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Friday, December 30, 2011

The Return of Cain? Sizing Up GOP Primaries

On the eve of the first Republican caucus Tuesday, Herman Cain has announced he will not endorse any of the other candidates for the Republican presidential nomination.

Could Cain re-enter the race? Yes, he suspended his campaign and now has apparent "baggage." (Notably and interestingly, no better proof of any sexual-harassment or infidelity allegations has surfaced.) But all of the other candidates have demerits too, and no one has caught fire.  Moreover, Cain has both pledged to and has remained defiantly active in the public/political eye -- not exactly the behavior of a man caught with his pants down -- and has held off on endorsing anyone as he promised to do shortly after withdrawing last month. 

It's as if the Republican electorate is like a 40-year-old woman, still looking for Mr. Right (or, Prince Charming) but realizing she has to settle. That attitude explains how Republicans expect Mitt Romney to be their nominee, yet the man can't crack the 30 percent barrier in any poll.

In the absence of Herman Cain, no remaining contender has been able to hold on to a strong lead in a race that seems to be calling for an anti-Romney / anti-establishment candidate. This continuing failure -- which should be viewed in the context that we've yet to have one vote cast -- indicates that a Cain re-entry would re-energize voters and perhaps finally bring the GOP race to a three-man duel between the establishment Romney, intrepid Ron Paul and the everyman businessman Cain.

Often, a candidate's flaws validate his or her decision to withdraw. In Herman Cain's case, his withdrawal has left an apparent void in the race and in the issues debate. He shows an everyman sensitivity to economic and business issues not apparent from anyone else. His re-entry would be a welcome development. Finally, his re-entry would still leave him a viable candidate, as ballot access and petition drives can still be mounted in most states.

Eric Dixon is a New York election lawyer, political strategist, information marketer and entrepreneur.

Friday, December 23, 2011

What Makes a Mortgage Bad, Part 2

There are many ways a mortgage can be "bad," meaning that either its required payments are unlikely to be made or the collateral securing it can be damaged and lose value. Rarely is the structure of a mortgage, by itself, the problem; rather, the underwriting decision -- whether or not to give a particular borrower the loan -- is almost always the source of later troubles.

(See Part 1 of this series here.)

These decisions are made by the banks, with input (and incentives in the form of order flow) from mortgage brokers. In many cases, the decisions were egregious and show (both at the time and in retrospect) either a disregard for risk or incompetence in identifying it. In short, issuing banks originating mortgages committed an epic fail in their due diligence.

Surely there were irresponsible -- and unscrupulous -- borrowers who were gaming the system. (Many of these borrowers were professional investors and speculators.) Other irresponsible people elected to stop paying mortgages. The notion of strategic defaults and the game of "catch me if you can" has led to people living rent-free for upwards of two and even three years in judicial foreclosure states like New York (986 days on average to close a foreclosure) and New Jersey (984 days). 

In many cases, the same banks that were derelict in their due diligence of loans are now equally derelict in pursuing foreclosures. Even worse, there are indications that banks are selectively prosecuting for foreclosure those considered least likely to fight and the ones considered the easiest to evict.

And the rationale? Their homes would presumably be the easiest to flip upon seizure, and the purchasers can be funded with a mortgage guessed it...the bank. 

But getting back to the core issue of what makes a bad mortgage. It almost always is a bad underwriting decision. 

A keen observer -- such as a lawyer like me who knows what's in the documents and what anomalies to look for -- can spot the flaws and risks in a mortgage applicant's file which make consistent payment a risky proposition. 

Responsible due diligence is the key to success. An equally diligent investigation can uncover the mistakes of the past. 

Eric Dixon is a New York lawyer.

Thursday, December 22, 2011

What Makes A Mortgage Bad?

The recent Securities and Exchange Commission settlement with Freddie Mac and Fannie Mae and lawsuit against six of their top executives has returned attention to the mortgage origination practices which are widely blamed for the housing bubble collapse and subsequent economic recession.

The issue boils down to one basic question: what makes a particular type of mortgage bad?  My answer, put as simply as possible, is that the types of mortgages themselves are not bad; rather, the problem was the total disregard for the risk inherent in a particular mortgage because of the risk assessment, or underwriting decision.  Put differently, the problem came from the horrendous underwriting decisions that banks originating the loans made.  Many of these mortgages never should have been issued in the first place, on the stated terms or any terms.

In coming days and weeks I will explain the complex issues involved in unwinding the mortgage debacle.

Eric Dixon is a New York lawyer experienced in the public disclosure requirements of the securities laws, and with extensive experience investigating mortgage-backed securities, underwriting and real estate valuation processes, and market conditions in the residential housing market in the Northeast.


Saturday, December 17, 2011

Gingrich's Supreme Court Mistake

Republican presidential candidate Newt Gingrich's comments about ignoring Supreme Court rulings with which he disagrees indicate he is unaware that such a policy would threaten our Founders' concept of the checks and balances among the government's three branches which they considered essential in protecting us from tyranny.

Gingrich, whom as a long-term congressman and former Speaker of the House, will be viewed by an adversarial press corps as being one who ought to know better, said he is "fed up" with the "judicial supremacy" of many activist judges.  However, his actions would expose the American people to future tyranny from a future President or Congress emboldened by the precedent that a President Gingrich would create.

Gingrich ignores the following points:

1.  All judges, whether they overreach their bounds and whether they are "activists" or "strict constitutionalists," are nominated by the President and then reviewed and voted upon by both houses of Congress.  If a judge "goes rogue," the President and Congress bear the blame for picking that judge and, quite frankly, for failing to do the requisite due diligence into that judge's temperament and philosophy.

2.  Judges can be impeached (removed) in extraordinary cases.

3.  Judges' power is actually quite limited since they can only review the laws passed by Congress and approved and enforced by the Executive Branch (this means the President on down through all the divisions of the federal government, i.e., the bureaucracy).  Furthermore, this review power is limited to cases which are brought in our federal courts and which survive all sorts of motions.  Judges do not review all the government's laws, only the laws (or portions of them) which are at issue in lawsuits that they hear.  Moreover, judges rely heavily on the arguments and evidence presented by both sides in the lawsuit.  If a judge seems to make a "wrong" decision, it is reasonable to question how effective one of the sides argued and presented its position, before questioning the judges.

Those who decry and blame "judicial activism" and "activist judges" simply ignore their own ability to elect representatives in Congress to vote on those judges and bring the lawsuits that challenge the laws and seek interpretations and guidance on those same laws.  Congress may be largely impotent, but it is not powerless.  But we don't hear this argument much, since the judiciary (and the legal profession as a whole) make a popular and convenient target for blame.

Many conservatives feel frustrated by an overreaching bureaucracy and many judges whose sensibilities offend those of the voters or of Congress.  But the role of the judiciary is not to "rubber stamp" the actions of the President or Congress; it is its role to "stand athwart" the popular tide, to question and scrutinize the actions of the other two branches of government.

Often, the judiciary has been the one branch of government most responsible for protecting the civil rights of Americans from attack by earlier Presidents and, less often, a complicit Congress.  Next year, it may be the judiciary which rescues the American people from the colossal overreach of ObamaCare's unconstitutional (my opinion) individual mandate. 

Far from being an evil, judges and lawyers advocating for our rights often are our last line of defense against government tyranny, the same type of abuses which led the colonists to seek independence from Great Britain and the Founding Fathers to enact our Constitution.

So tomorrow, go hug a judge!

Eric Dixon is a New York investigative lawyer who handles election law, complex investigations and other serious business, personal and political matters.

Monday, December 12, 2011

Negotiating With Terrorists Shows True Leadership

It has been virtually anathema to suggest negotiating with terrorists ever since the dawn of the Iran-Contra affair and President Reagan's tortured admission in November 1986 that the United States did so. The taboo has lasted ever since and is a diplomatic third rail. It is also totally unwise and the hallmark of horrible policy.

The goal of a negotiation is the achievement of an objective. Success can be measured simply by whether you won or lost. The process, or how you played the game, is irrelevant. (Bobby Knight's famous saying, "Show me a good loser, and I'll show you a loser," comes to mind.)

The fatal flaw in ruling out negotiations with terrorists is the removal of a powerful weapon from one's arsenal. Just as bad is to reveal this decision to one's adversary. It is like entering a street brawl and declaring one will not use his fists. A unilateral promise not to use each and every weapon at one's disposal is hardly sound strategy; far from it. An announced mothballing of a key weapon reduces flexibility and the very ability to win -- which is all that counts. To do this in order to "take a stand on principle" or gain the imagined public approval of some constituency is not good strategy or policy. Rather, the elevation of diplomatic other-directedness over the achievement of a critical foreign policy objective or the rescuing of innocent lives is the triumph of individual narcissism over true compassion for others. It involves valuing the reputational benefit, the positive public relations, to oneself over the very lives of others!

True altruism would demand sacrificing one's reputation for the tangible and tremendous life-saving benefit of others. Most of us easily see which is more important and would not be so selfish. This is why it was shocking to see the Republican presidential candidates at a recent debate try to outdo one another in trying to take the strongest pledge not to negotiate with terrorists. (This is not a partisan issue; perhaps no elected official today is willing to say he or she would negotiate with terrorists.)

Perhaps a personal scenario will help focus the issue. If your son were held hostage abroad, wouldn't you want our government to take all the steps available to rescue him?

Under the current no-negotiations dogma, your son might die. This inflexible rule, placing politicians' public reputations over your son's life, would result in your son coming back to America in the hold of an Air Force plane, carried in a coffin over which an American flag was draped.

You can expect to be told that your son died a hero, he died for his country.

While Reagan didn't exactly admit it, he knew it was more important to get your son back than to chase after the approval of the rest of the world. Wouldn't it be nice to again have a President who would say he would do whatever it took so that when your son comes off that plane, he's kissing the ground and then running towards you?

Reagan was willing to take the reputational hit, and risked his presidency, to save American lives. Reagan was secure in himself, in his character, and didn't need the affirmation or approval of others. Above all, Ronald Reagan understood that being President was a vocation of service, that it was about serving others, and that trivial matters of one's place in history or standing in the polls.

Sometimes the slavish devotion to ideals, or the terror of risking public scorn, overshadows the genuine priorities of our elected leaders and candidates to replace them. It is a paradox of current political culture that those rare men and women who care little or not at all about making unpopular decisions often end up being the most popular. That is because character makes leaders, and the American people desire more than anything else to be led.

(Eric Dixon is a New York election lawyer and conservative political strategist.)

Eric Dixon

Mets' Bankruptcy Watch On

The Great Recession, or fate, continues to hammer away at the New York Mets.

The bastard stepchild of New York baseball is reported today to have taken an additional bank loan of $40 million from a "major bank" (separately reported to have been Bank of America) to finance ongoing operations.  This loan follows an earlier $25 million loan from Major League Baseball that has not been repaid, and its general manager's assertion that the franchise lost $70 million in 2011.  (My opinion is that last claim should be viewed suspiciously, given the team's attendance over two million in 2011 and the likelihood that revenues to affiliate SportsNet New York are classified separately so as to facilitate ownership's sale of a stake in the baseball club without having to attach a stake in SNY as a deal sweetener.)

Whether or not the economy is "recovering," many businesses continue to deteriorate as the mistakes of the past continue to be unraveled.

Eric Dixon is a New York investigative lawyer with a strong background in the securities laws, corporate transactions and negotiations, and election law. 

Saturday, December 10, 2011

The Hidden Tax of Overcriminalization

While Congress debates tax policy, a hidden tax has plagued our economy and capital markets the last few years - the tax caused by the creeping de facto criminalization of business

The American economy is suffering from a hidden tax in the form of overregulation, overcriminalization and an overzealous and often-inconsistent application of laws and statutes to go after otherwise-innocent businesses, owners, entrepreneurs and managers.  This raises the risk of doing business, and results in the business community demanding a higher return in order to take that risk.

People are innately risk-averse.  Risk, and pain, are felt more acutely than an equivalent level of joy or gain.  The greater the risk (e.g., the risk of financial loss or loss of freedom) perceived from engaging in an activity, the likelier that the given activity will not be engaged in, regardless of the likelihood of a substantial positive return.  Hence, there has been a downturn in business and investing activity as the capital classes become increasingly aware of the risks of being sued, investigated or prosecuted for engaging in business.

Regulatory and legal certainty is a hallmark of the rule of law that has allowed for capital expansion to fund growing economies for centuries in the Western world.  Inconsistent and arbitrary application of the laws makes it hard for anyone with money to invest for fear of losing that money, if not their freedom.

In short, the government's choices of whom to investigate, threaten, sue civilly and even prosecute are another way of picking winners and losers in our economy and society. 

There are plenty of people who desire only to know what the rules are, so that they may follow them as best as they can.  Varying, inconsistent and even illogical applications and decisions on the law by bureaucrats, investigators and prosecutors acting without the requisite experience or seasoned oversight threaten to deter lots of legal activity and raise the risk awareness of business owners and entrepreneurs who are fearful of a federal government that seems to have a grudge against certain segments of our economy.

Healthy capital markets need regulatory and legal certainty. Arbitrary, capricious and outright unfair or unjust government actions cause a reflexive, defensive posture of conserving, protecting and hoarding capital. 

Think about that the next time you wonder why small businesses cannot get a loan on good terms -- or any terms -- or why investors are unwilling to finance any young venture. 

This trend has been several years in the making and acts as a hidden tax on existing activity as well as a serious deterrent upon future activity.  No wonder our economy has been trending downward for the last four years.

Eric Dixon is a New York investigative attorney who handles policy issues, election law matters and strategic matters for business and political clients.

MF Global, Corzine And The Path To Club Fed

The failed brokerage-and-commodities firm MF Global (in which the author invested, sadly) is the subject of a criminal investigation by the Manhattan U.S. Attorney's Office, according to this report (go to page 2).

Such investigations often presume guilt and sometimes work backwards, starting with the presumed wrongdoer (in official law enforcement parlance, a "target").  Observers should be patient for the findings to come out, and for justice to be served. 

As for MF Global former CEO Jon Corzine, I believe that he placed himself in greater jeopardy of being charged with any crime, merely by talking. (Don't know how? See this analysis, entitled "Corzine Becomes A Criminal," in which I predict attempts to criminalize any misstatement or incomplete recollection, however nuanced and qualified, particularly if prosecutors cannot charge him with a substantive crime.)  He is a presumptive subject and desired target -- if only for his name cachet and potential to "make" someone's career -- and on that basis alone it should be presumed that efforts to charge him are already underway.

Eric Dixon is a New York lawyer who helps people under investigation or in the process of litigation handle the stresses of being involved in our legal system, in addition to more conventional legal work like investigations and complex, sensitive situations for business and political clients. 

Thursday, December 8, 2011

Corzine Becomes A Criminal

Embattled MF Global Chief Executive Officer Jon Corzine placed his freedom in great jeopardy today by testifying before the House Agriculture Committee this afternoon.

Corzine is a highly recognizable public figure as the former Goldman Sachs CEO, Senator and Governor of New Jersey. Adding his present notoriety to that profile automatically makes him a "name" target for investigators and prosecutors looking to make a name for themselves. In short, career ambition -- resume-building -- puts Corzine in grave danger before he said one word.

The presumed government predisposition to prosecute Corzine will not need any testimony from him to fuel an investigation. Rest assured, efforts are already underway to see how he can be held criminally liable. But his testimony -- regardless of its content and honesty -- will add to the fire by providing the federal government with a series of statements that will be scrutinized to see if any "false statement" can be established as provable "beyond a reasonable doubt." (Note that this is different from the objective of investigating the who, what, when, where and how questions as to what really happened.)

Remember that any discrepancy between the most honest "I don't know" from Corzine and any conflicting account (or mis-recollection) from any other witness involved in MF Global becomes the basis for a criminal investigation -- and likely prosecution -- for perjury.

Corzine's testimony provides a paper trail and video record of his statements. It will be presumptive Government's Exhibit 1. Had he asserted the Fifth Amendment right against self-incrimination, he would at least avoid providing his adversaries with that material with which to work.

Without testifying, the government would have to prove criminal intent regarding wrongdoing, e.g., he either did something illegal and knew about it, or consciously avoided doing something about an act which he knew was illegal (the doctrine of "conscious avoidance").  By testifying, the government can get Corzine convicted of a crime merely by parsing his testimony and finding someone else to give a contrary account of what happened, in order to prove Corzine lied to Congress. 

Clearly, the second avenue is much easier to prove.  

Regardless of the content of his statements or the genuineness in his heart, Jon Corzine made himself much more likely to be prosecuted for false statements (Title 18 U.S.C. Section 1001), if not for a substantive financial crime like commodities fraud.

In this climate, Jon Corzine chose to speak. Incredible hubris.  Incredible mistake.
Eric Dixon is a New York attorney who counsels people under investigation, prosecution or awaiting sentencing on how to handle the stress of these life-altering situations.

Eric Dixon
Eric Dixon LLC

Monday, December 5, 2011

Could Cain Use Perot's 1992 Playbook For Return?

Herman Cain's announcement Saturday that he was suspending -- but not terminating -- his campaign to avoid the mainstream news media's onslaught of sex-related accusations marked a rapid fall from front-runner to non-candidate. However, it may not be the actual end of his campaign. Cain could return, if he follows the playbook of another legendary candidate.

Ross Perot was the front-runner as an independent candidate in 1992 as late as the eve of the Democratic National Convention. Perot stumbled badly the week before, losing campaign co-manager Ed Rollins and making his infamous "you people" remark at an NAACP dinner. As the news media smelled a wounded candidate (really, they smelled a great story, everyone loves to watch the fall of a public figure), Perot suspended his campaign on the Tuesday of convention week in mid-July 1992.

Virtually immediately, Bill Clinton catapulted from third place to front-runner over incumbent President George H.W. Bush.

Perot, however, was not done. A special committee called the Perot Petition Committee was started and continued work to get Perot on the ballot in New York State, a notoriously difficult state in which to run as an independent. Perot submitted over 91,000 signatures in late August and qualified for the general election ballot.

Behind the scenes, preparations began for a formal re-entry into the race. Campaign structures were re-staffed. In late September, Perot resumed the campaign with a vengeance.

Perot gave speeches before crowds of upwards of 50,000 in Somerville NJ and elsewhere, and bought blocks of thirty minutes for infomercial-length presentations with the legendary pie charts. He appeared in all the major TV debates and was generally considered to have done very well.

There were gaffes. Perot chose as a stand-in vice presidential candidate Admiral James Stockdale (Ret.), who was visibly addled and likely suffering from dementia during his infamous vice-presidential debate performance in which he said, "Who am I? What am I doing here?"

The post-script: Perot got 19 percent of the national popular vote and came within a few thousand in states like Utah and Wyoming of coming in second ahead of Clinton. While Republicans blamed Perot for Bush's defeat, polls showed Perot took evenly from Bush and Clinton in 1992.

In retrospect, it is clear that Perot never intended to withdraw from the race, but decided on a tactical retreat which stopped his fall from being "the story." At the appropriate time, he resumed his campaign and was able to have a different "story," that of the promise of an impossible comeback.

There is nothing to suggest that this strategy could not be followed by Herman Cain. The roadmap is there.

Eric Dixon is a New York-based investigator, lawyer, strategist and entrepreneur. Mr. Dixon was active in Ross Perot's 1992 New York petition drive as an election lawyer and supervisor, and as a national spokesman for the campaign who appeared in studio on ABC's Good Morning America.

Eric Dixon
Eric Dixon LLC

Friday, December 2, 2011

Post-Conviction Stress Can Kill You

Aside from life-threatening diseases and deaths of close ones, perhaps there is no more stressful event than being convicted of a crime and facing jail time.

If you are convicted and over the age of 40, your crime could result in what Manhattan federal judge Jed Rakoff called a sentence of  "effectively life."  For background, Rakoff (with whom I worked briefly when I started my career) was using this phrase when trying to determine the sentence of former New York power lawyer -- and total fraud -- Marc Dreier.  In a morbid twist, the sentencing conversation between Rakoff and Dreier's lawyer Gerald Shargel turned almost entirely on the expected life expectancy of the then-59-year-old Dreier, and ended with Dreier getting 20 years -- probably out in about 17 years with parole and good behavior. 

Might a younger defendant have gotten more time?  See the case of another really bad lawyer, Scott Rothstein, whose infamous South Florida scam resulted in the then-49-year-old Rothstein getting a 50-year sentence. 

A brief aside: Consider the cases of Dreier (59-year-old gets 20 years), Rothstein (49-year-old gets 50 years) and Bernie Madoff (72-year-old gets 200 years from former federal district court judge turned federal appellate judge Denny Chin).  All these men plead guilty.  No trials.  For the lengths of these sentences -- which also result in the convict going to at least a medium-security federal facility (no Club Fed) -- what was the benefit at sentencing in "accepting responsibility"?  

Nah, I couldn't figure it out either.

I currently consult for a recent middle-aged federal convict -- whose identity I shall keep confidential -- who has suffered a few heart attacks since losing at trial.  He wouldn't be the first to suffer such pain.  Former Enron CEO Kenneth Lay suffered a fatal heart attack following his criminal conviction at trial at age 63. 

The stress of merely being investigated is one thing -- and that alone can be extremely grueling.  Just ask anthrax attack suspect Stephen Hatfill, who was under investigation for five years by the FBI -- and even named publicly by Attorney General John Ashcroft as a "person of interest" -- before the investigation was closed without further action. (Postscript: The federal government paid Hatfill a $6 million settlement.)

If you are innocent, it's even worse.  At least if you are guilty and are somewhat able to admit that fact, and do so before a judge, you can avail yourself of the substantial benefits: the promise of leniency at sentencing, and perhaps even the opportunity to get paid by the government to be a federal informant.  (But that is a topic for a different time.)  The innocent have no escape hatch, nothing to offer for leniency, only the determination that they refuse to admit guilt for something they did not do -- in essence, they refuse to lie.

The stress of being indicted, actively prosecuted, and put on trial is an additional and severe strain.  The stress of being convicted and actually facing the very likely prospect of jail just piles on with the stress becoming exponentially greater.

These situations can be deadly and require assistance for all but the most stout of characters to survive.  If I can be of assistance -- and if you can pay using funds which are not tainted by or from the proceeds of any arguably criminal activity or origin -- you should contact me.

Eric Dixon is a New York investigative lawyer, management and political consultant, and litigation stress and crisis consultant.  Mr. Dixon may be reached at  Mr. Dixon is also on twitter @dixonstrategy.