Monday, December 15, 2008

A Modest Proposal: An Idea to Help Troubled Homeowners

While simple ideas are rarely simple, I'll throw one out with respect to helping homeowners: Allow homeowners to

  1. use self-directed IRA's to purchase the note on their own home (currently you cannot have your s-d IRA own your home, vacation residence;
  2. take hardship withdrawals from their 401k's without having to pay the 10% penalty AND perhaps DEFERRING/REDUCING the tax rate of withdrawn funds.

In Leisa-land logic, these two items would go a long way toward helping middle-class Americans (those with savings and jobs not the scammers) caught in spiraling debt due to out of control real estate prices.

Sleepless writes of the lack of transparency in the loans to banks. You know that I have a fondness for F. W. Engdahl. He's a provocative writer and if half of what he asserts is true then I'm truly afraid (and I've been truly naive). He wrote an interesting article

By F. William Engdahl, 10 October 2008

You may be transported to it by clicking on the article.

I think that we have lack of transparency not because the truth will set us free, but rather, the truth would likely scare us into madness. But peering at the truth in all of its unseemliness is what prepares us for reflection and circumspection on how to avoid such things in the future. At the very least, it informs us of the depth of stupidity; the breadth of greed and the insatiable appetite for power. These are the three legs of the stool that provide us with all of history's indelible "Oh Shit" moments.

Speaking of stupidity (on behalf of those who should have known better): We're seeing lots of smart people hoodwinked by Madoff. His accounting firm consisted of an absentee partner, a 13 x 15 ft office and one active accountant. A firm the size of Madoff's should have had a marquee name for an accountant. The news is crawling out about sophisticated banks and hedge funds who took money from their clients, collected a fee, handed the money to Madoff, and then skimmed fees on gains. (These are the folks that should have done due diligence--I'm not suggesting that the clients were stupid--they had every reasonable right to expect that their money was being funneled to a real company.) Here are a few (with source cited--click to go to story). You can also find an old Barron's article here.

  • BNP Paribas said its maximum potential loss on Mr Madoff’s funds was about €350m. (Financial Times "FT")
  • Spain’s Banco Santander said it had exposure of €17m, while clients of its hedge funds had €2.3bn at risk in Mr Madoff’s funds. (FT)
  • Royal Bank of Scotland £400m (FT)
  • Man Group (through its RMF hedge fund) $360m(FT)
  • Nomura Y27.5bn (FT)
  • BBVA, Spain’s second biggest bank, its clients face a loss of up to €300m and its international operations were facing a €30m loss. (FT)
  • Bramdean Alternatives $25m (FT)
  • Mr. Zuckerman, the chairman of real-estate firm Boston Properties and owner of the New York Daily News and U.S. News & World Report, had significant exposure through a fund that invested substantially all of its assets with Mr. Madoff (WSJ)
  • The Spielberg charity, the Wunderkinder Foundation (WSJ)
  • Mr. Spielberg (WSJ)
  • Fred Wilpon, owner of New York Mets (WSJ)
  • Norman Braman, former owner of Philadelphia Eagles (WSJ)
  • Carl Shapiro, founder and former chairman of apparel company Kay Windsor Inc., and his wife (WSJ)
  • Sen. Frank Lautenberg and his family foundation (WSJ)
  • Leonard Feinstein, co-founder of retailer Bed Bath & Beyond (WSJ)
  • J. Ezra Merkin, GMAC chairman (WSJ)
  • The Elie Wiesel Foundation for Humanity (WSJ)
  • Yeshiva University (WSJ)
  • UBS AG (WSJ)
  • Union Bancaire PrivĂ©e
  • Neue Privat Bank
  • EIM Group (WSJ)
  • Fairfield Greenwich Advisors Tremont Capital Management (WSJ)
  • Maxam Capital Management Ascot Partners (WSJ)


Anonymous said...

just to continue the thought....the GDP of the US is ~12Trillion / yr. Now imagine the whole country working for 2 months (= 2T bailout / 12T GDP), and then handing it blindly to Paulson & Bernanke, who essentially say "trust me". This in addition to the 3-4 months a year that we work to pay the existing taxes. Fasinating, isn't it?

Leisa, when you write the book on this financial episode, will it be offered under "history", "economics".... or "comedy"?


Anonymous said...

more follow up. Engdahl is an intereseting listen. Jim Puplava interviewed him back on 9/24/05 (and since we're talking broad themes here, the interview should not be too far "out of date"). Path = Financial > Broadcast > Guest Experts, and look for Engdahl in the chronological listing if this links doesn't post correctly / doesn't work: