Friday, March 31, 2006


The History Of Interest Throughout Time

Reminiscences of the good old times, when those caught charging interest on loans where burnt at the stake impromptu.


Although I am sure that someone at the State Department will argue otherwise, Cyrus The Great (590 – 529 BC), founder of the Persian Empire, was no terrorist. Quite far from it. Although one might not have wanted him as next-door neighbor, Cyrus II of Persia was very illuminated for his times, according to the Greek historian Herodotus. Cyrus, in fact, beheaded only those who would not bend under his rule. But all others were spared. Such was the case with Croesus of Lydia, whose life was spared by Cyrus after the battle of Pterium, and that of Nabodinus after the battle of Opis and the siege of Babylon. However Cyrus, like all military geniuses, had his ... shall we say ... pet-peeves: if he ever caught anyone charging interest on loans, he would order him tied at the stake, would personally pull out his Zippo and ... woosh, set him ablaze right there and then.

In this day and age of mortgage and lending interest rates as well as returns on investment and yields, it is interesting to look at how the very concept of interest - both active and passive interest - has developed throughout the centuries to the point of where we acknowledge and understand it today. Looking back at how things were once seen is always gratifying, to the extent that it provides us with a measure of how times have changed.

The 'phenomenon on interest' as it was once called first became the object of question only in the form of loan interest for a full two thousand years. What especially caught the attention - and the ires - of our ancestors was the fact that loan interest has its source not in labor but, as it were, in some bounteous mother-wealth. In societies of the past where work and productivity stood at the very essence of existence, making a profit by - quite literally - not producing anything for the common good must have looked almost sacrilegious. The acquisition of wealth without labor, moreover, ran diametrically opposite to many early religious tenets, both Pagan as well as Christian.

The history of the interest phenomenon, therefore, begins with a very long period in which loan interest, or usury, alone is the subject of investigation. This period begins deep in ancient times and reaches down to the Eighteenth century. It is occupied with the contention of two opposing doctrines: the elder of the two is hostile to interest, while the later defends it. In the early stages of economic development there regularly appears a lively dislike to the taking of interest. Credit has still little place in production. Almost all loans are loans for consumption and are, as a rule, loans to people in distress. The creditor is usually rich, the debtor poor; and the former appears in the hateful light of a man who squeezes something from the little of the poor in the shape of interest to add to his own superfluous wealth.

It is no wonder, therefore, that both the Ancient World and the Christian Middle Ages were exceedingly unfavorable to usury. The Ancient World, in spite of some few economical flights, had never developed very much of a credit system and the Middle Ages, after the decay of the Roman culture, found themselves - in industry as in so many other things - thrown back to the circumstances of primitive times. As a result, in both eras several laws were enacted forbidding the taking of interest, or the paying of it.

Perhaps the Greek philosopher and thinker Aristotle in his book "Politics" is the most vociferous opponent of interest. Here is what he wrote : "Of the two sorts of money-making one, as I have just said, is a part of household management, the other is retail trade: the former necessary and honorable, the latter a kind of exchange which is justly censured; for it is unnatural, and a mode by which men gain from one another. The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural use of it. For money was intended to be used in exchange, but not to increase at interest. And this term usury, which means the birth of money from money, is applied to the breeding of money, because the off-spring resembles the parent. Wherefore of all modes of making money this is the most unnatural". Quite a statement! One may want to bring this up to the attention of his banker when applying for a loan the next time around.

Aristotle's thinking may be summed up this way: money is by nature incapable of bearing fruit. As such, the lender's gain cannot come from the peculiar power of money. And, consequently, it can only come from a defrauding of the borrower. Interest is therefore a gain got by abuse and injustice (another point that can be discussed with a banker).

Things began to change somewhat under the Roman Empire, when economic exchange and trading of goods reached such complexity that gratuitous credit began not to make sense any longer. And yet even the Romans - perhaps in line with the theological credo of the time - put severe legal constraints to the amount of interest that could be charged. And to canonize these limits (which varied on a case-by-case basis), they were the first to publish a list of interest rates. This list grew more and more complicated with time, since the Senate thought that interest rates should be less for friendly countries and more for the unfriendly, thereby instating the first international economic agreements among countries of the Mediterranean Basin (though these economic 'agreements' where unilateral, i.e. imposed by Rome on to everyone else).

Things began progressively worse, however, following the break up of the Roman Empire and the advent of Christianity. In fact in the sacred writings of the New Testament were found certain passages which, as usually interpreted, seemed to contain a direct divine prohibition of the taking of interest. This was particularly true of the famous passage in Luke: "Lend, hoping for nothing in return" (third point one should point out to a banker). The powerful support which the spirit of the time, already hostile to interest, thus found in the express utterance of divine authority, gave it the power once more to draw legislation to its side. The Christian Church lent its arm. Step by step it managed to introduce the prohibition into legislation. First the taking of interest was forbidden by the Church, and allowed to the clergy only. Then it was forbidden to everyone, but still the prohibition only came from the Church. At last even the temporal legislation succumbed to the Church's influence and gave its severe statutes the sanction of Roman Law.

The status quo remained cast into stone for the following fifteen centuries, until the advent of Mercantilism and of the Industrial Revolution. Here the monarchies of the time, most notably the Crown of England, decided to back private entrepreneurs with their own money. They chose to do so to gain a political and strategic edge over other monarchies and other states. And so as to encourage their own citizens not only to manually work, but also to think, they cheerfully invested large sums in the development of their inventions - some archaic but others of very practical application. In doing so, however, the monarchies wanted to reap also an economic profit and thus the modern concept of interest - both simple and compounded - was finally born.

Luigi Frascati

As Featured On Ezine Articles Platinum Author

Real Estate Chronicle

Monday, March 27, 2006


Canada v. USA

Which is the better real estate investing environment? Read on ...


First and foremost let me state here and now for the record, that Canada is flexing its military muscle once again. It seems that the nuclear sub – I forgot the name but there is no mistaking it … Canada has only one, bought second hand from Britain – that had to be de-commissioned because it was leaking underwater, is now going to be re-commissioned. Apparently the leak has been fixed. Alright, now that we can sit at the table on even footings, let me go straight to the point.

A caveat must be made here to the extent that the purpose of this Article is not to compare real estate markets but, rather, to compare economic environments. It is next to impossible to compare real estate markets since, as experienced investors no doubt already know, real estate markets are far too many and too varied to render any comparison at all meaningful.

A recent report prepared for and on behalf of none other than The Bank of Nova Scotia and released in February reveals, among other things, that the 2005 Household Debt to Income indicator measured as a percentage of disposable income is 13.8 percent in the United States (and rising), and 7.7 percent in Canada (and falling). The Household Debt to Income indicator, also known as ‘debt service ratio’ is very important, in that it measures the ratio of the mortgage payments to disposable income. Clearly the lower the indicator the lower the incidence of service debt on disposable income, and the higher the cash reserves. When the ratio gets too high, households become increasingly dependent on rising property values to service their debt.

The Household Debt to Income indicator, therefore, is nothing more than a measuring gauge of property owners’ wealth. The above figures just released merely reflect the fact that Canadian property owners keep the yield they receive from their real estate investments, contrary to their American counterparts. This is so because the financial leverage of each country is different. Financial leverage takes the form of borrowing money and reinvesting it with the hope to earn a greater rate of return than the cost of interest. Leverage allows greater potential return to the investor than otherwise would have been available. But conversely, the potential for loss is greater because if the investment becomes worthless, not only is that money lost but the loan still needs to be repaid.

Because real capital appreciation has been constantly more remarked in Canada than in the United States these past few years, it turns out that leverage is stronger in Canada than in the U.S., meaning the spread between real capital appreciation and cost of borrowing is higher in Canada. And this notwithstanding the fact that mortgage rates in Canada are typically nominally higher than in the States and that, in fact, wages in Canada are typically nominally lower.

Household Debt to Income influences another economic indicator important for real estate investing: the Household Debt to Equity Ratio, also known as ‘loan to value’. This is the ratio of the mortgage debt to the value of the underlying property and it increases when homeowners refinance and tap into their home equity through a second mortgage or home equity loan. According to the report of The Bank of Nova Scotia, the 2005 Household Debt to Equity Ratio is 73 percent for Canada (and rising) and 53 percent for the United States (and falling). It is easier to understand loan to value by looking at things in reverse. A 73 percent ratio simply means that the cost of borrowing is the difference between 100 percent of total value of the real asset minus the owner’s equity – in the case of Canada 100 – 73 = 27 percent. Hence, average cost of borrowing in Canada expressed as a percentage of disposable income was 27 percent in 2005 as opposed to a whopping 47 percent in the United States.

As stated before, this ratio increases when homeowners refinance and tap into their home equity through a second mortgage or home equity loan. Which, therefore, again goes a long way to point out what American property owners do with their equity – they spend it, in contrast with Canadian property owners who instead save it.

This brings into light the real essence of the difference between investing in an environment such as the American as opposed to the Canadian. The American economy is based on consumption and gives priority to consumerism, that is spending as opposed to saving. As such, Americans typically earn higher wages, at times make even a higher capital appreciation but ultimately end up spending more and saving less. Canada, on the other hand, gives precedent to saving, so that Canadians are cash and equity richer, even in the instances when they actually make less money. Which, at the end of the day, makes Canada a much more stable environment when it comes to investing. This goes further to explain why the American economy is far more susceptible to interest rates variations: with a domestic debt load nearly double, the economic ripples caused by shifts in cost of lending travel twice as far in the U.S. than in Canada.

A fact, this, that is reflected in the weakness of the Greenback vis-à-vis the Loonie. The Canadian Dollar has steadily gained value, according to the report, rising from a low of USD $0.62 in 2002 to USD $0.86 in 2005 and thus making the purchase of American real property assets more affordable for Canadians. Which is no good news to American mortgagors, since an increased international demand for the Greenback will cause a rise in domestic interest rates and, in turn, a higher Household Debt to Equity Ratio which will lead to an even higher Household Debt to Income indicator.

Luigi Frascati

As Featured On Ezine Articles Platinum Author

Real Estate Chronicle

Friday, March 24, 2006


Vancouver, British Columbia – The New Target Of International Real Estate Investors

In the wake of the forthcoming 2010 Winter Olympics, real estate values are poised to soar from $500 to $1,000 per square foot. Article written by a faithful Vancouverite.

I am not going to deny it: after thirty-four years of living in this city I am still thoroughly in love with it. And mind you, I was born in and am coming from another beautiful city, renown throughout the world for its beauty and fine arts: Florence, Italy. And this is the thing with me. When you come from a pretty town like Florence, Italy it takes truly a lot to make you fall in love with another pretty town. In this respect, therefore, the judgment I render on Vancouver, BC is certainly more rigorous than the critiques other people might proffer.

There are indeed quite a few things that make Vancouver, BC one of a kind town. For starters, if you choose to make Canada your new home - or second home - this is the only one place where temperatures are ‘civilized’ pretty much all year round. Our 2 degrees Celsius (37 degrees Fahrenheit) minimum wintertime average does not sound that bad when you compare it to the minus XX for the rest of the country. Secondly, Vancouver is definitely not a working town. With a mean yearly income of CAD $84,000 per household, a fantastic scenery and the prettiest girls in Canada, Vancouverites are faithful followers of the West Coast lifestyle, originally imported from San Francisco – except that here we do it better. In fact, whereas in San Francisco people actually work for eight hours a day (or so they say), here we do absolutely nothing day and night – except pretending to go to work.

Like San Francisco, Vancouver is crowded with Chinese people (which include Hong Kong, Macau, Taiwan in addition, of course, to Mainland China), except that ours are the wealthy Chinese – at least judging from the fact that they have snapped up all the real estate they could possibly buy, and then gotten into high-rises development and given the Vancouver skyline a much needed facelift. Which, by the way, brings up to mind the fact that when I bought my one bedroom plus den apartment here in Downtown – one of the five properties I own - where I am writing this Article right now, on the twenty-fourth floor of an ultra-modern skyscraper with all the facilities and amenities one could possibly imagine and a fabulous view, I paid CAD $155,000 for it in 2001 (about USD $124,000 back then), and now a good friend of mine has just sold her own apartment, which is pretty much like mine but on the twelfth floor of the same building for CAD $305,000 (I brought her an offer of CAD $295,000 and she did not even counter ...).

All of which brings me to the substance of this Article: what distinguishes Vancouver from the rest of North America is not the fact that property values have appreciated so much. In the past five years, real estate went through the roof just about anywhere. What does distinguish the Vancouver real estate market from all others is that in the wake of the 2010 Winter Olympics property values are forecasted to almost double within the next four years. And this is at a time when interest rates are on the rise and when north-american markets are poised to expand at an average rate of five to ten percent a year, depending on where you are.

To say that the economy of British Columbia is booming at this time already is probably an understatement. But if one is to believe the projections of the Urban Futures Institute, the British Columbia Economic Council, the City of Vancouver and, heck, even Statistics Canada, this is nothing compared to what it is going to happen to property values in this town. Here is why: the provincial and federal governments will be injecting CAD 1.7 billion (yeah, that’s billion with a ‘b’ … like ‘Bob’) in the final four-year stretch of building, fundraising and planning for the monumental event. World-class facilities have been promised for the 2010 games, including a new Speed Skating Oval and Winter Sports Centre, improvements on the 120 Km Sea-to-Sky highway connecting Vancouver to Whistler, construction of the Vancouver Olympic Village, construction of the Whistler Sliding Centre - host of the bobsleigh, skeleton and luge events. There will be a new ice Hockey Arena at the University of British Columbia (UBC), a new Curling Centre, a separate Figure Skating Centre, a Short-Track Speed Skating Arena, retrofitting of the General Motors Centre and of the BC Stadium, construction of a brand new express subway connecting the Vancouver Downtown core to the airport and a myriad improvements all over town, so as to make Vancouver ready when the olympic torch enters BC Stadium on February 12, 2010. All in all, if one takes into account increased security, installation of all sort of paraphernalia and electronic gizmos to make us all feel more secure, and any and all other ancillary costs, the provincial and federal government will be handling a budget close to CAD $2 billions.
All of which, then, translates into the creation of 228,000 jobs in British Columbia over the next four years, directly or indirectly generated by the resulting estimated CAD $12-billion volley of economic activity. And all this frenzy is expected to promote an influx of approximately 100,000 people per year into the Metropolitan Vancouver area so that its population will reach 2.2 million by 2010 – and that does not even take into account tourists and visitors which will be flocking in from the four corners of the world, but mostly from Ol’ Uncle Sam’s country of residency. Which, besides creating a gargantuan traffic jam, will push prices of condos in Downtown from the present CAD $500 per square foot to about $1,000 per square foot, thus catapulting Vancouver, BC from the present fifteenth most expensive place in the world to live in, to the seventh. And, considering that in Downtown we have just run out of space entirely … I believe it!

So, if you are one of those investors who likes to purchase real estate away from home, before you consider Timbuktu as your next investment destination you may be better off to take a closer look at what’s happening right here, in Vancouver B.C. And since I so happen to be involved, by grace of God, into real estate sales (boy, isn’t this your lucky day ...) and know this market like the back of my hand, if there are any questions, clarifications or merely additional info requested or required, just go to my blog - the Real Estate Chronicle - and send me an e-mail, which I will be more than thrilled to answer.

Luigi Frascati

As Featured On Ezine Articles Platinum Author

Real Estate Chronicle

Sunday, March 19, 2006


Portable Structures

Innovations make structures design and construction more versatile and less expensive.

What do the Pentagon, an egg and the Brits have in common? It turns out quite a lot more than scrambled eggs for breakfast, in fact.

Two British engineers have developed Concrete Canvas, a rapidly deployable hardened shelter that requires only water and air for construction. Stuffing a building into a bag is no easy task, nor is erecting a concrete structure in less than an hour. But Peter Brewin and William Crawford have figured out the way, by observing the compressive ceramic structure of an egg. Concrete Canvas is a sack of cement-impregnated fabric that morphs into an emergency shelter with the addition of two simple ingredients: air and water.

The hut can be deployed by a single untrained person in less than an hour. The builder fills the sack with water, then inflates it. The hut hardens and is ready for use just 12 hours later. The objective is to facilitate quick assembly of structures that are much stronger and more durable than tents. And the applications are varied: for one thing the military is interested in the Canvas for food and equipment field storage. Its rapid deployment, strength and durability have captured the military’s attention. Additionally, the insulating characteristics of concrete make the Canvas suitable for setting first-aid, emergency shelters as well.

On the other side of the spectrum there is SYSTEMarchitects, an American firm from New York City, inventors of the Parish House, a computer-generated kit home. The Parish House is a new approach to an old idea first introduced in 1908 by Sears Roebuck. It is a three-bedroom, two-bath, 1,000 square feet bungalow whose structural system consists of 1,100 pieces of laser-cut plywood. There are no posts, no beams, no nails. The pieces of plywood are assembled and held together by a series of stainless steel fasteners.

Ease of assembly and time-saving are the two main characteristics: the boards can be cut locally and shipped to the construction site on two flatbed trucks. Cost in the USD $180’s.

Luigi Frascati

As Featured On Ezine Articles Platinum Author

Real Estate Chronicle

Thursday, March 16, 2006


Real Estate Bernankenomics

Further to my post entitled "Breaking the Real Estate Bubble Myth" published here first on December 29, 2005 (which has gotten me an interview on local TV), here are some additional reasons as to why the 'bubble' is not going to burst any time soon...

Sure, prices are high and that’s the way most of us property owners want them to be. Whether you made your purchase a long time ago and are now staring at your equity ecstatically, or you just completed your purchase yesterday and are now watching CNN with trepidation for news of bubbles dropping off the sky, the fact of the matter is that most of us have a vested interest in seeing to it that housing values remain high.
And so does Ben Shalom Bernanke, the new Chairman of the Federal Reserve System.

Ben Bernanke knows he is filling big shoes. So when President Bush chose the White House’ relatively new top economic adviser to succeed Alan Greenspan as the new Fed’s Chairman, Bernanke professed alignment with the Maestro by declaring that the ‘top priority’ under his tenure would be to ‘maintain continuity’ with Greenspan’s way of doing things. And Prof. Bernanke is living up to his promise, thus far.

Bernanke, who was named Chairman of the President’s Council of Economic Advisers after serving on the Fed’s Board of Governors for three years, believes in a predictable approach for fighting inflation. To lessen the possibility of a surprise that could create panic, Bernanke’s view is that it is paramount for financial markets to understand what the Fed is doing. Thus he has argued for picking a target rate for inflation, and has made clear that the Fed will cut interest rates when inflation falls below the target. Bernanke’s target for 2006 is about 3 percent for the Consumer Price Index.

Furthermore, the new Chairman has outlined the two main responsibilities of the Fed under his chairmanship: to fight inflation and to foster orderly growth. More specifically, and this is of paramount importance for the real estate industry, Bernanke has a much softer view on prices rise than his predecessor. So much so, in fact, that when the economy was threatened with deflation a few years ago, Bernanke was the most vocal among all Fed’s Governors about the need to generate inflation by cutting interest rates to stimulate spending. Given the choice between fighting inflation or foster growth Bernanke, unlike the Maestro, will likely opt for growth.

Seen in this light, the facts that U.S. consumers have too much already and want more, that they do not save enough, that the trade deficit is too large and bound to become even larger and that the American economy is far too dependent on housing – all points cited by scores of ‘bubbleologists’ whose ranks now seem to be thinning out more and more every day – all these facts do not get all the head attention anymore, at least for the moment. It is certainly true that consumers nowadays, both in the United States and Canada, are more indebted than ever before. But much of this debt is anchored on the built-in equity of real property assets, which thus far has been steadily growing. So therefore, to make the monthly debt burden onerous enough to cause a bubble to burst - that is a cascade of mortgage defaults with a flood of foreclosures on the market, which in turn would bring prices down - one would have to look not to higher interest rates but, rather, for a big drop in family income. As monthly debt payments remain the same, a drop in income would quickly dry up the cash reserves of many consumers, so that the predicted avalanche of mortgage defaults would start rolling down.

But any such scenario would require not only an economic slow down caused by higher interest rates but, rather, an outright recession. And this is nowhere happening in the economy, certainly not with globalization moving full ahead. Both the United States and Canada, in fact, are forecasting expanding economies for 2006 with an anticipated GDP of 2 percent and 2.5 percent respectively. Therefore, it would certainly appear that those who are expecting a real estate market bubble – or are hoping for one to come – have much longer to wait than they originally anticipated.

Which in turn means for all those ‘bubbleologists’, Sunday-afternoon crystal ball readers and part-time economists out there, I hate to have to say this but … I told you so!

Luigi Frascati

As Featured On Ezine Articles Platinum Author

Real Estate Chronicle

Sunday, March 12, 2006


Fraud 101

Creative real estate financing ... and sentencing.


The world of real estate, much like our universe, is clustered with celestial bodies of all sorts. There are supernovae, quasars, suns, planets, moons and … black holes. This post will focus on the black holes of real estate.

There are individuals in the industry, whether practitioners or consumers, who still believe in this day and age that using fraudulent means is the best way to get rich quickly whereas, in fact, fraud is invariably the guarantee to land a plurannual jail term. Of all places in North America, British Columbia is possibly the one where fraudulent real estate practices of any kind are the least tolerated. Section 380 of PART X (FRAUDULENT TRANSACTIONS RELATING TO CONTRACTS AND TRADE) of the British Columbia Criminal Code, in fact, reads as follows:

“380(1)_ Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any personal property, real property, money or valuable security or any service,

(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding fourteen years, where the subject-matter of the offence is a testamentary instrument or the value of the subject-matter of the offence exceeds five thousand dollars.

380(2)_ Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, with intent to defraud, affects the public market price of stocks, shares, real property, merchandise or anything that is offered for sale to the public is guilty of an indictable offence and liable to imprisonment for a term not exceeding fourteen years."

In general terms, fraud occurs when a misrepresentation is false and is made either knowingly, without belief in its truthfulness, or recklessly – that is not caring whether it is true or false. The person committing fraud, unlike negligent misrepresentation, does not need to be an expert to be liable. Under the circumstances, it would appear that it is pretty suicidal to perpetrate fraud in British Columbia considering that the Courts tend to apply the law quite literally. And yet, once in a while, we hear of someone who wants to imitate Beau Geste and try his hand at s.380 – with very regretful consequences as the following actual cases can confirm.

A real estate developer exercised his sense of ‘financial creativity’ by purportedly soliciting funds from several private investors and one institutional lender, with the intent of developing a strip mall over three adjoining parcels of land zoned commercial-retail, which he owned. In the context of a fraud prosecution, the accused was the directing mind of a company involved in construction. Contracts were made and funds taken from the private investors on the basis of a false representation by the accused that the funds were insured. The developer, subsequently, applied to an institutional lender for a construction loan, intentionally and willfully misrepresenting to the lender that the funds so deceitfully raised were, in fact, his own. In due course the company became insolvent, the project was not completed and most investors lost their money, in part because the insurance was not available as represented.

The trial judge, whose sense of ‘creativity’ was practically non-existent, found the developer in breach of s.380(1) and sentenced him on five counts of fraud carrying a combined total jail term of 7 years. Additionally, a $25,000 fine was imposed to cover general and exemplary damages and forced sale of the subject property was ordered so as to reimburse lost funds to the investors and the institutional lender.

In a different scenario, a real estate agent acting in a capacity of dual agency concocted such a twisted scheme which, no doubt, would have made Houdini green with envy. Having listed a $1.2 million villa, the agent found a buyer ready, willing and able to purchase at full price. The buyer, however, fell short of qualifying for financing. The agent, then, drafted a ‘letter of intent’ wherein it was agreed between the parties that: 1) the asking price of the property was going to be reduced of $150,000 to $1,050,000; 2) that seller and buyer were going to enter into an agreement to transfer the property for $1,050,000; 3) that on completion the buyer would grant the seller a $150,000 unsecured promissory note. The agent then proceeded to submit to the MLS a price reduction form duly signed by seller and, soon thereafter, a new contract of purchase and sale was entered as between seller and buyer for a transfer price of $1,050,000.

On introducing the buyer to his own banker, the agent failed to disclose the ‘letter of intent’. Having obtained the necessary financing, the buyer completed the deal and everything would have been fine ... except that, approximately a year later, the buyer defaulted on the mortgage and on the secret promissory note. The seller then, attempted to enforce payment of the unsecured promissory note, so that the entire scheme surfaced.

On legal proceedings instituted by the lender and the seller as against the buyer and the dual agent, the trial judge convicted the buyer on one count of fraud and found the agent guilty of negligent as well as fraudulent misrepresentations. A 2-year jail term was handed out to the buyer together with a $20,000 fine covering general and exemplary damages, as well as an order of forced sale of the property. The agent was found in violation of s.380(1) and convicted on four counts of fraud. A 6-year jail term was dished out together with a $20,000 fine for general and exemplary damages, and the case was transferred over to the Office of the Superintendent of Real Estate for disciplinary proceedings. The Superintendent of Real Estate (another fellow with no sense of ‘creativity’ whatsoever) imposed a fine and costs of hearing totaling approximately $10,000, cancellation of the agent’s real estate license and a lifetime ban on practice.

Lawyers are not exempt from predatory tactics, as the following example illustrates. One reason as to why real estate fraud in British Columbia is the least tolerated is the title registration system. British Columbia operates under the Torrens System, by and through which the Provincial Government guarantees title integrity through a principle called Indefeasibility, subject to certain statutory exclusions. No need for title insurance or escrow in British Columbia, though both can be purchased separately if so wished. Under the Torrens System, furthermore, the Government maintains the Assurance Fund intended to compensate parties who have lost a right to recover land. Needless to say, the Provincial Government thoroughly dislikes having to use the Assurance Fund, as this former legal practitioner could certainly attest.

The subject lawyer acted for the purchasers and mortgagees in transactions involving real properties. They involved “flips” in which an arms-length transaction was followed immediately by a bogus non-arms-length transaction, so that the property effectively did not change hands. The purchase price stated to the mortgagees was significantly higher than the amount actually paid for the properties, which resulted in the mortgagees advancing more funds than they otherwise would have approved. The particulars on which findings of fraud and deceit were made against this lawyer involved serious matters including: failure to serve his mortgagee clients by not disclosing facts; acting for the sellers in direct contravention of his mortgagee clients’ instructions; acting in a conflict of interest and preferring other clients over his mortgagee clients; putting his own interest over and above the interests of clients; delegating work to an assistant, for the purpose of misleading his mortgagee clients; commissioning false affidavits; and entering into an agreement with his assistant to share profits.

The Court took a very serious view of the misconduct. In her Reasons for Judgment, the trial judge found that all the real estate “flips” were bogus and made only for the purpose of receiving mortgage funds. The Honorable Madam Justice further found that the accused was more than careless and unthinking. He made knowing misrepresentations to his clients. He failed to follow specific instructions from his lender clients; purposely sought to mislead some of those clients; and participated in the swearing of false affidavits.

The trial judge further found that these actions were not consistent with those of an ethical solicitor, that the accused had breached repeatedly and intentionally his fiduciary duty to the lender clients and had shown a very serious lack of professional integrity. These aggravating particulars differentiated his conduct in that he was a member of the Law Society and, as such, had a duty imposed upon him to uphold the law at all times, and to set an example and to serve as guidance to all members of the public and that, in fact, he had breached both this duty and this service.

In finding the accused in patent violation of s.380(1) and s.380(2) and in assessing a full 14-year jail term sentence, the trial judge opinionated that such conduct of ‘moral turpitude’ on the part of a legal practitioner could not be tolerated, and that an exemplary disciplinary punishment in the instant case was warranted. The Government, furthermore, was ordered to hold the victims safe and harmless and to cover their losses fully by reimbursing them to the last penny with funds coming out of the Assurance Fund.

The best blog covering the topic of real estate fraud I have seen thus far is The Mortgage Fraud Blog with URL at, penned by Ms. Rachel M. Dollar. This is an excellent place to learn about mortgage scams and to find out how consumers and professionals can put themselves at risk by participating in the schemes. Ms. Dollar is a recognized expert in the mortgage lending industry, who has brought her litigation experience to industry-sponsored forums nationwide. She also frequently teaches in-house seminars on mortgage fraud issues to lending professionals, QC/QA management and general counsel. You can view The Mortgage Fraud Blog by clicking on the link provided here on the sidebar.

Luigi Frascati

As Featured On Ezine Articles Platinum Author

Real Estate Chronicle

Thursday, March 09, 2006


Currency Exchange Rates And Domestic Real Estate Values

Forecasting the values of domestic real property assets through the monitoring of international capital flows.


Throughout my nineteen years of real estate sales practice I have come to the realization that when it comes to interest rates setting real estate agents such as myself and their direct counterparts, the mortgage brokers, are typically afflicted by what could be termed as “The Ptolemaic Syndrome”: we believe to be at the center of the universe with Central Banks revolving all around us. This is probably due to the fact that both real estate agents and mortgage brokers are born with a marked sense of egocentrism – Sigmund Freud would call it an incurable complex of superiority. The fact of the matter is, however, that the setting of interest rates involves more than domestic real estate markets, as large and as important as these may be.

Interest rates are the catalysts to the performance of real estate markets and, at the same time, they are pivotal to Central Banks’ monetary policies. To keep inflation low and stable, Central Banks aim to maintain a rough balance between demand and supply in the economy. When aggregate, or total, demand exceeds aggregate supply, the economy will push against its capacity limits - and inflationary pressures will tend to build over time. In this event, Central Banks will tighten monetary policy to dampen demand. Similarly, if there is too little aggregate demand relative to supply, the economy will operate below its capacity. If this gap between aggregate demand and supply were to persist, the projected trend of inflation would fall below target. The Banks would then ease monetary policy to stimulate demand and close the gap.

This is the reason why it is important to understand how developments in the world economies affect the balance between domestic demand and supply. Exchange rate movements tell something about economic developments that may be having a direct impact on aggregate demand. And the movements themselves have their own impact on aggregate demand, by changing relative prices for goods and services and by shifting demand between domestic and foreign-produced products.

There are two basic types of exchange rate movements - and no, I don't mean "up" and "down". The first type occurs when international demand for goods and services of one country increases, with the effect that its currency tends to appreciate. Conversely, when demand for goods and services decreases, its currency tends to depreciate. The second type of exchange rate movement reflects the rebalancing of portfolios in financial markets, which may have nothing to do with current demand for goods and services. One such example would be a flight of capital to so-called "safe havens" during an international financial crisis. Another example is a movement that relates to expectations of what might be necessary to do in order to resolve global imbalances, as in the case of the US foreign trade deficit.

As stated above, when global demand for goods and services rises, the demand for the currency also increases and the currency tends to appreciate. Similarly, when global demand for goods and services falls, so will the demand for the currency, which then tends to depreciate. But the exchange rate, by reacting to these changes in demand, also acts as a shock absorber. For example, when global demand for one nation’s goods and services weakens and its currency depreciates in response, the lower currency pulls down the relative prices of goods and services, making them more attractive in the international trade. And, of course, the opposite happens when global demand rises for goods and services; the increase in demand is dampened by the associated appreciation of the currency.

By observing the fluctuations in exchange rates and whether such fluctuations are the proximate result of either the first or the second type of exchange movements, Central Banks are then in a position to forecast aggregate demand for goods and services and, thus, set monetary policy. When aggregate demand falls, they will stimulate the economy by lowering interest rates. Conversely, when aggregate demand exceeds aggregate supply, the economy will push against its capacity limits and inflationary pressures will tend to build over time so that, therefore, interest rates will be increased. Of course, any shift in interest rates will necessarily affect real estate markets.

By monitoring the strength or weakness of a currency over time it is possible, therefore, to anticipate whether Central Banks will ease or tighten monetary policy by stimulating the economy through lower interest rates or by reducing the stimulus through higher interest rates. And, therefore, it will be possible to predict the impact that anticipated shifts in interest rates will have on demand for domestic real capital assets.

Luigi Frascati

As Featured On Ezine Articles Platinum Author

Real Estate Chronicle

Monday, March 06, 2006


Apes Are Apes, Though Clothed in Scarlet

WARNING: I can't stand Hugo Chavez !


Once upon a time in Venezuela a man named Hugo Chávez came about, who mixed religion, economics, social policy and oil into a concerted unison, much at the cost and expense of North American oil consumers such as you and I.

Under the tenets of the social philosophy and ideological stream known in that part of the world as the Bolivarian Revolution, Hugo Chávez has proclaimed that Jesus of Nazareth was a radical activist who purportedly emphasized and sought redistributive social justice and democratic socialism. Chávez has repeatedly claimed that - in line with his own thinking - Jesus was a social, as opposed to an individual, savior and liberator who was active in class struggle, social justice, and human rights both individual and collective. Such statements have attracted the ires of a great many theological groups, with the Roman Catholic Church possibly at the forefront of them all, who traditionally place almost exclusive emphasis on Jesus as a personal, as opposed to a social, savior. Such groups promote the idea that Jesus's teachings did not address issues such as class conflict and exploitation, in that such issues were non-existent at the time when Jesus was around and, even if they were, they did not carry the political and social weight they have in our time.

Having thus established his socio-ideological platform in the foregoing terms, Mr. Chávez has then proceeded to set out his novel economic system of ‘self-sufficiency’ in food and consumers’ durable goods – a system that closely match autarchy as promulgated by the ancient Greek philosophers, with Plato topping the list. Back to prehistory then, Hugo. Unfortunately, since the intelligentsia of modern Venezuela – much less that of its leadership - does not even remotely come close to the acumen of the ancient Greek thinkers of 2,500 years ago, and to the vivid civilization such acumen brought about back then, the system of ‘self-sufficiency’ could not function properly if manned only by Venezuelans, who can barely read but not write. Hence, Chávez began importing ‘expertise’ from abroad, specifically from non other in fact than his friend in arms, senor Fidel Castro of Havana, Cuba. Hola’! So now Venezuela is providing Cuba with 53,000 barrels of below-market-rate oil a day in exchange for the service of thousands of physicians, teachers, sports trainers, and other skilled professionals.

With his economic strategy of ‘self-sufficiency’ now finally on track – save and except for the provision made in favor of Cuba, Mr. Chávez has proceeded then to invest his oil profits (US $25 billions in 2004, to be exact) to implement and carry out his “new socialist revolution”, possibly termed this way to distinguish it from the “old socialist revolution” of companero Fidel. American readers no doubt will be thrilled to know that Chávez’ leftist platform involves a remarkable increase in spending on social programs. For example, Venezuela has been involved in the purchase of a large number - 300,000 again to be exact - of Russian assault rifles as well as military helicopters. And "neighborhood defense units" have been established to protect the nation against a purported American invasion. Doesn’t it make you feel good to be held in so high regard and esteem, particularly since the $25 billions were initially yours?

Proceeding then to build his country’s foreign policy on the foundation laid out over the 300,000 Kalashnikovs paid for by the gringos, Hugo has embarked in what is possibly the most brilliant and superlatively innovative note of his political career: America-bashing. Venezuela, declared Chávez, must choose between "capitalism, which is the road to hell, or socialism, for those who want to build the Kingdom of God here on earth”. Making this choice himself on behalf of the entire country, Chávez has acted against the Washington Consensus - a formula for promoting economic growth in many parts of Latin America by introducing various market-oriented economic reforms, which are designed to make the target economy more like that of First World countries such as the United States - by supporting alternative models of economic development, and has advocated cooperation among the world's poor nations, especially those in Latin America to counter what he calls the Yanqui neo-imperialism (as opposed to the Yanqui old-imperialism, one would assume).

To this purpose, Chávez has gained a reputation as a price hawk in OPEC by pushing for stringent enforcement of production quotas and higher target oil prices. He has also attempted to broaden Venezuela's customer base, striking joint exploration deals with other developing countries, including Argentina, Brazil, China and India. His long-term goal is to cut oil supply to the United States entirely and has openly announced this intent, although for now he has not followed suit. In the interim, he has severed all military ties with the United States and has ordered all US soldiers and military personnel out of the country. And the last of a long series of political strikes has come this past week, with the interdiction and limiting of American air carriers schedules of flights to Venezuela.

The profound changes brought about by the "Bolivarian Revolution" have radically altered the economic and cultural landscape of Venezuela. Most notably, although recent economic activity under Chávez has been robust, supported mainly by crude oil high prices, per-capita GDP in 2004 has dropped over 25 percent from 1998 levels. And even his close mentor, Fidel Castro, seems to be growing somewhat skeptical of Chávez' policies – if not of Chávez the man.

All of which, somehow and by association of ideas, reminds me of Ben Jonson (1573–1637), the great English dramatist and his quote in The Poetaster: “A prince without literacy is a mariner without eyes. All his government is groping. And apes are apes, though clothed in scarlet”.

With Hugo Chávez reaching King Kong proportions.

Luigi Frascati

As Featured On Ezine Articles Platinum Author

Real Estate Chronicle

Friday, March 03, 2006


How Do They Do It ?

China's economy is forecasted to expand 8 percent in 2006 – again.


The secret of China’s startling economic growth during the past decade is nowhere to be found in Confucius’ teachings. The Chinese economy has grown at a steady 8 percent per annum and 2006 promises to be no different. This is roughly three to four times the rate of a typical western advanced economy, even when the latter is working well. What is even more startling, manufacturing production in China has gone up 16 percent in the last six months alone! So the question of the year for us poor capitalistic trainees has got to be: how do they do it?

When confronted with this question, politicians here in North America on both sides of the border are typically of no help at all. The standard response muttered is that ‘China has a lot of catching up to do’. This, of course, is a non-answer. We all know that they are catching up or we wouldn't have asked the question in the first place. Besides, who is doing the 'catching up'? Is it the government? Or the entrepreneurs? Or the people? The most extreme responses I can remember have been rendered by two top politicians, one American and the other Canadian. When asked the question of China’s explosive rate of growth last July, Vice-president Dick Cheney said, well, absolutely nothing. Pure silence. I think in acoustics they refer to it as ‘white noise’. Which, by the way, should not come as a surprise to anyone since the Vice-president is an expert only in the field of Halliburton’s Economics, which these days seems to be expanding at pretty much the same rate of growth as China’s. On the opposite side of the spectrum, instead, lies the glorious response rendered by former Canadian Prime Minister Paul Martin. Contrary to the American Vice-president, Mr. Martin embarked in a five-minute tirade on national television – which, however, was given in French, so that we common mortals kind of missed the gist of it all.

It seems to me that none of China’s entrepreneurs, people and much less their government are trying to 'catch-up'. None of them has any means of knowing on a daily, monthly or even annual basis whether they are 'catching up' or not. Economic development is not a race. Nevertheless, something is happening. There's some extra vitality in China, which we have either lost or never had. The real answer, of course, lies with the cause of all economic growth - demand. And in the case of China, it is specifically the quality of demand that counts. Consumers all over Asian countries are buying as many status goods as they can and as quickly as they can. Unlike consumers in western countries who have bought status goods as they appeared one by one over the course of the last 200 years from the onset of the Industrial Revolution, and incorporated them successively into their culture as ordinary possessions, Asia is seeing the whole catalogue of brand new status goods – from cars to electronics, from clothes to real estate developments - simultaneously. And China, the most populated of all Asian countries, is at the forefront of it all.

Of course, just like everything else, these expansion times of the Chinese economy are destined to come to an end. When Chinese consumers finally will manage to buy all the status goods of the West - as the Japanese have done - then they will be in the same predicament as Westerners are today in not knowing what else to spend their money on. Or else they won’t have the time or energy available for using any more goods because they will be so darned tired of traveling back and forth to work every day and, besides, TV will take care of whatever few hours they will have left for leisure.

As in all sustainable economies, the trick is to stimulate demand so as to stimulate production. Failing this, well, here we are then. That's the problem that politicians in Japan, Europe and America are facing right now.

Luigi Frascati

As Featured On Ezine Articles Platinum Author

Real Estate Chronicle

This page is powered by Blogger. Isn't yours?

MSN Search
Blog Directory & Search engine Directory of Real Estate Blogs Find Blogs in the Blog Directory Blog Directory & Search engine Listed in LS Blogs Subscribe in NewsGator Online Subscribe in Bloglines Blogarama - The Blogs Directory FindingBlog - Blog Directory Real Estate Chronicle Linkscout Search & Promotion System! eXTReMe Tracker Traffic Exchange with 100,000+ members