The most famous financial criminals in U.S. history.

Today, news came down that J.P. Morgan Chase, the disgraced Wall Street giant that had its collective fingerprints all over the mortgage and financial collapse of 2008, is set to pay a $12 billion settlement.  The payment is restitution, levied by the US Justice Department, for its illegal misspelling of mortgage-backed securities.

While many consider the settlement “A good start,” we can hardly expect it to act as a deterrent to future financial criminals.  In fact, United States history is rife with fraudsters and sham artists who chose not to use a mask and gun to rob the American people, but a three-piece suit and their business acumen. 

Let’s look at the most famous financial criminals in U.S. history:

Bernard “Bernie” Madoff.

Madoff was the poster boy for Wall Street greed and larceny, defrauding the US people to the tune of $65 billion dollars in the greatest Ponzi scheme in history.  His “client” list of 1,300 included Stephen Spielberg, Kevin Bacon, and many other notables, including financial institutions themselves.  On June 29, 2009 he was sentenced to 150 years in prison with no parole.  He was incarcerated and soon transferred to a federal prison in North Carolina, where reports of his quality of life differ.  Some say he was admitted to the Duke University health center in 2009 with facial fractures, broken ribs, and a collapsed lung consistent with an attack by a fellow inmate, though the prison claims he was admitted for hypertension.

Kenneth Lay.

Lay was the chairman of the Enron energy company before being indicted in 2002 on 11 counts of securities fraud, revealing his chief role in a massive accounting and corporate abuse scandal that stole billions of dollars.  In 2006 he was found guilty on 10 of those counts, which would have landed him a cell without a view for up to 30 years.  Only about three and a half months before his sentencing, Lay died suddenly of a heart attack while on vacation in Colorado.  Some would say he got off easy, and his funeral was attended by more than 1,200 well wishers.

Bernie Ebbers.

The Canadian-born Ebbers was an original founder and former head executive at telecom giant WorldCom when they were convicted of fraud as investors lost more than $100 billion, the largest accounting scandal in U.S. history at that time (until Bernie Madoff came along.)  He is currently serving a 25-year sentence in Oakdale Federal Correctional Facility in Louisiana.  CNBC named Ebbers the 5^th worst CEO in American history and the 10^th most corrupt CEO of all time.

Charles Ponzi.

A list of financial robber barons wouldn’t be complete without their patron saint, Charles Ponzi himself, who the term “Ponzi scheme” was named after.  Ponzi, who lived from 1882-1949, devised scams that actually paid off early investors with the funds from later investors, making forming a pyramid in structure.  As long as people keep paying in, someone get’s paid, and the rush and greed of easy money usually fuels these fires for a long time before they fall apart suddenly.  Ponzi’s first schemes promised a 50% payoff within 45 days, or 100% for every 90 days, and the premise of his pyramid Ponzi scheme hasn’t changed much since.   He served several short sentences throughout his life until he was finally deported to Italy upon release in 1934, where he lived in poverty and obscurity until his passing.

Lou Pearlman.

Pearlman, often described as “bloated and soul-less” had his hand in many pots – and very few of them legitimate.  He was the manager of famous by bands the Backstreet Boys and N’Sync, but his greatest accomplishments in business turned out to be one of the biggest shams in US fraud history.  For over 20 years he charmed investors for his conglomerate Trans Continental Airlines.  The only problem was it never existed, except for on paper, and a means to siphon approximately $300 million he’d amassed in debts into his own pocket.  When exposed, he went on the run, but was caught and arrested.  Pearlman tried to cover his tracks by filing bankruptcy, but even lied and attempted to defraud the courts in those proceedings.  In 2008 he was sentenced to 25 years in prison after being found guilty of money laundering, perjury, and conspiracy charges.  By the way, the BackStreet Boys and N’Sync eventually sued Pearlman for misrepresentation and fraud.  Pearlman is still behind bars, with a projected release date in 2029.

Frank William Abagnale.

Abagnale’s story came to public awareness with the film about his life, Catch Me If You Can, in which Leonardo DiCaprio played the charming and brilliant conman who lived high and played fast.  He easily shifted into different personas, including an airline pilot, doctor, and even US Bureau of Prisons Agent, and his fraudulent forte was passing bad cheques.  After a long and exhausting pursuit, he was caught and charged with cheque fraud to the tune of $2.5 million dollars (in 1960 dollars) in 26 countries.  He served a five-year sentence in prison before the federal government released him on the condition that he would work for them, helping identify and catch other financial scammers, and also check in once a week.  The arrangement worked so well and his inside input became so indispensible, that he later formed Abagnale & Associates, a financial fraud consulting firm.  Abagnale wasn’t one of the biggest financial criminals of all time, but he certainly was one of the most interesting, and elusive to catch, including escapes from prison and from a taxing airliner as authorities moved in.

Dennis Kozlowski.

Kozlowski, once the CEO of mega firm Tyco International, was convicted of embezzling over $400 million of the company’s funds.  Those included paying himself $81 million I unauthorized bonuses, adding $14 million in art to his personal collection, and $20 million dollar payments to a crony.  His super luxurious lifestyle became the thing of legends, as he owned a $30 million dollar Manhattan apartment (on the company dime) with $6,000 shower curtains and $15,000 umbrella stands!  His parties also became legendary for their opulence, risqué, and lack of class.  Originally from New Jersey, Kozlowski almost got away with his daft and obvious financial crimes, as a juror sided with him in his first trial and forced a mistrial, though it came out that she had been physically threatened.  He was tried again and convicted in 2005 and sentenced to an approximately 8-year prison term, which he is still serving. 

The 10 most expensive works of art of all time.

How much did you pay for the artwork in your home?  $50 for that cityscape print in your living room?  $29 for the Italian-inspired plaque with a wine glass and grapes in your kitchen?  Or even nothing, for the weird painting of clowns and monkeys your mother-in-law made for you, which you have prominently displayed in the back of the storage closet, only to be removed and hung upon her annual Christmas visit?  For the average person, that’s the extent of their art collection, but there are still people who will pay more for their artwork – and I mean a LOT more.

Just this week, Francis Bacon’s triple rendition of contemporary painter Lucian Freud sold for a whopping $142 million dollars at Christie’s auction!

So today, let’s look at the 10 most expensive pieces of artwork ever sold:

$112 million.
Pablo Picasso’s “Nude, Green Leaves and Bust,” painted in 1932 with his mistress Marie-Thérèse Walter, as the model, was purchased by an anonymous buyer.  The price tag?  $112 Million.

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$119.9 million
Swedish expressionist Edvard Munch’s famed painting, “The Scream,” one of a 4-part composition he made with paint and pastel 1895, was picked up by the Royal Family of Qatar.  Rumors that Munch painted this work using a single mother in the morning before her Starbucks are untrue.

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$126.4 million
“Garçon à la Pipe” a 1905 work by Pablo Piccaso during his more vibrant and cheery Rose Period, was purchased by European pasta makers, Barilla Group.  $126 mil is a lot of spaghetti!

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$138.7 million
Pierre-August Renoir’s 1876 painting “Bal du Moulin de la Galette” was sold to Japanese paper mogel Ryoei Saito.  Was he making money, as part of his line of paper products?

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$142 million
The afore-mentioned Irish figurative painter Francis Bacon had his 1969 triptych, “Three Studies of Lucian Freud” (1969), purchased by Acquavella Galleries at Christie’s auction in Manhattan this week.

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$146.5 million
Dutch post-impressionist Vincent van Gogh – he of one good ear – would have still heard the sound of cash registers ringing as his 1890 work, “Portrait of Dr. Gachet” was added to Saito’s prominent connection.

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$152.6 million
Gustav Klimt’s, an Austrian symbolist and part of the famed Vienna Secession Movement, had his 1907 masterpiece “Portrait of Adele Bloch-Bauer I” purchased by Ronald Lauder for his chic Fifth Avenue gallery, Neue Galerie.  Reports are that he did not pay with a check.

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$156.5 million
American hedge fund manager Steven A. Cohen recently purchased the prolific artist Willem de Kooning’s “Woman III.”  Let’s hope that Cohen didn’t use taxpayer bailout money to buy it!

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$159.4 million
Jackson Pollock, abstract expressionist famous for his “drip” style, hit big with the sale of his 1948 work “No. 5, 1948,” to an anonymous buyer.  We can certainly say that Pollock painted better than he named them!

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$254 million
The biggest art purchase of all time was not a Picasso or Van Gogh, Monet or Dali, but Paul Cezanne’s 1892 “The Card Players,” purchased, again, by the art-loving and free-spending Royal Family of Qatar.  Cezanne, a Frenchman who lived his whole life in Aix-en-Provence, is credit for transitioning the art world from 19th century Impressionism to the 20th century’s Cubism, made popular by predecessors Picasso and Matissee.

A history of mortgages in the United States.

1781 – The first legitimate commercial bank is founded in America, introducing a new system of banknotes for exchange, government involvement, and decreased liability for bankers, spurning the modern mortgage.

Early 1800’s - Commercial, mutual savings, and property banks expand their role.  Each bank specialize in the needs of regions they serve, for instance, rural banks issue mortgages to farmers.

1820-1860 – The number of banks increases dramatically, as mortgage loans rise from 55 million to 700 million dollars in that period. 

1864 - The National Bank Act helps develop a national currency to assist in financing the Civil War.  This currency replaces bank and state bonds, though investment in mortgages is prohibited.

Late 1880’s. The United States mortgage market faces disruption, falling into a disorganized network of uneven allocated mortgage loans. Regional favoritism by banks sees favoritism in the Northeast and higher rates in the West.   

1905 - Only 4 in 10 Americans own homes.  In urban areas, up to 75% of people are renters.

1929 - The Great Depression sees a collapse of the US financial system, including banking collapses in which they called mortgage notes due in a cash crisis.  1 in 10 US mortgages end up foreclosed.  Property values drop and consumer confidence and bank lending are almost nil.

1934 – the modern mortgage is born as government intervention stabilizes the banking industry and injects confidence and safeguards into mortgages and lending.  This government intervention in mortgages sets it apart from rest of world.

As part of the New Deal, the Federal Housing Authority was established and enacted changes in mortgages like lower down payments, 30-year amortization, 80 and 90% loan-to-values or higher, and universal standards for qualifying as well as construction standards.

But mortgages were first introduced not as a brainchild of banks but insurance companies, as a way to make money by seizing homes if people didn’t pay.

Initially, mortgages were interest-only with a big balloon payment after 5-7 years and homeowners had to put at least 50% down. 

1938 - Fannie Mae was founded by the government.

Post World War II – As troops returned home, the G.I. bill for veterans, was enacted, along with the VA mortgage insurance program.

1949 – 1960’s – The measures to stabilize and ensure banking confidence work, with mortgage debt to income ratio rising from 20 to 73 percent during this time, and mortgage debt to household assets ratio rising from 15 to 41 percent

1968: The Housing and Urban Development Act of 1968 looks to promote lending and home ownership to people all over the country.

1970 - The Federal Home Loan Mortgage Corporation was established to help promote home ownership.

1970- Freddie Mac is chartered by Congress.

1974 – the Equal Credit Opportunity Act seeks to prohibit financial institutions from discriminating based on race, color, religion, national origin, sex, age or marital status. 

1977 – the Community Reinvestment Act is enacted to promote lending by banks and savings and loan associations and home ownership among minority and low income groups, ostensibly eliminating the practice of “redlining.” 

1980’s - Adjustable rate mortgages returned to the market under the guidance of the Federal Reserve bank.

1986 – the Tax Reform Act of 1986 eliminated tax deductions for interest paid on credit cards, encouraging the practice of using home equity lines of credit and second mortgages. 

1991- A US recession looms and new construction prices fall.

1991–1997 – housing prices are flat until we go into the tech bubble.

1997 – Important tax legislation is enacted, with the Taxpayer Relief Act, including certain exclusions on capital gains, encouraging people to buy bigger, more expensive homes, vacation homes, and rental properties. 

2000-2003 – Early 2000’s recession.  Government mortgage institutions accounted for nearly 43 percent of the total mortgage market

2001 – The US Federal Reserve lowers the Federal funds rate an unprecedented eleven straight times, from 6.5% to 1.75%.

2003 - Fannie Mae and Freddie Mac buy $81 billion in subprime securities.

2004 – US home ownership increases to 69.2%, the highest of all time.

2004–2005 - Arizona, California, Florida, Hawaii, and Nevada record price appreciation in excess of 25% per year

1997–2005 – Mortgage fraud increases by 1,411%!  

2007 The Subprime Meltdown - New century, American Home Mortgage, and other huge subprime lenders file bankruptcy.  Countrywide, the nation’s biggest lender, narrowly avoids BK, while Ameriquest goes out of business.

2008 – according to the National Association of Realtors, 2007 had the largest decrease in existing home prices in 25 years

2009 - A total of 3,957,643 foreclosures were filed on 2,824,674 properties during the year, up 21 percent from 2008.

2010-2012 – the real estate market finds its “bottom,” as record foreclosures, defaults, modifications, and short sales sweep the nation.  New regulations are enacted.  Housing tightens and lending standards become more conservative.  Institutional investors snatch up REOs and distressed sales.

2013 - A total of only 801,359 properties receive foreclosure notices during the first half of the year, a 19 percent decrease over the previous six months, and 23 percent down from the same period in 2012. 

20 Tips to buying your first rental property.

Investing in a rental property can be one of the best long-term financial moves you ever make, but it’s not without a fair share of risk and hard work. They say most first-time landlords actually lose money, or at least get supremely frustrated, because of the 4 T’s.  What are the 4 T’s?  They are taxes, termites, tenants, and toilets!

For those reasons, it’s best to do a fair share of research about buying and owning profitable rental properties.  An experienced, local realtor can be your greatest asset, and also talk to other successful long-time landlords and read up on the subject.  You’ll hear plenty of conflicting information, but that’s because there are different strategies based on where you live, your cash position, your capacity to fix up a property, etc. 

For the average first time investor, here are some general parameters for purchasing a rental property, so that you’ll be able to put cash into your pocket, not losing it because of the 4 T’s!

1. A standard 3-bedroom/2-bathroom house is your best bet for a single-family residence.  Usually a whole family can’t fit into a 2-bedroom house, and 4 bedrooms and up typically have a higher price tag-to-rent payoff.
2. Depending on your strategy, also check out halfplexes, townhomes, duplexes, triplexes, and even fourplexes, all of which still qualify for residential )non commercial) real estate purchases.  Definitely consult your realtor on this to learn the pro’s and con’s of each of these properties, because hidden issues like HOA fees and managing multiple tenants may make or break your investment. 
3. Be careful with condominiums.  In some markets, they are amazing investments because you can get them so cheap.  But often it’s very hard to get a mortgage loan on a condo (especially if the renter-to-owner ratio is too low) and byzantine HOA rules and restrictions make them unattractive.  Remember this: people buy condos because they are new, easy, and cheap.  After the first wave of ownership the new part and often the easy part go away.  However, condos can be great if you can scoop them up for cash, and your maintenance and landscaping costs may be nil.
4. Look for a humble house in the best neighborhood you can afford, not the best home in a marginal neighborhood, where appreciation won’t work in your favor.  Working class neighborhoods are great because there are always families who work hard, pay their bills on time, and need a safe, nice place to live.
5. Stay away from high-end rental properties.  They rarely cash flow because your initial investment and mortgage payment are too high.
6. NEVER bet on appreciation – only purchase a property that pencils out to cash flow immediately.  That’s the mistake too many of us made in the past, pre-mortgage bust; we bought homes betting that they’d appreciate quickly, even though they didn’t make money (or break even) in the short term.  That’s not investing – that’s gambling!
7. When factoring all of your income and expenses for the property, make sure you over-estimate all expenses, probably by about 25%.  Factor in 3 months vacancy a year, and plan on the water heater blowing, unexpected roof fixes, etc.
8. A house near parks or elementary schools is gold!
9. Don’t buy on a street that is too busy.
10. Don’t buy an older house – they require WAY too much fixing and unexpected maintenance.  Depending on the era, they might have nob and tube electrical, rusted pipes, asbestos, etc.  Your rental property doesn’t have to be brand new, but post 1978 is a good bet because construction was modern enough and you won’t have issues with lead paint.
11. Make sure you get a great home inspector to check out the property, but spend extra attention on the roof, central heat and air systems, foundation, electrical, and plumbing.  Review seller disclosures carefully and get roof certifications or warranties when possible. 
12. Have the seller pay for a detailed pest inspection, and if there are problems (like termites) request that they pay for a year's pest control service.
13. As you are buying the property, ask the realtors if you can put up a “For Rent” sign in the front yard, even when in escrow.  Definitely put one up when you close on the property, even if it still needs some work – you probably will get a lot of phone calls from drive by traffic and have a renter the first day it’s ready.
14. Find a house in close proximity to shopping, people’s workplaces, highways, etc.  Don’t buy a house that’s too isolated.
15. Make sure the house you buy is consistent with the neighborhood.  For instance, don’t buy a 2-bedroom house when all of your neighbors are at least 3 bedroom homes.  Your house appreciates in value only based on closed comparable sales, as done by a licensed appraiser.  If there are no similar properties, there are no comparable sales, and the value won’t go up.
16. Try to find a house with a clean, open, standard floor plan.
17. Look for a property that you can improve with easy projects: paint, tile, landscape, fixtures in the kitchen and bathrooms.  Those are easy, cheaper than big, complicated fixes, and most of the time you won’t need a permit.
18. Stay away from homes with “funky” rooms.  Homeowner additions, converted porches, garage conversions, etc. are all always liabilities, not assets, and never count the square footage to these rooms in your calculations.
19. Owners vs. renters.  If you’re purchasing a single-family residence, try to buy in an area with a healthy portion of homeowners, not just renters.  Homeowners usually take more pride in their homes and improve them more, because they have pride of ownership – and a big financial interest.   
20. My best advice?  The old adage, “Location, location, location,” is true – buy in the best neighborhood you can!

5 Super cool space-aged home appliances.

1. iKettle controlled by smart phone.

This stylish coffee maker not only brews a great cup of joe, but hooks up with your home’s Wi-Fi, allowing you to access its controls via a smartphone mobile app.  From there, you can schedule its use remotely, starting that water to boil so it will be ready the moment you get downstairs or get home.  Once the water is boiling, it sends prompts to your mobile phone to give you options to keep the water warm, set to a certain temperature shut it down, etc.   Of course the kettle itself is top of the line stainless steel, removable so you can wash it without damaging the electronics stored in its base.  Available at Firebox, it goes for 99 pounds or so (British product.)

2. Waring Breakfast Express makes waffles and omelets at the same time.

Perfect for Sunday brunch with the family, you can now make a perfect omelet with all of the ingredients and toast up waffles from scratch in the same appliance.  Not only will that save you time and make it easier to cook for several people, but your omelets will come out perfectly formed, instead of looking like scrambled eggs like when I make them!  You can get this appliance at Hammacher Schlemmer.

3. Airocide Air Purifier.

We’ve seen huge, conspicuous, and loud air purifiers, but this one by Airocide is positivelty elegant!  It’s simply a rectangular box with an open back, and has no filters to clean!  The design is based off NASA technology that was developed to slow the ripening of fruits and vegetables too quickly in space by scrubbing the air of ethylene.  I will spare the fancy NASA technology behind it, but it cleans the air 100% of pathogens and you only have to replace the Reaction Chamber once a year.  It costs $799, is about as big as a small audio speaker, and you can get it at Airocide.com

3. Dyson Air Multiplier fan.

The folks that brought you one super vacuum cleaner have done it again with the Air Multiplier fan.  It looks just like a little open circle, but amazingly it produces 118 gallons of air every minute, with no blades and quiet operation, amplifying the normal airflow by up to 18 times.  The price tag is only $330 and you can check it out anywhere Dyson products are sold.

4. Aroma Grill Express.

For you barbecue enthusiasts, there’s nothing worse than running out of time to marinate meat, or forgetting, and trying to improvise while it’s already on the grill.  The Aroma Grill Express has solved that problem, allowing you to season the food right as it cooks. It basically looks like a high-end George Foreman grill, but features a recessed channel down the middle you can fill with herbs, wine, marinade, spices, etc. that draws up into the meat evenly when heated.  It drains off the grease just like a Foreman grill and is big enough to fit a dozen sausages, a couple steaks, and a few pieces of chicken at the same time.  Yummm, I’m hungry!  It costs 119 Euros and is made by Beem.

5. Meneghini La Cambusa fridge.

La Cambusa markets this is an oversized fridge, but users say it’s more like a mini kitchen.  This 3-door fridge unit manufactured by the Italian company Meneghini looks more like a modern furniture cabinet when closed, with an all-wood exterior with an optional selection of knobs, handles, colors, and finished.  Door #1 is for dry goods, kitchen supplies, and tools, while Door #2 on the right side is the actual spacious and perfectly organized fridge, and the whole bottom cabinet is the freezer.  It also has compartments in the middle of the unit that can hold coffee makers, blenders, a microwave or, of course, a TV and computer screen for Internet browsing.  The price tag?  A cool $40,500.  If you want one give me a call, and I’ll do my best to talk some sense into you.

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You can find these products and many more at www.CoolThings.com.  

The Alfano Group Real Estate will bring you more fun and amazing home appliances from time to time, as well as great posts about real estate and our own Placer County, California, so keep posted or subscribe to our blog.