Sunday, February 14, 2010

Easy Money.

Whether or not the Summit 1031 Exchange debacle will turn into a criminal case (and my reading of it, is that it will....) it was hugely unethical from the beginning.

Several times during the boom, I had conversations with 'high rollers' that just had me shaking my head. Two things --

1.) That the money was easy.

2.) Nobody was going to get caught.
(Implied, was that some shady things were going on, minimally with taxes, but other things as well.)

These were very superficial conversations, based on the other's misunderstanding of my financial situation (I own a business, therefore I must have money) and never went anywhere.

But I knew in my gut that, whether or not illegal things were going on, there were some things that would make me squeamish over the risk, and uncomfortable with the lack of ethical standards.

One thing I've learned to mistrust over the years: Easy Money.

It's almost always based on one of three things.

1.) A temporary competitive advantage.

Say you start selling a product and nobody else is. This never lasts for long, or as I always say, "Supply always catches up to Demand."

2.) A bubble.

Well, we all know how those end. I'm actually uncomfortable with growth rates of more than 10% a year, because they are rarely sustainable, and you often give more back at the end than you made at the beginning.

3.) Cutting corners.
Doing things that maximize profits at the expense of ethics.

And of course, in real life, it's usually some combination of all three.

There are always temptations in business, and in my opinion you must always try to resist. Always try to take the high road. I've often said, burnout is as much a danger in business as lack of money. Burnout happens when you no longer like what you're doing, and you probably won't like what you're doing if you're making too many ethical concessions.

Besides, I think making less money in the short run by being ethical, is a long-term business survival.

Don't jump all in on a bubble -- like CACB, you'll look like a genius at first, but in the end you'll be the goat.

UNLESS -- and unfortunately in this highly movable and short memory society, it's very common -- you don't care what happens in the long run, and can run away with the short term profits. You see this in the big guys, who guide their companies into long-term ruin, but have already moved on.

And you see this in the little guys, hence the term "Fly by Night": businesses who have no intention but to take advantage of short-term 'Easy Money' and don't worry about long-term consequences.

Finally, a word about what I mean by ethics. I realized early on that small business was full of gray areas; where you had to make a decision based on limited information, and you had to decide what was the proper ethical choice.

It isn't always clear.

You have to have a good internal foundation, I believe, and an awareness of consequences. I guess, in the end, you have to ask yourself if it's the right thing to do. You'll know it -- feel it in your gut and when you go to sleep at night -- if it isn't.

And I can tell you, no matter how this Summit thing turns out, you can be sure that if any of the owners had a conscience, they knew they were doing wrong very early on.

And did it anyway.

POSTSCRIPT: After reading the full article, my last two paragraphs are just silly.

These guys were out and out looting the funds, and a 'ponzi scheme' barely covers it...

11 comments:

Duncan McGeary said...

I don't mean to sound all holier than thou.

Just to point out that business is full of choices that aren't clear, and that the only thing you can do is try to take the best choice possible...

Duncan McGeary said...

It would be interesting to know who the third partner in Summit was, and if he left in 1998 because he was uncomfortable with what they were doing....

Duncan McGeary said...

Also fascinating to me is how people are always willing to overlook bad behavior because...oh, intent, and they just like the guy, and shit happens.

No....they looted the funds. At least Neuman and Stevens did.

Duncan McGeary said...

I mean, -- guy who lost 50k -- look at that 8000 sq.ft. house with tennis court and swimming pool, and keep telling yourself..."there was no malice..."

Anonymous said...

That 8,000 sq-ft house with tennis court and pool, cost at least $10M with other peoples money.

But in 2005 they were paying $4,000 a year in property tax. Neuman house, address posted on previous comment.

I'm sure that everyone involved in a 1031 transaction got to come and enjoy the pool at the house they paid for, ... success breeds success you know the 1031 clan wanted to prove to everyone that they were successful.

Dunc this is why they have gated-community's to keep out the county appraiser.

I guess most troubling only after everyone got BendFucked(tm) does the BULL tell the story.

Lastly, note the complete fucking silence by our local community.

"Where did the money go?"

It went to right-wing causes, Israel projects, and re-election of Republican candidates who prevented new laws to regulate the use of 1031 money.

Duncan McGeary said...

Speaking of gated communities -- there was a stabbing at Eagle's Crest.

Good thing the gates keep out the riff raff, huh?

Mrs Sally Heatherton Esq said...

Don't jump all in on a bubble -- like CACB, you'll look like a genius at first, but in the end you'll be the goat.

>>>

CACB didn't jump in on the bubble they engineered the bubble.

Just like Summit-1031, they used IRS-1031 money to flip Bend Real Estate which also engrossed the bubble.

To suggest that CACB fell into the BUBBLE by happenstance is disingenious.

Going into the Bubble Moss looked like a goat, now she looks like an old cow.

H. Bruce Miller said...

"These guys were out and out looting the funds, and a 'ponzi scheme' barely covers it..."

No, I think "embezzlement" more nearly covers it. It appears from the story that they were gambling with other people's money, and they lost. An all too common story.

Greed is a normal and almost universal human trait; it didn't just get invented in the last 10 years. It's just that in the last 10 years people here had a once-in-a-lifetime opportunity to pursue riches by unethical and/or illegal means, and some of them took it.

H. Bruce Miller said...

"Speaking of gated communities -- there was a stabbing at Eagle's Crest."

I'm not sure (haven't been out there in quite some time) but I don't think Eagle Crest is actually "gated." Not like Broken Top and some other places are, anyway. They don't stop you as you go in.

H. Bruce Miller said...

"Also fascinating to me is how people are always willing to overlook bad behavior because...oh, intent, and they just like the guy, and shit happens."

That's very common in Central Oregon; if you're perceived as a Good Old Boy or Girl, they cut you a lot of slack.

I remember back in the mid-'80s when Warren Klug (father of the famous snowboarder) was caught appropriating funds from the Inn of the 7th Mountain for personal use. Plenty of the locals were eager to make excuses for him because he was such a "nice guy." A fine "Christian" and all that. Led prayer breakfasts, etc.

Anonymous said...

A fine "Christian" and all that. Led prayer breakfasts, etc.

*

Well its still works ... 20+ years later.

Behind every major FRAUD so far reported by the BULL you will find a Christian Church, and its best people running the fraud.

To date NOT a single person has gone to jail.

Rob a bank dressed like baby-jeebus and get a 'stay out of jail free' card. ... Hey it works ...

Shit just the other day ex-US-treasury Paulson when asked about the failure of his legacy said "I'm now a christian man, that's my only comment". .. Hey guess what they let him ride ...

This shit works ... mumble baby-jeebus when you get caught stealing in Bend and you walk.

I love this place.