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Monday, October 31, 2011

Cain New Target of Women Seeking To Get Paid

The latest sign of a deepening recession may be the report Sunday night of allegations -- unproven -- that presidential candidate Herman Cain was the target of two sexual harassment allegations.

There is a myriad of reasons why an accusation may be made.  Jealousy and envy, whether over a personal relationship, promotion or a raise which another person enjoys, often are behind accusations.  In some jurisdictions like New York State, such accusations can be entertained in courts even if the accused did not intend anything wrong or offensive, because the standard for liability is subjective and relies on the feelings reported by the accuser. 

Let there be no misunderstanding:  Such a standard creates a strong presumption in favor of the accuser, and permits a false accuser to exact irreversible damage, to at least some degree, on her target.  Furthermore, there is a subset of otherwise highly-educated people who openly declare that accusers -- and specifically, female accusers -- just "would not" lie about such circumstances.  This attitude places men in peril, for no other reason than their gender. 

In other words, it's "open season" on men -- and particularly, men of substance.

Let's put aside the fact that such a legal standard, and the gender-based discrimination it helps foster, are ripe for all sorts of abuse.  The ease with which such lawsuits can be brought and reach the trial stage, surviving pre-trial motions to dismiss, often means that an absolutely baseless lawsuit can be based on entire lies and yet cause an innocent corporate executive or manager and his/her employer to sustain significant legal fees. 

In recent history some plaintiffs have exploited corporate America's fear of controversy and unwillingness to confront bogus allegations. Settlements are achieved because the target realizes that it saves money by settling.  Corporate America's and shareholders' bottom-line priority to save money and cut losses has fueled this reluctance to take some of these plaintiffs "to the mat." However, if reputation is more important than money, defendants can choose to go all the way and challenge plaintiffs to prove their case.  Some of these cases end up being total victories for the defense.  And it bears reminding that plaintiffs also risk their reputations in these cases.  Serious harassment allegations should never be considered a girl's golden path to future financial security.

While one cannot paint a broad brush on how and why accusations are made, it stands to reason that the most legitimate of complaints are also the ones resolved quietly and often without litigation.

In my opinion, merely being accused of harassment, even if one's company or organization chose to settle, is nothing of which to be ashamed.  Herman Cain -- and many men in business and public life -- may want to consider making examples of someone right now, not for reasons of retribution but more for the deterrent effect on future abuse.

Eric Dixon is a New York investigative lawyer who specializes in crisis situations and strategy, and counsels people on how to handle the stress of lawsuits, investigations and prosecutions in order to prevail in situations exactly like that described above.  Mr. Dixon is available for comment or consultation at 917-696-2442 and by e-mail at edixon@NYBusinessCounsel.com. 

Friday, October 28, 2011

New York May Get October Blizzard

In a delightfully strange year for weather, New York City is predicted to get a record-breaking October snowfall and could even have blizzard conditions.

The Friday evening official National Weather Service forecast calls for New York's Central Park to experience blizzard-level gusts during Saturday night and to receive close to four inches of snow.  Air temperatures should approach the freezing mark, which is surely enough to produce snow (air temps under 38 degrees are usually enough) and the danger of "black ice."  The cause is a fall nor'easter that will bring heavy rain, cold temperatures and heavy sustained winds to areas near the coastline.

New York has NEVER received more than one inch of October snow since weather records started being kept in 1869, and the last measurable October snowfall (0.5 inch) was in 1952.  Even in November, measurable snow is rare and most years do not measure even a trace of snow.  The last November measurable snowfall was in 1996.

In interior sections of the Northeast and particularly in the Poconos and Catskill Mountain regions, over a foot of the wet, heavy snow can fall.  This poses a particular risk of falling branches.  The fact that most trees still have leaves on them, because there hasn't been a killing frost in any but the highest elevations, amplifies the danger.

Curious about other New York weather records: click here.  For more Northeast weather arcana specifically relating to this potentially historic storm, click here for Accuweather.com's report.

Other forecasts in the region of note:

Newark NJ:  about five inches of snow Saturday night, and lows Sunday night in the upper 20s.

Philadelphia PA: farther from the ocean, thus expected to get only about one inch.

Islip NY: not as much snow (maybe one inch) but gusts of over 50 mph Sunday morning.

Eric Dixon is a New York investigative lawyer who uses creative and strategic abilities to solve clients' legal, managerial, operational or personal problems.









Thursday, October 27, 2011

Calling Business A Crime

Growing legions of law-abiding businesspeople, entrepreneurs, managers and even low-level employees are increasingly at risk of being jailed and having their lives ruined, as an aggressive Justice Department expands its interpretations of criminal statutes. In an alarming development, prosecutors are treating unintentional violations of federal agency regulations as criminal and seeking jail time for people even when it is acknowledged there was no evidence of criminal intent.

The recent investigations and prosecutions of some executives and employees are making well-intentioned and innocent people fearful that they may be prosecuted for the conduct of another in which they did not participate, according to one GlaxoSmithKline lawyer.

Crime, Politics and Policy has covered this issue in the past -- see this September 2011 article and July 2011 article, among others --

Eric Dixon is a New York investigative attorney who also advises on strategic and business management matters and consults with people under investigation on how to handle the stress of being sued or investigated or prosecuted.

In New York, Open Season on Hispanic Men

In New York City, women can falsely accuse Hispanic men of sexual assault and other crimes which could send the hapless victims away for years of hard prison time, with little fear for the consequences.

Former ABC weathercaster Heidi Jones was sentenced yesterday to 350 hours of community service for her misdemeanor plea to filing a false police report last year in which she lied about being sexually assaulted in New York's Central Park and specifically identified her imaginary attacker as a middle-aged Hispanic male.  This is in stark contrast to the certain hard jail time that would face her attackers if they were found guilty of the accused crimes.

There is a bright side.  The diligence of New York Police Department detectives in uncovering and pursuing inconsistencies in the accuser's story helped prevent innocent men from being falsely accused, arrested and convicted.  And at the very least, while this commentator criticizes the Manhattan District Attorney's decision to make and accept a generous no-jail plea deal for a crime equivalent to perjury -- for which people from Barry Bonds to Martha Stewart have faced or served prison time in the federal system for perjury charged as obstruction of justice -- it should be recognized that, sadly, in many jurisdictions no prosecution would have been brought or even considered for this crime.

Where the Hispanic and Latino community organizations and bar associations -- which have been publicly silent -- stand on this shameful action is and remains a mystery.

Eric Dixon is a New York investigative lawyer who runs often in New York's Central Park and fits the profile of the imaginary accuser. 





Wednesday, October 26, 2011

Goldman's Gupta Arrest: Who's Getting Nervous?

Many high-ranking executives and even government officials might be getting nervous after Goldman Sachs director Rajat Gupta was arrested earlier today on charges relating to alleged insider trading.


The arrest was no surprise. Gupta was heard on audiotapes played at the recent federal trial of Galleon Group founder Raj Rajaratnam, who was sentenced earlier this month to 11 years in federal prison. In addition, the Securities and Exchange Commission filed earlier civil charges against Gupta (since dismissed, now re-filed in a parallel proceeding).


Gupta now has some choices -- assuming he isn't (in his own heart, between him and The Man Upstairs) totally convinced of his innocence. Unlike the head-scratching cases sometimes brought, Gupta likely faces some (apparently) very formidable hurdles in strong evidence (the aforementioned tapes and records of phone calls), strong and credible witnesses (whom might include Rajaratnam if he wants to try to get lenient re-sentencing down from 11 years) and a United States Attorney's Office confident of its ability to win cases and perhaps aware of the mobs at the Occupy Wall Street demonstrations. Does Gupta dare the government to meet its burden of proof, or does he consider the value of the secrets he may keep, the name cachet of the other big names -- "targets" -- he can implicate, and weigh how much he can shorten or avoid a prison sentence through plea bargaining and fact bargaining?


It is per se improper -- if not downright dangerous to our entire system of justice -- to even consider protests in deciding whether to bring or stop an investigation. But it would be naïve to assume there is no effect.


Gupta is left with choices. Much of Wall Street -- and one dares say, the highest levels of our Federal Government -- is anxious to hear of the outcome.


Eric Dixon is a New York lawyer, commentator and litigation stress consultant.

Tuesday, October 25, 2011

Ordinary Housing Won't Sell

The value of real estate is commonly viewed as dependent on three factors: location, location, and location.


Distinguished locales will have and hold their value, even as empty lots. Homes with distinctive views of a skyline or mountain range will have similar price strength.


On the other hand, non-descript ("cookie cutter") homes in ordinary, non-special areas will languish unless properly priced. Unlike a "one of its kind" home in a unique area, an ordinary ranch house that is one of thousands will have little value, and its sellers would be advised to distinguish their home on the basis of price before the market drops further.


Housing price trends are not likely to reverse a five-year downward trend, due to macroeconomic factors (the recession) and real estate-specific factors such as a glut of supply, an overhang of possible foreclosures, tight mortgage credit and a likelihood of substantially higher mortgage rates in the near future.


Eric Dixon is a New York lawyer and investor who advises startups and entrepreneurs on legal, business and crisis management issues.

Eric Dixon
Eric Dixon LLC
917-696-2442

Obama's New Housing Aid Epic Fail

President Obama announced the lifting of certain restrictions on banks in the hope of encouraging banks to refinance some underwater mortgages. This latest plan will cost the banks and some investors in bundled mortgage-backed securities, and do next to nothing to rescue the housing market. It will be, in short, nothing but false hope and a temporary stopgap for a few.


The housing crisis is perceived that way only by current homeowners who have suffered huge price declines averaging 31 percent nationwide. If you are a first-time buyer with a FICO score in the high 700s and can put down 20 percent, this is no crisis; it's a godsend.


Let's call the housing crisis what it really is: an erosion in current values which shows no sign of stopping. Cutting monthly payments to forestall foreclosures is a last-ditch effort to reduce the growth in the supply of homes for sale.


The problem is that too many owners -- and this now means the banks holding the mortgages -- want to dump their properties. This impulse to sell will stop only when:


(a) prices go and stay up, which is not expected for years;
(b) universal principal reduction restores equity to homeowners, delaying the problem until further erosion puts up back where we are today; or
(c) the government enacts barriers to sales of existing or new homes which, in seeking to block new supply, eviscerate the demand to purchase real estate as an investment.


The imbalance between supply and demand will correct only when demand rises to meet the glut of homes on or ready to hit the for-sale market. Unfortunately for current homeowners, this requires a significant drop in real estate prices. Efforts to stop or delay this drop will only prolong the housing sector depression and current overall economic recession.


Eric Dixon is a New York investigative attorney, entrepreneur and investor who handles due diligence and management issues for businesses, investors and individuals.

Monday, October 24, 2011

Sky Capital Post-Conviction Updates

An interesting battle on legal grounds is shaping up in New York City, regarding two recent criminal convictions which will test whether the securities fraud provisions of the Exchange Act of 1934 apply to sales and purchases of securities outside the United States.

The battle originates from the convictions of Ross Mandell and Adam Harrington, principals of the now-defunct brokerage firm Sky Capital, for securities fraud in a case which seems to have generated peculiar interest from the federal government.

Both men are currently seeking to have their convictions overturned by trial judge Paul Crotty, whose pretrial rulings and trial decisions seemed to weigh strongly in the government's favor.  It is likely the convictions will stand, with the stage being set for a real fight before the Second Circuit Court of Appeals.  The basis for the challenge, and the appeals that are certain to follow, will be the interpretation of the recent 2010 Supreme Court case of Morrison v. National Australia Bank Ltd.  The Morrison case involved a civil proceeding about which the Court held that Section 10(b) of the Exchange Act only applied to United States transactions.  The Sky Capital defendants argue that the bases for their convictions are transactions which occurred outside the United States. 

Eric Dixon is a New York investigative attorney.


 

Sunday, October 23, 2011

The Housing Crash: Price Drops Are Value Traps For the Unwary

Housing is down an average of 30% from its nationwide highs of 2005-07, with important variations in price among and even within individual markets.  There is already a disconnect between recent achieved prices and actual values -- meaning that some buyers have bought at prices likely well below the true value of the property -- and this trend should only accelerate given the numerous factors I've explained before (and which I itemize at the end to remind you) which should depress real estate on a "macroeconomic" level for the foreseeable future.

Why Housing Is Going To Zero

This is only a slight exaggeration.  Housing -- on average -- will never go to zero.  Except, that is, in certain markets where there are literally no buyers for real estate inventory...at any price.  The reason is that the credit bubble led to gross overspeculation.  Where the speculation was in several dimensions, the damage is catastrophic.

What do I mean?  Take the general, nationwide speculative bubble that spread across the nation and made people think real estate would never go down.  Then consider the speculation that arose from the belief that certain proto-markets in out-of-the-way areas (think the "exurbs" some 40+ miles from a metropolitan area) would develop and lead to rapid population and jobs growth.  When this latter speculation proved unfounded, when promised highways or train lines were not built, prices could and did collapse as demand evaporated.  Where speculative building occurred before the evaporation, the damage was exponentially worse, with oversupply grossly outstripping virtually nonexistent demand. 

In locales where demand went literally to zero...at any price...the oversupply of unused and rotting housing inventory will mean that the supply may need to be destroyed -- razed, burned to the ground, whatever -- for the pre-existing housing stock to recover its earlier 1990s value, and that even in that case, macroeconomic factors may depress purchasing power and buyer demand and keep prices barely above zero.  These markets are most often found in Nevada, central California, Arizona and Florida, but can also be found in the highlands or mountainous interior of mid-Atlantic states like New York, New Jersey, Pennsylvania and Maryland.

Such locales present value traps for the unwary.  There is the illusion of value from the major price drops.  But just as with stocks, whose value can go straight to zero, an 80% price drop does not indicate that a price recovery (and your profit) is any likelier than a straight-down nosedive to zero (can't-be-sold-at-any-price).  Let me explain how such properties are a great hedge against estate taxes, meaning: if you invest in them, you won't have an estate to tax when you die.

If you buy such a property for your primary residence, be prepared to stay put and die in that home.  The general factors that blew up that market, the promised development and ensuing pullout, may continue.  The surrounding area may never be developed.  New highways or industries may never come.  The value of the property may not fall much further, but it may never go up either.  There is no assurance that the macroeconomic depression won't continue for several more years...or even decades.  

If you buy that property as your residence and it is a condo, you have the additional risk of having defaulting neighbors abandon their units and sticking you and your remaining neighbors with the common charges.  An insolvent or bankrupt condominium association is a value-killer for anyone who bought before the collapse.  (But in my opinion it's the time to get in if you're willing to risk costs to maintain or rehab a unit and to keep the development afloat; if you can make an investment of total risk capital, meaning you can afford to lose your entire investment, perhaps it's worth considering a purchase where you buy for little more than the agreement to assume the ongoing property taxes.)

But your situation could be even worse if you rent out the property.  In less populous areas, the evaporation of buyer demand often means that no one wants to live there...under any conditions.  This means your target market of potential renters is likely a pipe dream that's gone up in smoke.  Your investment requires rental income to be profitable, and without renters you will immediately be cash flow negative from debt service (if you've gotten a mortgage) and ongoing taxes and common charges. Almost as bad is having to take it a renter at a bargain-basement rent.  This could lock you into a rental stream insufficient to give you cash flow, with uncertain prospects for being able to increase it, while you still endure the landlord risk of having a deadbeat tenant who doesn't pay and could leave your property in much worse shape than he found it.

My advice for now:  Wait for the market to collapse.  Mortgages are rarely being given and your competition among real estate investors is decreasing by the day.  Prices will continue to fall, because of the following macroeconomic factors:

1.  The overall economy is unlikely to grow in the wake of anticipated higher taxes, hidden taxes in the form of regulatory burdens like ObamaCare and Dodd-Frank, and the $14 trillion national debt for which debt service costs must be expected to increase.  The result is stagflation, at best, and a prolonged recession or depression, at worst, which depresses the job market, income levels and the desire for investment in all sectors and encourages the hoarding and nondeployment of available capital.

2.  Demand to buy real estate will decline -- or vaporize -- when another credit crunch makes banks unwilling to lend to anyone but the most credible borrowers and on the stiffest terms.  Banks are already hesitant to lend to major developers in major metropolitan areas.  Real estate is still a financed commodity, and currently, a whopping 30% of all real estate purchases are made in cash-only deals(In certain markets like Miami and Las Vegas, over half of purchases are all-cash.)  This means that real estate is particularly vulnerable to global macro events -- like a plunge in foreign currencies versus the dollar, or a global equity markets crash -- which could destroy the willingness of the all-cash investor base to make purchases and hence wipe out the strongest remaining segment of the pool of available and willing buyers.  Any such events would cause buyer demand to again evaporate and take prices straight down again.  

3.  Housing supply -- meaning properties on the market -- will increase at any moment when there is either a sign of a price recovery, or more likely, when other events force current homeowners to capitulate, stop holding out for the price of their dreams, and list their homes at fire-sale levels where they are willing to take virtually any offer.  

4.  One day, banks will push foreclosures.  One day: I promise. There will -- there must -- be a day when banks no longer are willing -- or permitted -- to refuse to recognize all the nonperforming loans on their books (i.e., all the mortgages on which borrowers have defaulted).   At present, there are millions of borrowers not paying their mortgages.  At some point, someone will seek to make income from these properties.  A glut of properties will necessarily force prices down.  The alternative is a government-imposed or de facto foreclosure moratorium or restriction on all real estate transactions in a desperate effort to prevent a supply tidal wave, but which would send the catastrophic message to homeowners that they would not be free to sell their homes when they want.  The ultimate result would be to do to homeowners what other countries do to entrepreneurs when they nationalize (i.e., seize) industries -- cause the capital to flee and the value to plunge as buyers demand huge discounts to compensate for the risk of buying a totally-illiquid and potentially-worthless property.

5.  To the extent real estate purchases still are financed, interest rates can only rise from the sub-four percent levels currently reported.  Rising rates mean increased monthly payments and diminished purchasing power.   Just as plunging interest rates after 2001 helped goose the bubble in home prices, the reverse is all too easy to imagine.

If you intend to be a real estate vulture investor, I believe your patience will be rewarded.

Eric Dixon is a New York lawyer, entrepreneur and consultant.

Feds Clear Menendez... After Five Years

A federal criminal investigation into alleged corruption involving New Jersey Senator Robert Menendez has been closed, according to the Star-Ledger of Newark, NJ.

A letter issued by the United States Attorney's Office in Philadelphia handling the investigation serves as a "de facto exoneration," according to a former high-ranking federal prosecutor in the Newark, NJ office of the United States Attorney.  Such letters are rarely issued to former investigation targets or their counsel; an intrepid investigative attorney can unearth messages equivalent in sum and substance to an "exoneration" in letters between the federal prosecutor handling an investigation and the federal judge in charge of the matter. 

The investigation allegedly centered on Menendez's procurement of federal funds for a Hudson County nonprofit organization which then rented commercial space in buildings owned in part by Menendez between the years 1994 and 2003.  Unless this rental arrangement or other activities related to the investigation and considered an overt act in furtherance of a crime continued past 2003, or the statute of limitations was tolled (which "targets" of investigations sometimes are asked to agree to in order to avoid a prompt indictment), the applicable five-year statute of limitations would have expired close to three years ago.  Subpoenas to the Hudson County nonprofit were issued in the fall of 2006, on the eve of Menendez's last re-election, by the U.S. Attorney's Office in Newark then headed by now-Governor Chris Christie.

Menendez is not the only New Jersey elected official to be the subject of such an exonerating letter.  Just weeks ago, former state senator Joseph Doria -- from whose home FBI agents infamously carried empty boxes suggesting the removal of incriminating evidence in a shameless July 2009 photo op the same week that the Bid Rig arrests resulting from the Solomon Dwek tapes, that must have been designed to drive Doria to resign or plead guilty -- received a similar exonerating letter.

The letters have been issued, but the reputations do not quite recover.  The damage has been done.

Eric Dixon is a New York attorney who handles investigative matters, other confidential and sensitive matters, and business due diligence on behalf of business and political clients and individuals.  Mr. Dixon is available for inquiry or further comment at edixon@NYBusinessCounsel.com, and by phone at 917-696-2442.



Thursday, October 20, 2011

Using Foreign Visas To Prop Up Housing

Congress will soon consider a proposal by two U.S. Senators to offer permanent resident visas to foreign homebuyers in its latest misguided attempt to prop up the housing market.


Not any shack will do; the foreigner must invest at least $500,000 worth -- that means equity, not using mortgages -- in residential real estate and use at least some of it (it could be multiple properties) for at least six months of every year.ay to prop 

This sounds like bad policy.  This could be just another dangerous means of artificially propping up prices in a selected slice of the real estate market -- and delaying the needed treatments and cures (namely, the removal of price supports that will allow for true value to be established and then augmented) that must be endured for the housing sector to recover, become self-sustaining and strengthen.  Even worse, because it would only prop up the high end, pulling prices in the $300,000-plus range up but doing nothing for houses below that range, this could divert the interest of many among the very few people willing to buy real estate away from low and mid-range priced homes and concentrate it towards the high-end.  This effect cannot help residential real estate in the sub-$300,000 range (unless an investor wanted multiple properties) and likely will reduce already-low demand for nonqualifying housing stock. 

Eric Dixon is a New York lawyer, strategic analyst and entrepreneur.






Tuesday, October 18, 2011

Home Prices Could Fall 50% to 80%


The federal government again threatens to delay or exacerbate the national real estate depression, in considering relief to underwater borrowers.

The premise of such relief -- that we must support home prices at any cost, even by stopping foreclosures and allowing people to remain in those homes without paying anything -- is a disaster.

Homes which do not produce income to the lender will eventually hit the resale market.  It is a dangerous myth -- reckless --  to believe that residents paying nothing now will be able, or willing, to pay something more in the future.  But allowing people to stay in homes rent-free forces the banks to endure a prolonged loss of income.

Compelling banks to absorb, and then do nothing to remedy, total income losses makes those banks understandably wary about any other activity involving the risk of loss.  The government's message is that banks cannot do anything to get rid of their loss-producing loans.  There should be no surprise that banks have tightened credit and sought every revenue stream imaginable to offset major mortgage losses both now and the foreseeable future.

Our real estate market depends on bank financing.  If mortgages won't be issued by risk-averse banks and buyers must pay with 100% cash, home prices will plummet, perhaps as much as 50% and possibly approaching 80%, which is the current standard proportion of bank financing (assuming 20% down payments) to the overall price.  Now, I doubt prices will fall that far, because some private lending will come in and seize opportunities.  However, some homes as to which no bank or investor would take a risk due to their condition will risk becoming unsaleable...at any price.

The banks -- and more specifically, their upper management -- are hardly  sympathetic and worthy recipients of any taxpayer bailout.  However, the fact remains that banks are for-profit institutions and as such must be comfortable assuming risk in order to lend.  Government policies discouraging foreclosures only force banks to hold on to total losses.  Such policies could not be more efficient in scaring the banks from assuming ANY risk.  As a result, recent government "reforms" may cause an entire generation's main source of wealth -- real estate -- to deflate or evaporate.


Eric Dixon is a New York lawyer, entrepreneur and strategic analyst.

Leveraged Buyout Debt Is Hell For New Jersey Devils

Debt incurred by the New Jersey Devils' owners to finance their acquisition of the hockey club is now imperiling the once-proud franchise.

A report in Tuesday's New York Post will explain that the Devils, and a separate legal entity affiliated with the club which operates Prudential Center, are suffering over $180 million in debt which has come due and needs to be refinanced or given forbearance.

Notably, the report states that the Devils were barely profitable last season.  My thought: At least they were profitable on an operating basis.  However, the Devils -- like many businesses acquired using the "leveraged buyout" technique of "other people's money" -- must pay back lenders for the debt incurred to purchase the business.  

There are many businesses which are profitable from operations but whose cash flow is not sufficient to pay off the acquisition-related debt, and which end up in bankruptcy.  The Devils may be heading down that road. 

Eric Dixon is a New York lawyer who has substantial experience in negotiating business transactions.

Sunday, October 16, 2011

Shadow Inventory Threatens Housing Double-Dip

The major news media is noticing that hopes of a housing price recovery are seriously threatened by a huge shadow inventory of homes whose owners are either waiting for a price rebound or, more likely, are ready to capitulate and accept anything they can get.

However, there is more ominous news.  In a development that will make responsible, bill-paying homeowners boil with fury, many lenders are allowing delinquent homeowners to stay in their homes without paying.  Consider the following excerpt from the Miami Herald report:
"Lenders are basically letting delinquent homeowners stay in their homes as a lesser-of-two-evils option. Foreclosing more quickly would mean more empty homes and additional maintenance costs for banks to shoulder. Lenders, already dealing with a mountain of paperwork challenges for homes currently in foreclosure, would only be adding to their documentation woes by speeding up new filings."
If you are paying -- or struggling to pay -- your substantial mortgage payment, how does the foregoing make you feel?

There is a contradiction in bank behavior. On the one hand, the banks generally plead for mercy, whether from Dodd-Frank or the shorts in the stock market; on the other hand, the banks are allowing legions of debtors -- homeowners not paying their mortgages -- to stay penalty-free in their homes without paying.  

The moral hazard is obvious.  And huge.

The overhang of inventory indicates that there is a large number of homeowners who are waiting to list their homes.

More ominously, it suggests there are many more homeowners who are thinking of strategically defaulting, as the evidence of long delays in foreclosures mounts.

Here's the central question for bankers and for our Congress:  Why should any homeowner pay his or her mortgage, when he or she now knows that neighbors are living for free, willingly defaulting, not out of hardship and for extended or semi-permanent periods, while banks dither, delay or altogether decide not to pursue foreclosure?

Now here is an issue the Occupy Wall Street protestors should take up.

Eric Dixon is a New York lawyer.








 

Thursday, October 13, 2011

Occupy Wall Street Wrong To Protest Foreclosures

While most of the world concentrates on the question of whether Occupy Wall Street protestors will leave New York's Zuccotti Park, I draw your attention to the group's planned Friday protest of foreclosure sales outside of Brooklyn's State Supreme Court.

Foreclosures are necessary in order to heal the housing market, if not the overall economy.

The protest of bank procedures and policies that led to bad credit risks getting mortgages has a point.  The protest, however, should also be targeted at the government policies which induced banks to write mortgages to traditionally underserved segments of the population.

People getting foreclosed upon are not necessarily deserving of any break.  Resisting foreclosure has an unintended consequence of supporting the contention that the homeowners being foreclosed upon deserve to stay in those homes and pay far less -- or nothing at all -- than their neighbors.

That is clearly not fair.

Lost in the protestors' argument is that many other people are paying full freight on their debts. 

Unless there is a universal writedown of all debt -- including student debt and consumer debt -- any principal reduction will be unfair in some regard.

Eric Dixon is a New York lawyer.


Insider Trading Greed Gets Rajaratnam 11 Years

Former hedge fund operator Raj Rajaratnam received an 11-year federal prison sentence for his conviction on insider trading charges earlier this year.

The sentence, and the conviction, surely will be appealed.

Sentencing has several purposes, including the government objectives of retribution for past crimes and deterrence of future crimes.  Although some commentators argue this is a victimless crime, I believe these acts were prosecuted because insider trading skews the playing field away from the average, unconnected investor and towards the insider with privileged access to "inside" information.  In essence, insider trading is prohibited because it is an assault on fairness.

As for the propriety of the sentence, the reality is that Rajaratnam will be assigned to a federal medium-security facility, and not a prison camp, because his sentence exceeds ten years.  That is one reason to seek a shorter sentence.  In addition, he may be able to get credit for some sort of rehab (like the alcohol rehab that allowed former Port Authority chairman Charles Kushner to shave six months off his sentence).  Federal parole is not granted until a prisoner serves 85% of his sentence.  This means that Rajaratnam will serve at least eight years of hard time.

Eric Dixon is a New York lawyer.

Wednesday, October 12, 2011

Transparency in Government: The Sunlight Foundation

Readers interested in government transparency and monitoring attempts to influence our federal representatives should take a look at this website from the Sunlight Foundation.

Monday, October 10, 2011

Comparing Occupy Wall Street With The Tea Party

I caught my first live glimpse -- and whiff -- of the Occupy Wall Street encampment in Downtown New York's Zuccotti Park Monday. At first glance, there seem to be some parallels and many sharp differences between the Occupiers and the Tea Parties.


The most obvious differences are the form of protest, and the demographic of the protestors. The Occupiers are in a semi-permanent occupation, surely doing this in shifts and shuttling back and forth to other residences. The Tea Parties do not do permanent protests, working in short bursts to make a point to Congress, the news media and the general public. The Occupiers also seem disproportionately college-aged twentysomethings, and stylish. There is an element of coming there to look good and to attract attention -- just like in college or high school -- but that surely is not the case with the mad-as-hell Tea Party.


Both groups do have a point, and a shared ground in opposing fiscal irresponsibility. The Tea Party targets government irresponsibility, of which some manifested in the ill-conceived bailouts of 2008-09 that produced little but for which we will pay for decades. Occupy Wall Street really ought to target the same thing, as their anger at bankers is really a derivative of the suspicion that government bailouts of Wall Street were nothing more than a huge transfer of wealth from tomorrow's taxpayers to today's bankers, with risk coming back in return.


As with all protests, there are opportunistic groups which try to "free ride" on the available media attention and use the implied credibility of the main, core group for their own advantage. But if there is a strong "Leftist" or "Marxist" component to the Occupiers, it was not on display on Columbus Day.


Eric Dixon is a New York election lawyer for candidates all over the political spectrum, and legal advisor to several Tea Party organizations.

Wednesday, October 5, 2011

If You're Innocent, Just STFU!

Keeping your damn mouth shut may save you from time in the slammer.  Especially if you are innocent.

One tremendous flaw that people have is the belief that they can talk their way out of anything.  These people often grew up being used to fooling most of the people, most of the time.  Some call this charisma or charm; others label it pathological behavior.  Yet others among us, either seeing the blarney for what it is or sensing that "something just isn't quite right," learn to avoid these people like the latest plague.

Trying to talk your way around or out of trouble assumes that your audience is more gullible, uninformed or stupid than you are.  When talking to anyone in law enforcement, however, this approach can be perilous to your freedom.

If you are innocent and you are either reporting an incident or have been identified as a witness, consider consulting with a lawyer about any discussions with law enforcement regardless of your level of involvement.  A do-gooder can easily have his story and facts twisted in such a way that an entirely innocent person can become a convenient target of an investigation and presumptive criminal defendant.



Tuesday, October 4, 2011

Caution Urged on Debt Jubilee Universal Principal Reduction Idea

Recent stock market troubles have sparked serious consideration of a "debt Jubilee" in which all debt receives a "haircut" or permanent, one-time principal reduction.  However, this proposed solution to the current economic stagnation (recession?) might be a cure that would be worse than the disease.


A debt writedown -- whether on some mortgages, all mortgages, or the most equitable and fair proposal, a haircut on all debt of any kind -- will hurt the banks significantly.  They deserve it, you might say. The banks may indeed be deserving of the pain, given their greed for fee income from making risky and otherwise questionable loans and mortgages in the go-go days of 2002-07; certainly more deserving than many borrowers.  However, people should think how they would feel if they lent money to someone and then had a third party -- like the government -- come in and order that the debt be written down to a fraction of the original principal amount. 


If that happened to you, just think how you would feel, being forced to accept one-half of the amount you lent, as full satisfaction of the debt.  Not only would you feel shortchanged, but how likely would you be to lend to anyone else every again? You'd face the constant threat of being forced to take a loss.


Who in their right mind would lend under such circumstances?  Me neither.


Well, that's what would be in store if the people pushing a one-time debt forgiveness / principal reduction plan have their way.  While the concept is undoubtedly more fair, treating all borrowers the same, and remedies the current unfairness and moral hazard of banks forgiving some of the principal of the least-deserving, worst repayment risks and most irresponsible borrowers, the danger remains that future lending may be sharply and understandably discouraged.


Our economy, and much entrepreneurship, depends largely on the use of credit and finance -- in short, the use of Other People's Money (OPM).  A strong dampening of the impulse to lend -- or a sharp increase in interest rates to compensate lenders for the risk of government intervention to mandate future principal reductions and thus guaranteed lender losses -- threatens the most severe of consequences to future economic growth and could inhibit or outright stifle much private investment in this country.


Universal principal reduction might temporarily stimulate consumer spending as people, relieved of their debt burdens (or a portion thereof), feel richer.  In fact, that would be true; debt forgiveness is the equivalent of a handout of hard cash, having an equal effect on the personal balance sheet.  But the root problem is the economy's dependence on American consumers' consumption, the requirement that we spend -- no matter where the money comes from, whether from current income, credit cards or asset sales -- in order to keep the economy going. 


True economic growth requires meeting the demand side of the equation.  We need to make -- to manufacture -- things that meet the demand of a global marketplace.  


Eric Dixon is a New York investigative lawyer who hanles business due diligence and litigation-related stress counseling.

 

Monday, October 3, 2011

Amanda Knox Murder Conviction Reversed

Hapless American exchange students Amanda Knox and Raffaele Sollecito's murder convictions were reversed on appeal by an Italian appellate court Monday. The appellate jury verdict was released moments ago.

This decision reverses a stunning miscarriage of justice, in which cattiness and raw jealousy trumped processing errors and irremediable contamination of DNA evidence to produce the original prosecution and conviction.

This is a lesson that the American legal system is the best in the world. Non-lawyers bemoan the layers of procedure. However, when personal agendas and envy take over for evidence, those procedures -- and the lawyers -- are the last line of defense between innocent people and a wrongful conviction.

Blood lust and plain envy deprived this young woman, Knox, and the young man Sollecito, of four years of their lives. Her only true crime may have been to have been younger and prettier. His only true crime: guilt by association.

(Eric Dixon is a New York investigative lawyer.)


Eric Dixon
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