Fire Sale Continues for American Homes

The fire sale of American homes continues unabated, according to the latest report of the Standard & Poors’ Case-Shiller Index.

All 20 cities measured by the Case-Shiller Index reported annual declines in June, with seven cities showing price drops of more than 20 percent.

The worst losses, both for the year and for the past month, were in the former boom regions in the West and Florida.

Las Vegas lead the nation with the most severe annual decline, with values dropping 28.6 percent in the past year. Prices in Miami fell 28.3 percent, values in Phoenix dropped 27.9 percent, and in Los Angeles prices fell 25.3 percent.

The cities with the least annual declines in home value were Charlotte (-1.0 percent), Dallas (-3.2 percent), Denver (-4.7 percent), and Portland (-5.3 percent).

San Francisco led the nation with the greatest loss from May 2008 to June 2008.  The cities with the biggest drop in the past month were San Francisco (-1.8 percent), Miami (-1.7 percent), Las Vegas (-1.6 percent), San Diego (-1.5 percent), and Los Angeles (-1.4 percent).

Cities showing the greatest price increases for the past month were Denver (1.5 percent), Boston (1.2 percent), Minneapolis (1.0 percent), Dallas (0.7 percent), and Cleveland (0.7 percent).

Given these catastrophic figures, we can take some small comfort in the belief that home prices must eventually stop falling.

After all, American homes can’t be worth zero.

Can they?

Ed McMahon Finds Solution to Beverly Hills Housing Crisis

We’re sure you’ve heard about Johnny Carson’s former “Tonight Show” side-kick Ed McMahon’s financial troubles and the near foreclosure of his Beverly Hills estate.

You’ve probably also heard the news that Donald Trump offered to buy McMahon’s house and let him continue to live there.

Now the news is that the home was sold, but not to Trump.  When the sale is complete, the McMahons will move on to live somewhere else.

The home was offered for $4.6 million, marked down from an original asking price of $7 million.  McMahon had apparently taken out a loan of $4.8 million to buy the home in 1990.  According to CNN.com, he was $644,000 in arrears.

The home is located at 12000 Crest Court, Beverly Hills, CA 90210.  According to the website of real estate agent Alex Davis, the house is 7,013 square feet and on a 14,736 square foot lot with ocean views.

The agent’s website notes that “The foreign imported doors and meticulously chosen fireplaces are unlike any other. The master suite with his and hers baths and closets, overlooks the yard and sweeping canyon.” 

It is an amazing home — and you can see pictures of the house here and here.

Just this week, the New York Times published an article on the trend toward real estate downsizing by the wealthy in Los Angeles.  The article focused on Candy Spelling, widow of the television producer Aaron Spelling, who is downsizing from a 56,500-square-foot French chateau-style home called The Manor (compete with a wine-tasting room, a bowling alley, a silver room, a china room and a gift-wrapping room) to a $47 million, 16,500 square foot condominium. 

Perhaps Ed McMahon read the article and thought “Gee, if Candy Spelling can move into a condo, maybe I can, too.”

It is nice to know that there is a solution to the Beverly Hills housing crisis.

UPDATE: Richard Simring Pleads Guilty — Set to Testify Against Ed Okun

Richard B. Simring, the attorney charged with mail fraud and money laundering in the 1031 exchange scam led by Ed Okun, has pled guilty and agreed to testify against Okun.

According to a report in the ABA Journal based on a story in the National Law Journal, Simring “entered the plea in July in the Eastern District of Virginia, but few were aware of the development… Simring has agreed to testify against the businessman, billionaire Ed Okun, as part of the deal, Simring’s lawyer, Brian Tannebaum, told the National Law Journal. Simring faces up to five years in prison.”

The article in theNational Law Journal provides a few more details:

“Simring took the plea deal, in which he faces a possible five years in prison and must testify against his former boss, before a grand jury could indict him, according to his lawyer, Brian Tannebaum of Miami’s Tannebaum Weiss. ‘He’s taking responsibility for what the government says he did,’ Tannebaum said. ‘He didn’t want to roll the dice and face… a jury’.”

“Facing 12 to 14 years in prison and having just become a father for the second time, Simring pleaded guilty, said Tannebaum. He’s agreed to testify against Okun and faces a maximum five years in prison.  Tannebaum said Simring — who has no record of Bar complaints or crime — regrets going to work for Okun. ‘If he had it to do all over again he wouldn’t make the same choices,’ Tannebaum said.”

“Simring has notified the Florida Bar of his charges and agreed to temporarily stop practicing law. The Bar will appoint a referee to determine whether to impose any disciplinary action, which sources say will likely mean suspension.”

A Simple Way to Avoid Getting Scammed

When we read CNN’s story about the FBI’s investigation of a massive Ponzi scheme operated out of the University of Miami, what struck us as most instructive was the statement from one of the scam’s victims that he had been promised an 18 percent return on his short-term investment.

The victim, Victor Gonzalez, said he put more than $3.5 million into the scheme.

Here is a simple rule to follow if you want to avoid being scammed:

Do not believe someone who promises you an 18 percent return on a short term investment.

“What You Get for…$1.00″ — The Housing Crisis Gets Crazy

The New York Times has a weekly real estate feature called “Property Values” that shows “What You Get for…” a certain a mount of money. 

This week the Times shows you “What You Get for…$10 Million” and it pictures palatial estates in Newport, Rhode Island, Kauari, Hawaii, and Whitefish, Montana.

But this week’s most interesting — and relevant — “What You Get for…” story wasn’t published in the Times, and the property isn’t situated in an up-scale locale.

The story was published in the Detroit News.

And the property — a cozy two story — is located in the foreclosure-ravaged Motor City.

It recently sold for $1.00 — after being on the market for for 19 days.

After reading the story, we tried an experiment. 

We went to realtor.com and looked up houses in Detroit.  For the minimum amount would put $0 and for the maximum amount we put $1000. 

The result was four more houses for $1, eight more for $100 or less, and a total of 172 properties at or under $1000.

Then we tried Cleveland, Ohio. 

The result was 10 properties available for $1 and five more for $1000 or less.

You can try the same experiment with other cities.  We think you’ll find similar results.

We noticed, too, that this example of America’s housing misery was providing aid and comfort to an old — and perhaps renewed — enemy.

The online edition of Pravda — which used to be the official newspaper of the Soviet Union and is now the official newspaper of Russia’s new bosses – put the Detroit Press story on the front page of its English language edition, just below the news about its shooting war in Georgia and South Ossetia.

Bankers Reject Free Market Ideology and Call for More Regulations and Protections for Investors

Free-market ideologues tend to blame most economic problems on government interference in the market.  And their response to economic crisis is invariably to call for the reduction or elimination of government regulations.

But free-market ideologues are usually pundits, professors, and politicians, and not capitalists themselves.

Real capitalists care less about ideology, and more about what is actually important — that is, capitalism.

That’s why it should come as no surprise that in the face of the potentially catastrophic crisis that is now gripping the banking industry, it is the bankers themselves who are calling for more, rather than less, government regulation.

As the Financial Times reports, “Many of the world’s biggest banks are proposing reforms that would limit the size and scope of their businesses in one of the most dramatic responses to the credit crisis. The proposals would hold down the number of investors who can buy complex financial products, bring large swathes of the derivatives markets into regulators’ sights and call on banks to spend more on technology and risk management.”

“Backed by banks including JPMorgan Chase, Merrill Lynch, Citigroup, HSBC, Lehman Brothers and Morgan Stanley, the proposals are being delivered to global regulators in the hope of producing rules for credit markets that would cut risk of contagion and restore confidence.”

Here is the story:  Last week, a panel of high-power bankers calling themselves “Counterparty Risk Management Policy Group III,” lead by Goldman Sachs managing director E. Gerald Corrigan, issued a report to Treasury Secretary Henry M. Paulson Jr. and Mario Draghi, chairman of the international Financial Stability Forum, calling for more regulation and governmental oversight of the banking industry and new standards for monitoring and managing risk.

The Washington Post reports that the bankers’ panel “suggested that big investment houses regularly perform ‘liquidity stress tests’ to measure their expected flexibility in the face of a crisis. It also urged firms to make sure they have accurate snapshots of their exposures to institutional trading partners, with the ability to compile detailed reports within hours.”

“In the current crisis, ’some of the worst failures were in risk monitoring, which was before you even got to risk management,’ Corrigan, a former chief executive of the Federal Reserve Bank of New York, said in an interview.”

Included in the panel’s recommendations is a prohibition on selling high-risk and complex financial products to anyone except “sophisticated investors.” 

According to the Financial Times, under the panel’s recommendations “even pension funds and other institutional investors would no longer be automatically allowed to buy bonds backed by assets such as subprime mortgages. All but the wealthiest retail investors would be barred from buying structured products, such as auction rate securities, a $330bn market used by municipalities and student loan providers to raise funds.”

Corrigan said “the ‘markets had been sandbagged by complexity’ and suggested the new rules would help ensure sophisticated financial products were only sold to investors with the resources and skills to understand and monitor them.”

We agree with the panel’s report and recommendations. 

It is long overdue that investors in financial products have at least the kind of “qualified investor” protections that exist under the Securities and Exchange Act — both for the sake of the investors and the stabiliity of the financial markets.

And it is good to see that real capitalists care more about preserving the world’s financial markets than about preserving some ideologically pure notion of free-market capitalism.

On other hand, in the short term, it would not be good for the economy if the banks used these recommendations as a rationale to further restrict the availability of credit to qualified borrowers.

The Rise and Fall of Richard B. Simring, Esq.

Richard B. Simring is not someone you would expect to be charged with conspiracy to commit mail fraud and money laundering in a multi-million dollar scam.

Simring was a rising legal star and a well respected leader in his community.

The son of an attorney, Simring was valedictorian at Hollywood Hills High School in Florida, a magna cum laud graduate of Princeton University in 1988 and a 1991 summa cum laud graduate of George Washington University Law School.  

Following law school, Simring served as law clerk for Rosemary Barkett, the former Chief Justice of the Florida Supreme Court.  He then developed a successful legal practice in the areas of insurance, banking, and securities, specializing in complex business litigation and winning multi-million dollar verdicts. He represented banks, insurance companies, and financial institutions in reinsurance and insurance disputes, bad faith claims, state and federal RICO actions, securities class actions and broker/dealer arbitrations.  He became a partner in the prestigious law firm Stroock, Stroock & Lavan and then in the law firm Jorden Burt.

Simring actively used his success to benefit others.  He was a prominent figure at Miami fundraising events; charities, schools, and professional organizations were proud to have Richard B. Simring on their side.

He served as Chairman of the Board of Voices for Children Foundation, Inc., a Miami charity that raises money to advocate on behalf of abused and neglected children. He often spoke to legal and community groups about representing abused children in court.  He contributed to the Miami Lighthouse for the Blind, and he served on the board of directors for Educate Tomorrow, an international charity that works to make education an attainable goal for the disadvantaged in Miami and throughout the world, with particular efforts in the impoverished African nation of Niger. He took an active part in Princeton alumni organizations. He donated money to his law school and served as a volunteer on its advisory board of directors. 

Then he met Ed Okun.

According to the federal indictment, Simring first came into contact with Okun in November 2006, when Okun consulted him about legal issues involving the transfer of client funds in Okun’s 1031 Tax Group LLP (1031TG), a 1031 exchange qualified intermediary scam operated by Okun. 

The indictment does not claim that Simring knew that 1031TG was a scam, or that Simring thought that Okun wanted anything other than legitimate legal help in making sure that his activities were lawful. 

In fact, the indictment states that Simring conducted a legitmate and independent investigation of Okun’s activities with 1031TG and told Okun that they were illegal and needed to be halted until the exchange agreements were changed to allow the transfer of client funds and there were sufficient assets to cover client exchanges as they came due.  Simring also told Okun that doing this would not rectify what Okun had done in the past, but only reduce the liklihood of criminal charges.  Okun told Simring that he would follow his advice and change the exchange agreements and pay back the client exchange funds.  Simring then told Okun that if he failed to do this, he would probably go to jail.

A month later, Okun hired Simring as the Chief Legal Officer for Okun Holdings.  Simring was to be paid a salary of $850,000 and given a signing bonus of $100,000.

The indictment then alleges that in March 2007 Simring became aware that Okun had not followed any of his advice and was continuing to transfer millions of dollars from client exchange accounts into his personal bank account.  Simring also learned that 1031TG was on the brink of insolvency. Simring then “confronted” Okun. Okun assured Simring that he was fixing the problems and was in the process of paying back 1031TG.

By April 2007, the financial situation of 1031TG had become dire and Okun’s scam was on the verge of coming part.  1031TG was no longer able to fund exchanges or pay back clients. And the people whose money Okun had taken were calling and demanding explanations.

This appears to be the point at which Simring went from being Okun’s attorney to his co-conspirator.

According to the indictment, Simring now participated with Okun and others in lying to clients, telling them that their funds were secure.  Now also Simring apparently joined Okun in attempting a “holding action” against client inquiries and complaints, including making “lulling” payments to clients with money misappropriated from other clients.

In late April 2007, 1031TG’s CEO resigned and Okun appointed Simring as interim CEO.  Okun then directed Simring to transfer approximately $8,000,000 in client funds into Okun’s personal bank accounts.  According to the indictment, Simring complied.

Three days later, Simring resigned.

Why did Richard Simring become a co-conspirator of scammer Ed Okun?  Why didn’t he walk away once he learned that Okun wasn’t following his advice and continuing to engage in criminal activity?

Perhaps it was the money — although it seems that Simring had no trouble making money legally.

Perhaps he was caught up in his client’s bunker mentality once it was clear that the enterprise was collapsing.

Or perhaps Simring fell under the spell of Okun’s swindler charm.

We will likely never know why Richard B. Simring, Esq., legal star and community leader, appears to have thrown away his career, his honor, and the respect of his colleages and community.

He may not know himself.

UPDATE:

Read Richard Simring Pleads Guilty — Set to Testify Against Ed Okun.

UPDATE:

Read Wachovia Sued for Millions in 1031 Exchange Fraud.