia when I read articles like this one from the Moscow Times.
Most of what makes the personality of a city is the view it gives you to its past, in my opinion. Moscow become a city officially in 1147 so its history is long and depressing; perhaps no period more so than during theSoviet Union. All the same, part of me wishes I could see it during that time without all the western brands screaming at you down Tverskaya or the Casinos down New Arbat. I suppose a happy medium is sufficient and I doubt anyone will miss this corner of the Soviet Union.
Most of what makes the personality of a city is the view it gives you to its past, in my opinion. Moscow become a city officially in 1147 so its history is long and depressing; perhaps no period more so than during the
Tags:
Friday, September 22, 2006
The Brothers President
The Clinton and Bush supporters each have their own version of who is most responsible for allowing Osama Bin Laden remain at large. According to those who support Bush, Clinton did not take advantage of a chance he had to take him out. The Clinton supporters allege that that Bush let him go in Tora Bora in order to prepare for the invasion of Iraq. I have my own ideas.
I believe that Osama Bin Laden's capture would impede the Bush Administration's policies. If OBL were captured, the people would immediately begin clamoring for a declaration of victory in the war on terror which would immediately make the prospect of invading Middle East countries less palatable for the American people. OBL has much more value at large than in captivity. If he is captured, the allegations of a coming terrorist attack would carry less weight and people might begin to turn attention to issues that are more important to ordinary people than terrorism. I can hardly imagine a less favorable climate for the Bush administration.
For an oil man, like Bush or Cheney, the last six years have been an unending dream. They have been able to dispense with every hint of fiscal responsibility since the war on terror began. What's more, this money has not gone to the traditional sources of government spending but to an already bloated military on arms that are not designed to fight terrorists. Even better for them, if anyone asks any questions they get to accuse them of treason or anti-Americanism. No other administration has had that power since the possibly the second Roosevelt Administration.
All of this could stop if OBL were captured. These benefits vastly outweigh any short-lived support the administration might experience as a result of his capture. It would take a couple of months before that would wear off and then we would all be left with the same administration looking other places to rouse up fear. The cold war lasted a half a century--and to whose benefit? The people were never any safer, in fact they could not have been less safe. There were proxy wars conducted in places like Korea and Vietnam that we were told were necessary to keep us safe, and during these wars there were elements in the military hounding for expansion of hostilities. In fact, in both wars these elements urged the use of nuclear weapons.
Between these two wars, there were constants attempts make war, against Cuba for example. The reason was always that there was a threat that had to be dealt with. Had any previous administration had the opportunity to play on the fear that 9/11 brought, there is no question they would have--I cannot imagine that even Carter would have been able to respond any differently than Bush did after 9/11.
I believe the reason is simply that the defense industry represents the most powerful element in the U.S. government. As you know, the defense industry is a collection of corporations that produce weapons of war that they sell to governments--mainly the U.S. and Israel, but generally any country with which the United States has friendly relations. These corporations are often, but not always, publicly traded making them subject to the market just as any other company would be. Because their business model benefits from war, they naturally seek opportunities to prosecute war wherever possible.
The think tanks are the other critical link which has taken over the role of policy formulation in the absence of governmental organs that did so in the past. The think tanks are often funded by the corporations which in turn benefit from the policy the think tanks produce.
I suppose it is possible to look at this as some kind of conspiracy. The Carlyle Group receives plenty of criticism for alleged designs on world domination. I think that is a simplistic analysis. Every single corporation in existence has designs on world domination because their single concern is for profit maximization, without concern for anything else. What other conclusion can possibly be drawn? Profit maximization by definition has no limits.
I believe that Osama Bin Laden's capture would impede the Bush Administration's policies. If OBL were captured, the people would immediately begin clamoring for a declaration of victory in the war on terror which would immediately make the prospect of invading Middle East countries less palatable for the American people. OBL has much more value at large than in captivity. If he is captured, the allegations of a coming terrorist attack would carry less weight and people might begin to turn attention to issues that are more important to ordinary people than terrorism. I can hardly imagine a less favorable climate for the Bush administration.
For an oil man, like Bush or Cheney, the last six years have been an unending dream. They have been able to dispense with every hint of fiscal responsibility since the war on terror began. What's more, this money has not gone to the traditional sources of government spending but to an already bloated military on arms that are not designed to fight terrorists. Even better for them, if anyone asks any questions they get to accuse them of treason or anti-Americanism. No other administration has had that power since the possibly the second Roosevelt Administration.
All of this could stop if OBL were captured. These benefits vastly outweigh any short-lived support the administration might experience as a result of his capture. It would take a couple of months before that would wear off and then we would all be left with the same administration looking other places to rouse up fear. The cold war lasted a half a century--and to whose benefit? The people were never any safer, in fact they could not have been less safe. There were proxy wars conducted in places like Korea and Vietnam that we were told were necessary to keep us safe, and during these wars there were elements in the military hounding for expansion of hostilities. In fact, in both wars these elements urged the use of nuclear weapons.
Between these two wars, there were constants attempts make war, against Cuba for example. The reason was always that there was a threat that had to be dealt with. Had any previous administration had the opportunity to play on the fear that 9/11 brought, there is no question they would have--I cannot imagine that even Carter would have been able to respond any differently than Bush did after 9/11.
I believe the reason is simply that the defense industry represents the most powerful element in the U.S. government. As you know, the defense industry is a collection of corporations that produce weapons of war that they sell to governments--mainly the U.S. and Israel, but generally any country with which the United States has friendly relations. These corporations are often, but not always, publicly traded making them subject to the market just as any other company would be. Because their business model benefits from war, they naturally seek opportunities to prosecute war wherever possible.
The think tanks are the other critical link which has taken over the role of policy formulation in the absence of governmental organs that did so in the past. The think tanks are often funded by the corporations which in turn benefit from the policy the think tanks produce.
I suppose it is possible to look at this as some kind of conspiracy. The Carlyle Group receives plenty of criticism for alleged designs on world domination. I think that is a simplistic analysis. Every single corporation in existence has designs on world domination because their single concern is for profit maximization, without concern for anything else. What other conclusion can possibly be drawn? Profit maximization by definition has no limits.
Tags:
Tuesday, September 19, 2006
U.S. Corporate Governance, Part VI: Footprints
My last couple of posts were about some of the worst case scenarios that I envision resulting from excessive intermingling between the political and business entities of our state and federal governments. That is simply a tension that will always exists and probably always has to some degree. (In ages past, people tended to look at the monarch as their advocates against lesser lords, landed gentry, and wealthy merchants.) Today, people look at the government as one of the few means to reduce the oppression that "apolitical" businesses might cause.
The more those two power structures merge, the fewer options for people to enforce any rights they may have. Of course, it is not inevitable that corporations will take over the country and enforce their desires with private armies. However, it is difficult to argue that it is impossible when you read stories like this one. I am with most Americans when I say that terrorism is something that concerns me. I don't worry about it more than cancer, auto accidents, climate change, and many other things because the chance of dying in a terrorist attack is about as great as being struck by lightening. It is certainly something to worry about, but it is not even close to even the hypothetical threat that the Soviet Union posed. The difference is it is easier play on terrorism because there is no warning and the perpetrators are not usually white people with innocuous religious beliefs.
On the other hand it is fairly obvious that the beneficiaries of the war on terror are the largest corporations and that makes me very suspicious. While it may be that people are safer as a result of the war on terror, there is very little indication that such security is anything but coincidence. The only group that ever set out to study this with the sanction of the U.S. Government was the 9/11 Commission whose recommendations have not satisfactorily been implemented.
There is a business model in place that depends on the circulation of oil throughout the Western World. That business model is promulgated and implemented by the modern business corporation. You and I are its end-users. While we can certainly blame the corporations for some of this; ultimately, the consumers have the responsibility of not playing along. It's simple enough, but we have few options when the corporations want us to play along, and our public officials are complicit. That allegedly leads to results that were documented in this film. The MBA president is much more than complicit. His VP is one of the architects of this model, and of course, one of its greatest beneficiaries.
I think it necessary to point out, again, that the people involved in any one of these organizations, even Dick Cheney himself are not bad people, or evil. People make bad decisions in desperate circumstances. However, our system of corporate governance actually pushes people to make those poor decisions, or as I hesitate to reiterate again, put profit ahead of all other considerations.
The more those two power structures merge, the fewer options for people to enforce any rights they may have. Of course, it is not inevitable that corporations will take over the country and enforce their desires with private armies. However, it is difficult to argue that it is impossible when you read stories like this one. I am with most Americans when I say that terrorism is something that concerns me. I don't worry about it more than cancer, auto accidents, climate change, and many other things because the chance of dying in a terrorist attack is about as great as being struck by lightening. It is certainly something to worry about, but it is not even close to even the hypothetical threat that the Soviet Union posed. The difference is it is easier play on terrorism because there is no warning and the perpetrators are not usually white people with innocuous religious beliefs.
On the other hand it is fairly obvious that the beneficiaries of the war on terror are the largest corporations and that makes me very suspicious. While it may be that people are safer as a result of the war on terror, there is very little indication that such security is anything but coincidence. The only group that ever set out to study this with the sanction of the U.S. Government was the 9/11 Commission whose recommendations have not satisfactorily been implemented.
There is a business model in place that depends on the circulation of oil throughout the Western World. That business model is promulgated and implemented by the modern business corporation. You and I are its end-users. While we can certainly blame the corporations for some of this; ultimately, the consumers have the responsibility of not playing along. It's simple enough, but we have few options when the corporations want us to play along, and our public officials are complicit. That allegedly leads to results that were documented in this film. The MBA president is much more than complicit. His VP is one of the architects of this model, and of course, one of its greatest beneficiaries.
I think it necessary to point out, again, that the people involved in any one of these organizations, even Dick Cheney himself are not bad people, or evil. People make bad decisions in desperate circumstances. However, our system of corporate governance actually pushes people to make those poor decisions, or as I hesitate to reiterate again, put profit ahead of all other considerations.
Tags:
Monday, September 18, 2006
U.S. Corporate Governance, Part V: The Invisible Individual's Political Connections
We left off with one of the possible result of our current governance of corporations. Of course, it is not inevitable but it is difficult for me to imagine results that are too far off. Another reason for this, aside from the profit maximization obligation, is the intermingling of our political organizations with our business entities.
This intermingling takes the following forms, as well as others:
1.) Leaders from the business sector become elected officials. This is not inherently a bad thing. Leaders exhibit certain useful qualities whether in the business field or public office. However, these business leaders operate under conditions which are not acceptable as public officials. Further, they often serve in one capacity to benefit their private undertakings. Dr. Bill Frist, George Bush, Rumsfeld, Cheney, and many many others are prominent examples.
2.) Corporations have the means to contribute to the campaign coffers far beyond those of individuals. There is no reason to give examples of this here. While there are certain constraints on this process that are beyond the scope of this post, the fact is corporations have a voice much louder any person can ever hope to have.
3.) The lobbying system allows for the proliferation of corporate friendly causes to receive much more attention on Capitol Hill than any people friendly cause can have. In fact, most of the time this phenomenon serves discredit the people friendly causes through various forms of smearing.
4.) U.S. policy formulation anymore takes place in think tanks and similar organizations that receive grants and forms of patronage from corporations with the goal of creating influence in the political structures. If they cannot buy their politicians in the campaigns, often it pays to get involved during at the policy level. It's an efficient method of outsourcing that conveniently cuts regular people out.
Corporations must turn a profit. One of the overt ways this is done is by cultivating close ties to the structures political power in every state capitol as well as in Washington D.C. The revolving doors of leadership in addition to the process of buying causes leads the nation to pursue causes that are extremely beneficial for the corporations, and therefore, their owners, but extremely offensive to everyone else.
I discussed the telecoms in the last post. As an example here, I would like to use Blackwater USA. As you can read, Blackwater is a private security firm whose value grew exponentially after 9/11. One of the functions of the group is providing a private military force. It receives government contracts to operate in Iraq and wherever else there are wealthy people to pay for them. Its largest client is the U.S. Government which pays Blackwater hundreds of millions of dollars every year. That means you and I pay hundreds of millions of dollars every year for this private military force to exist, in addition to our regular military.
Blackwater USA benefited from 9/11 in ways that ordinary people cannot imagine. Think about this for a moment. There is a private army that answers only to its shareholders. That obligation to its shareholders demands that it attempt to influence foreign policy if that is the area in which the corporation operates. A private army is useless without trouble spots. A powerful corporation's CEO is liable to its shareholders if it does not maximize the corporation's profits even if those profits depend on the existence troubled spots. A tiny corporation will just go out of business. However, a powerful corporation, with billions in market capitalization, and access to the White House is going to find trouble spots whether or not they actually exist.
In another bleak scenario, the current system of corporation governance ensures that such private military groups will be deployed against its own population to stamp out dissent, crush protests, take organizers prisoner, and execute people who try to exercise their constitutional rights. This brings to mind the clones in Star Wars Episodes II & III. At the right time the person who has such a force at his/her disposal will wipe out all dissent. Truly the founders of the Gestapo, and SS could, which did the same thing last century, would be jealous. We will see this in our country before too long if we do not revise the governance of our corporations. I would doubt this could be a possibility under other administrations, but the Bush administration has shown little regard for law, extreme hostility for dissent, and a shamefully poor record for humane policies. (By that I mean, under his administration, the U.S. practiced torture, disregarded international and domestic law, and followed many of the other abuses of the Soviet Union and Nazi Germany.)
No one is a bad person because he/she works for a corporation or founds a corporation. However, under our current system of governance, no one can stop a corporation from repeating some of the most terrible events of human history.
How could this happen? Wouldn't national outrage percolate after people see this stuff on the news? Next time I will discuss the news outlets.
This intermingling takes the following forms, as well as others:
1.) Leaders from the business sector become elected officials. This is not inherently a bad thing. Leaders exhibit certain useful qualities whether in the business field or public office. However, these business leaders operate under conditions which are not acceptable as public officials. Further, they often serve in one capacity to benefit their private undertakings. Dr. Bill Frist, George Bush, Rumsfeld, Cheney, and many many others are prominent examples.
2.) Corporations have the means to contribute to the campaign coffers far beyond those of individuals. There is no reason to give examples of this here. While there are certain constraints on this process that are beyond the scope of this post, the fact is corporations have a voice much louder any person can ever hope to have.
3.) The lobbying system allows for the proliferation of corporate friendly causes to receive much more attention on Capitol Hill than any people friendly cause can have. In fact, most of the time this phenomenon serves discredit the people friendly causes through various forms of smearing.
4.) U.S. policy formulation anymore takes place in think tanks and similar organizations that receive grants and forms of patronage from corporations with the goal of creating influence in the political structures. If they cannot buy their politicians in the campaigns, often it pays to get involved during at the policy level. It's an efficient method of outsourcing that conveniently cuts regular people out.
Corporations must turn a profit. One of the overt ways this is done is by cultivating close ties to the structures political power in every state capitol as well as in Washington D.C. The revolving doors of leadership in addition to the process of buying causes leads the nation to pursue causes that are extremely beneficial for the corporations, and therefore, their owners, but extremely offensive to everyone else.
I discussed the telecoms in the last post. As an example here, I would like to use Blackwater USA. As you can read, Blackwater is a private security firm whose value grew exponentially after 9/11. One of the functions of the group is providing a private military force. It receives government contracts to operate in Iraq and wherever else there are wealthy people to pay for them. Its largest client is the U.S. Government which pays Blackwater hundreds of millions of dollars every year. That means you and I pay hundreds of millions of dollars every year for this private military force to exist, in addition to our regular military.
Blackwater USA benefited from 9/11 in ways that ordinary people cannot imagine. Think about this for a moment. There is a private army that answers only to its shareholders. That obligation to its shareholders demands that it attempt to influence foreign policy if that is the area in which the corporation operates. A private army is useless without trouble spots. A powerful corporation's CEO is liable to its shareholders if it does not maximize the corporation's profits even if those profits depend on the existence troubled spots. A tiny corporation will just go out of business. However, a powerful corporation, with billions in market capitalization, and access to the White House is going to find trouble spots whether or not they actually exist.
In another bleak scenario, the current system of corporation governance ensures that such private military groups will be deployed against its own population to stamp out dissent, crush protests, take organizers prisoner, and execute people who try to exercise their constitutional rights. This brings to mind the clones in Star Wars Episodes II & III. At the right time the person who has such a force at his/her disposal will wipe out all dissent. Truly the founders of the Gestapo, and SS could, which did the same thing last century, would be jealous. We will see this in our country before too long if we do not revise the governance of our corporations. I would doubt this could be a possibility under other administrations, but the Bush administration has shown little regard for law, extreme hostility for dissent, and a shamefully poor record for humane policies. (By that I mean, under his administration, the U.S. practiced torture, disregarded international and domestic law, and followed many of the other abuses of the Soviet Union and Nazi Germany.)
No one is a bad person because he/she works for a corporation or founds a corporation. However, under our current system of governance, no one can stop a corporation from repeating some of the most terrible events of human history.
How could this happen? Wouldn't national outrage percolate after people see this stuff on the news? Next time I will discuss the news outlets.
Tags:
U.S. Corporate Governance, Part IV: The Worst of the Invisible Individual
To summarize the last three posts:
1.) A corporation is a legal person with Constitutional due process protections.
2.) The actual owners of the corporation are generally not liable outside a few exceptions that are rarely applicable.
3.) A corporation is legally obligated to attempt to influence the law to better suit its revenue-generating models.
4.) The resulting law does not also benefit real people, or the vast majority of the population--this includes the people who cause it. (Remember, their fiduciary duty puts their own interests behind the interests of the corporation.)
Again, many do not see the connection between these motivations and our every day lives. Let me illustrate one possibility:
I believe one of the more frightening examples of a terrible confluence of these factors involves the NSA spying program, which seems to indiscriminately record, or troll for data (without warrants). This was carried out with the help of the large telecom corporations. Please excuse my lack of links on the subject. The legal implications of the NSA program are well documented on Unclaimed Territory. While privacy is not the issue on the forefront here, it is the one that will be most easily swept away once the provisions of FISA have been gutted and that may occur later this year provided the GOP keeps control of the Congress. Even so, as I mentioned previously, a corporation has a strong incentive to act unlawfully. The corporation cannot be sentenced to jail and any regulatory fines can be justified as a cost of doing business should a judge and often, the Supreme Court, disagree with its conclusions.
I think it is obvious that the technology exists, and it appears that the once these legal hurdles have been cleared, the entities branded as friendly and responsible citizens will be poised to dramatically change the nature of our society. Remember, a corporation is not a person. It cannot stop at the edge of the cliff and think about looking down. If there is anyway to make money by jumping, it will go over the edge without ever slowing down. In fact, the directors are legally obligated to make sure it jumps at full speed.
First it's swiping your card with Paypass. A receipt comes to you in the mail letting you know what they charged. The convenience is the most ultra of all comforts. No worry about ID theft. No thought of losing your credit card and showing up at the bar the next day to pick up your lost Visa.
The level of security in government buildings will be the first to install these advancements. The cost of ensuring the safety of our elected officials and our independent judiciary is easy to justify. However, the largest corporations will soon follow suit under the same justification, which is much more tenuous. Soon enough, you will be scanned and electronically searched when you walk into the grocery store. You will be told that the social value of protecting the local supermarket is higher than any inconvenience you experience. If you don't like it, you will be told to stay out of the store.
The convenience is mind-blowing, but comes with a sinister cost. Everything you own is also scanned: everything in your pocket, your clothes, description, possessions, and everything else is documented. Your position is mapped and recorded; every action that makes up your life can be known. Crime will virtually disappear. Political dissent will dry up before anyone notices. Free elections will become unnecessary because we will be able serve the state through other means. The only remaining corporation and the government will finally merge in an effort to protect us, keep us secure, rid the world of evil-doers. You can imagine the efficiencies that will be created.
It's not a revolution or a takeover--rarely do tyrannical regimes usurp power transparently with the tacit approval of the people. It's a process, all leading toward a terrible finale. Complete security will arrive at the cost of complete tyranny, complete control, complete uniformity, and a completely mediocre, banal, and uneventful world. It will be a gradual process and if you don't believe it can happen in the U.S., you are not paying attention. It is happening right now. And about 50% of us welcome this result blissfully.
1.) A corporation is a legal person with Constitutional due process protections.
2.) The actual owners of the corporation are generally not liable outside a few exceptions that are rarely applicable.
3.) A corporation is legally obligated to attempt to influence the law to better suit its revenue-generating models.
4.) The resulting law does not also benefit real people, or the vast majority of the population--this includes the people who cause it. (Remember, their fiduciary duty puts their own interests behind the interests of the corporation.)
Again, many do not see the connection between these motivations and our every day lives. Let me illustrate one possibility:
I believe one of the more frightening examples of a terrible confluence of these factors involves the NSA spying program, which seems to indiscriminately record, or troll for data (without warrants). This was carried out with the help of the large telecom corporations. Please excuse my lack of links on the subject. The legal implications of the NSA program are well documented on Unclaimed Territory. While privacy is not the issue on the forefront here, it is the one that will be most easily swept away once the provisions of FISA have been gutted and that may occur later this year provided the GOP keeps control of the Congress. Even so, as I mentioned previously, a corporation has a strong incentive to act unlawfully. The corporation cannot be sentenced to jail and any regulatory fines can be justified as a cost of doing business should a judge and often, the Supreme Court, disagree with its conclusions.
I think it is obvious that the technology exists, and it appears that the once these legal hurdles have been cleared, the entities branded as friendly and responsible citizens will be poised to dramatically change the nature of our society. Remember, a corporation is not a person. It cannot stop at the edge of the cliff and think about looking down. If there is anyway to make money by jumping, it will go over the edge without ever slowing down. In fact, the directors are legally obligated to make sure it jumps at full speed.
First it's swiping your card with Paypass. A receipt comes to you in the mail letting you know what they charged. The convenience is the most ultra of all comforts. No worry about ID theft. No thought of losing your credit card and showing up at the bar the next day to pick up your lost Visa.
The level of security in government buildings will be the first to install these advancements. The cost of ensuring the safety of our elected officials and our independent judiciary is easy to justify. However, the largest corporations will soon follow suit under the same justification, which is much more tenuous. Soon enough, you will be scanned and electronically searched when you walk into the grocery store. You will be told that the social value of protecting the local supermarket is higher than any inconvenience you experience. If you don't like it, you will be told to stay out of the store.
The convenience is mind-blowing, but comes with a sinister cost. Everything you own is also scanned: everything in your pocket, your clothes, description, possessions, and everything else is documented. Your position is mapped and recorded; every action that makes up your life can be known. Crime will virtually disappear. Political dissent will dry up before anyone notices. Free elections will become unnecessary because we will be able serve the state through other means. The only remaining corporation and the government will finally merge in an effort to protect us, keep us secure, rid the world of evil-doers. You can imagine the efficiencies that will be created.
It's not a revolution or a takeover--rarely do tyrannical regimes usurp power transparently with the tacit approval of the people. It's a process, all leading toward a terrible finale. Complete security will arrive at the cost of complete tyranny, complete control, complete uniformity, and a completely mediocre, banal, and uneventful world. It will be a gradual process and if you don't believe it can happen in the U.S., you are not paying attention. It is happening right now. And about 50% of us welcome this result blissfully.
Subscribe to:
Posts (Atom)
