Thursday, October 23, 2008

What Percent of Lake Minnetonka Properties are Earned?

For those of you not familiar with Twin Cities geography, allow me to lay out the Twin Cities metro to you.

In the center you have two major cities; Minneapolis and St. Paul. The Mississippi flowing through both, cutting Minneapolis in half as it flows southward, and then cutting St. Paul in half as it turns and flows northward, inevitably turning south again and making its run for the Gulf of Mexico. Surrounding the two city centers is an oval of inner suburbs, which in turn is surrounded by outer suburbs, with houses getting progressively larger and the yards bigger the further out along the radius you go. But depending where you are (north, south, east or west) of the metropolitan hub, more or less generally determines what kind of neighborhood you live in.

Bar “pockets of resistance” such as Edina, St. Louis Park, and so forth, the inner suburbs are more or less blue collar, old school neighborhoods, pock-marked with crime ridden extensions of the poorer parts of Minneapolis and St. Paul.

The northern suburbs are predominantly blue collar. The running joke in the Twin Cities is if you are in Anoka you should wear your “good” snowmobile jacket if you have a wedding.

The eastern metro is filled with farms and ranches and apple orchards, with epicenters of limousine liberal smugness manifesting themselves in the forms of trinket/antique shopping towns like Stillwater.

The south is kind of a hodgepodge of varied sorts, but you’re generally solid white collar.

But the west…ohhhhh, the west. Let me tell you about the west.

For directly west there is a lake called Lake Minnetonka. And Lake Minnetonka is no ordinary lake, it is a many-multi-chambered, multi-bay, multi-isthmus lake. Tons of shoreline, nestled within coves, within peninsulas, within hidden lakes, all interconnected to allow boats and yachts the best sailing bar going to Lake Superior. If you do not have a map, you can get lost, but you won’t care because it is the most beautiful lake in the state. And it is because of these traits that it was only a matter of time that it would come to house the richest of Minnesota’s rich.

Every bit of lakeshore has a mansion on it that can compete with any other mansion throughout the world. You can go to various bars along the lake and see nothing but Beamers, Mercedes, Ferraris, and Lotuses being valet parked for their owners. You can see boats that are just as big as what they have on the North Shore bay in Chicago. You can go there and see the most poshly dressed and done up people and think you’re in Milan. But you’re not, you’re in fly over country.

Naturally, if you’re a normal hard working Joe, this is a foreign world to you. A world of peppered hair investment banking types ordering $15 martini’s. A world where trophy wives drive their Lexus SUV’s to the local towns at 11AM to meet their trophy comrades because they don’t have to work. A world where 17 year old high school kids have nicer cars than you’ve ever had. It is a world you just can’t relate to. But I have a dirty little suspicion about this world, and that suspicion is it’s like the “Barbie Girl” in the “Barbie World”;

It’s fantastic.

But it’s made of plastic.

What first aroused my suspicion to this ultra-elite world is when working in banking I would get an inordinate amount of real estate developers who claimed residency in the area. In my book I regale the story of a man I called “Zorba the Swede” who I titled such because he was always super tan when he came into the bank, even in January. Minnesotans do not pull off that “Greek guy in a speedo with a lot of chest hair” tan in January (let alone July). But this guy did and he hailed from Wayzata (the capitol of this elite area). Regardless, it was the likes of Zorba and his ilk and their uncanny ability to reside in the Lake Minnetonka area that raised my eyebrow. And the reason my eyebrow was raised was not the tans they were sporting, but their tax returns.

Most of them showed losses.

It seemed odd to me that if you showed losses on your tax returns that you could somehow live in the Lake Minnetonka area. Matter of fact, unless your tax return showed at minimum a $1.5 million salary a year, I don’t see how you could even afford to live in the “slums” of Lake Minnetonka. But somehow they did.

But the excuse I received was universally the same;

“Oh, Zorba made money, he was just trying to low his tax bill by showing losses. But rest assured he was a very successful real estate developer/surgeon/businessman, which is why he needed an emergency $4 million loan this afternoon. You understand of course, it’s just business.”

Funny thing was I never understood.

I understood they weren’t making money. I understood they had overleveraged themselves into property that would never sell. I understood there was a housing crash coming. And I understood that even if they had $30 million in assets, if they had $35 million in debts, they were insolvent. But I never understood how somebody who was LOSING money could afford a $10 million mansion on Lake Minnetonka, and still don’t to this day.

Time would go on and sure enough there was no limit to the number of “Zorba’s” out there. Real estate developers. Non-descript businessmen. Investment brokers. All showing losses. None posting profits. But invariably all living in the fanciest zip codes money could buy.

But as the housing crash started its decline, it was interesting to see how many of these “super-successful” business men failed to provide their most current tax return. Or their most up to date personal financial statement. Or just give us projections or estimates of what their current financial situation was. They would hem and haw, and ultimately balk, but according to my supervisors;

“Well, they’re very successful men. They are so busy making money, they don’t have time to get their tax returns in on time. That’s why they always file extensions.”

Funny, I never understood that either.

In any case, what I suspected ultimately proved to be true. The majority of these “super successful business men” were in short nothing but financial deadbeats. Losers who couldn’t even manage a lemonade stand to profitability. Inferior little middle-aged brats who didn’t have the guts, nor the aptitude, nor the intelligence, nor the skill to genuinely work up the wealth they farcically paraded around. And some were so egregious in their financial masquerading they begat the attention of their friendly neighborhood federal investigators;.

Adam LaFavre once the darling of real estate circles is under investigation for a litany of things.

Michael Parish of Parish Development plead guilty to a $50 million strawbuyer and fraud scheme.

And Bruce Nedegaard, convicted felon, turned real estate mogul, who, tragically died of cancer before he could be sentenced for fraud, tax evasion and a whole host of other no-no’s.

But just three men do not make the 50,000 or so Lake Minnetonka area residents all financial deadbeats. There are people who ethically (or at least, legally) earned (cough cough! - inherited) their multi-million dollar lakeside homes. Genuine wealth and empires have been produced providing billions in profits and thousands of jobs. But as the housing market has collapsed and with it the economy, the wheat is being separated from the chaff and I am now questioning what percent of the Lake Minnetoka residents are genuine captains of industry earning their “elite” rank, and what percent are just a bunch of financial deadbeat posers.

Three events or observations have piqued my suspicion.

First was last week when it was a rare beautiful October day, I decided to take my motorcycle (that’s right ladies, the Captain is a bad boy) and cruise around the 98 miles of shoreline on Lake Minnetonka. What amazed me was just how many homes were for sale. A brand new mansion for sale here. A partially completed dream house there. And an old school estate up for auction there. Two large “luxury condo” developments on the lake were nothing but ghost towns and I remember reading about the developers and these much heralded developments as the local paper fawned over them as local celebrities. In short, it was shocking to see Minnesota’s richest neighborhood having the same, if not, a higher percentage of the homes for sale as your local suffering blue collar neighborhood.

Second was a story told to me by an acquaintance who lives in the area about a young, budding socialite couple who live in the area and live in one of the nicer houses. However, they actually don’t own the $5 million home. It is owned by the mother in law who lets them live there RENT FREE as if they were a 20 year old college couple trying to pay for tuition. Worse still, the “business” the husband runs is perpetually losing money and needs a constant cash infusion from the mother in law. Meanwhile they drive around in nothing but the finest luxury cars and SUV’s while wining and dining at the local restaurants where drinks are $10 a shot. Fine, the house may not be up for sale, but how many live-in-my-mom’s-basement-at-the-age-of-40 “successful” investment bankers are there? I want that set up.

And finally was the now disgraced Tom Petters. Multi-billion dollar business mogul who lived in Wayzata and was recently paid a visit by the local, state and federal law enforcement representatives who were quite insistent he come with them. Posing as only a poser could, he was heralded by scores of magazines and newspapers as a “super successful” businessman (who no doubt had trouble getting his tax returns in on time too), only to turn out to be crook who defrauded billions from his victims. However, it was not his arrest that crystallized by suspicion into an outright thought, but that he had a magazine called “Lake Minnetonka Magazine.”

I saw the magazine once and it reminded me of the time I was invited to one of the “popular kids” parties back in high school. Shocking as this may be, I was nerd back in 1991, and for me to be invited to this party sounded more like a set up than anything else. It turned out to be a genuine invite by one of the nicer popular kids, but when I got there, instead of this wild crazy party with the cheerleaders running around topless, all it was, was the cheerleaders watching a video of themselves cheering at a recent football game and the jocks watching the same. All they were doing was watching themselves on the VCR. It was the most boring party I had ever been to and I remember leaving only after 10 minutes to go play some Dungeons and Dragons with my friends.

Regardless, the point was this magazine was the exact same thing. A “hurrah for us” fest. A magazine where a bunch of people read about themselves and the parties they went to. It was nothing but them masturbating over themselves. Articles about “Joe Schmoe and Jane Jones-Schmoe (note the hyphenated name) hanging out with real estate tycoon Bob Bobson and his Minnesota Viking’s cheerleader Bambi Bames as they discuss which boat they’re going to buy.” Or “banking heiress Jessica Johnson and some friends party it up at the local club – rumor is she is dating star investment banker and most eligible bachelor, Lance Winthrop!”

It was all of the observations mentioned above, combined with the fakeness of this magazine (not to mention the owner himself was now proven to be a deadbeat) that made me think it wasn’t just a few bad apples in Minnesota’s most elite neighborhood, but that something closer to 25-33% of the population were indeed posers.

Now, admittedly you cannot get rid of nepotism. Undeserving people will inherit the fortune their parents worked up. But what angers me the most about this is the attitude these elites have. I’m not talking about me being jealous or envious, I’m talking about the hypocrisy these people have. It’s one thing to build up an empire from scratch, buy a mansion and drive your Lotus around and live the jet set lifestyle. You earned it. You deserved it. You produced wealth and earned so much money, not to mention employed people along the way that you deserve to sit on the docks of Lake Minnetonka while you sip your $10 martini and say, “I’m one of the best. I am indeed one of the greatest.” I applaud you.

But if you are what I estimate to be that 25-33% of losers who just inherited it, or borrowed it, or worse, just stole it, not only should you have shame, you should be taken to a back alley and have every undeserved penny beaten out of you. Not because you have it (however you may have gotten it), but because of your insistence that like all the other subprime deadbeats, thieving bankers and other entitlement princes and princesses out there, that you’re ENTITLED to it. And what’s really goading is when you flaunt it.

The dead beat, live at home, son in law who isn’t man enough to make a profit to support himself and has to live off of his mother in law driving a luxury car? Back alley with a baseball bat.

Partying it up living off of embezzled funds, posing as some big time hot shot “businessman” with $40 million in assets and $50 million in debts soon to be bailed out by the taxpayer as you throw the economy into recession? Back alley with a baseball bat.

And Tom Petters with his house he owned (well, “he” never really owned it);

Back alley with a baseball bat, broken glass, rubbing alcohol and a blowtorch.

Now I’ve said it before and I will say it again, because I think those of us who work for a living, who manage to spend within our means, only to bail out financial deadbeats like these, really need to hear it (since it’s only true)

We are better people than you.

We don’t pose, we’re legitimate.

We don’t steal, parasite, inherit then flaunt, or borrow with no intention of paying back, we earn.

We are the ones who make this country and any other country great. And while you may have your Beamers and your Lake Minnetonka homes and your fancy parties, you’re not fooling any one. Your net worth is negative. The waitress with a positive checking account balance has a higher net worth than you. You are the losers and we are the winners.

21 comments:

  1. Minor quibble.

    re: "...who just inherited it, or borrowed it, or worse, just stole it, not only should you have shame, you should be taken to a back alley and have every undeserved penny beaten out of you

    Actually, the folks who inherited it have every right to it.

    Why? because We're not really talking about *that* right, but the right of the guy who earned it to dispose of it.

    ReplyDelete
  2. Deadbeat honest that is!!! Well said...Integrity can't be bought by these leeches..integrity is earned.

    Syncro

    ReplyDelete
  3. I resent your stereotyping. I live in Anoka and the last wedding I went to I wore my good sweatshirt.

    ReplyDelete
  4. Dammit! You didn't tell us about your ride!

    I don't care about the rest of the story. Ok, I do...but I really don't.

    Harley or a rice burner? Crotch rocket or cruiser? How many times have you laid it down?

    In fact, that should be your next blog entry, if you did requests, but you don't.

    Can cagers really ever understand what it's like to ride just to ride?

    ReplyDelete
  5. Anonymous6:45 PM

    And even worse still, Captain, is that many of these "elites" who've done nothing, espouse socialist causes and will vote for the Ubermessiah.

    Note how the trusts set up by the Rockerfellers et al are now left-wing fonts of money.

    ReplyDelete
  6. Anonymous7:19 PM

    You forgot to mention the Warren Buffet quote about "only when the tide goes out do you see who was swimming naked".

    ReplyDelete
  7. Captain, I'd like you to stop, take a deep breath, and relax a bit. What you have just expressed, well, that way lies Marx and madness. Every Red who has ever existed on the entire planet over all time has begun with just such observations.

    Think of those people as furnace-slag and chimney smoke -- a disagreeable but inevitable byproduct of the process, to be minimized where possible but otherwise lived with. And, like furnace-slag, they can under some circumstances be put to profitable use. Think of how many two-bedroom bungalows in Northside were paid for by the wages of carpenters and plumbers and electricians building those McMansions, not to mention all the greasy-handed guys keeping the boats fixed.

    The grand discovery made by the progenitors of our modern economic system -- the Medicis and Rothschilds, and the Jews of late Medieval and early Modern Europe -- is called by many names: fractional reserve banking is one. What it really is, though, is that money is the symbol of wealth, just as the variables and operators are symbols of mathematics and words are symbols of language; and that means that since money can be manipulated using operations on symbols, the underlying wealth can also be manipulated in that way. It isn't nearly as easy as the clean, well-defined operations of math, in fact it's messy as Hell because many of the variables aren't well-defined, much less known, but it works anyway.

    And just as it's possible to use language to describe things that don't exist -- "honest politician", e.g. -- so it is possible to manipulate money to simulate wealth that doesn't exist. You can't have language without having such contradictions and impossibilities, and you can't have symbolic wealth -- money -- without parasites popping up to exploit the system to their own benefit. Any system designed to eliminate them has to begin by returning to barter, to get rid of the symbolic aspect that makes their lives possible.

    Of course they have to be kept to a minimum. Too many fleas will kill the dog, and right about now we're badly in need of shampoo with insecticide, if not Sevin® dust and a thorough brushing. But don't overreach, lest you find yourself endorsing the appointment of William Ayers as SecTreas.

    Regards,
    Ric

    ReplyDelete
  8. Anonymous7:44 PM

    There is a great book called "The Millionaire Next Door". It shows what happens when the millionaires that actually earned the money attempt to set up their kids with the easy life. More often than not the children squander the wealth because they don't know where it came from. In these times. they are revealed because they don't have the skills to earn wealth.

    ReplyDelete
  9. Anonymous9:44 PM

    Except that, whether earned or not, they are managing to wrangle a nice lifestyle.
    -pete e

    ReplyDelete
  10. Dear Captain C,

    I share your pain.

    If it is any consolation to you as to how any self-respecting person could undertake such shameless and arguably fraudulent self-agrandisement as you describe, let's explore one hypothesis.

    Recall if you will research a few years back that suggested that "the best market traders often showed an almost pathological emotional impairment that made them comfortable gambling for high stakes".

    The hypothesis cut both ways - theoretically psychopaths would make the best market traders, and individuals in high risk, decision making jobs may condition themselves to psychopathic-like emotional states.

    Market traders, real high fliers or simply chancers like you have seen around Lake Minnetonka - I would dare to suggest that anyone living on massive amounts of other peoples credit and blustering their way through ( at least until the day of reckoning ) is embarked on an high stakes game.

    And those that do best at it will probably fit the above description of emotional impairment.

    And do not be surprised if more than a few Lake Minnetonka current trainwrecks re-emerge in a few years time all full of bluster and business and do it all again - I can name more than a few examples from the Australian business experience.

    So perhaps the issue is not - why do individuals who are patently disturbed shamelessly seek to exploit other peoples' hard earned dollars - that's what they do. The question is, why are banks silly enough to keep handing over money to scam artists - typically as we near the peak of another credit or asset bubble ??

    ReplyDelete
  11. Huzzah! (throw-back to my own D&D days :P)

    Thanks for writing about this. I definitely have a great deal of respect for anyone that can hold down a job, pay their bills on time, and generally contribute in some way to society.

    ReplyDelete
  12. Kingaljr,

    I am laughing my ass off right now!

    Ron,

    Correct, duly noted, noticed the inherited just ran in the theme of the rest of them, but do have the right.

    ReplyDelete
  13. Anonymous12:45 AM

    loved the read! ironic, how politicians running nations; operate in much the same "disguise" as you describe..

    ReplyDelete
  14. Anonymous4:42 AM

    Heh. I enjoyed that.

    But really, don't get flexed. Just laugh as they're perp-walked to the paddy car.

    There's an old Yorkshire saying: clogs to clogs in three generations (clogs being the footgear of the poor). What it means is, Joe Schmoe is a poor man who busts hump his whole life and makes a well-deserved fortune. Joe Schmoe, Jr isn't quite the same caliber of man, but he takes pretty good care of daddy's fortune and lives out his life in prosperity. Shmoe III is an idiot poser who thinks he's entitled and pisses the whole thing away in his lifetime.

    Clogs to clogs. It's the circle of life, dude. And in a sufficiently capitalist society, it all comes out right in the end. Meanwhile, Schmoe the third releases all that lovely money back into the wild. As a friend of mine used to say, "valets, waiters and Mercedes mechanics have to eat, too."

    ReplyDelete
  15. Not all inheritors squander it, Howard Hughes got 1/2 a million and did well.

    I got 50k and bought a van and a garage.

    ;)

    I'm running at a loss this year because of err infrastructure purchases.

    Great thread yeah they are dopey and like Ric Locke sez don't become a marxist over it.

    How can you make the rich pay when they technically aren't,...

    ReplyDelete
  16. Well said. It always amazes me to see the kind of people that make it into the primo properties....we shouldn't envy and resent, but shoot...we should be fairly adamant about insisting on actual income being shown for a loan!

    And to add to one commenter's comments, "The Millionaire Next Door" notes that the reason the rich man's son doesn't stay rich is....not that he doesn't earn money (he's a professional and earns more than his dad), but rather he's learned how to spend it.

    Highly recommend that book!

    ReplyDelete
  17. I like hearing the woeful tales of folks who are born on 3rd base but think they hit a triple. BTW, I enjoyed the contents of your blog, but the white text on black background induces eye-aches.

    ReplyDelete
  18. Anonymous4:54 PM

    Captain, I whole heartedly agree, right down to the "inherited" part.

    I quite enjoyed seeing the well intentioned warning to avoid the madness of Marx. Because as we can all see, we are surrounded by reason and logic in our government as well as in the private sector.

    ReplyDelete
  19. I enjoyed the geography lesson and how it plays into the socio-economic profiles. Many 'geographers' are actually economists studying just this sort of thing.

    I grew up a poor kid, both envying the rich and despising them. I still think most of the people who 'earn' their fortunes do so by being 'hustlers' who justify lying and hard-selling as good salesmanship. I've also seen incompetent people rise through the ranks by feathering their nest and ingratiation.

    I agree with the other who said that a bequest is honoring the rights of the earner, not the rights of the recipient. The death tax and other blood taxes like those on lawsuits and settlements should be banned along with double-taxation of corporate profits.

    I disagree that capitalism will reduce the hapless trust fund babies to poverty - clogs to clogs. While there is indeed a relatively large amount of income mobility, the rich can easily find ways to stay rich. Case in point: Paris Hilton. Simply by being a total pop tart, she has managed to generate massive amounts of income from her cosmetics line to her insipid TV shows. Whether I like it or not, the sick fact is that large numbers of people like her. She contributes to GDP.

    If we go down the path of judging who 'deserves' or 'earned' their wealth and income, we take a detour toward redistribution. Remember there are blue color workers who think 'work' only involves sweat and muscle and that is the measure of wages. Let's not take a step back one to two centuries in economic theory.

    ReplyDelete
  20. I think this is a great place to invest.

    Deirdre G

    ReplyDelete
  21. Anonymous8:30 PM

    I actually worked for Adam Lafavre. Oh, the stories I could tell. He couldn't even write a sentence. He was that uneducated. I lasted three weeks and I said ENOUGH. He belongs in prison for life.

    ReplyDelete