The following quote from Bridgewater Associates succinctly puts the current problems that we are having in focus.
"The root problem is that debts that were incurred to finance assets at high price levels remain in place at their original amounts even though the assets that they financed are now worth far less. Debt that was incurred to finance extrapolated high incomes remains in place at its original amount even though incomes are now much lower. And, debts that were incurred to finance loans remain in place at their original values even though the loans that were made cannot be repaid. Until the debts are brought in line with the assets and the income, there is no moving forward no matter how much liquidity is provided or how eloquent the speech. And, until this happens, the self-reinforcing nature of the debt squeeze will only reduce incomes and asset values further.
"There is no easy way out of a debt restructuring. Someone will have to bear the cost of prior bad decisions. The people who should bear the cost are those who made the bad decisions to make the loans or those who financed the people who made the loans. They intended to profit and would have profited if they were right. But they were wrong, so they should lose. The government needs to allow the losers to lose and focus their actions on minimizing the knock-on effects of their failure on people who didn't do anything wrong (to minimize systemic risk). They should then take action to minimize the future exposure of the innocent to the future dumb decisions of the small minority, because no amount of regulation will ever eliminate dumb decisions, so you have to plan for them (through much lower bank leverage limits to cushion losses, bank size limits and non-bank entities playing bank-like roles to improve diversification, safety nets to prevent losers from poisoning the whole system, etc.)."
I really do like the part about there being no regulation possible that will eliminate dumb decisions. The government needs to be very careful to not overstep and cause more problems than the market has created already.
Banks shoring up their balance sheet with TARP 1,2,3,4 will continue to act in their own best interest which includes NOT LOANING money. Regulators are all over them, and they need to save their money as a hedge for future defaults. How to fix it, I do not know for sure, however as my first post alludes to and explains, the free money party went on for a long time and there is going to be a whale of a hangover for those that drank the most at the liquidity fountain of the FED's creating.
Thursday, January 29, 2009
Wednesday, January 28, 2009
Cheif of Police
You know you live in a small town when the chief of police is also the crossing guard for the elementary school.
Hmm do you still think oil $USO is too low, I do. I am a buyer.
One geopolitical shock away from $75 or $ 100 a bbl.
Hmm do you still think oil $USO is too low, I do. I am a buyer.
One geopolitical shock away from $75 or $ 100 a bbl.
Madoff and his paid blog
Do you believe this, our buddy Bernie Madoff has his blog as a paid spot with google!?!?!
http://bernard-madoff-scam.blogspot.com/
Hello...
He has many hits and is also selling ad space, anything to make a buck!
Obscene.
http://bernard-madoff-scam.blogspot.com/
Hello...
He has many hits and is also selling ad space, anything to make a buck!
Obscene.
Friday, January 23, 2009
Why annuities make sense in this market
What recent events have reinforced to me is that you want to diversify your holdings if at all possible, and generally try to stick to what works. Hedge funds were hot as were some local money managers, however in all but a very few cases this market has humbled even the most veteran traders… How the mighty hath fallen. So what does that leave us, where do we turn?
Treasuries at 2%? Do you want to investing in an entity (the government) that is overburdened, overleveraged, printing money at an absurd pace, miss-stepping, and frankly I believe posses significant credit risk ? If I ran my personal financial situation (or yours) like they do I most likely would be put in Jail.
CD’s at the bank? Again 2% to maybe 4% at best if you give them a lot of money and they like you (IE you give them a lot of money.)
Savings or money markets? Same deal at 2% plus these are starting to have credit risk as well, not to mention that you only have a 250K guarantee.
Munis ? Laddered munis can be attractive especially for the high tax bracket investor, but credit risk is seeping in there as well, tax equivalent yields can be OK here, but many of us are a bit light on the income currently thus in a tax bracket that does not indicate the use of Muni’s. I belive interest rates are going to go up, and that they are being held artificially low. Demand destruction in Treasuries from lack of Chinese and international purchasers will eventually take its toll. Muni’s carry both interest rate risk as well as credit risk currently.
So what is the solution for the Aspenite on the go without time to be constantly glued to the depression channel (CNBC)?
For many a good solution to consider may come in the form of Annuities, or for those of us still lucky enough to be in a high income tax bracket, Fixed Defined Benefit plans.
I know, I know, some annuities blew up in the 80’s. Well so did Ford Pintos and you probably own a car now, correct? The contracts that we have today generally offer several types of guarantees, most of which can be combined in one fashion or another, this is in addition to the intrinsically attractive tax deferred nature of annuities.
Three of which are the most common, Living benefit or income guarantee, Death benefit guarantee, or what is called a step up.
With a living benefit the annuitant (you) gets a guaranteed rate of return for some period of years, usually 10. Some of these can guarantee up to 7% simple interest, net of fees. The flip side of this is you are required to give them your money for a period of several years, if you take your money out there will be penalties and fees, also note the IRS will asses a 10% penalty if you remove this money before age 59 ½. So they are not short term or liquid investments and the primary risk is the insurance company going out of business. You can take this money out for your use during retirement or use as a Living Benefit.
The death benefit is structured very similar however the guarantee goes towards a death benefit as opposed to an income benefit. People who choose this option are attempting to maximize death benefit and are less concerned with income.
How a step up works is like a floor under your investment. IE if you put in 1M and your account goes to 1.5 that is your guaranteed withdraw benefit. If it goes down to 900k 1.5 is your guaranteed withdraw benefit.
I will cover Fixed Defined benefit programs in a later submission, but for now what they buy the high tax bracket investor is guaranteed returns with maximum tax deductions, some times as high a 200-300K.
The primary knock against Annuities is their fees which can be up to 3% depending on how many bells and whistles you put on them, however most guarantees are net of fees, so you really only get dinged in years where you make more than the guarantee. Also they can be complex and do have risk as aforementioned, but all in all I believe that they are suitable for many investors who want a decent rate of return with a guarantee on the downside.
Drew Kitchell is an Aspen Local Financial Advisor and can be reached at dkitchell at FPaspen.com or his blog about things Aspen and things financial is at http://www.resorttownblog.com/
Twitter: resorttown
Looking for Aspen Real Estate ... Check with my wife at http://www.searchaspenrealestate.com/ or aspenbroker at gmail.com
Treasuries at 2%? Do you want to investing in an entity (the government) that is overburdened, overleveraged, printing money at an absurd pace, miss-stepping, and frankly I believe posses significant credit risk ? If I ran my personal financial situation (or yours) like they do I most likely would be put in Jail.
CD’s at the bank? Again 2% to maybe 4% at best if you give them a lot of money and they like you (IE you give them a lot of money.)
Savings or money markets? Same deal at 2% plus these are starting to have credit risk as well, not to mention that you only have a 250K guarantee.
Munis ? Laddered munis can be attractive especially for the high tax bracket investor, but credit risk is seeping in there as well, tax equivalent yields can be OK here, but many of us are a bit light on the income currently thus in a tax bracket that does not indicate the use of Muni’s. I belive interest rates are going to go up, and that they are being held artificially low. Demand destruction in Treasuries from lack of Chinese and international purchasers will eventually take its toll. Muni’s carry both interest rate risk as well as credit risk currently.
So what is the solution for the Aspenite on the go without time to be constantly glued to the depression channel (CNBC)?
For many a good solution to consider may come in the form of Annuities, or for those of us still lucky enough to be in a high income tax bracket, Fixed Defined Benefit plans.
I know, I know, some annuities blew up in the 80’s. Well so did Ford Pintos and you probably own a car now, correct? The contracts that we have today generally offer several types of guarantees, most of which can be combined in one fashion or another, this is in addition to the intrinsically attractive tax deferred nature of annuities.
Three of which are the most common, Living benefit or income guarantee, Death benefit guarantee, or what is called a step up.
With a living benefit the annuitant (you) gets a guaranteed rate of return for some period of years, usually 10. Some of these can guarantee up to 7% simple interest, net of fees. The flip side of this is you are required to give them your money for a period of several years, if you take your money out there will be penalties and fees, also note the IRS will asses a 10% penalty if you remove this money before age 59 ½. So they are not short term or liquid investments and the primary risk is the insurance company going out of business. You can take this money out for your use during retirement or use as a Living Benefit.
The death benefit is structured very similar however the guarantee goes towards a death benefit as opposed to an income benefit. People who choose this option are attempting to maximize death benefit and are less concerned with income.
How a step up works is like a floor under your investment. IE if you put in 1M and your account goes to 1.5 that is your guaranteed withdraw benefit. If it goes down to 900k 1.5 is your guaranteed withdraw benefit.
I will cover Fixed Defined benefit programs in a later submission, but for now what they buy the high tax bracket investor is guaranteed returns with maximum tax deductions, some times as high a 200-300K.
The primary knock against Annuities is their fees which can be up to 3% depending on how many bells and whistles you put on them, however most guarantees are net of fees, so you really only get dinged in years where you make more than the guarantee. Also they can be complex and do have risk as aforementioned, but all in all I believe that they are suitable for many investors who want a decent rate of return with a guarantee on the downside.
Drew Kitchell is an Aspen Local Financial Advisor and can be reached at dkitchell at FPaspen.com or his blog about things Aspen and things financial is at http://www.resorttownblog.com/
Twitter: resorttown
Looking for Aspen Real Estate ... Check with my wife at http://www.searchaspenrealestate.com/ or aspenbroker at gmail.com
More on Whole Life Insurance, Life Settlements and how to play the game.
What is a Life Settlement and why would I entertain the process?
Given recent and ongoing market corrections, various Ponzi schemes like Madoff, and a general unwinding of “the Wealth Effect” many people are looking to generate cash from current assets.
Also given the real estate and credit markets are virtually frozen especially at the top end Aspenites may conclude that they few options for generating cash outside of traditional means.
However one asset that many may over look is a whole Life Insurance policy.
Historically, an individual had only three or four options if they either no longer wished to pay premiums or wanted cash out of a policy that they held.
1. Surrender the policy for paid up – Call the insurance company and ask them what amount of death benefit you could get from the premiums that you have already put in.
2. Surrender the policy for cash value – Contact the insurance company and ask them to give you all of the cash value in the policy and discontinue the death benefit. This can be fairly disastrous with some policies especially the Guaranteed Universal Life type of contracts that we use for Estate Planning purposes that favor death benefit over cash value. Many times these policies will have a very small cash value as a percentage of death benefit.
3. Allow the policy to lapse – This would be just discontinuing premiums without contacting the insurance company. This is the reason that insurance companies have some of the largest buildings in the world. See item 1 or 4; surrender your policy for paid up, or have it reviewed as opposed to this option.
4. Lastly you can talk to a good Life Insurance broker and use the cash value in your policy to get substantially more Death Benefit from your current Whole Life Insurance policy. The fundamental reason this is possible is that people are living longer. Much like a refinance on your home if you have a policy that was issued before 2001 when the government mortality tables were revised you can have your contracts reviewed and get much more coverage for the same or less premium than the previous contract. By way of example, consider client who had 1MM in coverage with several policies that were taken out in the early nineties. For the same premium plus the cash value in his current contract, (subject to health underwriting) I could get him 2 MM in coverage. If he decided to discontinue the premiums I could still get him about the same amount of coverage that he would have currently.
However, now a new option has presented itself. A secondary market has developed for Whole Life Insurance. Hedge funds, institutional investors, and a variety of people who wish to make a good rate of return may purchase your policy for substantially more than your current cash value. So now your whole life insurance policy may have a current fair market value that can be determined by using a broker to submit your policy to multiple investors.
Do keep in mind that there is one type of Life Settlement that has somewhat of a shady element to it. Some of my acquaintances about town have been solicited by out of town concerns for Life Settlements wherein the owner or insured applies for a large insurance policy and finances the premiums with non recourse premium financing at application for the insurance. This is done with the intent of selling the policy up front. Keep in mind that the application for insurance has multiple questions regarding the sale of the insurance and that you as an insured could potentially be in some hot water if it is subsequently found out that your application had material misstatements on it. If you are involved in this I would ask to see a copy of the application that was submitted to the insurance company. It would be my recommendation to play it straight and apply for your policy initially for legitimate Estate or Wealth transfer purposes.
Drew Kitchell is an Aspen local Financial Advisor, he can be reached at dkitchell@FPaspen.com or his blog about things financial and things Aspen is www.ResortTownBlog.com
Given recent and ongoing market corrections, various Ponzi schemes like Madoff, and a general unwinding of “the Wealth Effect” many people are looking to generate cash from current assets.
Also given the real estate and credit markets are virtually frozen especially at the top end Aspenites may conclude that they few options for generating cash outside of traditional means.
However one asset that many may over look is a whole Life Insurance policy.
Historically, an individual had only three or four options if they either no longer wished to pay premiums or wanted cash out of a policy that they held.
1. Surrender the policy for paid up – Call the insurance company and ask them what amount of death benefit you could get from the premiums that you have already put in.
2. Surrender the policy for cash value – Contact the insurance company and ask them to give you all of the cash value in the policy and discontinue the death benefit. This can be fairly disastrous with some policies especially the Guaranteed Universal Life type of contracts that we use for Estate Planning purposes that favor death benefit over cash value. Many times these policies will have a very small cash value as a percentage of death benefit.
3. Allow the policy to lapse – This would be just discontinuing premiums without contacting the insurance company. This is the reason that insurance companies have some of the largest buildings in the world. See item 1 or 4; surrender your policy for paid up, or have it reviewed as opposed to this option.
4. Lastly you can talk to a good Life Insurance broker and use the cash value in your policy to get substantially more Death Benefit from your current Whole Life Insurance policy. The fundamental reason this is possible is that people are living longer. Much like a refinance on your home if you have a policy that was issued before 2001 when the government mortality tables were revised you can have your contracts reviewed and get much more coverage for the same or less premium than the previous contract. By way of example, consider client who had 1MM in coverage with several policies that were taken out in the early nineties. For the same premium plus the cash value in his current contract, (subject to health underwriting) I could get him 2 MM in coverage. If he decided to discontinue the premiums I could still get him about the same amount of coverage that he would have currently.
However, now a new option has presented itself. A secondary market has developed for Whole Life Insurance. Hedge funds, institutional investors, and a variety of people who wish to make a good rate of return may purchase your policy for substantially more than your current cash value. So now your whole life insurance policy may have a current fair market value that can be determined by using a broker to submit your policy to multiple investors.
Do keep in mind that there is one type of Life Settlement that has somewhat of a shady element to it. Some of my acquaintances about town have been solicited by out of town concerns for Life Settlements wherein the owner or insured applies for a large insurance policy and finances the premiums with non recourse premium financing at application for the insurance. This is done with the intent of selling the policy up front. Keep in mind that the application for insurance has multiple questions regarding the sale of the insurance and that you as an insured could potentially be in some hot water if it is subsequently found out that your application had material misstatements on it. If you are involved in this I would ask to see a copy of the application that was submitted to the insurance company. It would be my recommendation to play it straight and apply for your policy initially for legitimate Estate or Wealth transfer purposes.
Drew Kitchell is an Aspen local Financial Advisor, he can be reached at dkitchell@FPaspen.com or his blog about things financial and things Aspen is www.ResortTownBlog.com
Wednesday, January 21, 2009
Twitter is deeply symbolic of what is drastically wrong in our culture.
Abominable barfing of 140 bits, gaarrrhh. I am much more attuned to Old fashioned blogging as opposed to barfing 140 bits of info at a time... Don’t get me wrong I follow a few, upsidetrader, cpzimmerman and a couple of others.
But I really just don’t get it…
I get facebook and their little update section, but that to me is intrinsically social as opposed to twitter which still seems to me to be vaguely for profit. Plus I have the added benefit that they are somewhat thought through and well stated on facebook.
I don’t have to see everyone’s intimate thought de jour o de momento de cryptico updated in real time every moment. I guess I just value my time too much.
I am sure traders are using it as a great kind of binary hyperactive digital wakie talkies, but I am not possessed of the type of bandwidth required to be a successful a super active type of day trader and I just can’t seem to follow. Call me Old Skool, thanks but no thanks.
Maybe it is because my mom is an English teacher, but mark me words sompin just aint right in twitter town. Git down.
But I really just don’t get it…
I get facebook and their little update section, but that to me is intrinsically social as opposed to twitter which still seems to me to be vaguely for profit. Plus I have the added benefit that they are somewhat thought through and well stated on facebook.
I don’t have to see everyone’s intimate thought de jour o de momento de cryptico updated in real time every moment. I guess I just value my time too much.
I am sure traders are using it as a great kind of binary hyperactive digital wakie talkies, but I am not possessed of the type of bandwidth required to be a successful a super active type of day trader and I just can’t seem to follow. Call me Old Skool, thanks but no thanks.
Maybe it is because my mom is an English teacher, but mark me words sompin just aint right in twitter town. Git down.
Why Life Settlements??
Given current state of the markets well docu-drama -ed in the current hyper negative global press, many people are looking to generate cash...
Madoff in Aspen, huge losses in the market, commodities plunging, real estate market virtually frozen especially at the top end.
So some are looking to save money or sell assets that are either costing them money on a cash flow basis. One of these assets is a whole Life Insurance policy.
Historically, Life insurance policy owners, after paying premiums on their life insurance policies for many years, have traditionally had only three options if they decided to discontinue their policies:
1) allow the policy to lapse;
2) offer the policy back to the company that originally issued it; or
3) exercise the policy’s non-forfeiture options.
Now we have another option – a life settlement – that is available through a secondary market for life insurance.
Here are a few reasons why this may make sound financial sense for your clients:
· Policy premium cost has become prohibitive
· Policy performance is not meeting projections and may require increased premiums
· Primary beneficiary named in policy predeceases the insured
· Policy owner is now divorced and the beneficiary was his/her spouse
· Corporate buy-sell agreement established, now one of the partners has died or retired
· Retirement of a key executive from the firm that insured his or her life
· Level term policies in which the conversion period is expiring
· Term life insurance costs have increased beyond affordability
· Insured’s estate has been reduced in size and thus one’s tax burden has been reduced
Or you may simply wish to generate cash instead of paying premiums.
Call me if you wish to ascertain a market value for your whole Life Insurance policy in a Life Settlement. We will shop your policy as many investors are available for your type of policy and get you the highest dollar on your policy possible.
If you need these or any financial products and or advice I am your man… Life Insurance, Estate Planning, Asset Protection, Life Settlements, you name it. Let me know http://www.fpaspen.com/ or resorttown at gmail.com
If it is Aspen Real Estate, foreclosures or short sale you seek, look up my wife at http://www.searchaspenrealestate.com/ or aspenbroker at gmail.com
Madoff in Aspen, huge losses in the market, commodities plunging, real estate market virtually frozen especially at the top end.
So some are looking to save money or sell assets that are either costing them money on a cash flow basis. One of these assets is a whole Life Insurance policy.
Historically, Life insurance policy owners, after paying premiums on their life insurance policies for many years, have traditionally had only three options if they decided to discontinue their policies:
1) allow the policy to lapse;
2) offer the policy back to the company that originally issued it; or
3) exercise the policy’s non-forfeiture options.
Now we have another option – a life settlement – that is available through a secondary market for life insurance.
Here are a few reasons why this may make sound financial sense for your clients:
· Policy premium cost has become prohibitive
· Policy performance is not meeting projections and may require increased premiums
· Primary beneficiary named in policy predeceases the insured
· Policy owner is now divorced and the beneficiary was his/her spouse
· Corporate buy-sell agreement established, now one of the partners has died or retired
· Retirement of a key executive from the firm that insured his or her life
· Level term policies in which the conversion period is expiring
· Term life insurance costs have increased beyond affordability
· Insured’s estate has been reduced in size and thus one’s tax burden has been reduced
Or you may simply wish to generate cash instead of paying premiums.
Call me if you wish to ascertain a market value for your whole Life Insurance policy in a Life Settlement. We will shop your policy as many investors are available for your type of policy and get you the highest dollar on your policy possible.
If you need these or any financial products and or advice I am your man… Life Insurance, Estate Planning, Asset Protection, Life Settlements, you name it. Let me know http://www.fpaspen.com/ or resorttown at gmail.com
If it is Aspen Real Estate, foreclosures or short sale you seek, look up my wife at http://www.searchaspenrealestate.com/ or aspenbroker at gmail.com
Pilota...
No Fear and Loathing in Aspen….
As a financial advisor who has been in the unique position of seeing the subprime bubble firsthand from the driver’s seat with a mortgage brokerage I have some insights that may be worth your reading pleasure. As property prices rose astronomically in Aspen and to some degree elsewhere from 2002 to 2006 spectators marveled at the appreciation that was to be had for insiders and others in the know or who had the resources to accomplish flips, developments and other various property based plans and schemes. With the recent unwinding of the credit markets and frozen nature of the top end real estate market those left holding the bag when the music stopped have two questions? 1. When are the credit markets going to unfreeze (i.e. when can I get a loan) and 2. When is the market going to come back or (when can I sell my property.)
The answer to number two is obviously linked to number one. The answer to number one is complex and has varying shades of grey. If you can prove enough income to qualify then maybe you can get a loan, if that loan is not too big. If you call asking for a stated income (i.e. no tax returns) loan, with cash out for 5MM dollars you are out of luck. Especially if your project is a spec build. At a recent meeting I was at the question was put forth “when will it come back?” A bank exec of some local note replied, “Well last time it took 20 years”.
To find answers regarding the future we need to look at the past, what caused the run up and why are at where we are today. It started one day in 1987, when the most powerful man in the world came to power. Alan Greenspan. In a nutshell, to create economic prosperity he used several tools, deregulation, obfuscation and artificially low rates to create the largest bubble in the history of the world. I call this the “free money party” I am over simplifying here but continue to follow along. In concert with Fannie, Freddie and HUD the free money party began to escalate. Let’s print more! Great how do we do that? Well, we get people to sign notes, just like the note in your wallet; it has no meaning other than now that you signed it, that money is created. Prosperity abounds!! Well, we are running low, let’s make some more money, well let’s lower interest rates so that we can invent some more money. Everyone is happy now.
Now we need more money to give to the people to invent more money and have more prosperity. How about a secondary market to recycle this money so we don’t just have to print it all. Spectacular!! Move it - shake it - slice it - dice it. Don’t know what you have in your portfolio Mr. Investor or the pension fund of the State of South Carolina, don’t worry about it is backed by REAL estate, no worries. Well what if the people signing these notes can’t exactly qualify for the freeee moneeeey that we want to give them…Hmmm let’s see, lets state their income!! Brilliant!
Many people blame “stated income” – I received an email from a realtor chastising me stating that “this was what got us into this mess in the first place”. I did not reply, however I thought it amusing that this individual had made his living for the last 30 years in a place where the appreciation was fundamentally solely driven by loose lending policy, stated income loan qualifications , and the Greenspan “free money party” mentality.
However stated income has its place. I have clients with a net worth of 350MM Dollars that have a net negative tax return. Many of our self employed builder developer’s realtor financial guys have to use stated income as they write off a substantial portion of their income. By way of example I have a builder, he sells 2 - 4 homes a year in the midvalley so he is looking at 1.5 to 2M in revenue, but with his costs he really has a difficult time qualifying for a loan, even one under 417K. What does this tell you? That if you are a developer and need institutional financing and you are not a top tier concern, better look to self finance or find a new line of work. More later.
If you need any financial products and or advice I am your man… Life Insurance, Estate Planning, Asset Protection, Life Settlements, Fixed Annnuities, Variable Annuities, you name it. Let me know http://www.fpaspen.com/ or resorttown at gmail.com
If it is Aspen Real Estate or foreclosures you seek, look up both properties and my wife at http://www.searchaspenrealestate.com/ aspenbroker at gmail.com
As a financial advisor who has been in the unique position of seeing the subprime bubble firsthand from the driver’s seat with a mortgage brokerage I have some insights that may be worth your reading pleasure. As property prices rose astronomically in Aspen and to some degree elsewhere from 2002 to 2006 spectators marveled at the appreciation that was to be had for insiders and others in the know or who had the resources to accomplish flips, developments and other various property based plans and schemes. With the recent unwinding of the credit markets and frozen nature of the top end real estate market those left holding the bag when the music stopped have two questions? 1. When are the credit markets going to unfreeze (i.e. when can I get a loan) and 2. When is the market going to come back or (when can I sell my property.)
The answer to number two is obviously linked to number one. The answer to number one is complex and has varying shades of grey. If you can prove enough income to qualify then maybe you can get a loan, if that loan is not too big. If you call asking for a stated income (i.e. no tax returns) loan, with cash out for 5MM dollars you are out of luck. Especially if your project is a spec build. At a recent meeting I was at the question was put forth “when will it come back?” A bank exec of some local note replied, “Well last time it took 20 years”.
To find answers regarding the future we need to look at the past, what caused the run up and why are at where we are today. It started one day in 1987, when the most powerful man in the world came to power. Alan Greenspan. In a nutshell, to create economic prosperity he used several tools, deregulation, obfuscation and artificially low rates to create the largest bubble in the history of the world. I call this the “free money party” I am over simplifying here but continue to follow along. In concert with Fannie, Freddie and HUD the free money party began to escalate. Let’s print more! Great how do we do that? Well, we get people to sign notes, just like the note in your wallet; it has no meaning other than now that you signed it, that money is created. Prosperity abounds!! Well, we are running low, let’s make some more money, well let’s lower interest rates so that we can invent some more money. Everyone is happy now.
Now we need more money to give to the people to invent more money and have more prosperity. How about a secondary market to recycle this money so we don’t just have to print it all. Spectacular!! Move it - shake it - slice it - dice it. Don’t know what you have in your portfolio Mr. Investor or the pension fund of the State of South Carolina, don’t worry about it is backed by REAL estate, no worries. Well what if the people signing these notes can’t exactly qualify for the freeee moneeeey that we want to give them…Hmmm let’s see, lets state their income!! Brilliant!
Many people blame “stated income” – I received an email from a realtor chastising me stating that “this was what got us into this mess in the first place”. I did not reply, however I thought it amusing that this individual had made his living for the last 30 years in a place where the appreciation was fundamentally solely driven by loose lending policy, stated income loan qualifications , and the Greenspan “free money party” mentality.
However stated income has its place. I have clients with a net worth of 350MM Dollars that have a net negative tax return. Many of our self employed builder developer’s realtor financial guys have to use stated income as they write off a substantial portion of their income. By way of example I have a builder, he sells 2 - 4 homes a year in the midvalley so he is looking at 1.5 to 2M in revenue, but with his costs he really has a difficult time qualifying for a loan, even one under 417K. What does this tell you? That if you are a developer and need institutional financing and you are not a top tier concern, better look to self finance or find a new line of work. More later.
If you need any financial products and or advice I am your man… Life Insurance, Estate Planning, Asset Protection, Life Settlements, Fixed Annnuities, Variable Annuities, you name it. Let me know http://www.fpaspen.com/ or resorttown at gmail.com
If it is Aspen Real Estate or foreclosures you seek, look up both properties and my wife at http://www.searchaspenrealestate.com/ aspenbroker at gmail.com
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