06 December 2009

Fraudsters With Nonsense Theories Prey On The Desperate

Houston Press: Credit Repair
Overwhelmed by debt? Hey, pay a company to get rid of it by saying it never really happened in the first place.

This knowledge costs about $5,000, but what's $5,000 compared to $50,000 of debt? And these people won't help you negotiate or consolidate or even eliminate your debt. No, they'll invalidate it. They'll help you prove that no debt ever existed because no money was ever lent.

And just who are these people? Are they licensed financial advisers or attorneys? Does it matter? If you're drowning, do you ask about the person throwing you the line?

But if you must know, the man who's thrown the line to hundreds of people in Texas and across the country is Houstonian Bob Lindsey, an ex-convict and recovering crack addict. Lindsey's a guy you can trust, and you can tell this right away because he wears a cross around his neck.

This enormous pool of debtors is the reason why "debt elimination" or "debt consolidation" companies are spreading like fungi online and on television. Debtors are promised a lifeline and a sympathetic ear, but mostly they wind up deeper in debt. After years of action by state attorneys general and Federal Trade Commission warnings, it's a wonder how anyone can still fall prey to these companies, but apparently the warnings underestimate some debtors' desperation.

Thanks to a series of "educational" videos Lindsey posted on his site and on YouTube, by early 2009, he had become one of the Network's biggest contractors. The no-budget clips showed the gray-haired, avuncular 56-year-old sitting in his home, explaining how banks don't lend money, they create it out of thin air.

Critics call this the "no money lent" or "vapor money" theory. The thinking goes like this: Congress never gave banks the right to extend credit, so for all this time, banks have been acting ultra vires — beyond the scope of their charters. (Vapor money theorists like to curl up at night with a well-thumbed copy of Black's Law Dictionary). Credit is the opposite of money, and some theorists go so far as to say the only "real" money is gold and silver; cash is worthless because it's merely paper created by an illegitimate Federal Reserve.

But yet this theory flourishes, and it seems to have increased in popularity with — or at least many of those who push this theory have read — the 1994 book The Creature from Jekyll Island, by G. Edward Griffin. A man who has rarely met a conspiracy theory he didn't like, Griffin's book purports to be the true account of the "secret" history of the U.S. Federal Reserve, which, as it turns out, is neither federal nor a reserve. In Griffin's world, the United States, under the control of a shadowy group called the Rhodesians, rigged the World Trade Center explosions; Lee Harvey Oswald did not act alone; and the modern pharmaceutical industry was largely molded and influenced by a secret pact between Adolf Hitler, Standard Oil and John D. Rockefeller.

Alderman is the associate dean of the University of Houston Law Center and the director of the Consumer Law Center:

"There are a lot of con artists out there trying to take money from people who are probably the most desperate people, because they owe a lot of money," Alderman says, going on to explain that "once you find yourself over your head in debt, there's a number of options...It's probably in my opinion the most extreme, but that's what bankruptcy is designed for. Bankruptcy is designed to give people a fresh start, and if you find that you owe more money than you would ever be able to pay off and you don't have any income right now, bankruptcy is a viable option. And the stigma that people see associated with it really shouldn't be there."

1 comment:

se7ensnakes said...

“Plaintiff alleges that the promissory note he executed is the equivalent of ‘money’ that he gave to the bank. He contends that [the lender] took his ‘money,’ i.e., the promissory note, deposited it into its own account without his permission, listed it as an ‘asset’ on its ledger entries, and then essentially lent his own money back to him….He further argues that because [the lender] was never at risk, and provided no consideration, the promissory note is void ab initio, and Defendants’ attempts to foreclose on the mortgage are therefore unlawful.” Demmler v. Bank One NA, No. 2:05-CV-322, 2006 WL 640499 at *3 (S.D. Ohio Mar. 9, 2006).

While the vapor money theory has not been addressed by any court within the 8th Circuit, it and “similar arguments have been rejected by federal courts across the country.” McLehan v. Mortgage Electronic Registration Sys., No. 08-12565, 2009 WL 1542929 at *2 (E.D. Mich. June 2, 2009) (citations omitted). See, e.g., Thomas v. Countrywide Home Loans, No. 2:09-CV-00082-RWS, 2010 WL 1328644 (N.D. Ga. Mar. 29, 2010); Andrews v. Select Portfolio Servicing, Inc., No. RDB- 09-2437, 2010 WL 1176667 (D. Md. Mar. 24, 2010); Barber v. Countrywide Home Loans, Inc., No. 2:09-CV-40-GCM, 2010 WL 398915 (W.D.N.C. Jan. 25, 2010); Kuder v. Washington Mut. Bank, No. CIV S-08-3087 LKK DAD PS, 2009 WL 2868730 (E.D. Cal. Sept. 2, 2009); Rodriguez v. Summit Lending Solutions, Inc., No. 09cv773 BTM(NLS), 2009 WL 1936795 (S.D. Cal. July 7, 2009); Johnson v. Deutsche Bank Nat’l Trust Co., No. 09-21246-CIV, 2009 WL 2575703 (S.D. Fla. July 1, 2009); Gentsch v. Ownit Mortgage Solutions Inc. No. CV F 09-0649 LJO GSA, 2009 WL 1390843 (E.D. Cal. May 14, 2009). Thus, the vapor money theory is not a valid route to recovery, and Plaintiff’s claims based upon it must be dismissed.”

VS

“In the real world banks extend credit, creating deposits in the process, and look for the reserves later” (Moore (1979, p. 539)—quoting Fed economist)

“In the real world, banks extend credit, creating deposits in the process , and look for the reserves later.”
Alan Holmes, then Senior Vice President, Federal Reserve Bank of New York (1969)
http://www.bostonfed.org/economic/conf/conf1/conf1i.pdf

“the difference of m2-m1 leads the cycle by even more than m2 with the lead being about three quarters” kydland and prescott Pg 14
https://minneapolisfed.org/research/prescott/papers/prescott-et91.pdf

“Banks lend by simultaneously creating a loan asset and a deposit liability on their balance sheet. That is why it is called credit “creation” – credit is created literally out of thin air (or with the stroke of a keyboard).”
Paul Sheard, Chief Global Economic & Head of Global Economics and Research, Standard and Poors
http://2joz611prdme3eogq61h5p3gr08.wpengine.netdna-cdn.com/wp-content/uploads/2013/08/SP-Banks-Cannot-And-Do-Not-Lend-Out-Reserves-aug-2013.pdf

There is no evidence that either the monetary base or M1 leads the [credit] cycle, although some economists still believe this monetary myth. Both the monetary base and M1 series are generally procyclical and, if anything, the monetary base lags the [credit] cycle slightly.
Nobel prize winners Finn Kydland and Ed Prescott , Federal Reserve bank of Minneapolis (1990)
http://www.minneapolisfed.org/research/qr/qr1421.pdf

Under the present system banks do not have to wait for depositors to appear and make funds available before they can on-lend, or intermediate, those funds. Rather, they create their own funds, deposits, in the act of lending. This fact can be veriļ¬ed in the description of the money creation system in many central bank statements, and it is obvious to anybody who has ever lent money and created the resulting book entries.
IMF Working Paper Chicago Plan Revisited, p9
http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

The key function of banks is money creation, not intermediation.
Michael Kumhof, Deputy Division Chief, Modeling Unit, Research Department, International Monetary Fund