Irene Similar To Katrina?

Hurricane Irene threatens the mid-Atlantic coast, including New York City, the New Jersey shore and the Long Island shore -- each with barrier islands at huge risk -- with a storm surge expected in some places that may make it comparable to 2005's infamous Hurricane Katrina. 

This breakdown from the Wall Street Journal shows that some places, like the area near the mouth of the Raritan River in New Jersey, the south shore of Long Island and parts of New York Harbor including downtown Manhattan, may see storm surges of 18 feet.  Katrina had a 24 foot surge in southern Missisippi and made landfall as a Category Three hurricane. 

This shows that the Saffir-Simpson wind scale for hurricanes does not correlate wind speed with storm surge danger.  This is important, because the storm surge is often the greatest danger to both property and life. 

Already, Irene has produced a water level at the Chesapeake Bay Bridge-Tunnel at the level of the previous record high set during Hurricane Isabel in 2003.  

From the latest National Hurricane Center advisory at 9 pm Saturday: 

THE PRELIMINARY WATER LEVEL AT THE CHESAPEAKE BAY BRIDGE TUNNEL HAS RECENTLY PEAKED NEAR THE RECORD LEVEL THAT WAS ESTABLISHED DURING HURRICANE ISABEL IN 2003.

Elsewhere in the same advisory, we are told:

STORM SURGE...AN EXTREMELY DANGEROUS STORM TIDE WILL RAISE WATER
LEVELS BY AS MUCH AS 5 TO 9 FEET ABOVE GROUND LEVEL IN THEP HURRICANE WARNING AREA IN NORTH CAROLINA...NEAR THE COAST...THE SURGE WILL BE ACCOMPANIED BY LARGE...DESTRUCTIVE...AND LIFE-THREATENING WAVES.

As this graphic shows, all the aforementioned coast areas are rated as being subject to a near-certainty of a two-foot storm surge.  

Eric Dixon is a New York lawyer who handles crisis management and investigative matters.   

Why Hurricane Irene Is Dangerous

Hurricane Irene is a Category One hurricane on a wind velocity scale, but its storm surge damage potential is graded at 5.0 on a scale of 0 to 6.   This Wall Street Journal article helps explain why Irene is considered more dangerous -- and why authorities have reacted stronger than one might expect if looking only at the wind velocity -- than most hurricanes which have winds of a Category One.

In particular, note the following passage:

Most importantly, because of its large size, the intense central pressure of the storm is more typical of a Category 2 or 3 hurricane. An experimental product from the National Hurricane Center has rated Irene at 5.0 on a 6.0-point scale for its potential to create damaging storm surge and waves. These are values seen more typically in Category 4 hurricanes, meaning Irene is extremely dangerous.

That damaging potential, combined with Irene’s arrival at what might be exceptionally high tide, is a major reason for the mandatory evacuations of low-lying areas across the New York and New Jersey.

SUNY/Stony Brook has an experimental product that is tracking and forecasting storm surges in and around New York City that is worth your attention.

And a quick observation from both New York and across the Hudson River in New Jersey:  Traffic since about 3 pm has been remarkably light, almost at a pre-dawn level.  Many cars that are traveling are delivering food. 

Eric Dixon is a New York lawyer and 1994 graduate of Yale Law School who specializes in litigation stress management and crisis management for clients including political candidates. 

Hurricane Evacuations Not Hype As Media Ignores Storm Surge

Hurricane Irene's classification as a Category One hurricane is misleading and understates the danger from the storm surge that it will produce.

The primary danger from Hurricane Irene will be the storm surge.  The second major danger will be the massive rainfall and associated flooding.  Each of these factors will hinder the ability of emergency responders to get to people with medical emergencies -- and justify evacuations.  Indeed, the storm surge is the primary killer from most hurricanes hitting developed areas.  (In undeveloped and mountainous areas like in parts of the Caribbean, the primary killer happens to be mudslides.) 

The wind factor is only third on the list of severity, in my opinion.  This is why Irene remains a major danger, even as a Category One hurricane that may not even be a hurricane by the time it passes New York City.  (See this chart showing the single-digit percentage chances of hurricane force winds striking Atlantic City, New York City and Montauk Point, NY.) While Hurricane Irene is only a Category One hurricane, that classification refers only to its wind potential. (Indeed, the categories now only refer to the wind scale.)  The system is barely a hurricane as of mid-morning Saturday. 

Hurricane Irene has led to unprecedented evacuations of low-lying areas of New York City.  This is not media hype nor the misguided policy panic of public officials who were justifiably embarrassed by their absence (or incompetence) during prior weather disasters. The evacuations are justified because of the very likely serious flooding from storm surges as Hurricane Irene pushes water from the Atlantic Ocean, and Long Island Sound, into and over the shores of New York City and the New Jersey barrier islands.

These evacuations recognize that anticipated and even moderate storm surges will easily flood those areas, like the entire Coney Island peninsula, the Broad Channel island in the middle of Jamaica Bay and the Midland Beach and South Beach neighborhoods of Staten Island.  Having walked each of those neighborhoods at some point, I know that those areas are no more than a few feet above sea level.  (And people live on Broad Channel, they're a hardy bunch, some even walk upright.)   A mild surge -- a certainty with any landfalling hurricane pushing water off the ocean -- will overrun the shore.  Once streets are flooded, emergency responders will be unable to reach people in distress.  The evacuations help ensure that needed emergency treatment for evacuees can be provided.  Think of the women in childbirth, the possible heart-attack and cardiac victims.  If roads are flooded or otherwise impassable -- like in this past winter's infamous December blizzard in New York City (26 inches of snow) -- emergency medical technicians will not get to those people in time.  

Bad Insurance and Hurricane Damage

As cataclysmic Category 2 Hurricane Irene aims at the crowded shore areas of the New Jersey and Long Island shores and threatens to invade 212 territory (that is, Manhattan), many of the Northeastern United States readers out there should be mindful of the serious property damage you are about to sustain. Here are some precautions you can take right now.

First, secure your property. This means exclusively concentrating on potential airborne objects outside.

Second, worry about important objects in your attic space or top floor that you need to keep safe. If your roof is compromised by the hurricane or a tornado it spawns, that top floor may get ruined. Using the attic for storage may not be the brightest idea anymore.

Third, worry about those important items in your basement. If your home is floodprone, consider moving these items -- or accepting their loss.

Fourth, look for your homeowners' insurance policy. Locate both the rate sheet (usually a one-page form) and the actual contract that forms the policy. You'll need these if there is any dispute or delay with an insurer on payment or coverage.

Fifth, if time and safety permit, photograph your property. You need "before" pictures in order to demonstrate the extent of the storm damage. An insurer will challenge you on a claim of storm causation. Be prepared.

Once the storm passes and it is safe to venture outside (and watch for fallen wires and glass), take photos of the damage before you clean anything.

You should promptly -- if not immediately -- call your insurer to report damage and pursue a claim. Hiring a lawyer may be an excellent step at this point. A lawyer can speak on your behalf and thereby prevent the insurer from claiming that you make certain statements, called admissions, which it will use (however falsely) to try to deny or delay your claim or convince you to give up.

Remember that the insurer is not your friend. Insurance is a business, for which the profit is the spread between collected premiums and payouts on claims. The insurance industry is not in business to protect you, although that is what they want you to believe. The insurance business is not selling you protection; it is selling you peace of mind. Accordingly, the insurer has every motive to deny, challenge, reduce and delay claims.

(Eric Dixon is a New York lawyer.)

Eric Dixon
Eric Dixon LLC
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Third Party Called Likely For 2012 Presidential Race

The noted Democratic pollsters Pat Caddell and Doug Schoen predict in this Wall Street Journal op-ed, to be published Thursday, the rise of a serious third-party presidential bid in 2012.

As a veteran election lawyer who started his political career planning petition drives and legal compliance for  independent Ross Perot's presidential campaign in 1992, I know first hand the practical obstacles to even getting on the ballot in all 50 states, much less to running a serious campaign that successfully attracts measurable support.

The common objection to a third party candidate is the refrain that any vote for him (or her) is a "wasted vote."  However, Electoral College mechanics change the dynamic.  The candidate may not gain electoral votes -- he or she must win states outright, with some exceptions -- but a strong third-place showing can tip the race in some states and certainly accumulate overall popular vote totals that will be impressive.  Perot got 19 percent of the popular vote in 1992 but no electoral votes.  However, Perot nearly finished second in some states where incumbent George H.W. Bush ran weakly.

Unlike a conventional campaign measured on straight popular vote, the Electoral College means that a presidential campaign is really 51 distinct campaigns.  (Remember the District of Columbia.)   Many states which are clearly red or blue are not contested with the outcome considered safely beyond doubt.  In such states, a protest vote gains quick appeal from the disgusted segment of the electorate.  Moreover, the presumptive winning side will encourage (however covertly) such a protest for the dual reasons of ensuring victory and capturing the state's electoral votes, and for the long-term strategy of weakening the opposition party in the state in order to enhance victory prospects in future races.  Hence, a credible protest candidate does have a serious opportunity to do very well at the polls; a showing in the low teens is not out of the question for a credible candidate.  (Heck, even a nut can approach ten percent. See the case of the single-issue fringe 9/11 conspiracy theorist Jeff Boss, who challenged then-incumbent Governor Jon Corzine in the Democratic Party primary and got eight percent of the vote.)

Remember, though, that a weakened incumbent President Obama and a possibly less-than-inspiring Republican nominee may give much of the electorate a longing for a Someone Else.   Into such a charisma void a serious challenger may enter and emerge with a serious chance of gaining a plurality of votes in a state and taking its electoral votes.   There is precedent for this; just see the last-week emergence in November 1998 of former wrestler turned Minnesota Governor Jesse Ventura (original name: James Janos), who beat two decidely lukewarm and uninspiring major-party candidates.

Eric Dixon is a New York election lawyer and veteran of approximately two dozen political campaigns.  Mr. Dixon handles crisis management and litigation stress management for clients. 

Irene's Impact on New York

Tracking this potentially dangerous hurricane.

Accuweather(TM) forecasts New York City to sustain tropical storm force winds (meaning sustained winds of between 39 and 73 mph). More troubling is the expectation of four to eight inches of rain.

New York City typically receives less than four inches of rain in August. This year it has received more than 11 inches at Central Park.

Hurricane force winds (74+ mph sustained) and the same four to eight inches of rain are expected for coastal cities like Virginia Beach, Atlantic City, Boston and up to Portland.

Storm surges should be two to four feet above normal but isolated locations may sustain higher surges based on particular geographic features like the shape and depth of the continental shelf.

Previous rainfalls have made ground saturated, and additional rain plus sustained hurricane force winds should pose a major threat for downed trees.

(Source: http://www.accuweather.com/blogs/news/story/54021/expected-wind-rain-surge-with.asp.)



Eric Dixon
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Hurricane Irene Aims For New York Sunday

New York City will sustain 12 hours of tropical storm force winds (with gusts to hurricane force) starting about noon Sunday, according to current National Hurricane Center forecasts (http://www.nhc.noaa.gov) tracking Hurricane Irene.

Irene is presently a Category 3 hurricane with sustained winds of 115 mph.

Irene's track continues to be revised eastward. Earlier forecasts predicted a landfall along the South Carolina coast, then the Outer Banks. Now the storm is predicted to skirt the New Jersey shore Sunday morning and probably make landfall near Cape Cod. (Just as I predicted earlier...see my earlier post on Irene.)

The forecast also predicts New York City to be hit with northerly winds, meaning we will be on the western end of the storm. As a large system, Irene will hit us with strong winds well after its center passes.

The approach of Irene imperils the annual Bronx Half-Marathon currently scheduled for 7 am Sunday morning. This will add to the growing list of road races (and the earlier-this-month NYC Triathlon) held in stifling humidity that endangers competitors. It is, however, too early to cancel the race; that is a judgment call probably best left to Saturday. The "tipoff" for a race cancellation should be if New York City's Office of Emergency Management requires police officers to do extra shifts for storm preparation, public safety and even evacuation activities. (Many areas of the City are low-lying and near enough to the coastlines of various rivers that even a "mild" hurricane approach and storm surge could be problematic.)

However, even a slight 100-mile deviation in track can be the difference between sustained hurricane-force winds, and merely a breezy and oppressively-humid Sunday.

In other words, be prepared for the worst, but do not be surprised if "at the last minute" a course change means Sunday is a halfway-decent day.

Also be prepared for a challenging Monday morning commute if Irene causes flooding (for the reasons given above), electrical problems or widespread road and track blockages from downed trees.

Eric Dixon
Eric Dixon LLC
World-Class Strategic Analysis
917-696-2442

Virginia Earthquake Rocks East Coast

Initial...breaking...US Geological Service estimates tremor at 6.0 Richter scale shortly before 2:00 pm. 

Stock markets in NY remain open but off their highs of the day.

Tremor felt in DC, NY, Detroit.

Is Blankfein Under Investigation?

Is Goldman Sachs CEO Lloyd Blankfein under criminal investigation?

Reuters first reported that Blankfein has hired noted white-collar defense lawyer Reid Weingarten. (Read this Bloomberg News report.)   But why?

This is a development that strongly indicates that Blankfein is individually involved in either a regulatory matter targeting him individually, or a criminal investigation, and that in either case, his interests diverge enough from those of Goldman Sachs to necessitate (either by legal ethics rules governing conflicts of interest, or practicality) Blankfein getting separate counsel to represent his personal interests.  A regular civil suit would be handled by Goldman's own lawyers. 

Months ago this blog speculated that Blankfein might be the subject of a criminal investigation; see "Is Lloyd Blankfein a Crook?" from March 2011.  And back in 2010, right after Blankfein testified before a Senate subcommittee, I expressed major reservations about the wisdom of saying anything to Congress. 

Is Blankfein a "witness," or a "target" of an investigation?  Does this stem from that questionable Senate testimony?  Time will tell.

Eric Dixon is a New York investigative lawyer with extensive securities law and election law experience.

Eric Dixon
Eric Dixon LLC
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Rape Charges Dismissed Against IMF Head

Manhattan DA Cyrus Vance moves to dismiss criminal indictment against Dominique Strauss-Kahn regarding alleged sexual attack at Hotel Sofitel.

Eric Dixon
Eric Dixon LLC
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Hurricane Irene Headed For New York, Mid-Atlantic

New computer runs earlier this afternoon predict that Hurricane Irene will be just 100-150 miles off the New Jersey coast by next weekend. A direct hit on Long Island -- which has not had a hurricane make landfall there since Gloria in 1985 -- is a distinct possibility.

(See http://www.wunderground.com/tropical/tracking/at201109_model.html)

UPDATE 8/24 1 AM: This storm is behaving in a way that really reminds me of 1985's Gloria.  Why am I thinking a direct hit from a Saffir-Simpson Category 1 Hurricane Irene on Sunday will happen?

(PS:  National Weather Service predicts 55 mph gusts at New York's Central Park for most of Sunday.)

The official National Hurricane Center forecast, 120 hours out, predicts the center of Hurricane Irene will be over Long Beach, NY at 8 pm Sunday night.   However, as the storm track has been generally moving to the right of the guidance envelope -- the composite of all the model tracks for the storm's movement -- I expect the actual track to continue shifting eastward and away from the New York / Mid-Atlantic coast.  Perhaps a direct strike on Cape Cod will be more likely.

Other runs suggest a direct hit on the Carolinas by the end of this week by Irene, which should be a Category 3 hurricane (meaning sustained winds of more than 115 mph) upon landfall.

All interests along the Atlantic Coast should monitor Irene's continuing development and movement.

National Hurricane Center website: http://www.nhc.noaa.gov.

Eric Dixon
Eric Dixon LLC
World-Class Strategic Analysis
917-696-2442

Mortgage Delinquencies Grow: Why Housing Is Going To Zero

CNBC reports mortgage delinquencies are growing after the last few quarters showed declines. (See http://www.cnbc.com)

I have long maintained that there are many factors contributing to continued housing market weakness, and that these factors persisted despite the claim that foreclosure declines indicated a bottoming-out of the housing decline.

The well-chronicled robosigning scandal involving the nation's largest banks and some prominent foreclosure law firms (like the not-yet-indicted David J. Stern) resulted in judges looking askance at court motions that they previously rubber-stamped. This evidently caused the short-term foreclosure filing backlog, not the hoped-for, illusory recovery.

There remain major economic factors plaguing the real estate market. These factors include, in no particular order:

1. Tight and tightening credit as banks ask for higher (20 percent at least) down payments and continue to reject many borrowers altogether.

2. Declining buyer demand, a result of the combination of flat real incomes, persistent high real unemployment (see the Labor Department's U-6 measure of nearly 17 percent) and overall falling confidence in the economic future.

3. An unseen, but palpable, housing glut from homeowners who want to sell and will list their homes once they sense a recovery.

4. Existing in-pipeline foreclosures which reduce valuations, discourage some listings (but see item 3 above, they show up anyway) and further depress price offers; and

5. Declining appraisal prices on the basis of both overly-conservative appraisals from appraisers fearful of being accused of negligence, incompetence or misconduct for misappraising properties, and pressure from banks to be conservative.

A buyer today is likely anticipating future price declines of at least ten percent from whatever they pay. That number is, of course, at a discount from the seller's list price.

But watch the banks. They may cry poverty but they know how to make money. When they ask for 20 percent down, that means they think the value could drop by that amount. They are not in the business of losing money through aggressive lending. It's not 2006 anymore.

Eric Dixon
Eric Dixon LLC
World-Class Strategic Analysis
917-696-2442

Emotional Intelligence and Detecting Deception

It amazes me how some apparently smart people seem disproportionately vulnerable to scams, deceptions and crime.

Many of these victims are book-smart. They will ace a standardized exam, and easily could be Mensa members. Yet these same people often exhibit signs of extreme gullibility, social awkwardness, performance anxiety and a tendency to say situationally-inappropriate things. (As to the last item, these things may sometimes be construed by the audience as deliberately, intentionally offensive comments.)

These people are vulnerable in professional and business settings. They can be taken advantage of, fooled easily, duped easily and ripped off. They are, in short, prime pickings for a scamster. Even worse, should they fall victim to a crime and end up testifying in a deposition or open court, they are likely to endure questions along the lines of, "If you're so smart, how come you didn't know..."

In some of my matters I have encountered people who show what I call "markers" for high vulnerability. While these people are fun -- no, they are roll-on-the-ground hilarious -- for their inability to detect the wryest of wry, dry humor, on a serious level they can be extremely susceptible to being deceived in an ordinary workplace environment. Should the deception involve the misconduct, or criminal act, by another, the hapless person can end up becoming an unwitting accessory to a wrongdoing or crime. In such cases, the person's intelligence and credentials work against him, for those intellectual attributes negate the "reasonable doubt" as to his non-involvement or ignorance of the deception.

Can you see now how the theme of "oh, he's a smart guy, how could he not have known" will work against him?

This is how entirely innocent people get "set up" and falsely implicated. And the fraudster -- who was already skillful enough to engage in the fraud to begin with -- may then be able to commit a second fraud, that of falsely shifting the blame to an unwitting dupe.


Eric Dixon
Eric Dixon LLC
World-Class Strategic Analysis
917-696-2442

Roubini: Should Tea Party Blame Bush For Deficit?

Sometimes history has to be set straight.

Noted economist Nouriel Roubini says in this televised interview that it was former President George W. Bush, and not current President Barack Obama, who bears the blame for the large federal government budget deficits and, by extension, the exploding national debt.

Remember the budget surpluses of the Clinton years?  (Again, to correct the record, the influence of both the Republicans who won in 1994 as adherents of the Contract with America, and the deficit pie chart warnings of 1992's 19%-of-the-popular-vote presidential candidate H. Ross Perot  must be noted.)  Bush came into office with a budget surplus, and left with a 2009 fiscal year projected deficit of $1.23 trillion.  All the bailouts and huge government giveaways -- being paid for directly by all of us and indirectly by our descendants -- began under Bush 43.   The notorious Troubled Asset Relief Program (TARP) was conceived by Bush and enacted by a friendly Congress weeks before the 2008 presidential election.

When commentators -- and many Democrats -- try to tie in the Tea Party movement to the Republican Party deficit hawks, they ignore these facts.  The Tea Party movement did not spontaneously arise in the first six weeks of the Obama Administration.   The deficit hawks were there since Perot's 1992 run. This significant sector of the American population -- which is disproportionately fiscally conservative in personal affairs and entrepreneurial (owning or managing businesses) -- has been fearful of the fiscal day of reckoning when the bills for the accumulated debt come due.

For these reasons, the politicians, campaign consultants and news media who consider the Tea Party to be the handmaidens of the Republican Party continue to be dead wrong.  (Exhibit A: Look at the threatened Tea Party-inspired primary challenges awaiting first-term Republican Allen West from southeastern Florida.)  There are bogus Tea Party organizations which are ultra social conservative and are using fiscal concerns as a cloak of legitimacy; call this "evangelical" conservatism in drag. 

There are undoubtedly many Tea Party organizations which are Republican Party subsidiaries -- and that's just how politics is played.  Co-opting popular movements is part of the game.  But the legitimate Tea Party organizations which care about fiscal prudence are independent from the Republican Party.  These groups and their members are no sure thing to vote Republican, and they form a ready base for the formation of a legitimate third party.

Eric Dixon is a New York election lawyer and political strategist who has previously advised the presidential campaigns of H. Ross Perot and Steve Forbes, as well as numerous other gubernatorial and congressional candidates. 

 

Dorm Webcam Suicide Case: Updating The Defense

Some new details emerged late this week on the criminal case against Dharan Ravi, the Rutgers University freshman indicted for alleged misuse of a laptop webcam to distribute video of fellow freshman Tyler Clementi's romantic same-sex encounter in their shared dorm room.

Crime, Politics and Policy expressed skepticism about the wisdom of prosecutors' pursuit of a criminal case way back in October 2010, just weeks after Clementi's suicide, and was at the forefront on questions about the "other man" in the affair in another October 2010 article.  This blog also was early in bucking the popular trend to criticize the rush to judgment in this case.  

Among the details is the revelation that Tyler Clementi was unhappy in perceiving his mother as not being supportive of -- or rejecting altogether -- him after he revealed his homosexuality.  That is an interesting twist.  It is likely that the real -- and unspoken -- reason behind the investigation and prosecution of Dharan Ravi and his friend Molly Wei (who plead guilty to minor charges earlier this year and got a non-custodial sentence) is that Tyler jumped off the George Washington Bridge, and by gosh, someone just has to pay for that and blaming two other students for his death is considered to be acceptable collateral damage. 

As I opined way back in September 2010, days after the tragedy, where were the people closest to Tyler when he needed them? 

And why did Tyler Clementi's mother -- knowing that she was not supportive of her own son's sexuality -- not come forward and stop the mad rush to judgment regarding Dharan Ravi and Molly Wei?  Why did she allow politically-ambitious prosecutors (pandering to a key political constituency) the moral high ground to ruin the lives of two very young people?  

Where was Mom?

ObamaCare Individual Mandate Unconstitutional

Breaking

The 11th Circuit federal appellate court out of Atlanta has just struck down the dreaded individual mandate portion of Obamacare on the grounds that Congress did not have the authority to enact that provision. The mandate would force Americans -- with rare exceptions for religious objectors and undocumented aliens -- to enroll in a government-approved health insurance plan or face financial penalties and, at least theoretically, some risk of incarceration for non-compliance.

An appeal by the Obama Administration to the U.S. Supreme Court is all but certain.

The rest of ObamaCare can stay in effect under this ruling.

A link to a news report is available at http://www.cnbc.com/id/44121909. More to come: over the weekend I will try to find and post the opinion.

Eric Dixon
Eric Dixon LLC
World-Class Strategic Analysis
917-696-2442

Fix Housing With More Foreclosures

The Obama Administration is soliciting proposals on how to convert foreclosures into rental properties. Being that some of us are housing experts by dint of our maintaining houses, let's address this issue.

It helps to clarify the real problem with residential real estate. It is its sharply declining value -- both the decline since 2006-07 and the next drop which I predict is likely due to a perfect storm of a glut of supply, eroding purchasing power, increased down payment requirements and generally reduced credit. Declining prices and eroding equity are the prime symptoms of this problem.

Any "solution" should recognize the problem and then move towards the solution, which implicitly involves some sort of government intervention to support existing -- or in reality, past -- real estate prices. The objective, from this perspective, is to preserve the asset value of current homeowners.

A true and objective view of real estate must question all tenets, including the maxim that real estate is undervalued. It is possible real estate was overvalued since the mid 1990s (in other words, for several years before the now-accepted "bubble" period), and that it may still be quite overvalued now! One knows not what "true market value" is, but remove all the artificial props and we will find that out...much sooner. The sooner real prices revert to their true free market norm, the sooner you have the conditions that foster genuine buyer demand.

Prospective purchasers will make an offer for a property when they perceive real value and a good deal.  This does not mean buying a home for 50 cents on the dollar, but it does mean having a fair confidence that prices will not continue to deteriorate for a considerable period after the purchase.   The latter condition is prevalent now and requires smart buyers to discount their offer price to factor in an anticipated future decline of anywhere between 10 percent off the current "fair value" and...whatever...the race is to zero. 

To get to a true "fair value" one must remove all government price supports, whether through favorable regulations, imposed moratoria on foreclosures, special subsidies for the FHA to allow it to subsidize or support homeowner mortgages, or temporary tax breaks. All of these supports involve encouraging purchasers to spend someone else's money and foster artificial price inflation on the theory that buyers will not mind knowingly overpaying when they are spending someone else's money.  All such supports involve a direct or hidden cost, benefitting prior purchasers, upon everyone else. These supports act in essence as wealth transfers from the taxpayers -- too often, those who cannot yet afford a house, and disproportionately young and poor -- to the homeowner class which is, more often than not, better off than its non-homeowning benefactors.

In short, real estate price support is inherently discriminatory against non-owners. It is a subsidy of the class who bought houses...often above and beyond their reasonable means...courtesy of those who often were reasonable, played by the rules and now must pay so others can enjoy what they themselves cannot.

However, such price supports do not help true price recovery.  They delay it.  In fact, if NO effort had been made to support housing in 2008, both the housing market and overall economy would have recovered by now. Instead, because of political considerations, the problem has been deferred, delayed and nibbled at, prolonging the agony of millions of unemployed, underemployed and others.

Real prices and values must be reached and re-established. Only then will true appreciation occur. Otherwise, all growth than occurs without hitting such values will be illusory.

Now, as to the Obama Administration's proposal, it would convert existing homes upon which payments are not being made into rental properties generating a modest income stream. This might stop foreclosures...but foreclosures themselves are not the problem with falling values. A foreclosure helps hasten the drop to true value. Preventing foreclosures, therefore, only stops the changeover in residents; however, any effort to keep nonpaying residents in a home is inherently inefficient and will destroy all value. You see, it sends the message that some -- the deadbeat class - can enjoy without paying for what other must sacrifice for. The lowest payment price -- the zero put up by the strategic defaulter -- becomes the default value...that is, zero. (See my earlier articles in the series, "Housing Going To Zero".)

All real estate that has value must produce a current "income" in one of three ways: income to the bank holding a mortgage, income to the landlord collecting rent, and income to the homeowner who owns the place free and clear and thus has income in the form of savings. The value emanates from the income -- and also from the aesthetic benefits of a nice home which get reflected in the price. Once a nonpaying resident gets "income" by being allowed to live rent-free, that reinforces the concept of real estate as not being something that can, or should, produce income. This diminishes the value of the real estate by uncoupling it from its income-producing potential.

Preventing foreclosures is a goal accepted as such wisdom that it is virtually a sacrament. We should do the opposite. Hastening foreclosures (done properly and legally) should be the proper objective. That would reaffirm the value of real estate's income potential, and the value of homeowners' obedience to their contractual obligations. While foreclosure sales are not desired because of the often-underwater sale prices, these houses most often would never reach the foreclosure stage if there were multiple bidders at a higher price.

The final concern over the Administration proposal is that it makes the government the de facto receiver of all these properties. The Administration's competence to generate, collect and preserve the income from these properties -- or select someone to do the same -- is far from proven. In all likelihood, the income potential of these properties will decline. As price is a multiple of income, the death spiral will be in place. We will have the same outcome that the Administration has purported to want to avoid.

Eric Dixon is a New York investigative lawyer with a background in securities and corporate law, election law, corporate governance and government and corporate investigations.  

Roubini Calls For Mortgage Principal Reduction

Noted economist "Dr. Doom" Nouriel Roubini is calling for an "across-the-board reduction on the mortgage debt for the roughly half of America's households that are underwater," as part of the "orderly debt restructuring" he says the nation needs in order to address its crises of solvency and liquidity.

The full article is available at http://www.cnbc.com/id/44055868

Eric Dixon
Eric Dixon LLC
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Tea Party Keeping USA From Junk Bond Status

Here is an interesting piece from CNBC's Rick Santelli, who calls out Senator John Kerry for blaming the Tea Party movement for the S&P downgrade of Treasury debt.

Kerry, it might be noted, has little expertise in anything economic besides being one of the 57 varieties of golddigger, together with his wife Teresa Heinz Kerry.  Her now-middle name "Heinz" is taken from the surname of her late first husband, Massachusetts U.S. Senator John Heinz, who was killed in a plane crash in the 1980s.  Heinz is an heir to the Heinz ketchup fortune.

One Dead in NYC Triathlon; Humidity The Killer?

In an athletic tragedy, a 64-year-old triathlete died today during the early portion of the New York City Triathlon. 

While extreme sports can tax and endanger even well-trained athletes in their 20s, one must note the extraordinarily humid conditions in which the race was conducted.  As this chart shows, official weather records showed a tropical-level dewpoint (the measure of evaporation) in the mid-70s.  The temperature was only in the mid-70s, but the humidity was in the high 90s.  The dewpoint was nearly equal to the temperature, a signal of extreme saturation of the air with moisture and an indication that any perspiration will not evaporate off one's skin into water-saturated surrounding air.

In such conditions, race participants -- of any fitness level -- should exercise extreme caution.  One rule of thumb among experienced marathoners (such as myself) is to put the stopwatch away on such days or nights.

The physiological effect of these weather conditions can be explained in plain English as follows.  Such high dewpoint levels severely inhibit, or prevent altogether, one's ability to release heat through perspiration because the perspiration that is released will barely evaporate.  The saturation of one's sweat glands will inhibit the cooling effect of perspiration and result in one's core temperature rising.  If the surrounding temperature is above room temperature -- and Sunday morning's conditions were in the mid-70s -- physical exertion will elevate one's core temperature; the dewpoint will block the cooling process and help magnify the heating, leading to a potentially dangerous situation.

In drier conditions, one can exercise much more strenuously at much higher temperatures, because the lower dewpoints will readily allow for efficient evaporation of released perspiration.  From experience, it is easier -- but not recommended at all -- to run for distance on a dry 90 degree day than a very humid 70 degree day.

One should note, however, that the deleterious impact of high dewpoints falls once the surrouding air temperature is below room temperature.  A mere ten degree difference, from 75 degrees to 65 degrees, makes a world of difference in  terms of allowing the body to cool.  That is to say, a humid day at 60-65 degrees permits efficient exercise, because even with inhibited perspiration one will retain heat comfortably when the surrounding air is still below room temperature.  On such days or nights, the moisture acts as insulation to a certain degree (although improper clothing that inefficiently wicks moisture away from the skin may result in one's skin cooling to an uncomfortable degree) and the below room temperature means it is  hard to overheat.  Once the surrounding temperature is above room temperature, the high humidity quickly presents the danger of overheating.

One cannot speculate as to the reasons for this contestant's death.  However, the weather conditions before the race were such as to present the possibility of dehydration before the race and without exertion. 

From personal experience, it is very difficult to run any race, at any distance and in any condition, once the temperature is above 70 degrees and the dewpoint is in the 60s or above.  (A good rule of thumb is to add the temperature and the higher of the relative humidity or dewpoint; I think once the sum is over 140, be very careful and don't hesitate to scale back.)  

The often-warm and humid conditions in late October prompted the organizers of the New York City Marathon to push that race's dates back from the third Sunday in October to the first Sunday in November.  Many marathons are routinely run on days and at times designed to get a race-time temperature of between 40 and 60 degrees. 

I do not fault the organizers of the New York City Triathlon for what happened today.  From news reports, this contestant died shortly after competing in the swimming portion (a 0.9-mile portion) which started the race.  This was to be followed by the 25-mile biking portion and then a 6.2-mile run.  None of these segments, in my opinion, pose a particularly grueling test -- the Hawaii Ironman Triathlon this was not.  However, the increasing prevalence of high-humidity conditions with 70-plus dewpoints, even at sunrise, calls into question whether future long-distance endurance races in any sport are a good idea during the months of July and August.

Eric Dixon is a New York investigative lawyer and experienced marathoner who has completed seven marathons and numerous shorter races.

Subprime Nation: Assets Could Be in Free Fall

Friday's downgrade of Treasury debt by Standard & Poor's may lead to a wholesale plunge in the value of many asset classes.

Treasury bonds, already at historic lows with some short-term notes yielding effectively zero, might get hammered, and if not, are pretty sure to face a long-term decline, according to this analysis.

Commercial real estate should drop, according to this Forbes report.

Residential real estate is described as "fragile" in the last paragraph of this other Forbes report which cites several commentators advising a move into hard assets like gold, silver and the stocks of companies which mine them.  But if you've been following Eric Dixon's Crime, Politics and Policy, you know my feelings that there already has been a long-term credit crunch impacting the housing market. 

The same Forbes report predicts major trouble for equities and particularly for the banks.

The damage may also be felt internationally.  Read this piece on what may happen abroad Sunday among the G-7 nations.

Eric Dixon is a New York investigative lawyer who began his career handling corporate transactions and securities offerings.  Mr. Dixon offers strategic analysis, crisis management and business due diligence services.   

 

Credit Freeze Looms As S&P Downgrades America

Late Friday,  the credit ratings division of Standard and Poor's (S&P) downgraded United States government debt from AAA to AA+ on account of the recent budget deal.  One stock analyst calls this a "game-changer."

This promises to pop that bubble in United States Treasuries, with recent days seeing short-term Treasuries yielding virtually zero.  Moreover, one bank in New York City, the Bank of New York, is now charging high net-worth individuals about 0.13% merely to park their cash at that institution.  That is a development which suggests some investors are willing to accept a nominal loss -- never mind the real loss after real inflation is factored in -- in exchange for the relative security of knowing they will get back about 99.87% of their deposit.

Other recommended coverage of this late-breaking news is available at http://www.wsj.com.

I sense and predict a new credit crunch, similar to what happened in 2008.  What is different this time is the breadth and depth of the degree to which people are hoarding cash and other liquid assets. 

The combination of the downgrade, increased capital requirements and growing realization of the gravity of the national debt will, in my estimation, prompt banks to curtail lending.  This will adversely impact the real estate market and, quite frankly, any business which depends on loans for capital investment, or even for revolving loans to meet ongoing, ordinary expenses.  Payroll would be an excellent example.

The result is likely to be a second recession.

Eric Dixon is a New York lawyer who handles business due diligence, personal due diligence and investigations, threat and risk assessments, strategic analysis and crisis management -- including litigation stress management -- for clients.  Mr. Dixon is a 1994 graduate of Yale Law School and has represented about two dozen political candidates, committees and party organizations. 

Solvency Crisis, Five Percent Stock Drop

The Bank of New York is now charging large depositors to hold cash.

This is the type of development that suggests, in my mind, that we are close to an environment where people are willing to take a near-zero investment return for security, or even worse, accept a small nominal loss in exchange for the security of not having their assets plunge in value.


In my opinion, this signals that the investing/entrepreneurial class expects the growing deficit (and the $14 trillion debt) to be addressed with tax hikes.


But watch for the hidden revenue raisers / tax hikes in disguise, in the form of regulatory fees. And never mind the non-monetary costs of regulatory compliance and the specter of criminal prosecution (replacing what used to be civil or administrative enforcement) for the inadvertent violation of federal agency regulations.


One wonders if we are in for a repeat of the second half of 2008, when stocks plunged 40%.



Eric Dixon
Eric Dixon LLC
World-Class Strategic Analysis

917-696-2442

Twitter: @dixonstrategy

Fairness Deficit Can Shake U.S. Society

As I write the stock markets have just had one of those schizoid late-2008 days where the indexes plunged an extra one percent in the last 15 minutes.


There is a deficit threatening America. It is a deficit of fairness, a crisis of legitimacy...namely, a loss of confidence in the inherent fairness of our economic/political/legal systems. And this deficit is a greater threat to our society than the annual government deficits and $14.3 trillion accumulated debt. This deficit can shake the foundation of a society that very much depends on our obedience to the rule of law and the many unspoken rules that still prevail.


As people realize that they are not equal in the eyes of government decisionmakers and can be taxed into oblivion -- or even prosecuted -- if they are among the "outs," the sense that hard work and obedience to the law have anything to do with one's outcome in life will diminish. Arguably, this process has begun...and from more than just the "losers" in the post-2007 economy.


Increasingly success is perceived -- among an increasing segment of the population -- as depending most on "who you know" and ominously, what secrets you know. (Some of us have known, and kept secret, these truths for a long time.)

Right now the vast majority of the country -- left and right -- is starting to understand that unless you are getting a check or subsidy from the government, you are the one writing the check. That is big progress, as it ushers in a once-in-a-generation political realignment. While political divisions before may have been geographic, racial or ethnic, and certainly economic, now the main divide may be whether one is benefiting the government, or benefiting from it.

As people vote their naked self-interest over any principles, issues or ingrained political party identification, the old divides and voting patterns may be thrown out the window.

One senses the rest of 2011 will be extremely interesting.  There promises to be much political and economic volatility.  Let's enjoy the ride. 

Eric Dixon
Eric Dixon LLC
World-Class Strategic Analysis
917-696-2442
@dixonstrategy

Tea Party and Fed-Up Taxpayers Beat Islanders

The New York Islanders may be on their way off Long Island and perhaps out of the New York metropolitan area for good after Nassau County voters resoundingly rejected a public referendum to approve hundreds of millions of dollars in bonds to finance a replacement for the Nassau Coliseum.

The timing of the referendum was initially believed to be favorable, but turned out to be very bad, coming on the very same day as the highly-publicized House vote to increase the national debt ceiling above $14.2 trillion.

Fake Debt Solution The Latest Deception

The Tea Party activists and others protesting a $14.3 trillion national debt (growing by the second) should take little solace in tonight's resounding Republican betrayal of taxpayers and future generations, approving the debt ceiling increase.  Make no mistake, this is no victory for the Tea Party, or for anyone other than those getting government contracts.

If this is winning, it's only in the Charlie Sheen sense, that being that one wins when one gets screwed.

Rather, this is losing.  And losing stinks.  And being a "good loser," or accepting a moral victory, is worse.  Just ask legendary college basketball coach Bobby Knight, who famously remarked once, "Show me a good loser, and I'll show you a loser."

Our children will likely reach adulthood and face much higher tax rates and institutionalized mandates imposing other costs upon them. Compounding debt can be rolled over at low rates today but almost certainly will be at higher rates, using up a growing percentage of future tax dollars. Future budgets -- and tax revenues -- will need to grow simply to preserve the current level of government services because the debt portion of the budget will grow indefinitely unless there are principal paydowns and budget surpluses.

Today's House vote paves the way for the government to incur trillions more in debt, while the budget reductions are only taking effect after 2013, are illusory and non-guaranteed.

Many Republican supporters of this horrid deal were terrified of a credit rating downgrade of the United States. Problem is, that downgrade probably will occur anyway under this deal. Yet the fear of higher rates across the board illustrate precisely the need for current, significant budget cuts.

There are places to cut. The incredible bailout boondoggles of the last three years are a great place to start. These epic, monumental failures represent perhaps the greatest single wealth transfer -- from low and middle class Americans to wealthy owners of businesses in favored industries like banking, insurance and energy -- in our history.

Moreover, this wealth transfer, done under the guise of rescuing the economy, has achieved nothing but prolonging an economic recession, as the well-off beneficiaries hoarded the largesse in preparation for a still-feared (and ever more likely) financial day of reckoning.

This debt ceiling deal also represents a negotiating epic fail. It was the surrender of leverage of a magnitude and at a critical time, a perfect opportunity that occurs rarely.  Leverage that goes unused -- or misused -- is wasted.  And rarely regained.

There was criticism of Tea Party congressmen for not compromising. But there was no compromise on spending, nor on tax rates. The debt may be so enormous that the stubborn adherence to the supply-side economic theory (which may not operate well in an uncertain legal, regulatory and economic climate in which the hoarding impulse reigns supreme over the entrepreneurial risk-taking, profit-seeking impulse) may require reconsideration.

In any event, one senses the political landscape, on both the Right and Left, has changed. The 2012 presidential race has changed. The window of opportunity for some individuals, and even movements or third parties, has unexpectedly and suddenly opened. This will be an eventful 15 months going into Election Day in November 2012.

Eric Dixon is a New York-based election lawyer who handles legal issues and strategic consulting for various political candidates, party organizations and civic organizations including a New York-area "tea party" organization.
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