Finance

General Motors sold off 51% of its interest in the General Motors Acceptance Corporation last year, its financial arm. Yet that remaining 49% interest in GMAC proved to be a big problem for GM’s first quarter 2007 financial results. It seems GMAC got into the mortgage business, and had a first-quarter loss of $305 million, causing GM’s overall results to go from $602 million in profit in the first quarter of 2006 to $62 million in the first quarter of 2007. GM’s 49% stake in GMAC caused it $115 million in loss–and Toyota passed GM for the first time to become the #1 auto manufacturer in the world. I can’t really imagine a $305 million loss. But even more staggering is that this is only about six hundredths of one percent (.061%) of the U.S. government’s spending on the war and occupation in Iraq, which is about to exceed $500 billion. (Thanks to Einzige for suggesting the comparison.)

Long or Short Capital gives some historical detail on Cinco de Mayo that’s generally lacking from most descriptions (with a little bit of exaggeration and humor). It’s not a celebration of Mexican independence, but of a successful victory by Mexican forces led by General Ignacio Zaragozea Seguin against French occupation forces at the Battle of Puebla on May 5, 1862. The Mexican government owed money to the English, the Spanish, and the French, and was late on debt payments. All three creditors sent armed representatives to Mexico. The English and Spanish were successfully negotiated with, but the French decided to obtain repayment by taking possession of Mexico, and sent a large military force. General Zaragoza led a force of Mexicans and Indians and were victorious. ...

Brad Duke, who managed 5 Gold’s Gyms in Idaho, won a $220 million Powerball jackpot in 2005, which translated to an $85 million lump sum payment after taxes. He assembled a team of financial advisors before claiming the prize, and set a goal of turning that $85 million into $1 billion in the next 15 years. Here’s what he’s done with the money so far: Investments: $45 million in low-risk investments such as municipal bonds. $35 million in aggressive, high-risk investments such as real estate, oil, and gas. Donations: $1.3 million creating a family foundation. Debt retirement: $125,000 to pay off his mortgage (on a 1,400 sf house he still lives in) $18,000 to pay off student loans Purchases: $65,000 on bicycles, including a $12,000 BMC road bike $14,500 on a used VW Jetta Gifts: $12,000 annual gift to each member of his immediate family Splurge: $63,000 on a trip to Tahiti with 17 friends The result so far–he’s turned $85 million into $128-$130 million. ...

Mr. Juggles at Long or Short Capital takes on Robert Kiyosaki: Robert Kiyosaki is a maroon. … This is idiotic. In fact, this article is so terrible, I find it difficult to even know how to properly form an argument against it. It doesn’t even make sense. But here is more evidence to unback-up the truck on Rich Dad Poor Dad guy. … While he is effectively mananaging his intelligence, and I applaud that, what exactly does this leave people to do with their money? He advocates against cash, stocks, bonds, saving money, buying things, the US, real estate, etc etc. What is left? Brine shrimp futures? Short or long positions in abstract ideas like Perf?Go to Long or Short Capital to see the nonsense they’re criticizing. ...

As someone who skews heavily Extropian, I tend to be very optimistic about the future. This, in spite of being brought up by a paranoid (though otherwise intelligent) guy who always seemed convinced that a catastrophic economic collapse was imminent. In the '80s it was hyperinflation and thermonuclear war. In the '90s it was Bankruptcy 1995, followed by Y2k. Nowadays it's global warming (somehow we've managed to skirt around the issue of Peak Oil). All the parental paranoia helped to cultivate in me a healthy skepticism (though it got to me just enough to unfortunately keep me out of the stock market for far longer than I should have been). So, my optimistic/skeptical attitude has been keeping me up-beat about the real estate market in Phoenix - at least until recently. Given the way things have been going - neatly summarized by the two graphs on the right - a combination of factors now have me a little worried about the next year or so, at least. As I have argued elsewhere, Phoenix housing prices are too high. There's no reason to buy houses when you can rent them for a lot cheaper (and you thus can't make any money with them as investment properties, either). As you can see from the Appreciation graph above, even though houses are overpriced, as of the last data point on the graph we were still seeing a 10% appreciation over last year. Even the quarter-over-quarter line is still in the positive. I have to believe that we're going to be seeing a strong reversal of that trend in the coming months--or else we'll see whatever drove that crazy spike (in the second graph above) manifesting itself in some other area of the economy. Then there are those pesky notices of foreclosure [in the graph below, the blue line is monthly notices, while the orange line is the yearly moving average]. In spite of the fact that, according to some analysts, we haven't seen most of the interest-only ARMs kick into their higher payments, yet, we're already seeing an alarming uptick in notices of foreclosure (an indicator of people who've already been in serious financial difficulty for at least 5-6 months). February saw a total of 1577 trustee sale notices filed. That's off a bit from January's 1623, but when you consider that January had 21 business days for recording documents, against only 19 for February, there really was no slow down at all. In fact, as you can see from this graph, February 2007 had the highest average daily recordings (83/day) of all months for which I have data. It beat out January of '03 by 0.24 recordings/day. If the trend continues then this month should see over 1900! This may be good news for all the mythical short sale foreclosure investors, but it's bad news for pretty much everybody else. Historical Comments Einzige (2007-03-15): We're at the halfway point of the month and our current tally is 794.It would seem that 1588 trustee sale notices for March would be a safe bet. Not a record, but certainly an outlier. ...

Sex offender wins $14 million in lottery (Jensen Beach, Florida). Man with year to live wins $50,000 a year (Rochester, New York). Bill would refuse lottery wins for sex offenders (Jefferson City, Missouri). And Jamie Zawinski suggests a fourth: Bill would refuse lottery wins for cancer victims.

The Simple Dollar blog is offline, and its author is looking for a way to get back online. I’ve been reading Trent’s The Simple Dollar blog since mid-December. It’s a very well-written, professional-looking blog that gets a lot of traffic, but I was surprised to learn that he only started it about a month before I started reading it. Today, I noticed a lot of Google searches for “The Simple Dollar” were hitting my blog, all coming to my post about Robert Kiyosaki that linked to Trent’s blog. I clicked on the link to re-read his post, only to get a “Forbidden” message from his webserver. I contacted Trent to see if the problem was a legal issue, perhaps a threat from Kiyosaki, but it turns out his entire blog has been taken offline by Dreamhost, his webhosting provider. It seems that today The Simple Dollar–already in the top 2800 at Technorati–got prominent links from both digg.com and reddit.com. This generated so much traffic to the shared server hosting the blog that Dreamhost disabled the account and denied access to the blog. Not only have they denied web access, they’ve denied Trent FTP access. He does have a backup from a few days ago, but is currently looking for a way to get back online with a dedicated server. You can read his own account of his predicament at Metafilter. I’ve offered a few suggestions for possible webhosting providers, but he doesn’t think he can afford a dedicated server right now. That’s in part because, despite his huge traffic, his blog has grown in popularity so fast that he hadn’t yet acquired any major advertisers. He’s been the victim of his own too-rapid success. Are there any advertisers out there who would be willing to help finance the blog’s return on a dedicated server with sufficient bandwidth to handle the traffic? UPDATE (February 10, 2007): The Simple Dollar (or at least most of its content) is back!

Trent at The Simple Dollar writes about Phoenix’s bogus financial wizard, Robert Kiyosaki, and gets a bunch of loonies appearing in the comments, including Amway advocates. Trent gets it right, though probably doesn’t even go quite far enough in condemning Kiyosaki. I recommend John T. Reed’s overview of Kiyosaki, and Einzige’s extensive series on John Burley (who has occasionally teamed up with Kiyosaki). UPDATE (January 30, 2007): Mike Linksvayer has been prompted to comment on Kiyosaki, and his remarks are well worth reading. ...

The Arizona Republic has just caught on to the fact that there’s a lot of mortgage fraud going on in Phoenix: A wave of mortgage fraud is rippling through pockets of the Valley, inflating home values through scams called cash-back deals. Left unchecked, cash-back deals cost homeowners and lenders millions of dollars and could erode confidence and values in Arizona’s real estate market. The fraud involves obtaining a mortgage for more than a home is worth and pocketing the extra money in cash. Neighbors may then discover home values in the area are exaggerated. Homeowners stuck with overpriced mortgages may never recover the difference. And lenders end up with bad loans that, in the long run, could hurt the Arizona real estate market, the largest segment of the state economy. While the extent of the fraud is unclear, an Arizona Republic investigation into these cash-back deals found organized groups of speculators have bought multiple homes this way, leaving whole neighborhoods with inflated values. Add to these the individual deals done by amateurs who hear others talk about the easy money they made from cash-back sales. State investigators and real estate industry leaders want more enforcement and greater public awareness to stop the spread of cash-back deals before the damage mounts. “Mortgage fraud in the Valley has become so prevalent people think it’s a normal business practice,” said Amy Swaney, a mortgage banker with Premier Financial Services and past president of the Arizona Mortgage Lenders Association. Under federal law it is illegal to misrepresent the value of a home to a lender. Everyone who is a party to the deal is subject to prosecution. Felecia Rotellini is a Notre Dame law school graduate and former assistant attorney general who is now superintendent of the Arizona Department of Financial Institutions. Her agency regulates mortgage lenders, state banks and credit unions in the state. Alarmed by what she was hearing from lenders and real estate agents, she has just pulled together state and federal regulators to form an Arizona mortgage fraud task force. “People need to understand these cash-back deals are illegal and stop,” she said. “We are going after mortgage fraud." I think this is likely to be too little, too late. When I was actively suing telemarketers using illegal prerecorded calls to residences in 2003, the worst offenders were mortgage brokers. In the process of going after some of them, I found signs that some of them were engaged in other illegal activities as well, such as defrauding other lenders, defrauding their customers, defrauding the IRS and Arizona Department of Revenue, and transferring assets between entities prior to filing bankruptcy to evade creditors. I found the Arizona State Department of Banking (now known as the Arizona State Department of Financial Institutions), which regulates mortgage brokers, to be completely uninterested in investigating–though they did send some warning letters after I won judgments against brokers, which prompted some of them to pay their judgments. They said that they did not have resources to investigate my claims of violations, even though I offered up specific areas of the law that they are supposed to enforce (they don’t enforce the Telephone Consumer Protection Act or FCC regulations). There’s more on this subject at Ben Jones’ Housing Bubble Blog. UPDATE (January 22, 2007): Arizona Senator Jay Tibshraeny has introduced a bill making mortgage fraud a felony. But it’s already criminal activity covered under current laws–adding more laws against it doesn’t do anything to cause those laws to be enforced.

Jack Whittaker, the trouble-plagued winner of what was then the largest Powerball jackpot, $315 million (a $113 million lump sum after taxes), now says that it’s all gone. UPDATE (January 15, 2007): Apparently Whittaker claims that thieves cashed checks at multiple branches of City National Bank to steal his money–and this is why he can’t pay a settlement to a woman who sued him for assaulting her at the Tri-City Racetrack and Gaming Center near Charleston, WV. But the bank just says that they are investigating “small discrepancies” in his accounts–which doesn’t sound like it’s all gone.