On this Flashback Friday episode, Jason Hartman welcomes Roger Lowenstein, financial journalist and author of The End of Wall Street, When Genius Fails, and Buffet: The Making of an American Capitalist. They talk about Wall Street, whether it needs regulation or deregulation, and how free markets are open to speculation, greed, fear, and manipulation. Roger also discusses the increases in choice, risk, hedging, volatility, and what happens when the bankers who don’t know their clientele determines loan eligibility.
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This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
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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 Data investors.
Jason Hartman 1:02
Thank you so much for joining me today. And I got a lot of great feedback on the last several shows really but the last show number 236 as well with rich dad, author Ken McElroy, had a great breakfast with him last week and really enjoyed him. And I even asked him if he wanted to come and speak at our meet the Masters event, which is coming up in March, and he’s checking his schedule. So I’m not saying that he is. But he is checking into it. By the way, we just posted that on the website for Hyatt Regency Irvine for March 24 and 25th. However, and this is a big giant, however, one of our speakers instantly said you know what, that’s spring break for a lot of people and you might want to switch the date. So I call the hotel and we’re thinking of switching it to the weekend. I guess that’s March 10 and 11th two weeks earlier, so if you have any feedback on that, let us know really fast. Go to Jason hartman.com fill out the contact us form and just Write your comments in there and let us know or if you’re working with our investment counselors, give them some feedback and we will be happy to take that into consideration. So it will be in March Hyatt Regency Irvine our usual venue, you know, we were thinking of doing that event in the Greater Phoenix area. But I gotta tell you, it’s amazing to me that you try to do an event in Phoenix Scottsdale in the springtime the high season with baseball spring training going on and just all of the great activities here that make this such a great place to live and good luck. Because I had one of my assistants call around two hotels here and they wanted five and $10,000 a day. Food and Beverage minimums. They wanted guest rooms $250 a night plus plus. Just It was amazing. So definitely not a good fit when we can do the beautiful Hyatt Regency in Irvine where we’ve had our events so many times and we can get you guest rooms for $99 a night much better to be proven and also enjoy a great venue and enjoy fantastic California as well and use that saved money to get out of the rat race and invest in income property, a much wiser thing to do. So we want to be prudent with our investors money.
And speaking of which, we’ve got a couple of specials you might want to check out and I’ll tell you about those in just a moment. A couple of product specials. I don’t know how many of you have heard of equator but equator is the system that real estate brokers and agents use and sellers use sellers that are wanting to do distressed sale transactions and boy that’s most home sellers nowadays are most property sellers in general, I should say and equator released some interesting statistics recently that said that they see nearly 1.2 million short sales or initiated through its system over the past two years. Now remember, folks, why do I bring this up because Remember that 1 million equals about 1% and 1% equals about 1 million? Well, what do I mean by that? We’ve mentioned on prior episodes, when you see 1.2 million short sales initiated through the equator system, that means that the homeownership rate in America has dropped by at least 1.2%. Now, what are these people all need? Well, they’re probably not going to be running out to buy a new home. They’ve got to live somewhere. So they are going to do what they are going to rent. And I venture to say something even a little bit more, maybe politically incorrect or slightly distasteful, but here it is a financial hardship. What is it cause? Well, many times it causes the Big D word. You know, those wedding vows through better or worse sickness and health for richer or poorer well, financial stress causes divorce. So a lot of times these distress sale households, if they’re a company They turn into two households, not just one, creating even more demand for rentals. And when you look at the stats, the marriage rate in the United States is the lowest it’s been in decades.
Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday.
So things are changing. I’m not making a social commentary on this, whether it’s good or bad, actually, I kind of think it’s bad. I mean, I’m single. I’d like to be married. I’ve wanted to be married for a long time. You know, I always thought I’d get married in my late 20s. But now it just never worked out that way. And you know, listen, each obviously has its own advantages and disadvantages marriage, a very big decision. I guess that’s life’s biggest decision of all, isn’t it and it can be great when it’s great, but it can be absolutely horrific when it isn’t the right match. So there are obviously advantages and two advantages to each side of that coin. But you know, regardless financial hardship causes divorce, there’s no question about it. And no one can argue with that. That’s not anecdotal, it’s empirical. And also the marriage rate is declining dramatically. So this means more demand for housing. Remember, you need two houses instead of one, you need two places to live to residences instead of one. So that means more opportunity for investors. So here’s a snippet on the equator thing default servicing technology company equator says nearly 1.2 million short sales were initiated through its system over the past two years. The company tracks this data through its default servicing platform which helps mortgage industry clients deal with loan modifications, short sales, deeds in lieu that means a deed in lieu of foreclosure when you simply hand over the keys hand over the deed to the property to the lender instead of doing a foreclosure and foreclosure processing and are you In other words, real estate on Los Angeles based equator said Wednesday that more than 100 and $50 billion in assets have been sold using its platform over the past eight years. Analyzing trends from the recent fourth quarter equator said servicers heading into 2012 are focused on compliance issues.
What does that mean? That means lenders and servicers of mortgages are what they are fearful they are afraid to foreclose because all of the scandals all of the robo signing all of that stuff. So big, big things going on big opportunities for us as investors now today on the show, our guest is going to talk about the end of Wall Street. Well, wouldn’t that be nice? Now I say that obviously tongue in cheek. Listen, folks, I know that I constantly bash Wall Street and I think Wall Street deserves probably a lot more bashing that I give it and a lot more bashing than all of us give it however, the concept of a stock market is great for capitalism because it does allow middle class people to invest in things they couldn’t otherwise invest in. Certainly, and I know I’m speaking conceptually here, it allows for economic growth. It’s a huge engine for economic growth. But of course, in the last couple of decades, it’s been so completely disgustingly perverted in every way. And the fat cats are just getting all the benefits while everybody else is getting the short end of the stick.
And on that note, a recent article here I have and this is a USA Today article Gary Straus says more CEOs rake in $50 million and up and a couple snippets from this article, and I did not know this till the other day.
Jason Hartman 8:52
I cannot believe that I had no idea he was making this kind of money, but good old Tim Cook, who took over for the late Steve Jobs, three 170 $8 million. Wow. Qualcomm’s Paul Jacobs $50.6 million. Tyco international Ed Breen, $68.9 million. JC Penney now, I don’t know about you, but I thought JC Penney was kind of a dying company. haven’t kept track of them lately, but I remember from my childhood, we had those old old companies Sears Montgomery, Ward’s JC Penney, Mervyn’s, obviously went out, Kmart largely went out. I thought those companies were kind of a dying breed and there were new companies coming in to replace them. Well, whatever the case, I’m not sure what JC Penney’s up to, but ron johnson heading up JC Penney made $51.5 million and get this exit packages are even more lucrative. Neighbors industries will pay Chairman Jean Eisenberg 100 In $26 million when he steps down while Motorola Mobility CEO, Sanjay, how do you say that? I don’t know. Anyway Sanjay and tiempo inland CEO, Doyle Simmons are do more than $60 billion once their merger is finalized. Compensation experts say that Corporate Directors are wrestling with oversized pay plans, but many are hampered ideals hatched by other boards seeking new talent.
Well, you know what, I bet that’s not really true. They say that but in reality, as long as the board is getting a lot of money, they’re going to let the C level executives get a ton of money as well. As I’ve said before, I’m a capitalist, Okay, I see nothing wrong with this as long as the shareholders are being rewarded proportionally and the other stakeholders are not shareholders, necessarily stakeholders are employees, vendors. other stakeholders involved with these companies? These companies are so giant nowadays, that I really think that they have a social obligation to be fair with all stakeholders involved with them. I know that may sound slightly leftists Don’t worry, I’m not a leftist. And then it goes on to say in the article here I hear for one who stands to make a lot more under a new contract. Disney is paying him at least $30 million annually through 2015. Up 43% from his old base pay on believable what a total scheme and scam, be a direct investor. Stop making everybody else rich. Invest in your own properties be a private lender. I’ve been doing more and more private lending myself financing a lot of deals that you are buying that our clients are buying both from the end where our vendors need the finance To buy properties at auction there, that’s a very capital intensive business for them. Think about it, every property might cost them 60 $70,000 or more, maybe less at times, and they need to buy these properties at auction, hold them for four months, and turn around and rehab them, get them rent ready, many times put tenants in the properties and then offer them to you, our investor clients and I finance some of those deals and you know what, if you have an interest, I suggest you do the same because I’m earning over 12% on money that I loan out for sometimes 92 days, 94 days at a time.
You know, I like that short term lending when I get my money back so quickly and several of our clients are doing it as well. If you’re interested in this, just shoot me an email Jason at Jason hartman.com and I will connect you with the right people also subject to applicable laws, not eligible in all states, etc etc. There’s a little bit to it, but I’ll introduce you to the right parties, you can find out the details that may or may not be for you. We do have a couple of nice big huge discounts actually, one discounts about 66%. The other is about 50% on two great products that you should definitely have. Number one is our creating wealth home study course normally, what is that normally $297, I believe, well, guess what, you can get $200 off. And you can buy that for 97 bucks, what a deal. That’s about five or six hours of audio. It includes two books, the workbook, it’s an active interactive workbook, and you can fill that out as you listen along on your iPod in your car at home, whatever and digital download of the audio and two PDF files as well as a complete, beautifully done transcript of that foundational course that I teach and thousands of people who’ve been through it. I’ve taught it for several different companies over the years and it’s really great.
So if you go to Jason hartman.com You select the creating wealth home study course. And you enter the promo code, cw 200. So creating wealth and a $200 discount. cw 200 is the promo code go to Jason hartman.com. Click on the products. Take advantage of that. And the Financial Freedom Report. Great way to start off the new year is to be a subscriber to our highly acclaimed financial freedom report newsletter. And that’s where we talk about a lot of the stuff we just don’t have time to talk about on the show or even at the events at the meet the Masters event. This This again is a whole nother Avenue, a whole nother outlet or you’ll learn a lot more stuff and you can get $100 off of that so you can get it for only $97 as well and the promo code FFR 100. So it’s the Financial Freedom Report. FFR 100 is the promo code you can get a full year subscription to that.
Just a reminder, you’re listening to flashback Friday. Our new episodes are published every Monday and every Wednesday.
So before we get to our guests a couple more things I want to talk about here in Porter Stansberry, his newsletter. He says some really interesting things that totally tie in with today’s show. And I just wanted to mention them here before we go to our guests, because they’re very applicable when we talk about Wall Street, the end of Wall Street, we talk about the corruption of capitalism, capitalism a great thing but again, like I’ve said before, I don’t think Wall Street represents capitalism anymore. I think it has completely detached itself from capitalism, and it is now capitalism on a nominal basis. And I talk always about nominal dollars and real dollars, constant dollars, or inflation or deflation impacted dollars. And so nominal means a name only so Wall Street’s capitalist in name only. It’s an insider’s game. So listen to this in the Stansberry newsletter, he says the 10 largest American bankruptcies in history have occurred in the last decade Lehman Brothers $691 billion Washington Mutual 320 $7 billion WorldCom 100 and $3 billion General Motors $91 billion CIT group, the commercial lender about 100 year old company, okay $80.4 billion, and Ron $65 billion consecutive $61.4 billion MF Global. You’ve heard a lot about them in the news lately. We’ve talked about them on the show $41 billion Chrysler $39.3 billion Thornburg mortgage $36.5 billion. All of these failures have a few things in common extremely well compensated CEOs want to surprise with long 10 years, which suggests that the Board of dreams record was asleep at the wheel, my comment or getting paid not to pay attention vast amounts of debt that would seem completely unsafe by any reasonable standard and accounting policies that deliberately misled investors. Most tellingly, in the vast majority of these cases, board members and executive management have no material investment in the company. In other words, they have basically sold off the vast majority of their shares. And I know a lot of you stock people.
This is me talking, by the way, not the article. I know a lot of you stock people, you look at what the insiders are doing, right? Well, if an insider if the CEO, the CFO, if the CIO, if the board of directors, if all those inside people, if they own a bunch of stock in the company, well then you know, that’s a sign of they have faith in the venture right? Not so fast because what is quoted when you see those figures is the amount Don’t have stock they own. So say for example, it insider bought up $2 million, or $5 million worth of their own company stock. Well, all the stock investors go out and they think, gee, isn’t that great? That’s a sign that they have faith in the company. But the reality is, they’ve got a $300 million net worth. And they just look at Gee, if I can buy up 2 million or $5 million worth of stock and push the needle, as I’m making $60 million a year or 100 and 20 million when I’m going to exit the company, it’s essentially a pump and dump scam folks, look at how much stock they own as a percentage of their compensation and as a percentage of their net worth. I mean, that stock could be a drop in the bucket for them. It could be pennies, it sounds like a lot to you and I but in reality, you’ve got to consider that in accordance with their compensation and their net worth. Then you understand how at stake there One more thing from the Stansberry newsletter.
And this is interesting too, because before I shared on the show how he talked about the late Steve Jobs, and it’s always never speak ill of those who have passed away. And you know, I love Steve Jobs and he’s done incredible things. What a great inventor etc. But you know, I mean, he profiled his misdeeds with Apple and how he would screw around with the numbers and the backdating and then how he hired al gore and covered things up. I mean, it’s just rampant, folks. You’ve got to just assume everybody is doing it. And that’s why you need to be a direct investor. Thou shalt maintain control. commandment number three, control the things you invest in, buy a bunch of little single family homes, get a couple of apartment buildings, get some notes and trustees and do some short term private lending. This stuff you control directly. There’s no middleman, skimming the profits off the top. Okay, last thing from the porter newsletter, and then we’ll go to the guest here. He says, I can can’t name a single major Wall Street firm that hasn’t engaged in massive fraud over the last decade, not one. He’s saying not one that hasn’t engaged in massive fraud over the last decade, not one. They have all paid massive fines to the SEC, the Securities and Exchange Commission, but in only one of these cases, was any firm held criminally responsible.
And that firm was Arthur Andersen and Ron’s accountant. What about the bankers who actually lent the firm money against collateral they knew was bogus. What about the investment bankers who sold Enron stock to the public, even though they knew the earnings were fraudulent? And what happened to the huge corporations whose depositors, executives and lawyers are all full active partners in the fraud that bankrupted me? Enron, namely Citigroup, and JP Morgan, the two largest banks on Wall Street. It’s just unbelievable, isn’t it? I mean, folks, we’re talking today about the end of Wall Street. Roger Lowenstein will be back with us to talk about that in a moment. Make sure you join us for meet the Masters in March in Southern California and take advantage of those products I mentioned, look at the properties on our website, things you own and control directly, or you have returns projected well, upwards of 20% annually. And by the way, I got to make one more comment on the properties. I don’t ever claimed to call everything right. And you know, my big prediction that has not come true, that I’ve been talking about for years. I’m surprised interest rates are still this low. In fact, I am floored. I am shocked that interest rates are still this low. The way I call that I thought they’d be much higher by now. How long can they kick the can down the road and keep this house of cards afloat the way they’re doing? It, it boggles the mind. It really does. It defies gravity. It defies logic.
Another one that I totally underestimated. St. Louis. St. Louis has been an amazing success for us that market. I’ve told you many times I really like Atlanta right now. Great market. We’ve been doing great things there. But you know, also, I got to draw your attention to St. Louis. The properties have phenomenal cash flow. I was looking on our website the other day under the Jason hartman.com slash properties section and projected returns exceeding 40% annually. Not bogus, not hype, conservative things that can come true in reality, because income property is a multi dimensional asset class and look, if it only works out half as well. Well, you make 20% annually. That can’t be all bad, right? But certainly you can loan your money on short term loans and earn upwards of 12%. So that’s what we have To offer things where you are direct investor that you directly control where you won’t have some criminal on Wall Street, skimming the profits off the top. So we will be back with Roger Lowenstein. This is a fascinating interview as he talks about the end of Wall Street. here in just a moment. We’ll be back in about 60 seconds.
Announcer 23:24
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Jason Hartman 23:48
My pleasure to welcome Roger Lowenstein to the show he is the author of the end of Wall Street when genius failed, and I think you’ll find this interview to be very interesting. Roger, how are you?
Roger Lowenstein 23:58
I’m very good, Jason. It’s a pleasure to be with you.
Jason Hartman 24:00
Well, likewise, let’s talk about the end of Wall Street. And you’re the author of five books, I believe. But tell us about this one in particular, it seems to me that for the last 30 years or so, the financial services industry has had such a great run. And maybe that leads us to a bit of a bubble. There’s so many scandals and problems and tell us more.
Roger Lowenstein 24:18
Well, I think we certainly had a bubble. You know, we had a huge bubble, obviously, in mortgages and in the stock market, in the business of banks. And we’ve seen, you know, it’s just just sort of a bunch of related bubbles or scandals about how you know anything from Bernie Madoff to how the banks packaged mortgages and sold them to investors and so on and how the credit rating agencies operated, but the end of Wall Street, which was the title of the book, was meant to suggest that speculation and and the notion that free markets and Wall Street could do no wrong and needed no regulation that all these things really reached it. peak, you know, in the last cycle and, you know, peaking in oh seven or so and the world that were emerging from into is really going to be different than then that era. And then we’re going to have, you know, more regulation, less profitable banks, you know, more of a government hand, higher unemployment, more volatile and less exuberant stock market. People more afraid to invest in the stock market are afraid to do anything with their money. And I think you’re seeing most of that play out. I you know, it read just recently how bank profits haven’t come back real estate markets haven’t come back, you know, whatever the new normal, is it? It sure feels different to me and pre 2007.
Jason Hartman 25:48
Well, I would certainly agree with that. Now, when we talk about the end of Wall Street, Roger, I guess that really needs to be parsed up into what we consider to be Wall Street. I mean, of course there there are the columns. They’re the people that own shares in those companies and bonds for those companies here. But but also there’s the financial services industry that seemed to change a lot. Of course, my life hasn’t been long enough to really know. But you know, I kind of look at the 80s as a fundamental change when people used to invest for income they used to be dividend investors and and it seems like a whole new breed took over in the 80s, where it became largely a capital gains and speculation market and market more about hot stories rather than good old fashioned blue chip stocks that pay dividends.
Roger Lowenstein 26:31
Yeah, although, you know, you have to, you have to remember that that, you know, there was a fair amount of speculation in the 20s. And, and there was also a fair amount of speculation in 1960s to go go years when people were buying, you know, electronic stocks that they were the the precursor of, you know, internet stocks.
Jason Hartman 26:49
But back then, you know, yeah, and of course, I do realize that, especially in the 20s don’t know as much about the 60s but were those were those companies back in those days more, even if they were speculative. Were they Companies that plan to pay dividends or did pay dividends. And the investors were still looking for income even if it was kind of a hot story or hot news,
Roger Lowenstein 27:08
Ah, not not the not a lot of them. There was a real growth stories, that growth stocks that turned him into his own in the 60s. But let me pick up on your question in a different way, which is, because I do think the financial climate has changed and become more speculative and more short term. And I think there’s a proliferation of financial assets trading that we didn’t have before not just by the way in securities, but you know, the choices when you get a mortgage you want to fix Do you want an adjustable? Do you want a 10 year or a 30 year and I mean, they were the just what did you do with your savings, you put it no money market, you take more risk. If we go back to the 1970s, the early 70s. And you really had one choice, which was put it in the bank or stick it under the mattress. And I think what has happened since about the early to mid 70s is we’ve had consistent deregulation so we’ve had you know, more markets opening up more financial instruments, you know, more opportunities pure for hedging in efficiencies and all that but, but more volatility more risk, you know, more markets that are susceptible to booms and busts, if you think about the oil market for a second, the price used to be controlled by Texas oil men basically and then then it was controlled by Saudi sheiks and they wouldn’t always get the price perfectly right. But now, of course the price is, is controlled by by markets. And you’ll see the barrel price per barrel of crude run up to you know, $140 a barrel then a year later, it’s back down to 40. That’s up to 90 and because, you know, free market or open markets as good as they are, they are susceptible to speculation, greed, you know, fear all this. You know, one other very important example is the mortgage market. It used to be in the local banker who decided if you qualified for a mortgage, usually and hopefully by
