To start this Flashback Friday episode, Jason Hartman shares his thoughts about the income tax and sales tax in Europe. He also discusses a USA Today story about Freddie Mac and Fannie Mae. Afterward, he interviews Les Leopold, co-founder, and director of the Labor Institute of New York and the Public Health Institute. He also wrote the book “How to Make a Million Dollars an Hour: Why Financial Elites get away with siphoning off America’s Wealth.” In the interview, Les talks about hedge funds and how they are making incredible amounts of money.
Announcer 0:00
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Announcer 0:12
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution for real estate State investors.
Jason Hartman 1:02
Our guest today will be Les Leopold. He’s been on the show before. And I think a long time ago, he was on one of my other shows, probably the holistic survival show a few years back. But he’s got some interesting things to say about things that interest us as investors. So we’ll get to that here in just a bit. But we have five things to cover first, and I’ve got Steve here, our investment counselor who you’ve heard on the show many many times, and we’ve got a few things to talk about that you’ll find not only interesting, and valuable, but also a little bit funny too. Steve, welcome. How are you?
Steve 1:36
I’m doing well. I’m doing well five things to talk about with you and I means a long intro probably.
Jason Hartman 1:42
You know, we’ve never been known for being short winded have we?
Steve 1:46
I know.
Jason Hartman 1:48
Yeah. So so let’s jump into it. What’s first?
Steve 1:50
Well I want to hear about the this trip to Europe. Are you all sophisticated and European now?
Jason Hartman 1:55
You know what I wouldn’t call European that sophisticated. Honestly. It’s funny how Americans idealize Europe and I always have to. And I remember my first trip back there. I was born in Europe. But my first trip back as an adult, I went with a friend of mine who was also impressed with Europe. And so some people are so impressed with Europe and looking at it this time. I mean, I’ve been back many times, and I love to visit Europe, but as an economist, I am completely unimpressed with Europe. I mean, I just gotta say, and then you know, of course, every country is different, and every city and every country is different too. But just generally on my impression this time, between Switzerland, Germany, Austria, Croatia, Montenegro, Spain and Iceland. I remain on impressed. And I gotta tell you something very funny. That happened. I didn’t mention this as I talked to Brittany, on our last episode about my Europe trip. And Steve, you’re gonna love this one. You ready?
Steve 2:55
Yeah. Yeah.
Jason Hartman 2:55
And the listeners are gonna love this too. Now, just so you know. This is purely when He said I did not go online to research this and verify the information and whether or not these tax rates are true and correct, but it’s just what the girl told me. So here Here it is, when you’re in many countries do this, they have a VAT or a value added tax. And you pay it when you buy a retail item there. And when you leave and take that item out of the country, you can get a refund for part of the tax that you pay. And so I never get to an airport early because I have I have yet to see in all of my travels now to 69 countries and some countries many times I’ve been everywhere. I’ve been a lot of places not everywhere, but a lot of places. I have yet to see a plane leave early. You know, it’s always the game of they have a saying in Hollywood if you’re an aspiring actor or actress, when you go to do these auditions, the game is Hurry up and wait. So you go and then you you know you got to be there on time of course and then you Wait two or three hours to get your turn to say, three lines to hope that you’ll get the part, right.
Steve 4:04
Yeah, yeah, that sounds about right.
Jason Hartman 4:05
It’s a hugely inefficient process.
Steve 4:08
They’re not going to go Hey, looks like everybody here. Everybody’s here. Let’s shut the door and leave.
Jason Hartman 4:12
Yeah, no, exactly, exactly. So it’s the game of Hurry up and wait, which is the same game the airline industry plays on us. So this was one of the rare occasions where I actually arrived at the airport early. And I had all this extra time. So I thought, you know what, I remember I bought I bought a, like a in Iceland, you know, the whole trip was too hot to warm. But when I got to Iceland, it was such a relief to have cool, crisp weather. And I was actually a little chilly. So I bought a, like a thing to go around my neck and I don’t know what it’s called. It’s kind of a funny thing. You can put it around your head and around your neck. And you know, it’s a more inventive version of a of the old concept of a scarf, or Leffler. Right. Anyway, it was kind of a cool product that they said everybody really liked. And so I bought one of those and I don’t buy much because I like to carry my luggage on. That’s the other thing I’ve learned from all my travels.
Steve 5:00
And you are. You can pack luggage like you know circus clowns into a car.
Jason Hartman 5:05
I am an expert pack.
Steve 5:06
Yeah, champion.
Jason Hartman 5:09
Another lesson I’ve learned I pack light and travel light and pack well so you know you can go online and there’s all kinds of YouTube videos on how to pack properly there is a definite art and science to that.
Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday.
But anyways, I don’t buy much. And because I don’t want to be checking bags traveling back. So I buy this thing and I don’t know, it’s like everything’s so overpriced in Europe, it’s probably 50 bucks or something like that. And by the time you convert it to dollars, but I was cold it was worth it. So I bought it and she gave me this little envelope and the slip and says, you know, when you go to the airport, you can get some of your tax back and I’m like, Are you kidding? I’m not gonna bother with this, right? But I had some extra time and I thought, Hey, I’ll learn something about how this works. I’ve never bothered to get my money back on anything I’ve purchased. Just offshore before. And so I go to the counter and the cute ish 20 something girl behind the counter says, you know, how do you want your refund back, you know, we can put it on your credit card or give you cash or whatever. And I’m like, I’ll take it on the credit card. I’m not gonna spend any more money. And I said, by the way, you know, how much do I get back? And she says, I think she said, you get 15% back. And I said, Oh, really? Wow. Is that the amount of your sales tax here? And she goes, No, sales tax is 25% and I go 20 Are you kidding me? Your sales tax is 25%. And she goes yeah, and I go well, you must not have income tax then in Iceland or it must be really low. Right? And and she goes, No, no, no income taxes. 40%. And as my mouth was open and my jaw was dropping to the floor, and the other two girls in the in the booth there next to her. We’re all kinds of jumping in the conversation. I go so wait a sec, you pay 40% In income tax, and you paid 25% in sales tax. You gotta be kidding me. And she says no, but we have free healthcare. Oh my god, you must be.
Steve 7:16
Oh, it’s free. Okay. Yeah.
Jason Hartman 7:19
Yeah, I mean, like, You know what’s funny, Steve? I have had countless, countless discussions and debates with taxi drivers in England over the years I mean, I’ve been to England many times right loving great place and awesome history awesome place to visit I can’t say the food’s super great or anything but it you know, nobody can but the Brits are not known for their food but you know, they’re known for fashion. They got good styles. They’re I mean, Italy is too of course, but and France. But you know, England’s a great place love going game. And but every time invariably when I get in a conversation with a taxi driver, especially in London, they it always goes into how are things in America how things in England because we used to be joined there and now we’re not in it yet well the problem with America they always say is if you get sick you’re gonna go bankrupt. And and it’s like oh my god what is with the European mentality? What is the big deal about this health care thing?
Steve 8:19
They’d rather be bankrupt all the time.
Jason Hartman 8:20
I think they’d rather be sick. You know, I just think there’s this like culture of sickness there like everybody’s so worried about getting sick all the time. Hopefully being sick as the last thing you have to think about in your life, right?
Steve 8:33
Well take some responsibility granted, there are things injury and illnesses that that are just gonna happen. But a lot of these things if you just used your brain for 10 seconds every day, you’re not gonna have to worry about it.
Jason Hartman 8:45
It’s like eat right get some exercise. You know, some obvious stuff, but
Steve 8:49
They have a different perspective. You know, I, I was at a workshop in Boston once and executives that come in from all around the world to attend this workshop. I was sitting next to a, a British Fellow at lunch. And he had arrived a couple days early.
Jason Hartman 9:05
By the way, you know, I gotta interrupt. You know what we forgot to mention that England has the best of any place in the world?
Steve 9:11
What’s that?
Jason Hartman 9:12
The frickin accents.
Steve 9:14
Yeah, they do.
Jason Hartman 9:15
I love the way they talk. I mean, just let me hear a British person. I just love it.
Steve 9:21
I know, everything they say has more credibility.
Jason Hartman 9:23
It’s just so so classy. I mean, it’s awesome. Okay, go ahead, right. You’re in Boston. Tell me.
Steve 9:28
So I’m in Boston sitting next to this British guy at lunch. And he tells me that he got to Boston a couple of days early. And I said, Well, what you’ve been doing? And he said, Well, I just took a tour of all the revolutionary sites. I wanted to see what went wrong.
Jason Hartman 9:44
You know what went wrong? It’s the same thing that’s going wrong with America today. It’s called taxation without representation.
Steve 9:51
I know his point of view as well. They sure got riled up and made their own country. What was the big fuss all about?
Jason Hartman 9:55
Yeah, maybe we need to do that again, because we’re certainly not being represented anymore.
Steve 10:00
Yeah, something’s wrong.
Jason Hartman 10:01
Yeah, something is definitely wrong. That’s funny. That’s funny. All right, well enough of enough of the Europe thing. But well, one more thing on that is I’m going to talk on my jetsedder show, I’m going to have him on as a guest, the potential local market specialist in the southern part of Spain that you refer to me, Steve, and tell the listeners if you would, what you know about that. And when I said, I’m going to Europe, and I asked you, do you have any contacts? I always want to look at real estate and all these places I go, and I always do it faithfully, because I’m addicted to what I do. I absolutely love this stuff. But you instantly knew that Mar Bayeux was like their Miami right?
Steve 10:39
Yeah, yeah, I had known this developer a British guy actually, who had been living in Spain and and we’d been talking for quite a while. And he told me about how he had to wind down is developing and how almost everybody had to because Mar Bayeux was going through, you know what Miami or what Las Vegas had been through. Ground Zero have their have their crisis over there. So so much building so much happening and I of course perked right up saying oh new properties in a in a nice area I wonder how good this can really be. I didn’t do a ton of research into it beyond that I just sent you over there to do it.
Jason Hartman 11:17
Yeah, well, let me tell you that plays It’s gorgeous. I mean, I was I was so impressed. And it’s it’s that old thing of like the how our mind plays tricks on us with comparisons. I always try to overcome that and remember it because we got to try and not be too swayed by things that might mislead us, whether it be our emotions or our perceptions. And you know, it’s like the old trick that traditional realtors have shown the ugliest house first and and then show them an OK house and then show them the nicest one last, like the traditional realtor showing a homebuyer around in the city in which they live with that sort of a trick that’s been used in real estate because it By comparison, things look better, right you know, that first house The buyer gets do they think is this all I can get for my if you’re in Orange County my $600,000 Yeah, maybe a million and then they show them a better one and then the last one is the best one and I went from Barcelona which I’m telling you I was so disappointed I’d been to Barcelona before and got it felt like the Detroit of Europe man. I mean, that place was not clean. I mean, granted old European cities are known for you know, listen, I’m not new with this okay, I’ve been to almost everywhere in Europe. And you know, they’re not known for being super clean but there’s like graffiti everywhere and it just it just felt like desperation in the air like nobody’s got a job and, and you know, you look at the stats, nobody has a job.
Steve 12:44
Yeah, well, bored. unemployed, young people equals graffiti doesn’t
Jason Hartman 12:47
equals crime and a lot of other problems.
Steve 12:50
Yeah, that’s a problem and nobody can afford to hire anybody because of all the free health care. It’s free though.
Jason Hartman 12:56
Yeah, it’s free socialism. You know, we’re seeing socialism coming. labs. I mean, we’ve been seeing it collapse for decades. You know, I remember in the front of I think it was Time Magazine, you know, someone can probably look this up on Google, maybe in 1990, you know, like 23 years ago, or 1993, about 20 years ago. The front of it said the end of the welfare state. It was on the cover of Time, you know, a liberal publication.
Steve 13:21
Was it April 1st edition of..
Jason Hartman 13:23
Haha, yeah, April Fool’s Day. Yeah, our listeners finally learned what that was when I announced my retirement remember?
Steve 13:29
Yeah, after I had to explain for like two weeks. But that was a spoof. Thanks for doing that.
Jason Hartman 13:34
Yeah, that was a hassle. But, but it was kind of funny to play a trick on the listeners.
Just a reminder, you’re listening to flashback Friday. Our new episodes are published every Monday and every Wednesday.
Yeah, but yeah, I mean, it just doesn’t work, folks. When are we gonna get a clue here?
Steve 13:53
Yeah, my dad and I were joking yesterday because we had some neighbors that had to move back to Brisbane. Australia, some people that we know pretty well, and they were not happy about it actually, long story. But we were we started joking that in these countries with socialized medicine, they have to have the attrition factor because you know, you schedule a guy for an emergency appendectomy in six months, but half of them will be dead before them. So you could actually get a cancellation by default. If you wanted to get your surgery that was scheduled that far out.
Jason Hartman 14:24
Listen, it’s part of the business plan to have people die waiting in line. That’s exactly what happens. And in England, that happens in Canada, probably to a lesser degree, but anyone’s worse about it,
Steve 14:35
Jason? It’s free, though.
Jason Hartman 14:37
Yeah. Well, if you want to see healthcare get really expensive. Just make it free. So there you go.
Steve 14:45
Well, a dog left something on my front lawn for free this morning.
Jason Hartman 14:48
There you go. Well, yeah, I hope you picked it up by now or maybe Obama’s mental come and pick it up.
Steve 14:53
Yeah, I’ll have to tell him.
Jason Hartman 14:55
Hey, but another thing that’s kind of part of socialism in the United States I mean, listen to us as an immune to this word disaster too, and in so many ways, and that’s the fact, although we benefit from it and have benefited from it as investors. But like I always say real estate in America has been subsidized since the Great Depression. And there’s another sign that this may be coming to an end. And if it does, most investors think that’ll be the end of the world. I think it’ll be the beginning of a brave new, wonderful world. I don’t want to say brave new world because that wasn’t a good world. He depicted in an Huxley’s vision of a brave new world but, but in this case, it actually would be a good world as long as investors adapt their thinking, and they know how to play the game. Because remember, income property is a multi dimensional asset class and as such, you can always profit in a different dimension. So you can be at a certain phase in the market, you can be a capital gains investor, and you can make big profits and big gains by being more speculative. Your philosophy and your technique. And in other parts of the market, you can be a cash flow or an income investor, or like an annuity investor or a bond investor, but much better than either those. And in other parts of the market, you can invest for diversification and asset protection and income tax benefits. And it’s just so multi dimensional in other parts of the market, you can invest for sweat equity and adding value through creativity. There are so many wonderful options, but one thing that we see if we see some of the real estate socialism and ultimately, I think it could be a very good thing for those who already own property and have positioned themselves in advance for this. Probably I could say with confidence eventuality, because it’s gonna happen it has to happen eventually, because the math simply doesn’t work. Now when it’s going to happen. I don’t know Steve, but What is your take on Fannie Mae and Freddie Mac?
Steve 17:03
Well, there was a story this week because there’s been some noise in Congress and in the Senate about Fannie Mae and Freddie Mac, in fact, I have a, I have a quiz for you and the listeners. Jason, are you ready?
Jason Hartman 17:16
You’re putting me on the spot again.
Steve 17:17
You’re gonna do okay with this.
Jason Hartman 17:19
You’ve done this to me before. You know, you really can’t make the host look stupid in front of his listeners, but okay.
Steve 17:25
And you don’t need me to do that.
Jason Hartman 17:26
And thank you. You know, I’ll get you for that one. But yeah, I hope I get this right, because we’re just gonna say we’re not gonna edit this, but go ahead and give me the quiz.
Steve 17:38
Okay, here’s a recent quote from this USA Today story. And this the person quoting This is referring to Fannie Mae and Freddie Mac. For too long, these companies were allowed to make huge profits, buying mortgages, knowing that if their bets went bad taxpayers would be left holding the bag. It was heads, we win. Tails, you lose, and it was wrong. Who said this? A. Rush Limbaugh B. George W. Bush. C. Mitch McConnell or D. Barack Obama.
Jason Hartman 18:07
Okay, so the question was awfully long there. It’s it’s basically saying that this can’t work because taxpayers will be left holding the bag. Do you want to just repeat that a little bit?
Steve 18:17
Yeah, basically, for too long, these companies are allowed to make huge profits. You know, knowing that if their bets went bad, the taxpayers would be left on the hook.
Jason Hartman 18:26
I’m gonna say that’s Rush Limbaugh. You wouldn’t hear that from George W. Bush. Although you should hear it from George W. Bush.
Steve 18:32
Yeah. Well, a lot of people think you would, but yeah, I probably would not hear from him. Well, I regret to inform you that you have been made to look stupid on the show. I mean, duh. This was Barack Obama. The freewheeling.
Jason Hartman 18:47
Oh. Give me a break. You gotta be kidding me.
Steve 18:49
I’m not kidding you. Those words came out of Barack Obama’s mouth. Well was not on April Fool’s.
Jason Hartman 18:54
Well, then that just goes to show you what a hypocrite Barack Obama is.
Steve 18:59
Yeah.
Jason Hartman 19:00
That guy you know what I should have known you were setting me up for that one because that guy his words almost never match his actions. He, that’s how he’s fooled so many people.
Steve 19:11
I know I know did he put down his copy of atlas shrugged and then walked out to the podium and ripped off that quote?
Jason Hartman 19:17
Yeah, probably that’s just absurd. I mean, he he did not you should have asked me who would have meant it. Hey, I got I got a I got a question for you. How do you know a politician is lying Steve.
Steve 19:30
I’m gonna go with his lips are moving.
Jason Hartman 19:32
Yeah, well, you got that one right. It’s too damn easy. Okay, go ahead. You got another one?
Steve 19:37
Well, this that was the quiz. So you know, you failed miserably.
Jason Hartman 19:40
Oh, God, I don’t even get a second chance.
Steve 19:43
No, but you know, it was definitely a setup. You know, there’s a bill introduced in the House of Representatives right now to eliminate Fannie Mae and Freddie Mac. You know, the House of Representatives is Republican controlled. I personally don’t think very many of them really want to do this. They just want to look tough to their constituents before the midterm. But then the the Senate who you know it’s narrowly Democrat, just barely right now has introduced a bill that’s going to wind them down. It won’t eliminate them completely. I’m calling bowl on the whole thing. I think they’re all trying to look like they’re doing something. But I don’t remember when government has voluntarily shrunk itself in the in the last 50 years. And before anybody says, well, Fannie Mae and Freddie Mac are private companies. Come on, if you really think that get on a flight to England, make an appointment for 13 months from now so you can get an MRI and have your head examined. We all know that Fannie Mae and Freddie Mac are Kwazii private companies at best and you know, it did. It would certainly if they went away, there would be some ramifications in the housing market. You know, it would it would probably make rates go up it would probably make prices go up. Because remember, the housing market has been artificially inflated all this time. And that’s what we talked about on the show is, there’s nothing that you can do as an investor about it being artificially inflated. Only thing you can do is take advantage of it. So you might as well,
Jason Hartman 21:11
Well, that’s an interesting language you’re using. What do you mean by artificially inflated and let’s drill down on that for just a second?
Steve 21:18
I read a book and I would recommend this to all the readers and I think you’ve had Dr. Thomas Sol on the show.
Jason Hartman 21:23
Oh, yeah. He’s awesome.
Steve 21:24
He wrote a book called The housing boom and bust.
Jason Hartman 21:27
Yep. And I had him on the show to talk about that. Exactly.
Steve 21:29
And it is the best, most comprehensive well, that and also Michael Lewis’s book, The Big Short,
Jason Hartman 21:35
Yeah, that’s great. We haven’t been able to get Michael Lewis on the show. I think he’s too famous.
Steve 21:40
Yeah, he’s too. He’s too good for us. But we’re working on it. Maybe we’ll scale up.
Jason Hartman 21:44
Come on. We’ve had three presidential candidates on the show big candidates, not small ones, like people that could have won. Okay.
Steve 21:52
Yeah, Meredith Whitney. She’s no slouch either.
Jason Hartman 21:54
Yeah, well, we got all kinds of famous people. But anyway, go ahead. Hey, we, we’ve got Steven James. On the show.
Steve 22:01
That’s right. That’s right. Michael Lewis, who do you think you are, you know,
Jason Hartman 22:07
This is gonna be in the transcript. And you know, he’s probably got a Google Alert set up for his name. And he’s gonna see that.
Steve 22:14
We love your books. Michael, we’d love to have you on the show.
Jason Hartman 22:17
We want to hear more about The Big Short, but Okay, yeah.
Steve 22:20
So what I mean by it is, and this is how I perceive it, and, you know, listeners Feel free to correct me if I’m wrong, but, uh, much of the housing crisis, I think, routed back into the 90s, when there was a lot of pressure on banks to make loans to people that there’s no other way to say it really shouldn’t have been getting loans, making homes more affordable, so to speak. Well, that’s not what the market would bear. And so you have Fannie Mae and Freddie Mac that are guaranteeing these loans. People originate them Fannie Mae buys them packages and sells them. And they’re guaranteeing this and so of course, Wall Street’s gonna go bananas. I mean, you throw a big stick into a cage full of tigers and you get mad at the Tigers for eating it. We all know Wall Street is they’ve always been greedy, don’t say that they’re just more greedy now. But when Fannie Mae and in tacitly the government is on the back end of this thing guaranteeing all of these mortgages. That’s why this has been artificially pumped up, in my opinion, if if the true market was dictating what the terms would be, a lot of these people would never have purchased houses, we never would have had a boom, nor would we ever had a bust.
Jason Hartman 23:29
Right? True, the market would have been much more stable. And that’s the same issue with the money supply if we had sound money. In other words, it was attached to something and not just complete Fiat, back when we were on the gold standard before 1971. Or even could even be done because I don’t really I’m not a big proponent of the gold standard. By the way. Just let me put that on the record. And you know, I’m not a big proponent of gold, either. Okay. I do not care. Yeah, man. Hey, Jason Hartman was right again. Look at what Gold’s been doing right? So there you go. And even if it was going up, it wouldn’t matter because there’s still so many other issues of it is the gold going up or the dollar going down? You’ve heard me talk about that. But But even if it could even be done by a formula like Bitcoin, we couldn’t even have fiat currency. So long as there was a a hard formula, it could be Fiat, it could be just currency, not money, if it had an actual formula that limited its supply and made it intentionally scarce and and then made it impossible to debase the currency. But you know, in our world today, the politicians would they ruin it.
Steve 24:41
We screw that up. Yeah, I’m skeptical about Bitcoin. The first time I heard about it. You were about 10 feet away from me talking to somebody. We were at an expo in Nashville. And these people at this Expo, well, they were survivalists. Nothing wrong with that, but some of them were just wow, okay. Yeah, they’re they’re out there.
Steve 25:00
This guy with no teeth who had clearly knocked back a whole jug of moonshine right before he came to the show, he was the first person to inform me about Bitcoin. So I did not have the best first impression.
Jason Hartman 25:14
Hey, don’t don’t shoot the messenger Bitcoins. Okay. But I don’t know, you know, the problem with Bitcoin is that the regulators are gonna shut it down, they’re gonna find a way there’s way too much risk. Think about it. Any thing that is in competition with the fake money produced by the Federal Reserve and the Treasury Department is going to be under attack, because that’s their competitor. They don’t want alternative currencies. Why do you think they have legal tender laws that say it says it right on your dollar bill, it says, For all debts, public and private, you cannot open if you open a business, and you put a restaurant on the corner Steve, and you say look, we don’t accept dollars, we only accept gold coins or silver coins. You’re going to be holding off to jail. That’s illegal. You’re gonna go to prison. Right? So yeah, you have to, you are forced to accept dollars.
Steve 26:09
Yep, you have to do it. You don’t want to go toe to toe with somebody who can create money out of thin air.
Jason Hartman 26:14
Yeah. Or create, you know, or has the power to inflict violence on you and imprison you. And that’s called the government, which the government needs that power. Okay, there it should be the only entity that has it, but that’s a whole nother discussion. I know rammed okay. Anyway. So So, Fannie Mae and Freddie Mac. The reason is, look, if Fannie and Freddie are put out to pasture, what is that going to mean to investors? it’s going to mean probably lower real estate prices, but probably much higher rents. Because think about it, people only have three choices. They can, they can buy, they can rent, they can be homeless. So given those three choices in a marketplace, then what are they going to do? Well, if buying gets a lot harder, then that will create More renters. And if there are more renters the most fundamental rule of economics is what its supply and demand. So when you have constrained supply, which you’ll always have when it comes to housing for so many reasons that we’ve discussed before, then you will see increase in rental rates, probably a dramatic increase. Now, here’s the other thing, Steve, you said that the existence of Fannie Mae and Freddie Mac, artificially inflated real estate prices. And I agree with you that that’s true in cycles. And certainly in the last financial crisis, that was a cycle. And it was true in cyclical markets in the bubble markets, California and New York, high priced markets, okay, Miami, etc. But in the linear markets, that bubble was far less pronounced because those prices they went up, there was some upward pressure on them, but it wasn’t anything major. So the fall that they took wasn’t that significant, either. Right? Right. But I don’t really know. And I think I don’t think anybody knows I think this is maybe impossible to really know. But I would, I would assert that the true prices of real estate in linear markets, the markets we recommend around the country is actually not inflated, even now, even in, say Phoenix, which is one of the more inflated markets that we would still on the fringes recommend. Yeah. I mean, we’d never recommend overinflated markets in California or New York City or those types of places. Okay. But like, we would say, Phoenix is too high. We’re really not that interested in it right now, because it’s gone up too much. But that’s nothing compared to some of the really high priced markets. But if you look at markets like the various cities in Texas, whether they be Austin, Dallas, San Marcos, Houston, San Antonio, or you look at Indianapolis, where you used to live and we’ve done mountains of business, there are many other markets around the country that We recommend I’m not really sure prices are overinflated there, even if Fannie and Freddie went out of business. Now, if they went out of business tomorrow, we’d probably see prices initially soften in those markets, maybe 10%, which is not that big a deal. So your hundred and $20,000 house goes to one. Oh, wait. So what no big deal. And the reason I say this is because when you look at real estate around the world, and especially having just returned from Europe, I mean, their housing stock is is so much more expensive than ours, even in less desirable locations of less desirable cities. I mean, you try to buy real estate around the world. You look at Panama, Costa Rica, Argentina, all markets I’ve looked in extensively, all over Europe, give me any city or country in Europe, and it’s expensive, so I’m not sure that our real estate is really that expensive. In linear, non bubble type markets, your thoughts we’ve never by the way listeners, Steven, I have never discussed this issue before.
Steve 30:09
That’s That’s true. I agree with you, Jason. Because you can look, I’ve pulled the data from the Federal Housing Finance Agency fhfa.gov. I’m a little bit of a geek, I like to take their housing price index and put it into spreadsheets and make graphs out of it down nerdy is that.
Jason Hartman 30:26
You’re you’re more than a little bit of a geek, but go ahead.
Steve 30:28
Yeah, yeah. That was that was your revenge from my earlier calm? Yeah.
Jason Hartman 30:32
Yeah, it was, but being a geek as a frickin compliment nowadays,
Steve 30:36
It kind of is. Yeah, they rule the world.
Jason Hartman 30:38
Do you remember that movie? Revenge of the Nerds? Yeah. That has become so that was a prediction. I mean, you know, with Bill Gates and Steve Jobs and all the rest. I mean, they were they run the world.
Steve 30:48
Now that was and so now I put these into a spreadsheet, and maybe I’m a little bit cool for it, I don’t know. But you look at the linear markets. And I could not make the argument that Fannie and Freddie have artificially inflated those because look at the chart, it doesn’t inflate. I mean, it goes very steadily.
Jason Hartman 31:06
The problem is that Fannie and Freddie have been around for so many decades, that it’s really hard to tell. But I mean, I’ll just tell you, in any country that I’ve looked at around the world, it’s semi desirable as a place to potentially invest. The you got to convert it because they all measure in square meters, which there’s about 10 square feet to a meter. So if they say you’ve got 150 square meter flat, that’s about 1500 square feet, give or take, you’re gonna pay, you’re gonna pay 200 to 200. By the time you do the currency conversion and the size conversion, you’re gonna pay about 200 to $250 per square foot, if not a heck of a lot more Where is in these markets that we recommend? I mean, look, we’re going to talk about two properties today, Steve, we’re going to talk about a highly desirable city. We’re going to talk about an Austin suburb and let me just look here $64 a month. Quarter foot, another 140 $8 a square foot. You couldn’t touch stuff like that in any of these other cities around the world. And they don’t have Fannie Mae and Freddie Mac, they don’t have good mortgage financing and most of these countries at all if anything, so right this is why I can’t make it work internationally. I’ve tried to beat my head against the wall to try and make something work offshore out of the country and I you go to Nicaragua, for God’s sake, how many would put Nicaragua at the top of her list? Probably very few people. Okay. It’s not cheap there either.
Steve 32:35
The financing is horrible. So yeah, I mean, it. The the availability of it. I mean, has it brought prices down, but I don’t know because yeah, they don’t have Fannie Mae in Europe, as you say. But kind of what we’re going off of here is what you said is it enables these bubbles and enables these cycles, because the speculators they don’t have to take any responsibility, if they were the one on the hook at the end of the day. You can bet that they would adjust their terms and that there’s a lot of these loans that they would have made in the first place. So I think that under the guise of making homeownership affordable and making it more available, I mean, I think that the that it’s created more more heartache and more problems.
Jason Hartman 33:16
Oh, ultimately, it has. Listen, I’m not in favor of any government program, but I’m just saying as investors, let’s take advantage of it. If we can make it work for us, hey, hey, man, let’s let’s be opportunistic, and do that. But the point being, what what does this mean if you’re listening, this means that if you can get a Fannie Mae or Freddie Mac loan, now, you better get one and you better get as many of those as you can, you can probably get 10 of them, and you can buy 10 houses. And if those go away, it’s probably going to put really good upward pressure on your rental income which is going to be great for you. If people can’t afford to buy and later of course, the private market will come in and and try to fill the gap but I doubt that it will ever be be as good as Fannie Mae and Freddie Mac, because Fannie Mae and Freddie Mac lose billions and billions of dollars. They’re subsidized by the government. They’re illogical, private businesses aren’t going to be illogical like that. They’re going to require that they have working sound economic models, or at least semi sound. I’m not gonna say every private business has a sound economic model, but they’re not going to last for very long. I mean, there will be other financing sources there are today, but they’re not gonna they’re not going to be as good as Fannie Mae and Freddie Mac. I mean, these are the these are, this is a way to get some of your tax money back is to go get a Fannie Mae or Freddie Mac loan. It’s a government program that even the rich can qualify for. So
Steve 34:41
Even those evil rich people.
Jason Hartman 34:44
Yeah. Even those evil capitalists.
Steve 34:46
And Fannie and Freddie have actually turned a profit last couple of years. But that’s misleading because that’s going right back into their payoff. That’s a side point, but it’s going to pay off their bailout that they got. So I guess they’re there. Okay, for now. Take advantage of them as investors but I need to go on the rocker on the on the record here I think. I think Barrack Obama is more likely to shut down the Marine Corps than he is Fannie Mae.
Jason Hartman 35:09
Fair enough. You’re probably right about that. Okay. Hey, we got we got a wrap up. Of course, we’re going so long here. Let’s talk about Russia real quick because this is hilarious. This was funny. This is just a funny story doesn’t have that much to do with real estate. But but will Detroit try this? Yeah, yeah, maybe Detroit can do this. And that’ll save Detroit. Yeah, right. Tell us about it.
Steve 35:29
Oh, there we got a headline here. To boost economy, Russia freeze jailed entrepreneurs.
Jason Hartman 35:38
So So what they’re doing, it’s a news article. It says faced with economic malaise. Russia needs some more entrepreneurs, and it knows just where to find them in prison. The Putin administration official has made it his mission to scour the prison camp system, once known as the Gulag for businessman. That can be granted amnesty. He’s got no shortage of candidates. Russia has 110,000 people serving time for, quote, economic crimes, unquote, and at least one in 10 prisoners. So they’ve got it. Now think about it. I mean, the US has the highest incarceration rate of any civilized country, if not any country at all, maybe in the world. I mean, this it’s disgusting. What we do in the US our prison system is become a whole government program and a whole bunch of people in private enterprise are benefiting from building prisons. I think there’s an IPO and a fun you can invest in to finance prisons. God don’t do that. We’re police state. I mean, it’s it’s just absurd here. We’ve made everything a law and we’ve made everything a reason to put someone in jail here. It’s ridiculous. But maybe if things get bad enough in America, Obama will scour the prisons for all the talented people who happen to smoke a joint and they put them in jail for it. This is absurdity.
Steve 36:57
Yeah, they had to reach pretty deep into the bullpen here. You know, and what’s funny, the article talks about how the Russian police are under pressure to make arrests and they a lot of times take bribes from businesses to arrest their competitors.
Jason Hartman 37:10
Oh my god, can you imagine how corrupt?
Steve 37:13
I love America.
Jason Hartman 37:15
That’s so scary. Yeah, this is probably coming to the US soon. Unbelievable.
Steve 37:20
Yep. So you don’t live in Russia? You know? Well, for the few of you that do don’t make your competitors very mad. You could end up in the Gulag. Yeah, that’s that’s a scary thought.
Jason Hartman 37:29
Well, hey, we’ve got our little several people have signed up. So thank you. We only announced it on the last episode a few days ago, but we’ve got our executive Austin property tour coming up and what executive means it’s an abbreviated version of the tour, no creating wealth seminar, but I will be there so of course, we’ll have discussions over a couple of meals, and you can ask me questions and so forth, and I’ll be talking to you, you know, as we’re touring around, but this is limited to just 20 people. It’s a Small tour. It’s a get in and get out quick. If you don’t have much time this is the perfect kind of tour. We’ve never done these, this new thing we’re calling the executive tour. No seminar, you just come in. We’ll start at 9am on Saturday. And what’s the date? Steve? The 28th? I think of September? Yes, sir. Yeah, September 28. And then we’ll we’ll tour Austin will be done at about, I don’t know, four or five o’clock that day, and you’ll be able to buy properties on the tour. And it’s just such a great city. I’ve thought about moving there many, many times. Really just an awesome city. And I’m so glad that we actually have product that works there. So join us for that sign up at Jason hartman.com. And if you become a member for just 120 bucks a year, you get half your membership fee back as your tour discount. So go to Jason hartman.com become a member of our inner circle and you get a whole bunch of benefits for that are monthly conference call, discounts on products discounts on this tour, you get 20% off so you save $60 on the tour, basically. So you get you know, you get Have your membership paid for right there. So join us for that. And we’d love to see you there. Remember, the space is limited. It’s a small executive tour. So it’s just 20 people are normal tours have 4050 people on them. So this will be a small quick tour. And then Steve, two properties real quickly before we get to our guest.
Steve 39:18
Two properties one here in the Austin Texas area, great looking property built in 2005. And it’s a your total cash invested if you use financing would be about $40,000. And you get the 7% cash on cash on this thing. And while I go out to Jason, you’ll get the $64 per square foot, which I think is a very good deal.
Jason Hartman 39:40
Well, considering that that property was only built in 2005 it’s almost new 64 bucks a foot you’re buying below the cost of construction, and you’re buying in Austin now remember one thing about Austin that makes it good for investors, although philosophically I don’t like these policies and I talked about it extensively with Thomas Sol. On the show, and when we had him on, you mentioned him in this episode, Steve. But Austin has a pretty strong environmental movement. So there is some limitations on development there. And and that makes it more expensive to build. So once you own it’s like the old riddle, you know what you call a developer? Someone who wants to build a house? Well, what do you call an environmentalist? Someone who already owns a house? Because they don’t want anyone to build there, right? So it’s the same idea. So you have a little of that pressure in Austin, which is actually good once you’re an owner. So yeah, $64 a foot incredible deal. Overall return on investment, they’re projected at 26% annually, even if it only goes half as well. 13% annually, my famous saying, What’s the next one? Steve?
Steve 40:48
I’ve got one here in India and I have some inside information on it. And that’s why I wanted to feature it Indianapolis. Okay. This one is a $99,000 property and it brings in 11%. cash on cash 41% total return. It’s only $48 a square foot. It’s a little bit older property. But here’s what’s great about it. This might not mean a lot to most people, but it’s in Washington Township, I actually have done a ton of properties in Indianapolis. I’ve never done a property in Washington Township, because it’s too expensive. It’s the older, more established part of town. on the north side. It’s where all the old money is good school districts, very solid area. And I think this property is a very good deal at $48 a square foot there, it’s going to rent, you know, like clockwork, every time because people want to be in the school district. And it’s the first property I’ve ever seen available in Washington Township.
Jason Hartman 41:49
Yeah, yeah. Fantastic. Okay, good. Did you give all the stats on that? I don’t think so. So, projects. Let’s look at the projection so 223 a month cash flow projection. That’s almost 27 $100 per year, and your cash on cash return and 11% annually, and your overall return on investment projected at 41% annually. And again, on all our performance, we have the vacancy rate, maintenance cost management fees. It’s all in there. Okay. And you can see these at Jason Hartman calm, click on the Properties tab. And you can look at these performance in detail yourself.
Steve 42:25
Yep. And for the record, this one already has a tenant down there at 1175 a month.
Jason Hartman 42:31
Pre-rented. Fantastic. Well, Steve, thanks for coming on. Let’s get to our guests. We did a long intro as usual today. We’ll be back with les Leopold in just a moment.
It’s my pleasure to welcome les Leopold back to the show. I had him on a couple of years ago, and he is out with a new book and I gotta tell you, I love the title. It’s entitled How to make a million dollars an hour. Why hedge funds, got away with siphoning off money. America’s wealth less Welcome back. How are you?
Les Leopold 43:02
Fine. Thank you so much for having me.
Jason Hartman 43:04
Good, good. And I always like to give the listeners a sense of geography. Where are you located today?
Les Leopold 43:08
Right now we’re talking to you from a little town called Montclair, New Jersey. We’re about 12 miles from dead center, Manhattan, New York.
Jason Hartman 43:17
Fantastic. Well, that’s where a lot of financial crime takes place right there. And then good old New York. The Big Apple. Yeah, well tell us about this book. I mean, haven’t hedge funds made the rich a lot richer, you’re saying they’re siphoning off wealth. Tell us more.
Les Leopold 43:33
Well, first of all, that I got into this, because I saw an amazing statistic, which was that after the economic crisis, while we were in a deep, deep recession in 2010, the top hedge fund guy made as much in one hour as the average family makes in 47 years. Think about that one hour equals 47 years. So I got very curious About how is this possible? First of all, what is a hedge fund? And how could somebody who runs one, make that much money? The next thing, the next fact that i factoid that I discovered was that hedge fund made as much profit in that year, and with under 100 employees as Apple Computer, which has 700,000 employees and contractors around the world. So I thought, now, here’s a puzzle. We need to understand this because the obvious question come up, what what are they? What do they do? But the real question is, do they do they produce economic value commensurate to the money that they receive? And that became the question that drove the book? How do they What are they How do they do it? And are they creating real value for our economy? And that took me on a heck of a ride.
Jason Hartman 44:54
Yeah, well, we’ll tell us more about it. I mean, I remember reading an article years ago, talking About how the the two and 20 formula that is known throughout the world of hedge funds, where they charge you a 2% fee every year on your amount of money invested. So if you, you know, these hedge funds usually have big minimums, so there tend to skew toward wealthier people as investors, but maybe a $250,000 minimum would be sort of the typical hedge fund, I don’t know. But they’ll charge you 2% annually of the amount of your principal that’s invested, plus they’ll charge you 20%, of any money they make. So it was strange, because this article listed this, this analysis of that 220 formula, showing how you could actually lose a whole bunch of money investing with a hedge fund. Now, of course, and I just can’t remember how it presented it, it was sort of complex, but you can certainly lose your principle that’s not a big revelation to anybody, but just by the formula that like it’s like the fund could make money, but you could actually keep losing money as the fund made money somehow the way that formula was computed. But go wherever you want with it in terms of how its siphoning off to that,
Les Leopold 46:04
Yeah, you’ve given us a good introduction. So hedge funds and investment vehicle, primarily for the wealthy. And for large institutions, you need to you need at least a million dollars in net worth to be permitted to be to invest in a hedge fund, or an income I think over $250,000. So supposed to be for sophisticated investors only. So the way it’s sold is like you’re going to get entrance at this very high rolling poker table at a at an exclusive Vegas casino. So so it’s going to be you know, just the wealthy playing against the wealthy. And the smart players are going to win a lot of money for you. So you got to find the right hedge fund. There’s about 1000 of them, 9000 of them, about a trillion dollars invested in this. So this is a high rolling game that you’re getting into, but high stakes games, but But in fact, that’s not really how it works. What happens is hedge funds have their own strategy. For making money and many of those strategies, the rest of us would call cheating. Some of them are illegal. Some of them are barely legal, and many of them are outright illegal. Let me share with you one, the one that led to this guy making two turns out to be $2.4 million an hour. His strategy was something when I found this out. I couldn’t believe in by the way, I found this out after I wrote the last book. So I was naive when I wrote the last book. I couldn’t believe this was going on. Here’s what happened. This hedge fund colluded with not one hedge fund many hedge funds that just they colluded with the large banks who had too many toxic related securities mortgage securities on their books and they wanted to get rid of them. So they packaged them together and sold them off. That was we all know that happened. But what the hedge funds did is they help the big banks create a security that was designed to fail they found the worst mortgages they could find the ones in Vegas, no offense, the ones in Arizona. The ones in Florida that were put out by the most unscrupulous mortgage brokers, they, they found those mortgage pools, put them together, sold them like they were good as gold and then bet against them. Now think about that. It’s like if I was a Thai pharmaceutical manufacturer, I design a drug, I sell it to you, so we’ll kill you so that I can collect the life insurance. That’s precisely what they did. And that was a there’s one particular version of this called the abacus deal between goldman sachs and this one hedge fund that the government, there was actually a joint committee, Democrats and Republicans agreed on these findings. They analyzed that one in particular, and they found that a billion dollars change hands, these three large institutions lost $2 billion and the hedge fund guy won a billion dollars by designing a security so that it would fail. Now the SEC came in and find Goldman Sachs $550 million For not disclosing what was going on here, guess what they find the hedge fund?
Jason Hartman 49:05
How much?
Les Leopold 49:06
Zero.
Jason Hartman 49:07
Zero? How convenient.
Les Leopold 49:08
Because it was not the hedge fund guys responsibility to sell the security. So that’s how they made a billion dollars. Now, where did that money ultimately come from? It always came from those institutions. And from them, it came from the people invest in those institutions. But most importantly, it came from all of us, because it was it was one of the reasons that the housing bubble inflated and then burst, they use this to pump a lot of keep pumping a lot of toxic mortgages into the system. And once it started bursting, this accelerated the crash. So this was a incredibly harmful activity. So not only did it not create any value, but it created negative value. So that’s just one of about six or seven IP strategies that I came up with, in putting this book together. And I’d be glad to give it some more.
Jason Hartman 49:53
Yeah, yeah, less. I mean, you know, a hedge fund. There’s so many misnomers about that phrase, what is a hedge fund Exactly. But maybe just tell people what it is what it was originally meant to be what it’s become? And also, how do you start one? Can anybody start a hedge fund?
Les Leopold 50:11
Good question.
Jason Hartman 50:12
My dog was planning to start a hedge fund.
Les Leopold 50:16
Originally, they were set up as a hedge. It was a way, a guy in the 60s, invented a way to basically like go using financial techniques, he could sort of take the awesome downs of the market out of play, so that you would just be betting on the direction of a particular stock or set of stocks. So it was a hedge against the vicissitudes of the market, the ups and downs of the market. No big deal, but it later became was almost a license to steal. It was it was a way to make super super returns that nobody else could possibly do, by by taking enormous, enormous risks. But also, the key was that these guys don’t want to take risks. They tried Find sure bets, they try to find rig debts, they try to find bets that where they cannot lose where they know the outcome before they go on. I don’t know specifically what it takes to set up a hedge fund, you know, you need a certain amount of money. There’s certain rules that you have to apply for. But you know, if you can get 20 $30 million together, YouTube can start a hedge fund. But the key thing is, are those rig debts. There’s a reason why 70 hedge fund traders have already been convicted in the last couple of years for insider trading. Because if you know, information that everybody else does not know, you can’t lose and you making your market bets. So insider trading, I put away a billion a billionaire hedge fund guy Roger, Roger Martin, for he had a whole ring of people who were giving him insider trading tips they were on sat on boards of directors and they would call them up moments after a an important decision was made that hadn’t been announced. He gets that he gets that information. He buy the stock or sell the stock according to the information. And then he would make one instance in a matter of minutes he made $900,000. Overall, they found $65 million worth of instances where he made money this way.
Jason Hartman 52:13
But but but Les, didn’t anybody tell him that the only people that are allowed to do insider trading are members of Congress? What was he thinking?
Les Leopold 52:23
They don’t make enough money. But another another telling, you know, people might say, Well, God, you’re exaggerating. They can all be thieves. And maybe they’re not. But one very credible source I find is Jim Cramer from Mad Money. Yeah, he ran a hedge fund for 10 years
Jason Hartman 52:41
And he bragged about violating sec regulations and talked about how stupid the SEC was. Probably seen that video. It’s unbelievable.
Les Leopold 52:49
Well that I wrote a whole chapter on him based on his earlier book and that video, he he made on average for 10 years. 23% return every A year and the pattern you do that. And he used a variety of techniques that were clearly illegal. And he admitted that they were illegal in terms of the way he was manipulating markets. But the one that got me the most was, at the time he was running a hedge fund. He also was a commentator on CNBC. They love them, because here was a guy who was from Wall Street, coming to talk to him. And what he did was he planted false leads with his colleagues, who then would report it as news. And then he and that would make his bet, have this horse win. So in other words, he would he would rig the news to help his best he would literally manipulate his colleagues, the people sitting right next to him on some of these shows, by afterwards telling them you know, I think such and such is going to happen, you know, you can use the background but don’t use my name, blah, blah, blah. They would try to check it out. They and they report it. That was called rumor mongering, totally illegal, obviously unethical. It’s amazing that he admitted, he even mentioned the names of the people that he manipulated. But most importantly, he in his that interview that you saw on the web, which by the way, you can’t see anymore, you can find the transcript, but they took it off the web. Also on YouTube. He says, if you’re not willing to do these things, maybe you shouldn’t be in the game. Unbelievable. In other words, he’s saying, I did it. Everybody does it. That’s what he’s telling us. Everybody does this, otherwise you couldn’t possibly survive in this game. So they they develop their new city that would allow them to bet on a race by knowing who’s gonna win before they make their bed. way or another. That’s what they are about. Now, not i’m not saying every hedge fund does that. But it’s remarkable how many are are under investigation for doing some version of the SEC some of its its legal, like high frequency trading is legal, but that’s there’s about 100 $20 billion wrapped up In this game an excellent five to 20 billion a year. And this is mind boggling. They set up their hot, these incredibly expensive, you know, state of the art computers right next to the stock exchanges. So they get the feed in nanoseconds. And they have these automated programs that can basically work in a different in a parallel universe to you. So when you make your trade on a trade, they’re able to see what you’re doing, buy the stock ahead of you, and sell it back to you for a few pennies more before your trade goes through.
Jason Hartman 55:31
Unbelievable. Yeah, and people actually think they can beat these guys who think the speed of light is too slow. They need to literally be 186,000 miles per second is not fast enough in the game of high frequency trading. That’s why they pay exorbitant lease prices to landlords to be right next to the exchanges. And they are completely outstripping the profits from the average investors who think that they can actually trade Didn’t make money. It’s a joke. It’s unbelievable. The whole game is so rigged.
Les Leopold 56:03
Catch this. One of these guys admitted that in the last five years, he hadn’t had a losing day. And the longest he ever held the stock for him a long term hold was two seconds. That’s so now what value does that have produced for the American economy? As far as I can tell, this is the equivalent of a hidden tax, which is why I advocate a financial transaction tax, which is why should these guys be collecting a tax on everybody’s transactions. Instead, if we had a small financial transaction tax, they would more or less wipe out the high frequency traders, and we and it would generate enough money to send every kid that is wants to go to a public college and university in this country, two year, four year whatever. They could go tuition free. That’s how much we could generate Well, our natural transaction tax.
Jason Hartman 56:54
The only part I don’t agree with you is if you let the government have the tax, they’ll figure out a way to waste it and make the monster bigger.
Les Leopold 57:02
I would do it in a trust Fund, I wouldn’t let that happen. Yeah, but because look, what’s the most important thing you got to do? Right now we have kids have over a trillion dollars worth of debt, right? It’s one of the biggest things.
Jason Hartman 57:11
Yeah, no, no, the college, the student loan debt bubble is huge. And the other thing to know about that is that’s such a scam to last because you can’t declare bankruptcy and get out of it. You never get a second chance.
Les Leopold 57:21
Right? So so I’m saying set up a trust fund for public education in this country. God knows to be an adequate to have a college education just about to get a decent job, you need to have a college education. Why not make it the equivalent high school now? Truly, so here’s a way to pay for it. Set up a trust fund and how we have the people who crash the economy for us finally pay their dues?
Jason Hartman 57:45
Well, that’s a whole tangential thing, but he knows how to solve the problem, but at least let’s bring awareness to the problem. Okay, so a couple things in the book, How to make a million dollars an hour I want to ask you about, okay. So one chapter is entitled rip off entire country. Because that’s where the money is. Are you referring to Iceland there?
Les Leopold 58:03
No, actually, I was referring that was the one I was referring to was the first big hedge fund play. First billion dollar play was George Soros is raid on the Bank of England.
Jason Hartman 58:13
Oh, yes. Good point. Yes, Soros is ill gotten gains, just like the Kennedy family’s origination I’ve had. I’ve had Jim Rogers, his former business partner on the show a couple of times. But yeah, tell us about Soros.
Les Leopold 58:26
Well, Soros is it’s a very interesting, it’s an iconic trade. And the reasons it’s iconic is because a lots been written about it as well, that justifies it. And basically, what happened was, as they were trying to put together the European Union, the exchange rates of the various currencies were supposed to be held within a certain band. And it was pretty clear that or Soros and people recognized that England was going to have a tough time after the Berlin Wall fell and Germany’s was worried about inflation. He was going to have a tough time keeping the pound within the range and is likely to be devalued. But they didn’t want to devalue what because they’d have to. If they raised interest rates, that they devalue, that they’d be violating the treaty and they raise interest rates to keep it there would hurt all the homeowners in England and create a recession because their mortgages are tied to the bank of England’s interest rate. So they were kind of stuck with authorises, people saw that so they they shorted they bet against the pound massively, massively they and then other banks in the United States joined in so they created this artificial run on the pound. And finally, England caved in and Soros made a billion dollars. And the money came directly from the taxpayers of England into salsas pocket. Now the irony of course is that sorrow says that he’d be glad to stop this currency speculation. Once there was a European Union because as a refugee from the Holocaust, he understood that it was good to get the countries especially France and Germany. Tie closely together economically. So they never go to war again against each other. And that was a wonderful sentiment. The irony, of course, is that the same thing is happening now. But instead of going after currencies, now they’re going after the deaths of various countries, and they have the and banks. So they have the equivalent of the same kind of thing they can gang up on, on a bank, they then put out some false rumors about how they were doing this to various banks. And then if people start taking the money out of the bank, the value of the bank declines, and they make a make a bundle. They did the same thing with Greek bonds, and another entity. So wherever you see trouble in Europe, you can be sure there’s piles of hedge funds, trying to make it worse, and Soros was the person who taught everybody. Look, you don’t have to just bet you can get so big that you actually determine the outcome. That was that was the Soros a secret? And they’re still doing it.
Jason Hartman 1:00:54
Amazing stuff. What happens at the highest levels of finance, you know, I think you alluded to this or earlier but Step nine, as you talk about in the book is about betting on the race after you already know who wins. Can you elaborate on that a little bit?
Les Leopold 1:01:09
Well, yeah, there’s, I think, in a sense that that’s, that’s almost generic for what happened. It’s wrong to view hedge funds and Wall Street in general as casinos, you know, we like to use that term. That’s not you don’t make you don’t risk billions of dollars. Like, you know, like you’re betting into casino, you want to bet rigged. So, this whole, the whole series of things that we’ve been talking about are yet another version. So you know, the outcome when you do high frequency trading, because you’re you’re working so quickly, you can actually see it before it happens. You know, the outcome when you’re designing a security that’s designed to fail and you’re betting against it, you know, the outcome when you’re placing rumors, you know, false rumors to your colleagues and CNBC. You know the outcome. When you have insider trading. Each one of these is a it is the antithesis of gambling. When you corner a market, Allah Soros, you know the outcome before you do it. So that’s the key to successful hedge fund strategies. I used to think it was just that they had great models predicting the future of how the stock stocks and bonds would move. No, it’s trying to figure out the end of the horse race before that, who’s gonna win the horse race before it ends? And knowing that for a certainty, otherwise, why are you going to risk billions of dollars you just wouldn’t.
Jason Hartman 1:02:30
Well see. I think I think that it is a casino for all the traditional investors the regular the rest of it. Right, but but for the for the bigwigs, it is a rigged game. It’s funny that people defend Wall Street as though it’s this capitalist tool. That’s this great thing that is a free market and these big players should be defended because you’re attacking business. No, you’re not attacking business. You’re attacking fascism. These businesses are so embedded In the system that they they control outcomes. It’s not like it’s a free market capitalist system, as people may may think it’s just not that way anymore. may have been that way one time, but it’s not that way anymore. Okay. How do they claim that limits on speculation will kill jobs? That’s another way that the mind boggling Yeah, that’s another way they they create this like fascist system that they get the government on their side to do their schemes right?
Steve 1:03:28
Not just on their side, they got a tax break. They have their own special tax break called carried interest. That 20% you talked about that they get a profit for the two and the two and 20. The two is taxed at the regular marginal tax rate. So that’s 39%. Now for these guys, their income bracket, the 20 is taxed as capital gains 20%. So they’re paying half as much most of their profits that they get the lion’s share 90% of the money that they’re earning. This is their money they’re earning right from their supposedly investment strategies. This is their fee. They don’t pay, they don’t pay it is income. And so that’s a special tax privilege. So the people who support that tax privilege claim that if you took that tax privilege away, it would cost American jobs. And that is the most ridiculous argument I ever heard anybody make, but they make it with a straight face. And guess what, both Democrats and Republicans have made that claim, even Liberal Democrats have made that claim? And that’s because they are scared to death, or therefore, they can’t think out. They keep they don’t want to mess with the headphones. There’s too much money there. And in fact, there’s, there’s another issue that I think is a well, you touched upon something before that, I think is absolutely essential, which is we have an oligopoly of finance now. And it I don’t think you can have free market capitalism and a financial oligopoly at the same time. And so the people who really care about free market capitalism, they should be up in arms about what’s going on on wall street right now. At one point I think that you were You were getting me to think about by your by your last comment.
Jason Hartman 1:05:02
Oh, no, I don’t question about it. Yeah.
Les Leopold 1:05:05
The other one is, the problem is we equate wealth with economic value without even asking. So if somebody is rich, they must be smart. They must be producing something valuable in the market or they wouldn’t have gotten rich in the first place. And it becomes a tautology. So these hedge fund guys are looked up to, like they’re geniuses, that that you know, that they’re just really super smart investors. All this negative stuff I’m talking about people pay no attention to that in the highest circles. So so because they have a lot of money there. They are considered a prime aphasia kind of taste, right for being so high valued right now.
Jason Hartman 1:05:45
And, by the way, I want to I want to just have mentioned something on that. I think that is generally true in the world of real things. The problem is, this is a world of smoke and mirrors. This isn’t there’s no real value, necessarily. being created. I mean, there may be occasionally, you know, maybe a fund fund funds and investment. And the investment does good for the world like farmland that provides food or something like that. I mean that that certainly happens. But But by and large, a lot of these, they’re just making money by moving things around and manipulating them and it’s a game of smoke and mirrors. This is like what I call this the smoke and mirrors economy versus the real economy. The real economy deals in real goods and services. These aren’t goods and services most time
Les Leopold 1:06:34
I you know, await a way to make a clear cut. comparison is we forgotten what a bank really is. And what we’re winning investment vehicle really is you just described, it’s supposed to take our savings, and then they’re supposed to transform savings into investment that a community bank will take in people’s deposits and then loan it out to businesses and in the form of mortgages or in the form of debt. And businesses. And that’s what perpetuates economic development. And it’s we need it we at Bank of North Dakota does that public bank and does it? Well, it’s the it’s what when banking and investment became a hedge fund inside a bank is called the proprietary trading desk and outside, it’s called the hedge fund, but basically becomes a vehicle to extract profits from everybody else. They don’t care about what it’s invested in anymore. They care in terms of doing real investment in the economy, it’s money, that they’re not investing in the real economy. It’s money that they’re putting in and out of markets, to gain advantage and to basically siphon off the general capital of the economy as a whole. And this is something that we virtually put a stop to, during the Great Depression, and we and it was, it basically didn’t happen all the way from the 1930s up to about 1980.
Jason Hartman 1:07:53
What are the real changes? I mean, you’re probably gonna say Glass Steagall was one of them but but please outline how how it changed back, in a bad way, in a negative way.
Les Leopold 1:08:02
Yes. Okay, what happened was virtually every form of deregulation set in. So one of them you mentioned was the allowing. It used to be that investment banking and this and this will we’ll call gambling, although it’s not really gambling, but that kind of speculative stuff within one kind of bank. And, and our, our insured deposits were another kind of bank. So that meant that if they, if they lost their money, and they went under, it wouldn’t affect the taxpayer. Well, that changed. We got rid of Glass Steagall, and they they basically could commingle the institutions. And of course, we saw how well that worked out. That was just one of many the fancy instruments like the ones that were designed to fail. These mortgage. Pool securities are called derivatives. And, and I tried to take people through that very carefully in the book, how that works, but they were deregulated. So what happened was that the there was a they could they could bet on anything. For example, in in, in housing, you cannot take out a insurance policy on your neighbor’s house. They figured out 800 years ago that if you did, so you’re gonna likely write what’s likely to burn down.
Jason Hartman 1:09:13
It’s a con. It’s a conflict of interest. Yeah.
Les Leopold 1:09:17
prove who did it or how it happened? Well, we allow that to happen all over finance now, to the tune of hundreds of trillions of dollars events are taking place, and it’s not regulated. So if something goes wrong, it goes wrong really big time. And that was a major contributor to the financial crash. Simple things like credit card interest rates us were deregulated. The savings and loan industry was deregulated until, until that, obviously, totally imploded and wiped out saving institutions as we know it. The idea of letting banks get bigger and bigger. We threw out antitrust regulations on banks. Right now that you know the top five banks have 60% of all the banking in the country?
Jason Hartman 1:10:00
Well, well, yeah, but what really is the antitrust rule? I mean, if if Bank of America tried to buy, not that they’d be suitable. But you know or say Citibank tried to buy ba and wells and Chase, right? That would be something I would consider a monopoly. But I mean, you do have choice. We’re not in an antitrust point yet. Are we? I mean, I agree that the banks are too big to fail.
Les Leopold 1:10:21
We’re so far, but we’re so far behind it. Oh, my God. Because, look, there’s there are so few banks, that they literally can rig all the basic interest rates. So the live horse camp? Yeah, right. Right. There’s 15 big banks that set that set that rate so they got together and colluded? Because there’s only 15 banks and the international banks is easy to do it. I think there’s a lot to consider. There’s 19 systemically important financial institutions. Now, the United States, their mortgage rates as low as they are, they’re higher than they should be. They’re getting money at zero from the federal government, and they’re loaning it out at a rate If it was a truly competitive marketplace, if there were many, many institutions doing it, one could argue they would be lower. It’s just harder to cheat. When you have more institutions competing for the business, big, you know, size matters. And the argument always was, well, maybe they’re, they’re big in this country. But that’s what you need internationally in order to compete with other banks. You need giant banks to go along with giant corporations. And I think i think i think they’re definitely oligopoly problems. But I think there’s a bigger problem. The bigger problem is that I’m not sure this is weird to say, but I’m not sure if private enterprise works in high finance anymore. I think the model it’s very interesting that North Dakota, one of the most conservative states on the planet, has a publicly owned bank, and then it’s thriving. It’s a wholesale bank. So it’s more like a wall street bank, except it’s much smaller. Most people don’t know this, but
Jason Hartman 1:11:56
It’s the only state unless they were they weren’t even considering There was even a bill in North Korea. Last year Now, keep in mind though North Dakota is a rich state, you know, it’s got all that oil. Okay, so it’s
Les Leopold 1:12:06
Haven’t been all that rich since 1919. The bank
Jason Hartman 1:12:09
Fair enough, fair enough. But the other thing is, you know, they actually had a bill to eliminate property taxes there, which I think property taxes are a ridiculous concept. You pay taxes on the money to buy the property, and then you buy it, but you never really actually own it because there’s a perpetual lien against the property through taxes, which just encourages people never to pay off mortgages, because they can’t really own it free and clear. So, again, it’s it’s the government creating malinvestment, but it didn’t pass in North Dakota. So you still do have property taxes. But it was just interesting that that state is well managed enough to have that possibility.
Les Leopold 1:12:47
The top bank officers of that public bank average about $130,000 a year that’s that’s what the
Jason Hartman 1:12:53
Oh, you mean, you mean they don’t get like 70 Millionaire?
Les Leopold 1:12:57
Right. Well, they get less than the chauffeurs. For the Wall Street banks get. Less than the crooks of Wall Street banks get mad. Here’s the other thing. Right now, when you pay your taxes or you pay a hunting license or fishing license, where does the money go? Most people think it goes to some vault in the, you know, in the state capital of Phoenix or wherever, no, it goes to a large bank, usually Wall Street bank, because they’re the only ones that are large enough to handle what the state needs for cash management. That’s a trillion dollars a year that all of our tax money that goes to Wall Street banks except the one place it doesn’t happen in North Dakota, the tax money and fees go to the bank of North Dakota. If we if we had 50 state banks, we’d be taking a trillion dollars out of Wall Street. We also could replace Wall Street’s control of the Federal Reserve. Those 50 banks could sit on the Federal Reserve boards instead of the Wall Street bankers and their representatives. That will change the ballgame as well. That would be the beginnings of a financial system, that would matter because then you’d be moving power away. From the gambling institutions and moving it towards real banking, and this the state banks, by the way, don’t compete with the community banks, they support them. So there’s 80 community banks in North Dakota, supported by the partnerships with the Bank of North Dakota, the wholesale bank. there’s a there’s a great group out in California called the public banking Institute. I’m not sure when this is going to be aired, but they’re going to be having a conference on June 3 and fourth or second, third fourth, in California. People should check them out. They’re very, very smart people who I think are raising some important questions that we all need to look at.
Jason Hartman 1:14:36
Well, let’s give out your website and tell people where they can get the books.
Les Leopold 1:14:40
Okay. It’s a how to make a million dollars an hour. People can get it they should be able to get it at any bookstore, they get it from, from pals on the internet, or from Barnes and Noble or from Amazon.
Jason Hartman 1:14:50
And by the way on Amazon, four and a half stars, four and a half stars and okay. Okay, well,
Les Leopold 1:14:55
I thank everybody for that. And right now on my website, at my company is under construction. But you can find me. If you go to the two alternate. If you go les Leopold alternate, or if you go les Leopold Huffington Post, you’ll see a list of a lot of my articles that I’ve been writing in the last.
Jason Hartman 1:15:13
Excellent. Well, hey, let’s just wrap it all up with a quick closing thought, if you would,
Les Leopold 1:15:18
My closing thought is this, we have to understand this stuff. We can’t leave it to experts. If we want to be citizens in this country, we’re going to have to understand something about high finance and we have to know how hedge funds work couraging everybody, not necessarily through me, but go out there and get yourself an education on this because it really matters.
Jason Hartman 1:15:36
Good stuff. It certainly does. Les Leopold. Thanks for joining us today.
Les Leopold 1:15:39
Thank you so much for having me.
Les Leopold 1:15:43
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