Wall St. as tax collectors
New Tax Man at Huffington Post points us to a growing trend:
Nearly a dozen major banks and hedge funds, anticipating quick profits from homeowners who fall behind on property taxes, are quietly plowing hundreds of millions of dollars into businesses that collect the debts, tack on escalating fees and threaten to foreclose on the homes of those who fail to pay.
The Wall Street investors, which include Bank of America and JPMorgan Chase & Co., have purchased from local governments the right to collect delinquent taxes on several hundred thousand properties, many in distressed housing markets, the Huffington Post Investigative Fund has found.
In many cases, the banks and hedge funds created new companies to do their bidding. They gave the companies obscure, even whimsical names and used post office boxes as their addresses, masking Wall Street’s dominant new role as a surrogate tax collector.
In exchange for paying overdue real estate taxes, the investors gain legal powers from local governments to collect the debt and levy fees. At first, property owners may owe little more than a few hundred dollars, only to find their bills soaring into the thousands. In some jurisdictions, the new Wall Street tax collectors also chase debtors over other small bills, such as for water, sewer and sidewalk repair.
The Big Business Wall Street Won’t Discuss Full VideoSome states allow the investors to tack on as much as 18 percent interest and a passel of legal fees and other charges. When property owners fail to make full payment, the investors can sue to foreclose – in some states within as little as six months.
And anatomy of a tax sale describes the 17 LLCs traced back to one hedge fund:
Fortress Investment Group, a hedge fund led by former Fannie May chief Daniel Mudd, emerged as the largest purchaser in the Pinellas tax lien sale, though it never used its own name to bid. The hedge fund spent about $12 million buying nearly 20 percent of the county’s liens. It bought them using 17 different “limited liability companies,” or LLC’s, that trace back to its Manhattan headquarters.
It’s disgusting to see the side effects of what the stimulus really bought us: sneaky end-around efforts like this by BOA, JP Morgan, Chase & Co., and all the others, plus more shenanigans by the hedge fund operators. Every time I see one of those propagandistic BOA TV ads portraying them as friendly lenders lending oodles of bucks out to consumers and small business I want to puke. When the hell is this country going to wake up?
Foreclosures are at an all-time high. The big banks aren’t lending and unemployment is rampant and not budging. Yet we still have avid advocates and followers of the mythical benefits of “free market” economics, and they are licking their chops in a bloodthirsty anticipation of the upcoming midterms.
I want off this bus called the American “free enterprise” system, and I want off NOW! The way it’s being driven today, by oligarchs and plutocrats who aren’t keeping their eyes on the economic road, a plunge off the cliff is all but imminent. HELP!!!
Maybe we should just end the charade and just give all the big bank employees GS ratings and federal pensions.
If nothing else the anti-government sentiment might finally get bank execs pay under control, something the market seems unable to address for some mysterious reason.
As long as the peoples continue to bury their heads in the high fructose corn syrup, nothing will change. The U.S.A. needs an overhaul, but that takes a population who doesn’t drink the kool-aid. Perhaps the present situation will help things along, but don’t count on it to happen.
Nothing new in this except that instead of folks following the guy on the infomercial on how to make a killing on real estate, the big guys watched the informercial and said I can do it to. Actually this will reduce the profits on the game to zero over a couple of years (it always happens to financial innovation, some one has an idea, and it pays off so everyone jumps on the bandwagon and the profit evaporates). Of course the alternative view might be this is how the banks will clear up the title mess.
Anyway if you don’t pay your taxes, you get foreclosed on by the state.
yeah, and when the profits evaporate, it’s on to the next scam.
i don’t know if its fair to blame the plutocrats; we seem to have sold our souls to organized crime.
The need for the financial services sector to expand is reaching a point that it is so pervasive and counterproductive that finance ministers all over the world are busy this very minute devising innovative ways to protect their economies from hegemonic and destabilizing inflows from the global centers of finance. In Brazil, their 4% tax on foreign purchases of bonds has been raised to 6%. The Brazilians have also announced that efforts are underway to close loopholes via their equity markets although it is not yet being made clear how they intend to achieve this. Their Finance Minister, Guido Mantega, has also announced that he will not attend the G-20 summit in Seoul in November although this gesture of protest is somewhat diluted by his intentions to attend some meetings– but not others, more about this should come out today but the details of this ‘protest’ are still a little hazy.
Brazil’s increasing use of capital controls has sounded a paper-tsunami alarm in Asia. The Thai government has of course already levied a 15% tax on foreign purchases of its bonds and it is very likely that many other nations are soon to follow. As protections increase the investment flows become more concentrated and so the nations without barriers are increasingly vulnerable to unwanted currency appreciation. So much liquidity and so few opportunities.
So it is not surprising that our ‘best and brightest’ are finding new and innovative opportunities to apply their parasitic skills. All of this was foreseeable because the pace of growth by a financial services empire must never linger or the adverse feedback loops will attack from behind.
The basic premise of our role in ‘globalization’ was flawed from the start. Our ruling-class and their subservient technocrats chose to ignore the rather obvious consideration of just how little value FDI actually has in a fiat currency system. How our leaders could have been so stupid as to believe that nations would not take advantage of endogenous capital formation when it is created on a keyboard, or on a balance sheet, is beyond delusional. Our leaders actually assumed that nations would willingly share their natural resources and their ‘demographic dividend’ with us, in exchange for redundant paper, some shared technology, and some controlled access to markets through the framework of international institutions which are used to manipulate the arrangements. How it was not foreseen that this hegemony would be tolerated only until it was no longer necessary is difficult to understand. The reign of the US empire will make for some amusing history lessons.
If you read More Money Than God you discover that hedge funds strategies work for a while then everyone copies them and boom you are dead. The financial services sector is really a bunch of lemmings, following each other. Of course this results in you make the big bucks for a couple of years, and boom you are gone, (unless you get into managment at a big bank).
It seems that the desire to get rich quick dominates the market, but should we be suprised, Jamestown was founded as a get rich quick scheme (to get the gold that was just sort of laying around for the picking). In addition the history of both western North Carolina, as well as the west is one of one get rich quick scheme after another (gold and silver rushes). Of course in addition to mineral get rich quick schemes, land has been a get rich quick scheme from the begining. Recall that Franklin and Washington were land speculators, among others. Interestingly Washington had land in Pa that he had to chase squatters off (or folks who were not paying their rent). There were an aweful lot of real estate get rich quick schemes in our history. Of course we never see this because the american mythology (history) courses we are fed in high school ignore these unplesant details. The myth hides the details because that would destroy the myth, and of course when facts do not conform to the theory they must be discarded. (People never change history rarely solves problems, we just have the same arguements over and over, so much of the arguements today are the same as Hamilton versus Jefferson)
This strategy is the same as that employed by the Romans under the Principate and then the Empire. Remember all of those tax-collectors mentioned in the Bible. That’s what they were doing. The wealthy paid a set sum to the government in order to buy the right to collect the taxes which were alledgedly due. As a I recall, the same system got put into place in the late Bourbon period of the French monarch. That led to some interesting end games, no? This little scam would likely lead to the same end, with the added excitement that we have more guns available for everybody and you don’t really need to be trained to use them.
There is surely some “lemming” behavior involved but those who are moving large sums of money around on a daily basis are not so much following each-other as they are each attracted by the same opportunities. Brazil for example is paying 11% on G-bonds and that results in their needing capital controls. By tomorrow, now that Brazil has protections, investors will have found the most lucrative investments for their capital and because they are privy to commensurable info, many will be making similar choices to others and etc. They are competing with each-other, not mimicking, opportunities are fleeting, not static.
I live in a rural part of Central Texas where tax collectors from Wall St. would most likely be seen as sport. And the folks here have been ‘training’ since they were old enough to shoot a BB-gun. I do in fact have neighbors who drink homemade liquor and shoot their guns on a daily basis. We have had a stray bullet hit our barn a couple of times and we have 2 horses and so every time a shot is fired our hearts skip a beat, so… I suppose that we notice the shooting more than most of the locals. And, it is a rare day when someone within earshot doesn’t let off a few rounds, seriously.
Luckily, most of these folks have financial limitations so they only rarely use their automatic weapons, but most of them do have at least one assault rifle, but those are mostly for special occasions, the 4th of July for instance gets especially noisy but it tends to deplete their ammo supply for a while, anyway.
The point is, so long as the tax collectors aren’t sensitive to which days my neighbors tend to have bullets and which days they don’t, and at what times they tend to be too drunk to give a shit about anything, sending some of those Wall St. types down here could go along way toward solving my boredom issues.
This is an example of the fallacy of the false dilemma. The proposal is made that there is lemming-like behavior in finance. The response is given that competition, not mimickery, is at work. The fact that there is competition is not evidence against mimickery. Evidence for mimickery is that there are hedge fund advisors. If all the smart guys were finding their own opportunities, and there were no mimickery, then hedge fund advisors would be hard pressed to make a living. Same with all the trade ideas being generated all over the place, to sell trades rather than do them.
Not only do we have a fallacy of the false dilemma at work, but also a failure to take the evidence into account.
Yep. And tax farming, as this practice is called, is one of many explanations for the fall of the Roman Empire. Abuse was widespread.
There is a similarity here with firms who farm out other odious behavior – such as technical support and private bill collecting. The main institution wants good will, so hires others to undertake unpopular tasks, or tasks which would be expensive if done well. It is just another instance of shedding of accountability.
Or perhaps to use the behavioral econ term rather than lemmings, is the herd effect, where the leader goes the herd follows. It apparently is a basic part of our human condition. The use of benchmarks means that if you follow the herd you are likley to meet your benchmark, or if you don’t your competition will fail also so you won’t have the funds you control yanked. Of course if you were to follow this to its full conclusion you come to John Boogle and buy index funds only, because you can’t win, its just best to try to loose the least. But that attitude is POSITIVLY UNAMERICAN, YOU MUST GET RICH QUICK ON WALL STREET. This is what the house at the great casino in NYC is selling, 8% returns thats almost a casino. But of course Government Sachs and friends are the house at the casino and always win. The best role in a casino is to be the house. (Or perhaps the house loan shark, and get your vig)
To add tax farming was practiced in pre-revolutary France, but of course all that revolution did is to chop the heads off one set of elites so another could take their place. Humanity never solves fundamental problems, never will, Human nature has not changed.
I too was immediately reminded of Roman tax farming. Of course it’s hardly the first time that local governments have gotten debt collectors.
For someone so quick to judge, you are really quick to make faulty comments. To begin with, I qualified for the lemming factor with this:
“There is surely some “lemming” behavior involved but those who are moving large sums of money around on a daily basis are not so much following each-other as they are each attracted by the same opportunities”.
Then you accuse me of not providing evidence of mimickery without providing anything more than a BS opinion which asserts that mimickery is inherent in the fact there are hedge fund advisors, duh! But of course if there were only 2 hedge fund managers in the world and they managed the money of everyone else, my point would stand if they reached their conclusions independently. In fact, if the investment flows were so large as to represent half of all of the available liquidity, he who were to bet last would automatically loose if each party were attempting to make the same bet. And so, it is he who finds the best investment first who earns the most. That dictates that it will always be competitive where it matters most.
Theories of ‘animal spirts’ and the like do however make for some very convenient excuses when other theories come up short.
You need to build a small stable with 24″ adobe walls.
The French Revolution actually did more than you think. You’ll notice that France hasn’t privatized their tax collection as we have. You’ll also notice that France is not having a US style real estate melt down. France has not been cutting living standards for the past 30 years. Nor is further lowering of living standards seen as the only thinkable option in France, as it seems to be here.
In the property tax case its nothing new tax liens and tax sales have been happening for years. This system applies if taxes remain unpaid after a period of time.Its in no sense tax farming. In the case of a tax lien the owner has an option to pay at a high interest rate.
Yeah, you opened with “some lemming”, but you ended with a false dichotomy – innovation, not mimickery. Your comment was simply a love-song to finance. Get as hot under the collar as you want, but when your argument doesn’t work, I’m gonna feel free to say so. That is what you were attempting to do with your comment to Lyle, was it not.
See the riots in France yesterday and today. Sarkosy wants to raise the retirement age and there is push back. It will be interesting to see who blinks first. The French do have a way of thowing governments out see DeGaulle.
One of the most useful observations in Michael Moore’s Sicko: In europe, politicians are afraid of the electorate. In the US it’s the other way around. That makes all the difference as I predict we are about to see.