Cambodia’s Curse, Mexico’s Manana, Reckless Endangerment Stateside

by Carola Von Hoffmannstahl-Solomonoff

My summer reading this year kicked off with Cambodia’s Curse: the Modern History of a Troubled Land by former New York Times reporter Joel Brinkley. Brinkley won a Pulitzer in 1980 for his coverage (at the Louisville Courier Journal) of the fall of the Khmer Rouge.

The title Cambodia’s Curse bugs me. Though cultures resistant to change create illusions of inevitability, and a genocidal past casts long shadows, no nation or people are truly cursed. Nor do I buy Brinkley’s attempt to place partial blame for Cambodian acceptance of the Khmer Rouge on passivity engendered by the influence of Theravada Buddhism and Hinduism. First, it’s a simplistic take on the two religions, both of which are practiced in numerous countries that never exterminated a quarter of their own people in an effort to create a communist utopia. Second, countries with far different religious heritages have also had totalitarian holocausts. Germany and the Soviet Union most notably, respectively representing the right and the left.

As for Cambodian passivity, it must come and go– judging by the perpetual political turmoil of Cambodia in the 20th Century, and by the recent grass roots resistance to the land grabbing, population displacing, development policies of Prime Minister Hun Sen.

Caveats aside, Curse author Joel Brinkley does a swell job nailing the crony-rich corruption of Cambodia’s current government as headed by Hun Sen. Whose honorary title of “Samdech” (akin to “your excellency”) was awarded him in 1993 by Cambodia’s amazingly tenacious King Norodom Sihanouk. Easy to imagine the retired (sort of) Sihanouk doing Karaoke of I Will Survive. Dubbed the world’s most versatile pol by the Guinness Book of Records, Sihanouk has surfed wave after wave of political change since 1941. Sometimes wearing his crown, sometimes not. Using his royal influence to legitimize the Khmer Rouge in one decade and deep-six them in another. Dancing with ideologies of all stripes, telling foreigners bearing aid and investment whatever they want to hear.

Prime Minister Hun Sen is also a marvel of tenacity. In 1975, as a Khmer Rouge battalion commander, Hun Sen took part in the campaign in the eastern zone of Democratic Kampuchea (Cambodia’s name under the Khmer Rouge) that included the invasion of the capital city of Phnom Penh and the forced evacuation— aka death march– of its entire population to a rural paradise of forced labor. By the late 70’s, Pol Pot and his pals in the upper echelons of the Khmer Rouge were imploding with paranoia. Hun Sen sensed the reaper was turning his way. When Vietnam, after a series of border disputes, invaded Cambodia in 1979 and overthrew the Khmer Rouge, Hun Sen rode in with them and was given a top spot in the government installed by the Vietnamese.

Years of civil war followed. The Cold War shaped the conflict. The Soviet Union backed the repressive Vietnamese government; the USA and China supported the rebel remains of the murderous Khmer Rouge. Arms flowed from all sides. In the early 1990’s, as the Soviet Union waned, the Vietnamese departed. The Khmer Rouge dwindled. Little dictator (compared to Pol Pot) Hun Sen remained in place as prime minister. To placate international good government types bearing financial aid, he was eventually forced to accept a toothless coalition government representing parties other than his own. Dissidents are still persecuted. An independent judiciary? Freedom of speech? Who needs the lies and distortions?

Meanwhile, the handful of elderly Khmer Rouge leaders charged with crimes against humanity will probably keel over before their trials are allowed to conclude and the bureaucrats, speculators, and family members favored by Hun Sen continue to help themselves to Cambodia.

As for Cambodia’s established reformers, the go-to guys when foreign policy players from other countries require an anti-Hun Sen, they seem almost as seasoned, agenda-wise, as Sihanouk and his Samdech.

An aside about my being a mental tourist in flailing states. Yeah, there’s the appeal of the morbidly exotic. But there’s also the illuminating shock of recognition. What past or present resident of a flailing post-industrial city in say, New Jersey or New York, hasn’t seen similar political stasis? With old boys and hoary reformers as the fixed poles of political expression? Old boys rule; reformers wax profitably pious. Both sides (if the two ends of a continuum can be called “sides”) claim revitalization is just around the next public-funded corner. They may squabble over who gets paid but always agree on the need for more more more.

OK. Hun Sen and his cronies in Cambodia make our crowd seem like pikers. But to paraphrase George Bernard Shaw, we’re just haggling over degree. For folks interested in U.S. urban policy (or in improving their looting skills) Cambodia’s Curse is an instructive read.

Now Reading: Mexico

I recently started reading Manana Forever? Mexico and the Mexicans by Jorge Castaneda, Mexico’s former foreign minister. Only a few chapters in, so I can’t say much about it. But I have been brushing up on Mexico via other sources. My hitherto casual interest was amped last year by the flap over Secretary of State Hillary Clinton’s comparison of Mexico to Columbia during that country’s narco insurgency days. Hillary’s take was testily denounced by President Obama– and by the Mexican government. As an example of difference in the two situations, Mexico’s national security advisor pointed out that Mexico has never “elected a drug lord such as Pablo Escobar to congress”.

Wags might reply why buy the cow when milk is so cheap.

InSight, a think tank site focused on research, analysis and investigation of organized crime in Latin America and the Caribbean, recently ran an article (Mayor Goes Free, Mexico Fails Again to Prosecute ‘Corrupt’ Politicians) about the growing number of Mexican pols whose arrests on cartel-related charges have dissolved into non-prosecution. Including Gregorio Sanchez, the former mayor of Cancun,  Jorge Hank Rhon, the former mayor of Tijuana, and dozens of state and local officials in the state of Michoacan.

Mexico has 31 states (14 of which are on the U.S. State Department’s travel warning list) and a federal district. In late July, roughly 21 state prosecutors (a job akin to being a United States Attorney) resigned. Leaving the states and Mexico’s federal district temporarily without top cops. No reason given.

Zones of Silence

In June, Mexican reporter Ricardo Chavez Aldana (a native of Ciudad Juarez) spoke at the National Association of Hispanic Journalists’ annual meeting in Florida. Chavez was among several reporters who told of being threatened and of having relatives and/or colleagues murdered by drug cartels. June was a “particularly grim month” for journalists all over Mexico. On June 20th well-known crime reporter Miguel Angel Lopez Velasco and his wife and son were murdered in Veracruz. Another Veracruz journalist had been found in a shallow grave three weeks earlier. On June 7th, armed men abducted an editor of an Acapulco newspaper from a bar and on June 13th, a reporter for two dailies in the state of Sonora (bordering Arizona) was shot to death in an abduction attempt.

Also in June: a report titled Corruption, Impunity, Silence: The War on Mexico’s Journalists, by PEN Canada and the International Human Rights Program (IHRP) at the University of Toronto blasted “the Mexican government’s repeated failure to protect the human rights of journalists, its complicity in a number of rights violations against them, and the web of Mexican laws that limit freedom of expression and effectively gag journalists who seek to expose government corruption”.

During the same month the Committee to Protect Journalists (CPJ) upped Mexico to #8 (among the top 10 countries) on its Impunity Index; the index calculates unsolved journalist murders as a percentage of a country’s population. According to CPI “deadly anti-press violence continued to climb in Mexico, where authorities appear powerless in bringing killers to justice.”

In 2010, Mexico’s own National Human Rights Commission reported that at least 66 journalists had been killed since 2005 and 12 others had disappeared. Mexican officials claim not all murdered or kidnapped reporters are targeted because of journalism activities. Most recently in the case of police reporter Yolanda Ordaz de la Cruz. On July 26th, her decapitated corpse was found on a street in Veracruz. Colleagues say she was investigating the murder of fellow reporter Miguel Angel Lopez Velasco and his family and had received anonymous death threats. The top prosecutor for the state of Veracruz denies her murder was linked to her work.

Boosters for tourism in Mexico often imply only people involved in drugs or those who don’t mind their own business are in danger. But in a country where drug cartel terrorism has created news blackouts in journalistic zones of silence, government corruption is supported by laws that limit speech, and where 70% of all federal arrests dissolve into dropped charges and the overall rate of impunity for criminal activity is eye popping, the true number and nature of victims, be they reporters, average citizens, or foreign tourists and workers, may be difficult to ascertain.

In the meantime, the Mexico Tourism Board, under the leadership of newly appointed Chief Marketing Officer Gerardo Llanes is seeking to tidy up Mexico’s image. Llanes, who in his prior position helped launch Diet Coke in Mexico, is reaching out to U.S. media outlets like Bloomberg, Newsweek, and CNN in order to help them “get the facts straight”. Llanes and the Tourism Board will cite “swimming with whale sharks and camping” as a few of Mexico’s attractions in an upbeat publicity campaign tagged “The Place You Thought You Knew”.

Twinge of recognition: in flailing post-industrial cities stateside, political boosters always claim that the crime afflicting their bailiwick is merely a matter of perception. They also revile and/or try to work the messengers who deliver the perception. And true crime stats are always elusive.

A word about Jorge Castaneda’s Manana Forever. In it Castaneda references (negatively) the Mexican proverb: “El que no transa no avanza”. Whoever doesn’t trick or cheat gets nowhere.

The Last Book of Summer

I’m on a waiting list at my local library (I don’t do tablets– too much like Etch A Sketch) for Reckless Endangerment by Gretchen Morgenson and Joshua Rosner. A nice cozy read about all the folks in the Washington Wall Street nexus who pumped the real estate bubble that distorted our economy and then picked the public pocket when the Ponzi collapsed. I don’t expect Reckless to be a shocker, more like the kind of mystery where you know who-done-it right from the beginning but enjoy seeing how the perp is brought to justice. Oh. Wait. None of the major housing bubble perps were brought to justice. In fact, most are doing better than ever.

El que no transa no avanza!

 

 

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Gaming the Game: Baba, Elvis, and the NBA Betting Scandal

by Carola Von Hoffmannstahl-Solomonoff

Sean Patrick Griffin’s new book Gaming the Game won’t make disgraced NBA referee Tim Donaghy happy. In 2007, Donaghy was busted by the feds for conspiring with pro gambler Jimmy “Baba” Battista and their mutual boyhood pal, low-level drug dealer and all round dogsbody Tommy Martino. Donaghy had been supplying Battista with picks on games he refereed. (He was also betting those games through Battista.) Donaghy claims the devil, aka Battista, made him do it. Sean Griffin locates the devil that made Donaghy do it, in Donaghy’s own greedy soul.

Tim Donaghy, Tommy Martino, and Jimmy Battista had attended the same Catholic High School near Philadelphia. Tommy Martino was tight with both Donaghy and Battista. Donaghy and Battista were never close. But in late 2006, they became partners in crime.

Tim Donaghy’s version of events goes like this: after Jimmy Battista discovered through other gambling professionals that Donaghy was a gambling addict and was betting on NBA games, he extorted Donaghy into supplying NBA picks. According to Donaghy, Battista also threatened his family; implying that if Donaghy didn’t cooperate his wife and children might be “visited” by people from New York. As in, mob thugs. With 15 months in a minimum security federal prison behind him and an exculpatory book to peddle, Donaghy continues to paint Jimmy Battista in mobbed-up colors.

The Real Deal

Prior to conspiring with Battista and middleman Tommy Martino, Tim Donaghy was secretly betting on NBA games he officiated. He was also betting on games he didn’t referee, as well as other sports. By late 2006 he was dissatisfied with the paybacks he was receiving from his prime enabler (remember, we’re talking addiction) and switched to Jimmy Battista. Tommy Martino, a runner for Battista who also supplied him with drugs (as he did for Tim Donaghy), set up the meeting that got the NBA deal going. Jimmy Battista was stoked. “As a gambler, having an NBA referee tell you what games he likes was like taking a kid into a candy store and saying what flavor do you want.”*

As candy store guy, Tim Donaghy got a real deal; he didn’t have to cover his losses. Yes– he did make bad bets. According to Jimmy Battista, when Donaghy wasn’t referee his picks were much less reliable.

Jimmy Battista never asked Tim Donaghy directly if he was making calls to benefit his bets (don’t ask don’t tell being the rule) but he figured Donaghy “was going to do whatever it took to win”. Tim Donaghy maintains that all he did was handicap games from an ultra inside position. His winnings flowed from superior knowledge. The feds who prosecuted Donaghy never charged him with influencing outcomes. Though the plea deal Donaghy accepted did include a line about the possibility of his on-court performance being “subconsciously affected”. As for any lingering suspicions, Gaming the Game lays out new statistical research into the games Donaghy bet. Theoretically speaking, it does seem as if “Elvis” (Battista and Marino’s nickname for Donaghy, the King of NBA picks) might have shown his own interests a hunka hunka burning love.

Rest easy readers. Gaming the Game isn’t a compendium of statistical charts. Though important to the question of Tim Donaghy’s alleged doings, the stats are confined to an appendix. Plus, Gaming is far less about Donaghy than it is about the life and times of pro-gambler Jimmy Battista. As such, it’s a compelling character study and more historically interesting than a rundown of the corrupt actions of one greedy Gus with an edge. Sean Patrick Griffin, an Associate Professor of Criminal Justice at Pennsylvania State, Abington, and a former Philadelphia police officer, combines an eye for human detail with the ability to convey broad social themes. He’s a fluid, crisp writer and an A-1 historian of crime. Griffin’s earlier book, Black Brothers Inc.,The Violent Rise and Fall of Philadelphia’s Black Mafia, revealed a hitherto unacknowledged chapter in the history of crime in Philadelphia. Brothers was made into an episode of the Black Entertainment Television (BET) series American Gangster and has been optioned as a motion picture. Griffin’s knowledge of the crime scene in and around Philadelphia illuminates Gaming the Game.

Born in 1965, James “Jimmy” Battista grew up in a working class town near Philadelphia. He was a black sheep (hence the nicknames “Baba” and “Sheep”) in a close knit, morally centered family. His parents personified the work ethic. Despite his non-absorption of their other beliefs, Jimmy did soak up their attitude about work. From his early entry-level hustler jobs (as a cocaine distributing shoe salesman, he substituted coke for the silica salt packets in shoe boxes) through his learning curve as a paper-juggling bookie, to his glory days as a computerized pro gambler near the top of that industry’s legal and illegal ladder, Baba busted his hump. As an ultra successful pro gambler, he lived on the down low. No Damon Runyan excess, just a nice McMansion life with a wife and kids in a suburb forty minutes out of Philly.

Though Jimmy often worked at home, his family life was almost nil. He spent most of his time in the basement– in his home office slash betting center. Confabbing with other bettors and movers via Skype (harder to bug) and glued to a towering stack of TVs and monitors feeding him nonstop sports action and betting info from sources such as casinos and offshore sportsbooks. When a betting line made a mega move in say, Taiwan, a computerized voice alert (installed by Jimmy) would intone “Major Line Movement”.

When not busy in the basement Jimmy was on the go with his laptop and bag of cell phones. Doing business from other cities (including Vegas), other homes, and on park benches and in cars. He was a fan of T-Mobile, because buying a phone through them didn’t require ID. Sheep, as he was best known in the gambling world, used different phones for each major client. The phones were replaced frequently. His “disposable” phones were a major business expense; disposing of them was a job. The SIM (subscriber identity module) cards were tossed into rivers. The phones themselves went into an acid dip bath intended for cleaning restaurant grills. After the dip, Jimmy pounded the remains into smithereens with a hammer.

Then there was the hassle of transporting money and collecting debts. Re the latter, Sheep wasn’t a thug. He smashed phones, not faces. If someone welshed he just stopped dealing with them. Unrecoverable loss is part of illegal business. As for moving money, doing it in the U.S. was an exercise in paranoia. Think cross-state car trips with a million or so in cash stashed under the seats. Pit stops were fear stops. Sheep carried his food and water with him, along with a hospital “piss cup”.

Back in the Philly area, Sheep and his suburban, white-collar gambling colleagues were always worried that “the boys downtown” (Philadelphia organized crime of the Italian-American variety) would get ultra heavy with independent players. During one downtown mob war, Sheep and his then business partners temporarily relocated to Vegas, to dodge an expected rise in extortion demands.

By early 2007, Jimmy Battista was a slave to the rhythm. Years spent monitoring monitors and working phones while eating takeout had ballooned his weight. He took assorted drugs to ease the pressure of his work and had become addicted to Oxycontin. For the first time in his career he was betting while under the influence and losing like the suckers pro gamblers deride. He was heavily in debt, which was angering some of his most important business colleagues. His family was falling apart. And his always high paranoia level had been jolted to new heights by growing rumors of an FBI investigation.

Jimmy Battista did business with the crème de la crème of bookies and bettors. Some were mob connected. Apparently, an FBI team assigned to the upper echelons of the Gambino family in New York City picked up wiretap chatter about Tim Donaghy and his connection with Sheep. (The gambling world had been rife with gossip about Donaghy’s NBA betting for several years.) Another story says a mob-connected bookie with a business beef turned Sheep in. Whatever. What followed is history. All of which is covered extensively in Gaming the Game.

The research behind Gaming the Game is impressive. Sean Patrick Griffin, an academic and ex-cop, combines extensive reference to court documents, betting records, law enforcement files, and media coverage with on-the-ground interviews and multi-party corroboration. Gaming is also many leveled. Via its coverage of Jimmy Battista’s evolving career, Gaming is a history of the transition from paper-based betting to information age gambling. As a character study, it leads one to ponder the mysteries of human nature– and also, by implication, the mysteries of U.S. policies re gambling. Jimmy Battista was an immensely talented individual. Why chose a life so fraught with the dangers of (partial) illegality? Given his particular skills, Sheep could have been a contender on Wall Street. Where financial speculation, manipulating the odds, and a willingness to profit from another person’s fraud almost never brings down the feds.

Another character question: why did Tim Donaghy and Tommy Martino take plea deals and turn on Jimmy Battista while Battista kept his lip zipped? Sean Patrick Griffin has many interesting things to say about that. As he does about the overall legal and public relations strategies of “Team Donaghy”. Which he refers to as their “assault on justice”. As said, this book won’t make Tim Donaghy happy.

The NBA may not be thrilled either. Though Gaming the Game sinks some of the conspiracy theories that followed the scandal (including ones spread by Tim Donaghy) it poses plenty of hard questions about the NBA’s response to the Donaghy affair– and their ongoing stewardship. NBA officials (if they don’t feel too piqued) might find the section titled Some Suggested Research for the NBA quite helpful.

As example, since the 2003-2004 season the NBA has been collecting data on the calls and non-calls made by all referees. Though the collected data was originally intended for other purposes, current and future data will now also be analyzed with an eye toward spotting referees who might be fixing games. Sean Griffin suggests the NBA also make a retrospective analysis of the call data. Tim Donaghy claims that the winnings from his NBA bets (the ones which according to his plea deal concession, might have “subconsciously affected” his on-court performance) were fairly limited. Some folks, including a number of pro gamblers, think otherwise. Analyzing the data might clear up the issue once and for all. Plus, the suspicion lingers that other refs may have been gaming the game. A retrospective check for patterns of subconscious activity could help lay that suspicion to rest.

Back to Timmy, Tommy, and Jimmy. Before being busted Jimmy Battista entered drug rehab. After a lot of legal wrangling, all three men eventually served about a year in federal prison. As always, Tim Donaghy thought he deserved a better deal.

*All quotes in this article are from Sean Patrick Griffin’s Gaming the Game, Barricade Books, Inc.

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Left, Right, Third Party in Sight?

by Carola Von Hoffmannstahl-Solomonoff

Remember the late great Tea Party? The grass roots movement that made the political establishment quake? For one glorious moment it seemed as if a truly independent, average Joe/Joan movement might be gathering steam. A memory from that halcyon time: assorted TV pundits telling Republican leaders that Tea Party people “don’t like you guys either”. To which said leaders would put on a humble face and mumble something about how Republicans had lost their way and needed to get back on track. The big spending, corruption, and support for endless wars were missteps off the path of Republican core values.

In truth, no missteps were made. The Republican core was intact. Albeit shared with the Democrats. Big spending, corruption, and endless wars R both parties.

Though the following factoid has disappeared into the memory hole of ideological rewrites, a goodly number of those initially drawn to the Tea Party did not support endless wars. They supported the troops ’cause that’s a question of loyalty. But adventures-in-nation-building weren’t their thing. They were also concerned about losing civil liberties via Homeland Security overkill. And most Tea Party protesters blamed Wall Street, as much as government, for the financial meltdown of 2008. Lest we forget, the Tea Party really took off when the too-big-to-fail banks and other financial entities that partied with housing bubble paper were bailed out by taxpayers.

For a brief period the left was equally vociferous re the bailouts. But the moment of rapprochement between progressives and Tea Party types, along with the potential for game-changing coalitions, passed when it dawned on the left that coming down too hard on taxpayer infusions and massive government interventions might not set the right tone for passing health care reform. The Tea Party was way suspicious of government (almost as much as the 60’s counter-culture had been) and it was the wrong time to fan such suspicion. Instead ’twas time to ridicule and revile the masses of average Americans who feared that a government redo would make the failings of U.S. health care worse instead of better. That this fear might be based on, say, observation of the role federal policies played in inflating and eventually collapsing the housing market buttered no progressive parsnips. As for the fear that Obamacare would be Homeland Security in a nurse’s uniform, how paranoid was that?

While the left was in the basement mixing up the medicine and the Tea Party was on the pavement thinking about the government, the Republicans seized the time. Coming back strong as champions of the people and enemy of the political elite. (Insert row of laughing emoticons here.) Hoovering up the Tea Party and making it their own. The more the left trashed “tea baggers” the more the independent spark in the Tea Party dimmed. Tea talk started sounding more and more like the type of Republican conservatism dished by Limbaugh & company. Critiques of state capitalism, particularly as practiced during the Bush years, were out. So were thoughts of a third party. Union bashing was in. With public employee unions cast as evil incarnate.

After several years of government hearings and investigations into the 2008 financial meltdown, Republicans and Democrats have been unable to reach agreement on who-done-it. Republicans put the blame on the government sponsored mortgage giants, Fannie Mae and Freddie Mac; Democrats pin it on an insufficiently regulated Wall Street. No prime movers of subprime sleaze (hello Angelo Mozilo), or political enablers (hello Friends of Angelo), or major Wall Street sludge jugglers (too many for a shout out) have been prosecuted. Nor have new lending regulations staunched the growth of mortgage fraud in taxpayer-backed housing programs. However, we will be able to hang some teachers out to dry.

The concordance of big government and big finance that pumped the housing bubble and hence inflated hauls of real estate derived taxes (including property taxes) was not why so many local governments overextended themselves during the boom years and now face disaster during the bust. The real villains were teachers, firefighters, police officers, sanitation workers, and secretaries in public agencies. Aka Joe and Joan Average with a government job. Who, according to the bashers, are not average at all ’cause they get better benefits and more job security than a private sector employee or a small business owner. That being a private sector employee or a small business owner has its own set of advantages butters no conservative parsnips. The right, which typically decries attempts to stir up class warfare, is passing out flaming torches and whipping up envy. Screaming for folks to be stripped (preferably in public?) of their collective bargaining rights. Working to turn the American middle-class against itself.

And I thought only lefties were into creating social chaos…

Incidentally (or not) while the billionaire Koch brothers donated $43,000 to the gubernatorial campaign of union-busting Wisconsin Governor Scott Walker, housing and Realtor groups kicked in $43,125. Not that Republicans in general are uniquely blessed by the real estate industries. In New York, another state with budget problems, the NYC real estate crowd has been particularly generous to Governor Andrew Cuomo.

As for Joe and Joan Average, who really represents them? The left or the right? Answer: neither. At least, not reliably. Under certain self-serving circumstances both do an occasional good deed. But when push comes to shove in our state capitalist times, Joe and Joan are on their own. Which is less discouraging than it sounds. Being independent means never having to say you’re sorry for noticing that your representatives, no matter how rhetorically righteous, primarily rep big money conjoined with government power.

Third party, anyone?

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Mortgage Fraud! Mollusks! Taxpayers Rush to Invest

by Carola Von Hoffmannstahl-Solomonoff

Ah, mortgage fraud. The unsung power tool of the housing bubble. Starting around 1999, the FBI issued repeated warnings that mortgage fraud was surging. Few in government listened. Fraudsters ranged from organized cross-country rings of real estate, banking, and investment professionals, to non-profit profiteers and Joe and Joan Doakes lying on mortgage aps ’cause they just had to have that house. Feeling nostalgic about the big grift that sent no major players to jail but left taxpayers holding the Hefty and the landscape blotted with foreclosures? No need. Boom or bust, the impetus for mortgage fraud is a constant. When housing is hot there’s pressure to keep the market booming, in bust mode there’s pressure to jack it back up.

According to Core Logic (a leading provider of business information), after taking a breather in 2009 mortgage fraud increased more than 20% in 2010. (The Mortgage Asset Research Institute reports that Florida and New York lead the nation at number one and two respectively.) With government now owning or insuring 97% of mortgage bonds via Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), taxpayers are on the hook more than ever. And they’re paying for new twists. Quoting* mortgage fraud attorney L. T. Lafferty, a former federal prosecutor specializing in white collar crime, “fraud is… perpetrated differently when there are different opportunities”.

When one door closes, another opens…

Loan origination fraud, a mortgage fraud staple, is seeing new emphasis on hiding debt and liabilities. (Prior mortgage defaults? No problem.) Due to increased requirements for proof of income, credit, etc., mortgage fraud rings increasingly rely on identity theft rather than fake documents– thereby involving a wider circle of victims. Then there are the homebuilders with a glut of houses or condos who offer buyers financial incentives that aren’t disclosed to lenders. After buyers obtain loans, builders welch on the incentives. Oops, more underwater mortgages. Faked occupancy is on the rise. (Loans for second homes, and for rental properties without an owner in residence require larger down-payments and higher interest rates.) And hey– foreclosure rescue scams are on fire! Loan modification, refinancing, short sales, real estate owned (REO) sales, and government sponsored programs are being mined big time. Of course, almost the entire housing market might now be called a government sponsored program…

To date, taxpayers have kicked in $153 billion just to prop up Fannie Mae and Freddie Mac. Fan and Fred’s oversight agency (an organ of the FHA) estimates that the agencies’ losses through 2013 will require another infusion of between $68 billion to $210 billion. In government speak, a massive transfer of wealth from the general public (roughly one third of whom are renters) to cover a mountain of bad private assets is called an “investment”.

In Washington, the Obama administration and Congress are trying to hammer out a plan for “weaning the $11 trillion mortgage market from its dependence on government”**. The weaning, which will allegedly include the waning of Fannie Mae and Freddie Mac, must be done carefully and slowly so as not to damage the fragile housing market. (When the market was robust, reform was rejected ’cause it might damage the boom.) A time frame of five to sevens years has been mentioned. By then the full wean will be in the hands of the next administration. In the meantime, the real estate lobby is beating down doors in DC, to make sure that nothing (untoward) is accomplished. The National Association of Realtors, the American Bankers Association, the National Association of Home Builders, the National Council of State Housing Agencies, and the National Fair Housing Alliance are united by their determination to protect folks from being cheated out of the American Dream of Home Ownership.

Do Mollusks Dream of Electric Drills?

Mortgage fraud isn’t the only real estate product backed by taxpayer investment. There’s always (forever and ever) urban revitalization. Point of info: investment in urban revitalization does not put the truly needy in safe, clean public housing and bring industry back to fading blue collar cities. Instead it pumps luxury condo enclaves, twee art and restaurant districts, and political corruption. Perhaps no place exemplifies this type of urban revitalization better than Hoboken, New Jersey. A small (one mile square) waterfront town across the Hudson River from Manhattan, which after biting post-industrial dust was reborn as the jewel of government-backed new urbanism. That almost all of Hoboken’s blue collar residents were pushed out of town in favor of wealthier professionals largely employed by Wall Street mattered not. Gazillion urban planners saw the future and it was Hoboken.

What they didn’t see were the mollusks. More about them in a minute. First, the corruption. Everyone saw the corruption. Over the roughly three decades in which Hoboken became the revitalized gem of Jersey’s “Gold Coast”, developers and public officials from Hoboken and its parent entity Hudson County, went down like nine pins; bowled over by federal and state investigations frequently targeting corruption related to government-backed development projects. The U.S. Department of Housing and Urban Development (HUD) and U.S. Department of Transportation were soaked again and again. As were assorted state agencies. Tax breaks were/are crony candy. Hudson County’s other cities revitalized their historic corruption with equal fervor, inspired by Hoboken’s new urban success.

Hoboken eventually became one of the most valuable chunks of real estate in the country. Yet taxpayers have never stopped investing in its revitalization. The promenade that stretches along the city’s condo-lined waterfront was a mega investment. The walkway and its park areas are open to the public. Hoboken’s master builders would have preferred waterfront access to be restricted to condo dwellers but local green space activists fought not only to keep it open, but to expand the walkway into an unbroken strip running along the entire Gold Coast. Since public largess was powering waterfront development, developers had to bend. Pols scrambled to speed their plow, cutting government red tape re construction. In Hoboken the promenade was largely in place by the 1990’s. New Jersey’s Department of Environmental Protection signed off on it every step of the way.

Now we get to the mollusks.

The first cave-in on Hoboken’s promenade occurred in 2007, at Castle Point Park in mid Hoboken. Just a small collapse. No cause for alarm. But two years later, part of a sports field that had been built atop a pier slid into the Hudson. When the field was developed in the 90’s engineers warned that the pier’s pilings were infested with shipworms, a type of mollusk. Shipworms eat wood. Suggestions were made that the pilings be replaced with something less tasty. The suggestion went into the memory hole.

In early 2010, a section of the walkway in the north, near a cove between Hoboken and Weehawken collapsed. Last October, a fifty foot sinkhole opened on Frank Sinatra Drive. (Sinatra was a Hoboken boy.) The drive, which is 13 years old, runs along the river in front of a strip of luxury condo towers– including one which houses former NJ governor and ex Goldman Sachs boss Jon Corzine. The sinkhole, which was also allegedly caused by mollusks, followed two smaller collapses on Sinatra. Recently, engineers determined that the steel beams supporting Pier A, a popular park on the south end of the promenade near Hoboken’s train and ferry stations, need a makeover. Seems the concrete jackets on the beams aren’t covering all they should. No danger from salt water corrosion yet. Just being proactive. Pier A is like, totally safe.

Despite all the wealth that hangs in Hoboken, the city has severe financial problems. Hoboken isn’t the only entity responsible for repairing the collapsing waterfront (as example, Sinatra Drive was a county project) but the city will have to cover much of the rehab. The cost will be more than the entire city budget. Massive debt will be assumed via bonding. According to the New York Times***, Mayor Dawn Zimmer (elected in 2009) is holding out “hope for state and federal aid”. And Hudson County is hoping to obtain federal grants to repair the Sinatra sinkhole. As for the mollusks, they have high hopes for more wood.

*Mortgage Fraud: Worse Before Better, Expect More Schemes and More Regulatory Oversight in 2011, Tracy Kitten, Managing Editor, Bank Info Security, 02/04/11

**Obama Administration Calls for Winding Down Fannie, Freddie, Lorraine Woellert and Rebecca Christie, Bloomberg News, 02/11/11

***As Hoboken’s Riverfront Crumbles, the Cost for Repairs Soars, Richard Perez-Pena, New York Times, 02/08/11

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