When I look back, it is in utter amazement at the number of false statements I have been subjected to by financial advisors and even friends. Its an important conclusion when one understands that almost no one, including the experts understand economics or forecasting. Even the most high status Wall Street financial advisor is mostly useless because they work for institutions that follow the pack and are so focused on short term gains that they can not see the forest from the trees. The greatest evidence for this is the most recent financial crisis where all the major Wall Street firms, and many of banks went off the proverbial cliff due to short term incentives.

Financial types can’t see past their next bonus much less the future. People get into this field because they are greedy. That should not be terribly shocking.

Magazines such as Forbes and Fortune take so much advertising that their objectivity is seriously compromised. So who to listen to? I have found several sources, which I have lauded a number of times in this blog, but which I have been surprisingly unable to get friends and acquaintances to read.

Why to people continue to gravitate to corrupt information sources long after they have been proven incorrect in their assertions. Need I remind anyone, Fortune awarded Enron its Most Innovative Company in America Award 6 years in a row. Regardless of past performance, people continue to quote information from these sources to me. It is almost as if no one keeps track.

Generally, I have told people I know about the best sources for financial information, and they are free and easy to find on the internet.

They are:

1. CEPR
2. Dollars and Sense Magazine
3. Michael Hudson

I don’t have to study very hard (although I did study the real estate bubble, but came to same conclusion that CEPR came to but with more rigorous methods) and now forecasting is easy. That is long term forecasting, I don’t believe anyone can say when a particular event is going to happen. However, if you look to the long term, then the specific event date is not all that important. I simply go with these sources, who have yet to be wrong. However, I am still asked what I think about this or that statement made by various corrupt sources such as BusinessWeek or Goldman Sachs.

but on most things I ask “what have my sources written on the topic.” So most of the time I end up contradicting what BusinessWeek or Fortune or Mad Money say based upon the longer term rigorous work of my three sources.

I don’t know what the reticence is to leverage proven resources. I stopped considering the opinion of television or people I know because it was bad for my finances. Most people have absolutely no idea what they are talking about when it comes to the economy, and are primarily repeating things they heard from corrupt information sources. Its like a a Pez dispenser when people talk about projections or investments, except instead a little piece of candy that comes out when they open their mouths, its a little piece of excrement. The financial “professionals” are the absolute worst, primarily because they are on the take, but secondly because most of them don’t understand economics. However it does not come down to simply understanding economics. If you are an economist with three letters after your name that shows academic performance, however, if you work for Wall Street, your PhD is now useless as a signal of quality because you have a very dark master.
______________________________________________

Larry Summers has a PhD in economics, and from a fancy university also. However, if you see this sleazebucket speaking on television cover up the television with something or turn it off. Larry Summers is in the back pocket of big Wall Street money, yet someone also holds a position in the the Obama Administration. This brings us to the next topic…

This is my all accounts a very decent man with an excellent legal mind and strong moral foundation. However, in the area of economics he is out of his depth. He has appointed some of the biggest corrupt sleazbags such as Larry Summers, but also Tim Geithner and many others. His ineptitude in selecting the right people has cost us collectively trillions of dollars. Thus its not enough to have economics knowledge or to not be corrupt, rather in order to be an authority worthy of listening to, you need to be both.

________________________________________________

How False Information is Repeated

However, friends and family are just as dangerous because they repeat false statements that they have read or seen from corrupt information sources. The financial illiteracy and propaganazition is so powerful that I literally will not discuss investments with anyone except people I cam close to primarily because I don’t want to listen to a restatement of information that has not been critically analyzed and originated from a corrupt source. Eradicating poor information sources greatly cuts down on my mental effort and allows me to better allocate my time.

This is the supposed chart that all stock buyers want, but few will ever receive – unless you have inside information.

We have written extensively on the ways in which stocks are both unnecessary for capitalism, misrepresented by the stock pushing industry and actually counterproductive to the competent management of companies. We thought we would create a compendium which lists our work on this topic.

Stock Market Falling

In this post we discuss the seeming inability of the population to see that the stock market is a rigged system which transfers returns from the average investor to the wealthy, and how the stock market distorts the marketplace by concentrating economic power. It also provides a remedy to the situation.

http://counterecon.com/2008/09/18/stock-market-falling/

What is the Real Purpose of the SEC?

Here we discuss how the SEC, far from being an instrument to protect investors is actually a false front. The SEC investigates people rarely, and when it does, it tends to be those unconnected with the system (new money) and its main interest is keeping “the illusion” of an honest market.

http://counterecon.com/2008/01/11/what-is-the-real-purpose-of-the-sec/

How Stocks Promote Monopolies

In this article we discuss why stocks concentrate economic power making the overall economy more monopolistic and less efficient.

http://counterecon.com/2008/01/11/how-stocks-promote-monopolies/

Do You Have Enough Assets to Get “A” Advice

Explains how investment advisers tier their advice. Wealthy clients get better tips, and the investors lower down on the totem pole get burned by being pitched stocks that the investment bank thinks will go down.

http://counterecon.com/2008/01/11/do-you-have-enough-assets-to-get-a-advice/

Inaccuracy of Average Return

Some people are interested in the higher macroeconomic reasons why stocks are bad for the economy. However, for those with a more personal focus, this article describes why the often repeated “average return” of the stock market is a complete lie and misrepresentation of stock market statistics.

http://counterecon.com/2008/01/11/the-inaccuracy-of-average-return/

Yield Disparity

We first found this on PBS’s Frontline and decided to write it up. It is highly related to the previous article on the inaccuracy of average return and references the main researcher in this area who maintains the database of returns for people of all different income levels. What he found seriously calls in to question the entire concept of the 401k program.

http://counterecon.com/2008/01/11/yield-disparity/

Stocks and Unnecessary Illusion

This is our explanation of what a stock actually is, and how valueless is it and why it makes little sense to buy or hold them.

http://counterecon.com/2008/01/11/stock-an-unnecessary-illusion/

We think now is an appropriate time point out the massive amount of false information that surrounds all of us. Here are a few of the main sources:

• Academics: Focuses on teaching overly mathematical classes on economics and finance that distract students from understanding the government created monopolies in banking and finance.
• Magazines such as Business Week, Fortune and Forbes are so consistently wrong and so late uncovering businesses that are fraudulent, that they can be seen as simply PR mouthpieces for companies. One wonders if companies can influence coverage simply by taking out adds in these low standard publications.
• Institutions like AIG and Goldman Sachs that promised that they could manage risk and that the rest of us lacked the intellectual firepower to understand their financial creations. Not coincidentally, Skilling used the same line of reasoning to try to explain why Enron’s books made no sense..because they were so complex they were a “black box.” That turned out to be false. Enron like Goldman Sachs and AIG were simply a fraud. The fact that they were fancy well heeled frauds does not change that fact. All of the large financial institutions have what are called “Chief Economists.” Their job is to have a PhD and shill for whatever products the company is selling (stocks, real estate, etc…) The conventional media is so compliant to power and so lacking in journalistic standards that they quote these paid spokesmen as if these individuals are simply performing academic research. David Lereah, the former Chief Economist of the National Association of Realtors now says he was pressured into writing overly rosy projections. (http://online.wsj.com/article/SB123152099299568447.html)

Economists like David Lereah can be given titles like “Chief Economist”
and will write rosy projections for and work as prostitutes for
institutions like the National Association of Realors. David Leheah
rode the housing bubble to frequent television appearances. However,
with the housing bust and his reputation in tatters, he left the NAR.
The NAR’s new economic prostitute is Lawrence Yun, who unsuprisingly,
now thinks housing market is looking up.

Economists like Mr. Lereah and Mr. Yun give this lady’s profession a bad name.

• Investment advisers that are paid to put people into funds. One of their favorite techniques is to show people funds that did well the past several years and then put them into these funds. The fact that buyers are often buying into a bubble is not apparent to them. When their funds tank, the adviser’s response is often “stay in for the long term.” However, it turns out that big investors do not follow this advice and move in and out of investments taking the returns from smaller investors. Another favorite statement by advises after they have fleeced their customers is “my clients are adults, and no one put a gun to their head.” Furthermore, advisers never explain the “yield disparity” to investors. That is that most of the returns in the stock market go to the most wealthy because that is how the system is rigged. (Explained here http://counterecon.com/2008/01/11/yield-disparity/)
• The Fed: this institution is not part of the federal government, but rather is a bank for banks. It somehow was given the power to create money, but is not a democratic institution. 100% of the time it sides with banks over individuals. Predatory loans issues were brought to the Fed branch in Cleveland, and they could not have cared less. After all, banks were making money from predatory loans. I can recall reading a book about the Fed called “The Temple” when I was young and impressionable. The book make the Fed sound like it was splitting atoms. This is a serious misrepresentation or reality. All of the Fed’s supposed complexity and secrecy disguises the fact that not much is going on — intellectually or economically. The Fed is there to keep inflation low and to enrich a select few. They change interest rates….no big deal. Why the government does not take back this function is not well explained. They have recently taken on $2 trillion in bad loans, but did not need to go to congress to do this. They also have not communicated this, or provided transparency as to the these loans. These loans will be owned by taxpayers, and most will be worth pennies on the dollar, because they can not be paid back. The Fed’s statements are unreliable, and it frequently violates economic principles in favor of creating asset bubbles. Nothing they say can be taken at face value. 

If you want to be propagandized and tired of thinking for yourself, Fortune can help you accept the corporate line that what is “good for GM is good for America.” Fortune does no much care about being correct, they are primarily concerned with promoting companies at the expense of individuals. You can look at them as a very large brochure for the Fortune 500. If you get taken advantage of following their advice, they have done their job.

Creating a Filter

This is only a partial list of course. The important thing to remember is that the financial and economics world is filled with self serving and false advice, and there is a literal army of people employed to misinform you. This puts a tremendous burden on the general population to decipher and repudiate this false information. If not educated in finance in economics, individuals have virtually no chance of breaking out of their spell. However, even for those educated in these areas, the education consists primarily of faulty and institutionally biased information.

Against this type of misinformation, its important to create a filter

There are ways of having a deeper understanding and creating a “filter” against faulty finance and economics information and advice. The best way to navigate these troubled information waters that we have discovered is to:

1. Understand the underlying principles of economics
2. Question everything, particularly from large institutions
3. Find sources that are not corporate controlled
4. Ask how consistent the statements are as time passes. For instance previously when stocks were appreciating executives justified their compensation based upon this. Now that stocks are declining, the new line is “in this environment, stock appreciation is not a fair measurement of value add.” Do these two statements make sense? Are they consistent with one another?
5. Evaluate people and institutions on the basis of track record. Track record (being right, when others are wrong) is the single best determinant to future likelyhood of being right
6. Annual reports (need we expand on this one?)

Here is the annual report of GE for 2007. Its filled with false financial information designed to defraud people by having them invest in their stock. KPMG-Deloitte-PWC-E&Y (pick one) were happy to sign off on these fake numbers for cold hard cash. You don’t keep your partnership position at a bit firm by losing an account like GE….so you sign off on whatever GE puts in front of you. As you can see we have applied our warning symbol towards the bottom. All annual reports should have this cautionary icon.

Publications and Individuals that Have Been Right

1. CEPR.net (Center for Economic Policy Research)
2. Dollars and Sense
3. Michael Hudson
4. Naomi Klein (not a finance or economics person, but a specialist on concentrated power information distribution systems)

One thing to notice is that none of these information sources is selling anything, and none of them take advertising. These are two important components to having objectivity. Dollars and Sense has a fantastic track record, but only takes in rough $150,000 per year. Consumer Reports, a non-financial publication, has a sterling reputation because they do not take advertising, and do not accept free products from manufacturers. This is critical. So no statement by major companies like Goldman Sachs, AIG or Lehman Brothers can be taken seriously, because they have something to “sell.”

References

http://online.wsj.com/article/SB123152099299568447.html

Things must be rough at NAR. Their Chief Economist can barely speak English.

Silly doubletalk from Yun.

This excellent chart of the NAR’s house predictions was complied by http://lawrenceyunwatch.blogspot.com/2008/03/history-of-wrong-predictions-by-chief.html

The National Foundation for Credit Counseling is an organization and lobby group for the credit counseling and debt consolidation industry. However, they not only represent credit counseling and debt consolidation firms, they also represent the creditors themselves. They were the subject of an anti-trust lawsuit.

“In the late 1980s and early 1990s, the number of credit and debt counseling agencies in America increased significantly. An antitrust lawsuit was filed against the NFCC, arguing that the presence of creditors on the NFCC’s Board of Directors constituted monopolistic practices. As a result of this litigation, creditors agreed to fund non-NFCC member agencies as well.” – Wikipedia

“A credit counseling agency typically receives most of its compensation from the creditors to whom the debt payments are distributed. This funding relationship has led many to believe that credit counseling agencies are merely a collections wing of the creditors.” – Wikipedia

1. Their main role is to steer consumers away from bankruptcy and foreclosure. Generally, credit counseling and debt consolidation has one of the higher customer complaint levels of all businesses.
2. Even when following cutthroat and one-sided practices credit counselors try to obtain tax exempt status from the IRS.
3. The NFCC has either no standards or very low standards for membership

NFCC offers a video on avoiding foreclosure, which is actually one of the best things a person underwater on their house can do. However, as the NFCC and its member counselors represent creditors’ interests, they are of course opposed to it.

Get your free creditor propaganda in the mail by contacting the NFCC.

Credit Counseling and New Bankruptcy Laws

In the new bankruptcy law of 2005, it now requires people filing for bankruptcy to hire a credit counselor, and to hire them 6 months prior to declaring bankruptcy. This greatly delays the bankruptcy process, as well as increasing the cost of declaring bankruptcy. We suspect the only reason for
this is because of lobbing on the part of the credit counseling
industry (bankruptcy is now more complicated and places legal liability on attorney’s, decreasing the attorneys that practice bankruptcy and increasing their costs.). They are represented by the National Foundation of Credit
Counseling. We will write more about the NFCC on a future post.

Conclusion

Credit counseling services and NFCC have far too cozy a relationship with creditors to be honest brokers. The way credit counselors represent themselves to customers is a misrepresentation of their actual behavior. Industry insiders consider them simply collection arms of the credit industry. Finally, the employees of credit counseling services are generally considered poorly trained.

In general, its unclear why credit counseling is necessary. By reading material individuals can take care of paying their bills themselves. What is needed is more freely available material, not another layer of fee oriented individuals to walk people through paying their bills. Secondly, all advice from a credit counselor is of dubious quality as they are unlikely to advice their customers of all the options available to the customer. However, the new bankruptcy law has made credit counseling a legal requirement. Creditors, credit counselors and the NFCC are drawing a net around debtors which requires they take “responsibility” for their actions, while the creditors themselves engage in all manner of malfeasance. This is an increadibly unfair system. Furthermore, the NFCC supported 2005 bankruptcy law actually influenced the housing crisis and in the following way.

“Before Congress passed the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005, households could erase their unsecured debts by
filing for Chapter 7 liquidation. That freed up income that distressed
homeowners could use to make mortgage payments.

The new law,however, forced better-off households seeking bankruptcy protection to file under Chapter 13. That chapter requires homeowners to continue paying their unsecured lenders.

The paper’s lead author, Donald P. Morgan, a research officer at the New York Fed, said last week in a phone interview that he was “99 percent confident” that the bankruptcy reform law was a major reason for the foreclosure crisis and the falling housing prices that have affected virtually every homeowner in the country.

One of the great lessons and ironies” of the new law, Treasury Department economist David P. Bernstein wrote in a recent paper, was that, by increasing the dollar value of assets susceptible to default, it has weakened many of the financial institutions that sought the new law in the first place.” – Kansas City Star

References

http://bankruptcy.findlaw.com/new-bankruptcy-law/new-bankruptcy-law-basics/big-changes.html

http://www.nfcc.org/

http://en.wikipedia.org/wiki/Credit_counseling

http://www.kansascity.com/105/story/976039.html

(picture from http://boicemail.blogspot.com/2007/05/may-7-2007-newsletter.html)

While banks are begging for and getting money to cover their losses, what has been must less discussed is whether homeowners will be offered debt relief. Henry Paulson, the Secretary of the Treasury has stated that the number one thing the government can do for the average American is “stabilize the banking system.” This translates into giving trillions to the banks. However, there are hazy and hopeful ideas proposed, mostly by real estate professionals and banks that programs for borrowers are “just around the corner.” This link points out that every program recommended to congress is related to bailing out banks over house owners.

http://www.cepr.net/index.php/data-bytes/housing-market-monitor/plans-to-help-homeowners-send-checks-to-banks/

What Are Banks Doing To Help The Mortgage Situation?

Banks and the Fed and the Treasury (the Fed and the Treasury simply represent banking interests and don’t have to be lobbied) have lobbied congress for $3.4 trillion in various debt relief. The same debt relief banks deny their customers. The framing of  the crisis is clear, house owners must be “responsible” while banks get bailouts. Also banks are not interested in a careful examination of how this crisis was originated, but would rather move on. Furthermore, banks are not increasing lending with this money, as the collateral for loans has dried up. They are putting US taxpayer money into these areas:

1. Lavish executive compensation
2. Bank mergers
3. US Treasury Bonds
4. Preventing the honest auditing of their derivatives in order to cover up the how the mortgage backed security and credit swap business drove this crisis
5. Providing no accounting of where the bailout funds are being spent

Here is how the bailout to banks breaks down roughly. As you can see house owners are left out of the bonanza. This is the great plan brought to you by the Treasury Department

So the answer is that banks are doing nothing positive to help the mortgage crisis. In fact, the Fed and the Treasury (the banking industry quasi government representatives), are actually worsening the crisis with every action. This is unsurprising, as they caused it. Furthermore, the crisis is so deep, that the Treasury and the Fed want to get subsidies to their friends in the major banks, in the case of a more general default.

What Should Underwater House Owners Do?

Banks, mortgage lawyers, real estate agents, are all trying to have their voices heard on this topic. Their voices are almost always against the house owner’s interests. All of these experts contributed to the problem with creating the bubble and now they would like to be listened to again. The attempt here is to make a relatively simple decision complicated so that the advice of experts is necessary. This post will demonstrate that the options are not that complicated, and many of the options often given to home owners are not real options.

The different options break down into:

1. Having owners reduce their standards of living in order to pay their mortgage
2. Short sale
3. Short-refi
4. Foreclosure

Keep Paying the Mortgage on a Depreciated Asset

Of these options, the banks would prefer the first option. Countrywide told a man who was behind on his mortgage that spent $10 per day on groceries, that maybe “he could eat less.” Never concerned with ethics previously, or in the bubble build up, lenders get very preachy when discussing owners walking away from their upside down mortgages. The CEO of Countrywide Angelo Mozilo who in an email stated he though people who tried to refinance their underwater houses were “disgusting” pocketed $130 million in stock options he sold before the crash in Countrywide stock.

So the new line from banks and credit counseling outfits is “responsibility.” Gail Cunningham, the spokeswoman of the National Foundation for Credit Counseling states…

“We need a culture of responsible consumers and homeowners,”

The banks are trying to convince house owners to “fight to keep their home,” as if keeping a giant liability like an underwater mortgage is some scene from the movie Rocky. They are offering ways to worsen the house owners’ financial situation such as moving them to interest only or to a repayment loan. What the bank does not discuss is whether it is a good financial investment to keep paying the loan. They will never discuss this.

Another technique is trying to convince people that help is on the way. Programs like Bush’s foreclosure freeze for 30 days is basically a joke. No help is likely forthcoming because it would have to fight the banking lobby which as we have seen with the bailout is peerless. However, you can decide for yourself. So far the government has printed or spent (depending upon how you look at it) $3.4 trillion helping banks. We are aware of no programs of any fractional size to help house owners.

Ahhh……the promise of short sales and short refi’s

Short Sale and Short Refi

As for the other options, it is not clear that these are legitimate options. One way you can tell is by looking for short sales online (they are very difficult to find). When a friend contacted a major bank to inquire about their short sales, the bank declined to offer this information. This article discusses the issues with short sales…

http://tampabay.bizjournals.com/tampabay/stories/2008/03/03/story12.html?=120452040^1597931&surround=etf

…and offers the following quotation:

“”They are trying to execute a scenario that is absolutely impossible,”said Peter K. Murphy, CEO of Home Encounter LLC in Tampa, which is tracking short sales in the current housing market. “They want to throw a short sale on the market, hoping the bank will drop a price, and they’ll be able to sell. But that’s just not happening.”"

The overriding problem with short sales and short refis is that they are entirely at the bank’s discretion. Secondly, many real estate agents don’t actually know how to proceed with a short sale. Furthermore, there is evidence that it only makes sense to attempt a short sale with an agency that specializes in them as the number of agents with this knowledge is so thin. Many agents are so incompetent that they take their clients down the short sale path, obtain an offer, without ever checking with the bank as to whether they will actually accept a short sale. This is the first thing that should be done, but many agents don’t check first. Any agent can list a short sale, but few can bring it to closure.

Thus the statistics on short sales are as miserable, so house owners need to check the references of agents on how many short sales they have personally processed if the house owner attempts to go down this very difficult path.

“”Only 2 percent of all short sales attempted year-to-date have been successful,” Murphy said. “Short sales themselves are a great solution for certain types of problems homeowners are facing, but they have to be handled properly, or it will turn into nothing more than a giant mess.”"

Short refis are also extrodinarily uncommon. Websites like the following..

http://www.wizardlending.com/short_refi.htm

…and this YouTube Video…

..present short refi as very beneficial, and they are in theory. Winning the lottery is also very nice. However, these sites do not explain why short-refis are so uncommon. Instead they offer a lot of pie in the sky and jargon, along with come-ons to contact them for more details. The conventional wisdom is that banks would prefer anything over foreclosures, however, these sites neglect to mention that the short refi process is controlled by banks, and there is tremendous red tape involved in the process.

Because of these factors, it appears that the real purpose of the short sale and short-refi is to get the house owner to initiate a conversation with banks, who can then steer the house owner back into paying their mortgage using scare tactics. The problem is that listening to banks, real estate attorneys and real estate agents is what got the house owner in trouble in the first place. The short sale and short refi is a “free lunch,” and looking for free lunches is a problem. Con artists have an old saying…”You can’t cheat an honest man.” All cons, and the real estate business is no exception. Cons are based upon te idea that the mark is getting a “hidden deal.”

Real estate has an overage of overconfident and self dealing individuals who profess competence in matters which they do not possess. Incompetence and self-dealing is rampant among agents, attorneys, mortgage brokers and bank representatives. Part of this mortgage crisis fall on the shoulders of the individuals who were driven by fees over any ethical standards. Agents were instrumental in getting buyers to over leverage with the promise of appreciation. Being wrong in the past, does not seem to moderate the desire to provide advice as to the future. If these people were captains of a ship, it would long since have sunk. This personality type is precisely what gives Americans such a bad reputation in Europe. Furthermore, regulation and consumer protection is minimal. (Statements related to how unethical behavior is limited because individuals can lose their license is false, because this so rarely happens in these professions.) This does not seem likely to change, so self informing must supersede discussions with individuals connected to this industry.

Image from http://media.rd.com/rd/images/rdc/mag0711/when-foreclosure-hits-01-af.jpg

Foreclosure

Foreclosure is the normal pathway for underwater houses. The effect on credit is negative, however, there is a cost and benefit to any decision. In cases where the house owner can still afford the mortgage, but has lost all equity, the house owner is getting rid of a massive liability. This has a cost, in a reduced ability to borrow. In the case where the house buyer is having problems with meeting payments, there is actually evidence that not going into foreclosure can hurt the home owners’ credit more, as they often miss payments in other areas because they have left themselves no margin for error. Foreclosure puts the owner in control and allows them to use the leverage provided to them by state law (which we discuss below) other methods put the banks in control.

As far as timing, the fact is that credit ratings will mean less over the next 2 to 3 years because there will be no or a negative benefit to borrowing to buy property. Thus the value of the “right” to indebt oneself must be properly valued. So, this is one of the best times to have a foreclosure if one ever is to have one.

An interesting take was provided by a blogger

“Blogger Mike “Mish” Shedlock, of Mish’s Global Economic Trend Analysis, argues that people shouldn’t feel bad about backing out of the contract. He writes, “If banks can make ‘business decisions’ to ignore risks, to lend money with no down payment, and fire people at the first sign of trouble without any remorse, why shouldn’t consumers be able to do the same?”

Foreclosure Services

There are a number of services which are now focusing on “helping” people with their foreclosure. One should be suspicious as many people who turn to business that promise to help them with their finances end up even worse off and scammed twice. As discussed at SmartCreditInfo.com, debt consolidation services have serious conflicts of interest.

Here is a link on how the credit consolidation industry actually works.

http://www.smartcreditinfo.com/thetruth.html

Furthermore, walking away from a home is not particularly complicated. The real estate industry in general has a high propensity to make simple transactions appear very complex, mostly for reasons of fee generation on the part of people who work in real estate. The more new terms and complexity the industry can come up with, the more dependent home buyers and sellers will be on industry specialists.

Image from http://globalmoxie.com/blog/hackdaylondon-tags.shtml

This is how a lot of things in real estate are designed, lots of unnecessary complexity, for what is in fact very simple work.

Here are a few important points that make a big difference in whether the transaction is done in the house owner’s interests.

1. The fact that the house owner still inhabits the house is leverage against the bank. House owners should only move out of the property after they have received a signed document from the bank signing their rights away for a deficiency judgment. (this prevents them from attempting to recover the house sale price differential from the home owner after they resell the house). This document should be reviewed by a real estate attorney to make sure it is legitimate and comprehensive
2. House owners have rights to stay in the house under state law and this is their main leverage and it is not controllable by the bank
3. Under a foreclosure the bank’s interests are the opposite of the property owner’s interests. Statements about “win-win” scenarios need to be thrown out the window. Therefore no bank statement or discussion should be accepted at face value. That is a house owner can no longer trust statements make by bank representatives and everything must be independently verified

Before one enters into foreclosure, one is obligated to become educated. Before even speaking to a bank or real estate professional, one should read the published material, which is easy to find.

Low Cost Guides

Nolo has a guide on foreclosure here:

http://www.bankruptcyforeclosureblog.com/2008/09/how-to-walk-away-from-your-hom.html

Nolo Guides are typically very good, and for $13.00 as a PDF download this would be a very good purchase for a person considering walking away. There are also books on Amazon (although most focus on buying foreclosed properties). However the Nolo Guide above covers the bases, and it can be bought and read immediately as it is a download.

Foreclosure Yes offers a faster way to find information on the topic. 

One feedback we have heard from those reading Nolo guides is that they can be too time consuming to read. For those looking for a faster read see http://www.foreclosureyes.com

References

http://www.npr.org/templates/story/story.php?storyId=18958049

http://youwalkaway.com/

http://blogs.moneycentral.msn.com/smartspending/archive/2008/02/19/when-is-it-ok-to-walk-away-from-your-home.aspx

http://globaleconomicanalysis.blogspot.com/

http://adage.com/garfield/post?article_id=123355

Abstract

The presumption of US media outlets is tha
there is an attempt to present unbiased information to readers. However, there are a number of biases inherent in all financial publications. These biased are discussed in this article.

The bias related to taking money from financia
interests in the form of advertising in return for distributing overly optimistic information on stocks is well documented. There are many books on the subject, but the fact is rarely discussed in the media for because investment companies are such larg
advertisers that media companies do not want to compromise their relationship with them. As noted by James F. Wells

“They are usually trying to maintain a cozy relationship. This provides for example, the basis for the cozy relationship b
tween the media and their sponsors. Usually they overcome this potential image problem with sincere pronouncements of the very thorough coverage of events not in the sponsor’s worst interests.” – Understanding Stupidity

The system roughly
works in this way:

1. Investment companies have “analysts” who pretend to present objective information to media outlets.
2. The media outlets then uncritically repeat these recommendations to the consumers of their peri
   dical.
3. Undisclosed is that these investment companies often already hold positions in “recommended” stocks or are providing positive recommendations in return for underwriting fees with other related companies.

(Exactly how this works is explained in the section on IPO Distributions to Connected Investors section of the article Do You Have Enough Assets to Get “A” Advice?)

This is referred to as supply side bias
While it is the most well known type of bias, in fact there is also a demand side bias which also works to degrade the information provided by media outlets.
Research into bias in financial publications performed at Stanford University resulted in
the following quotation:

“Where we are certain that bias is conscious is in the personal finance publications emphasis of past returns over expenses. As one former mutual fund reporter has writer: “Mutual fund reporters lead a secret investing
life. By day we write “Six Funds to Buy Now!” We seem delighted in the dangerous sectors like technology. We appear fascinated with one week returns. By night, however, we invest in sensible index funds.“

That is, consumers want their publica
ions want to appear topical and exciting, even though this leads to recommendations which are more poorly performing than lower risk investments. Of course, since so few publications track the performance of their recommendations, and so few people bothe
to check, magazines can afford to make recommendations that perform poorly. This works in foreign policy as well. History is poorly tough and highly filtered in the US. Secondly, people quickly forget events that they themselves live through.

While advertising is a supply side bias in media, sensationalism of this sort can also be correctly observed as a demand side bias which is “reflecting the news providers” profit maximizing choice to cater to the preferences of the consumer. (see more o
by selecting our section on Demand Bias) Both forms of bias, supply and demand reduce the accuracy of financial reporting. Television news shows demonstrate similar biases, however level of information provided is of even lower quality. It generally hol
s the more expensive the media system (and television is very expensive) the more controlled it is by power interests. Lower cost media such as low powered radio and blogs tend to have the lowest degree of
ensorship and catering to power interests.

The Third Bias: Source Protection and Quid Pro Quo

In addition to supply and demand bias there is what we will call the quid pro quo bias. This type of bias is not exclusi
e to finance reporting and was well explained in the research into The Media and Asset Prices:

“An important asset in a journalist’s professional portfolio is the privileged sources of information she has access to. To maintain access to
hese sources journalists establish a quid pro quo (relationship). The source repeatedly reveals valuable information to the journalist in exchange for a positive spin on the news being revealed.” – Unknown

The Net Result of these Three Biases

The three biases we have covered thusfar are:

1. Supply side bias
2. Demand side bias
3. Quid pro quo bias

The unstated assumption of media and in fact all learning systems is that both reporters and news consumers are both seeking objectiv
information. This is not a fair representation of how the information is presented, how humans learn or how information is gathered by journalists. However, this is the model presented to the public, and generally accepted by the public regarding how me
ia systems work.

Further research into the demand bias has found specific attributes of news consumers. It is critical to understand this to have a proper conception of how people filter information presented to them:

1. They tend to search out information that conforms with previously held beliefs.
2. They tend to believe and remember information that conforms with their previously beliefs.
3. They tend to respond to sensationalism, meaning that esoteric and new, though risky, investments may be emphasized to the detriment of stable proven investments.
4. Very few news consumers are aware of their own biases.

These three biases Demand, Supply and Quid Pro Quo all work against what is the stated objective of these news outlets and of those people consuming the news from these outlets. However the stated purpose of news outlets is not the actual purpose. The actual purpose is to make money for themselves. A financial media outlet can make the most money for itself by courting advertising dollars by being investment company friendly in its articles and or shows (supply bias), by providing exciting sensational news to its customers (demand bias), and by refraining from criticism and maintaining the relationships with its information suppliers (quid pro quo bias)Technorati Tags: writing bias, financial bias, media corruption

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