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2009-02-02 07:51 by Karl Denninger , 5 references Ignore this thread
Fraudulent Nation? *

How about those used car buyers (as victims)?

"SACRAMENTO, Calif. (AP) -- The national wave of auto dealership closures has come crashing down on thousands of people who are on the hook for used-car loans that dealers were supposed to absolve."

Isn't that nice?  You trade in your car on a new one, and a month later the lender on your original note comes after you!  Why?  Because the dealer, who contractually was obligated to pay off your note, didn't.  He pocketed the money (literally!) and then went out of business.

This isn't an ordinary contract dispute, it is outright fraud.  You were given paperwork showing that the lien was to be satisfied and your transferred your title to the dealer - you gave him the vehicle and he gave you both a new car with a loan and a representation that your previous vehicle's lien was being discharged.

The "soft underbelly" of this whole scheme is that frequently dealers have apparently not been immediately paying off these liens, but rather waiting for things like the manufacturer holdback to come to them.  In the meantime they spent the money, and if they fold ahead of those "promises" you are the one who takes it on the chin.

This is yet another example of "The Bezzle" in our financial system - that is, the underlying fraud and embezzlement that has permeated every corner of our financial and social systems.  The nasty part of "The Bezzle" is that it almost always has an element of cost-shifting involved in it - we have seen, for example, banks about to fold (like IndyMac) start offering crazy-rich CD rates into the market, cost-shifting the interest expanse onto others (specifically, the FDIC!)  Not every piece of "The Bezzle" is a crime, but all parts of it raise costs for those who do the right thing and punish them, as all are a "skimming" operation in one form or another.

But back to the car dealer - you'd think that when you traded in your car the next day satisfaction of your old loan would be transferred out to the lender who held that note by that dealer.  You'd be wrong - those dealers have sat on these notes for days, or in some cases a month or more.  If they go bankrupt you are the loser because your contract is with the dealer; the lender has every right to hold you accountable when the note isn't paid, and does.

Note that this is distinct from Real Estate transactions where by law when closing takes place escrow has closed and money has changed hands.  The deal is over.  This is NOT necessarily true in the automobile world - it should be, but its NOT.  The States, which have the responsibility to insure that the regulated businesses they govern act in an ethical and legal manner, have done little or nothing to do stop this because "times were fat" and heh, we don't want to actually demand that dealers remit the next business day on traded vehicles - even though they could have, and prevented this from happening.  Everyone "won" if the dealers got to play fast and loose with the money for a few days - or weeks - pretending there was no risk in doing so.

Does it end there?  Oh hell no.  How about this one?

"The dozen banks now receiving the biggest rescue packages, totaling more than $150 billion, requested visas for more than 21,800 foreign workers over the past six years for positions that included senior vice presidents, corporate lawyers, junior investment analysts and human resources specialists. The average annual salary for those jobs was $90,721, nearly twice the median income for all American households."

Nice.  So these banks have laid off 50,000 Americans, but at the same time they have asked to bring in nearly 22,000 foreigners and give them jobs, with a median salary of almost $91,000, nearly twice the median income for Americans as a whole.

And we're supposed to sit still for $350 billion in corporate welfare while these firms fire 50,000 Americans and try to give half the jobs to foreigners on H1B visas?

Next let us turn our attention to THE STATES that have been screaming about their budget shortfalls.  I wonder if we might find something troubling in there:

Don't let anyone tell you the American dream has faded. the truth is the U.S. is still minting lots of millionaires. Glenn Goss is one of them.

Goss retired four years ago, at 42, from a $90,000 job as a police commander in Delray Beach, Fla. He immediately began drawing a $65,000 annual pension that is guaranteed for life, is indexed to keep up with inflation and comes with full health benefits.

Goss promptly took a new job as police chief in nearby Highland Beach. One big lure: the benefits.

Given that the average man his age will live to 78, Goss is already worth nearly $2 million, based on the present value of his vested retirement benefits. Looked at another way, he is a $2 million liability to Florida taxpayers."

A little double-dipping here?  And The States want the federal government (that's you and I) to bail them out?  Like hell!  I live in Florida and this sort of thing makes me want to puke.  A $2 million dollar pension at age 42?  From the state?

This is ridiculous and it is pervasive.  Public-sector employees make more than private-sector and their pension benefits are outrageous - and unaffordable. 

This nation was founded on the premise that your hard work brought you success.  That you did not have the right to transfer the costs of your actions onto other people.  That you (whether "you" was a person, a company, or a state) had to bear the price of its decisions, both when they went well and led to profit, and when they went poorly and led to loss.

We have violated this basic premise with increasing abandon over the last twenty years and now, with the check on the table, it is discovered that the money simply isn't there to keep all these promises we made without regard to the expense and cover up all the fraud that has pervaded our financial and consumer markets.

When President Obama says that the economy will get worse before it gets better, he's not kidding - until and unless "The Bezzle" is forced out into the open and greatly abated in our system - whether it expresses itself as a criminal act or just one of simple outrageous hubris.