Tuesday, May 30, 2017

The Bust-Out and Other Complicated Scams

Most con artists are not this obvious.

I mentioned before in another posting that smart people born into poverty often find odious ways to get ahead - as part of a gang or organized crime.   And their schemes and cons are often very complicated and detailed, which makes it hard for law enforcement to prosecute such cases.

I recounted before how my debit card was stolen.  Not physically, but the numbers on it.   Today, they call this "identity theft" but really it is just plain old credit (or debit) card fraud.   What did they do with this debit card number?  It is so complex it boggles the mind:

1.  My debit card was used to buy classified ads online selling non-existent purebred puppies.

2.  People answering these ads were told to send money by Western Union to an office in Mineral Wells, Texas.  The price of the puppies was such a "bargain" people would send money.

3.  Ads were run in Craigslist in Mineral Wells for "secret shoppers".  The people answering the ads were told they were to "test" Western Union's service by collecting wire transfers and then sending the money to Russia.
Now, even here in Reader's Digest form, a lot of people are still confused.  "Wait, so who ends up with the puppies?" they ask.   There are no fucking puppies, just pictures of them on fake ads on the Internet!  Sheesh!  This is why people keep falling for these scams - since they are hard to explain, people don't see them.

It was like one of those Russian stacking dolls - which was appropriate as it was run by the Russian mob.   They had a network of ads on multiple sites, Google Voice phone lines hooked to local phone numbers in the US (but ringing in Russia).  Fake web sites, fake e-mail addresses, and so on and so forth.  It took a lot of time and effort to set up, but it made them a lot of money.

It is a lot more complicated that breaking into your house and stealing your television, or putting a gun in someone's face and demanding their money.

And since it is so complicated, so hard to prove, and crossed continents and national boundaries (The US, Canada, Russia) it is nearly impossible for the Police to do anything about it, other than warn people that "if it sounds to good to be true, it probably is!" - in other words, blame the victim.

Most of the the people who fall for this nonsense are lower-class people (for some reason, more "designer dogs" are sold to the poor than the rich) who still believe in the free lunch and "stories" spun by fraudsters.

And yes, this applies to things other than puppies.  Cars, boats, motorcycles, and whatnot.  It goes on every day, and every day, stupid Americans send money off to Russia, India, Nigeria, or Al Qaeda, because they are greedy and think they can get something-for-nothing.

Scams are rarely simple, which is what makes them hard to detect, hard to avoid, hard to police, and hard to prosecute.   If you have to explain something to a jury in a paragraph or more, their eyes glaze over and they lose interest.  In the era of the 140-character tweet, you can't explain to people why colluding with Russia is a bad thing.

The Bust-Out is a similar scam, often used by organized crime, to create money from destruction.   An example of this was illustrated over a series of episodes of the Sopranos.   A middle-aged, middle-class guy who runs a sporting goods store wants "in" on a poker game, and Tony lets him in.  He loses heavily (most gamblers do) and Tony "lends" him more money to gamble.   Now, bear in mind Tony isn't "lending" anything - the "Mark" is playing poker with Tony's friends, so basically all the money on the table is Tony's.   No one is really losing money except the Mark.

Now heavily in debt to Tony, the Mark is given two choices - let the boys "bust out" his sporting goods store, or end up floating dead in the East River.   Guess which one he picks?

The boys order more and more merchandise for the store, but stop paying invoices.  They sell goods and keep the cash.  They stop paying rent, taxes, employee withholding, or whatever.   Other goods leave through the back door and are sold on the street.   Within a few months, the store is bankrupt - heavily in debt - and the boys leave with all the money, leaving the "Mark" to suffer through bankruptcy and the loss of his business.

Does this sort of thing actually happen?   Well, yes, and I related that before.   I worked at the ill-fated Olde Tyme Gaslight Restaurant where my boss, a young chef, had invested the proceeds of his father's life insurance money in the restaurant, partnering with his Uncle, who had run a number of restaurants before (all of which mysteriously burned).   While my boss busted his ass trying to make a go of the place, his Uncle was stealing him blind.   He took money out of the till, he took supplies (particularly booze) from the back room and used it in his own bar.   He stopped paying suppliers, rent, and withholding, and siphoned off more and more cash.  When it all came tumbling down, my boss shot himself in the kitchen.   Or at least that is what we were told.   I often wonder how he really died - and his Dad as well!   Bust-outs happen.   And the restaurant industry is famous for them.

It also happens in "legitimate" business as well - which is why cons are getting harder and harder to spot - they have spilled over into the legitimate business world.   "Entrepreneurs" like Mitt Romney and Bain Capital will buy up a run-down company, strip it of assets, load it up with debt, let it fail, and then let the government bail out the pension fund - 40 cents on the dollar.  All perfectly legal, too.  If you tried to take them to court, they would just argue they are shitty businessmen who didn't know what they were doing - but of course they did, they knew exactly what they were doing.  There is often more profit in failure than in success.

Mortgage Fraud is a variant on the bust-out.  And it is such a complicated fraud that even though I have explained it here before - twice - many people simply don't "get" it.  And they don't get it because they think the big banks caused the mortgage meltdown of 2008 and that "Mortgage Fraud" was something Fannie Mae did.  Again, people are stupid and they want to hate "the big corporations" or "the big banks" because they are fed a lot of socialistic and communistic crapola by the press (and Russian trolls on Reddit), so in knee-jerk reaction, when you mention mortgage fraud, they nod and say, "Oh, yea, Bank of America, right?"


Here's how it worked:
1.  Since anyone in that era could get a "liar's loan", it was possible to have a straw-man (usually someone owing money to the mob, or someone willing to do this for a small amount of cash) buy a house on a liar's loan.  They never make any payments on the loan.  They get to live there for a few months, however.

2.   Before the house is foreclosed upon (which can take months or years in some States) the house is "sold" to another straw-man buyer for say, $100,000 more than the purchase price in step #1 above.  At closing the first stray-man ends up with this $100,000, which he hands over to the mob (or ends up floating in a canal somewhere).   Pure 100% profit, tax-free.  Capital gains on a primary residence are tax-free.  The two straw men might get a "taste" of this profit, or merely not have their kneecaps shattered.  They get a place to live for a few months to a year, a small amount of money, and have their credit ratings ruined in return.

3.  REPEAT - as many as five to six times on one single property.  Some properties were bought and sold and bought in the same day, yielding hundreds of thousands in profits.   You use crooked appraisers and mortgage brokers to push the deals through.  You use a broken-down attorney to do the closings, and throw him a bone as well.   If you have this going on with a dozen or a hundred houses, you can make millions and millions of dollars in a short period of time.
Of course, when the market finally collapses, the game is up.   Financial reform meant no more "liar's loans" so the gig was up.   It doesn't matter - they made their millions and walked away scot-free.  And it is damn hard to prosecute, too.  The "straw-man" buyers all can claim they were just homeowners caught up in the real-estate bubble, and fell upon hard times and could not make their mortgage payments.  The principals - the mobsters - are untouchable, unless you can get one of those straw-men to testify against them - and keep your witness alive until trial.

So who lost money on these deals?  You and I did.  The banks made these shitty loans, but many of these loans were guaranteed by the government, or the banks were "bailed out" - so we the taxpayer were on the hook.   Even if the bank took a loss, this was passed on to the customers and shareholders in the forms of higher fees and lower dividends.   So you and I also took a loss.

Homeowners in these inflated neighborhoods - in Atlanta and Miami - also took a hit, as they saw their homes mysteriously "appreciate" in value according to recent comp sales.   Many real buyers were dumb enough to pay purchase prices based on these false "comps" - or refinanced their homes based on them.   Much of this fraud took place in poorer neighborhoods, too, pricing locals out of their own homes, at least temporarily.

In fact, in all of these kind of cons, it is society as a whole that is slightly degraded as a result.  Cumulatively, it comes out to a huge loss to society, and in some regions (the Northeast, for example) the cost of organized crime pads the cost of doing business to the point where, well, people stop doing business and move away.   When you have to pay for "labor peace" to the mob, plus pay huge taxes to cover padded government expenses, the incentive to move South and away from the rust belt is pretty high.  Corruption eventually kills off governments and civilizations - not all at once, but a little bit at a time, chipping away at the edges.

And the point is, it isn't some simple thing you can get your brain around in five words or less.  You can't explain it in a tweet.   People think the antics of Tony Soprano are funny or even to be emulated.   But while it maybe entertaining to read Mafia books or see Mafia movies, make no mistake that these folks "getting a taste" of the action, end up bringing down a society, a little bit at a time.  It really isn't very funny at all.

People understand basic crime.  And the poor don't have the sophistication to commit more organized crimes.   Put a gun in someone's face - you can explain that to a jury, and that guy goes to jail.  Steal someone's TV - jurors get that, and he goes to jail, too.    Set up an elaborate con with layers upon layers of deceit?   Hard to explain to anyone, and some helpful doofus (usually a Republican lawmaker) will argue that such cons are just "legitimate businesses" and not in fact criminal enterprises.

Worse yet are the cons that have become mainstream and are thus untouchable.   Timeshare sales, MLM schemes, that sort of thing - all based on high-pressure techniques to separate you from your money - and give it to someone else who doesn't need it.    At one time, this sort of thing was illegal - today it is an industry.

And then there are legitimate businesses that use highly complex contractual agreements to get people to sign their lives away.  Lease agreements with back-end fees.  Seven year car loans that leave you upside-down for the life of the loan - that sort of thing.  At one time in this country, those sorts of things were illegal as well.

Of course, casinos were once illegal in this country, too.  Today there is one on every block.   You see where this is going.   Welcome to the United States of Go Fuck YourselfToday you have to be astute and look out for yourself, or get screwed.   And you have to be able to wrap your brain around these complex cons, because they are complex, and moreover they are more and more becoming the mainstream way of doing business.

Al Gore once said we were transitioning from a manufacturing-based economy to an information-based economy.   He may be right about that.  But I think the next step is transitioning from an information-based economy to a fraud-based economy.  In the future - perhaps a future that has already arrived - we will simply spend all the hours of the day trying to defraud one another, while robots do all the real work.

Hey, maybe then we can all be Tony Soprano and get a "taste"!