Confessions of an Economic Hitman

I recently finished The New Confessions of an Economic Hitman. The book is the memoir of former Economic Hitman (EHM) John Perkins. An economic hitman is a consultant who uses a variety of techniques, ranging from inflated economic projections to bribery, extortion, and blackmail, to entrap the governments of countries around the world in a cycle of debt and economic enslavement.

Broadly speaking, the scheme is to convince third-world leaders to take on large loans from western banks to finance infrastructure projects that will, according to pie-in-the-sky economic projections provided by EHMs, create economic growth, jobs, and a higher standard of living in the target country. Since third-world countries have no local expertise in large engineering and construction projects, the money that’s not wasted on local graft and corruption is used to pay western corporations to do the work.

When costs overrun and economic growth doesn’t materialize, the countries are unable to service the debt. Then organizations like the International Monetary Fund (IMF) and World Bank come to the “rescue” with new loans to make sure that the countries can at least continue to pay the interest on the initial loans and make the western banks whole. The cycle is repeated over and over again. The role of the international banking syndicate in this process, as well as numerous bailouts of domestic banks and industries, is detailed in The Creature From Jekyll Island about the formation, in secret, of the Federal Reserve System in the United States.

If the targeted country ever tries to default on the loans or nationalize their industries, Jackals are brought in to overthrow the government and install puppet governments, usually brutal dictators, to continue the EHM scheme. Perkins details numerous instances where the US intelligence services, and even the military itself, have been used in this way. Another great book that I read last year is All the Shah’s Men. It gives a thrilling and detailed account of the CIA’s 1953 coup in Iran that ousted democratically elected Prime Minister Mohammed Mossadegh after he nationalized the Iranian oil industry.

The EHM system is increasingly employed domestically in the United States. Local governments, cities, counties, and states, around the country have been entrapped in EHM schemes to subsidize the development of everything from multi-family housing to retail space to corporate headquarters and even sports stadiums for billionaire team owners.

Confessions of an Economic Hitman was a really interesting book to read and paired with the others I have mentioned here, a detailed picture comes into focus of how crony capitalism is able to thrive around the world today. While many of the key players end up becoming incredibly wealthy as a result, it is not a system that thrives because of “the rich”.

It’s a system built first and foremost on debt pushed by the international banking syndicate. Governments around the world, even in the West, are easily corrupted by the promise of easy money that politicians can use to buy votes by promising something for nothing. They use propaganda to make ordinary citizens believe that these large public debts will help them. In the private sector, often backed by government guarantees, this debt trap takes the form of auto loans, mortgages, and student loans that many people will never fully repay.

In the end, the promises never materialize and when democratic attempts are made to reform the corrupt governments that helped to sell the lies, covert and/or overt force is used to bog down the democratic process, rig elections, or orchestrate a coup to keep those in power who will play along. It’s an evil, parasitic system that will require intense sacrifice in order to tear down and rebuild.

The final chapters of Perkins’ book offer a glimmer of hope and an extensive list of ideas for what you can do to help. In my opinion, waking up more people to this reality is a necessary first step, so read these books and pass on what you learn at every opportunity. I’ll be sure to do the same.

Our First Investment Property

In November of 2016 Kendra and I purchased a 4-family investment property in south city St. Louis ~3 miles from our primary residence. After concluding our first calendar year of owning the property, I thought I'd share our results for those who were curious and/or thinking of possibly pursuing a similar buy and hold real estate investment.

Purchase price: $179,900
Our loan is a 30-year fixed rate residential mortgage at 4.25%
25% Downpayment: $44,975
Mortgage Payment (Principal & Interest): $663.75

Operating Income
$26,435 scheduled gross rents (4 units)
$(1001) vacancy
$600 garage rent
$11 interest
$26,045 gross operating income

Operating Expenses
Property Management (10% of gross rents): $(2543)
Leasing fee for new tenant placement: $(550)
Sewer: $(1397)
Water & Trash: $(1232)
Lawn care/mowing: $(350)
Gas & Electric during vacancy: $(228)
City occupancy inspection aka government extortion fees: $(183)
Maintenance & Repairs: $(3594)
Property Taxes: $(2009)
Insurance: $(983)
$(13,069) gross operating expense

Net Operating Income: $12,976
Mortgage P&I: $(7965)
Cash Flow Before Taxes: $5,011
Cash-on-cash return: 11%
Equity Accrued: $2275
Total Return: $7286
Total ROI: 16%

Our goals were to cash flow $100 per month per door, have a cash-on-cash ROI of 12%, and achieve a total return of 20%. We hit our cash flow number almost exactly at $104 per door while our ROI and total return came in a little under our projections. However, we elected to spend about $1500 at the end of December on a handful of maintenance & repair items which brought down our NOI for the year. Excluding that line item, our cash-on-cash return would have been ~14.5% and our total return would be close to 20%.

Within the next 5 years this property will need a new roof and likely at least one new hvac unit to replace an existing boiler. We plan to pay for these items out of the property's cash flow, so although we hope that this year's numbers are a good baseline for future years until the mortgage is paid off, we know that those big ticket expenses will likely weigh on our returns at some point over the next few years.

Regardless of how you do the accounting, we were ecstatic with the first year's performance of our investment! Having a quality property manager on our team made this a very hands-off investment for us and we hope to acquire several more small multi-family properties in the future. Real estate investing really does work if you know your numbers and can find the right property to fit your goals!

Lastly, new investors often ask what to estimate for expenses. After 1 year owning this property, we now have one year of data! These numbers are as a percentage of scheduled gross rents. I did not include the garage rents since the garage accrued no expenses and not every property has one.
Vacancy = 4%
Operating Expenses = 50% and breaks down as follows:
Property management: 12%
Fixed expenses (property tax, insurance, water, sewer, trash): 21%
Variable expenses (maintenance, repairs, lawn care, gas, electric, inspections): 17%

A Taxpayer-funded Stadium is a Financial Own Goal for St. Louis

Today I read a column from Benjamin Hochman in the St. Louis Post-Dispatch that made my blood boil. Hochman was attempting to counter the argument put forth by Governer-elect Eric Greitens that taxpayer-funded sports stadiums are "welfare for millionaires". I happen to agree with the governor-elect that taxpayers have no business speculating on sports stadiums, but that's not what made me sigh and shake my head at Mr. Hochman's column.

He's entitled to his (wrong) opinion that building a Major League Soccer (MLS) stadium using taxpayer funding would be good for St. Louis and spur economic growth in the city. What I take issue with is presenting a nonsensical investment scenario as sound practice such as in the following excerpt: 

"Let’s consider it this way. A house appraises at $150,000 — but someone buys it for $240,000 and plans to wait for it to increase in value, just to see a return. The house’s investor understands that buying the house could benefit the whole community, so it’s worth this initial cash loss.

Well, Forbes says an MLS franchise, in a market similar to St. Louis, is worth $150 million. But SC STL is willing to invest $240 million (paying for the MLS expansion fee and some of the stadium), acknowledging that it could take eight to 10 years to make the money back."

The way I read it, Hochman is arguing that taxpayers should support the "partnership" offered by SC STL because the ownership group is ready and willing to overpay to bring an MLS franchise here by putting up 65% of the cost of the project. This is apparently worth it to the benevolent owners of SC STL because it will benefit the whole community now and then they'll worry about recouping their investment down the line when the value of the team has appreciated.

One problem, of course, is that this is NOT a return on investment. In the house example, if you paid $240,000 for a $150,000 house, you would need the house to appreciate in value by 60% just to break even. At that break-even point your "return" is a big fat ZERO. No intelligent investor would take that deal and expect to come out ahead more often than not.

However, there is a reason that such a senseless investment scheme could make sense to the ownership group behind SC STL if they get some help from the city. In broad terms, Major League Soccer is a single entity made up of all the teams in the league. The ownership group of each team holds one "share" in the league and thus the profits or losses of individual teams are shared equally. Through normal operations, MLS loses money each year, but in order to buy into the league, you need to pay a hefty expansion fee which has increased with each additional team. This expansion fee is shared among the existing owners.

The way I see it, even though SC STL would be paying for 40% of the cost of construction in order to get a stadium deal done, this is a small price to pay for an opportunity buy a share in the league with their $150 million expansion fee. They won't get such an opportunity without a new stadium to operate in. SC STL has presented this as evidence that they're being a generous partner in the deal. While they're only paying for some of the cost of the stadium, they're paying for all the cost of the expansion fee. How nice of them!

Although, according to Forbes (via Hochman) that $150 million is exactly what the team would be worth once it is up and running. Since ever-increasing expansion fees are the only way MLS owners are currently making any real return, having a share of the league pie (and any future expansion fees) is the only appreciating asset in the deal. The league owners' hope is that by the time MLS stops expanding, the league will be profitable and the value of each share (team) will go up value. There's no guarantee the league will be profitable in the future, but as long as new money keeps coming in via expansion fees, those holding a share in the league will get paid. If you're thinking this makes MLS seem like a Ponzi scheme, you're not alone. 

So, if we apply this to Hochman's example, here's what's actually going on: SC STL wants to buy a house that's worth $150,000 right now, but the price tag to acquire it is $350,000. Their proposal is that SC STL will pay $150,000 for the house only (exactly what it's worth) and will own the house free-and-clear. To satisfy the seller, they still need to come up with the remaining $200,000. To do this, SC STL is proposing that they put up $80,000 (40%) as long as the taxpayers will take out a loan for $120,000 to cover the remainder.

When it's all said and done, SC STL would own a house worth $150,000 that they paid $230,000 for. That's a 53% premium, but assuming the house is truly worth $150,000 and they're bringing their own money to the deal, they'll have a 65% equity position. The taxpayers will owe $120,000 on their loan and own nothing except conjecture from SC STL that doing this deal will improve the value of adjacent homes in the neighborhood, create jobs because they'll hire people to cook, clean, and do maintenance at their house, and also create new tax revenue by having out-of-towners to come visit them and spend money at nearby bars, restaurants, and hotels. I think it's pretty obvious that the SC STL proposal is not a benevolent investment partnership, but more like a bait-and-switch.

The potential benefits to the taxpayers of such a deal may indeed come to fruition, but what if they don't? What if the addition of an MLS team doesn't create any additional revenue for the city after all? The SC STL ownership group will very likely make a return on their investment no matter what because they own the only appreciating asset in the deal, a share in MLS along with a cut of any future expansion fees. The ownership group would also receive 100% of any profits from a future sale of the team. If "build it and they will come" doesn't come true, the city could take a total loss on their end of the deal even while the ownership group pockets a healthy profit. Does that sound like a "partnership"?

If the projections do come true and enough new revenue is created to pay the taxpayers back in full, what was the return on investment for the risk they took funding the unsecured end of the deal? Even if there was an actual net positive return for the city over the life of the stadium lease, time and again we've seen sports teams come back to taxpayers and ask for more money for renovations or a brand new stadium. One team is currently suing to get out of their lease and others have threatened to move the team to gain leverage.

I would love to see MLS come to St. Louis, but not at the expense of taxpayers. Adding a team here would be a definite plus for the city both in terms of civic pride and financially. I am not disputing that. However, if the city has to put up $80 million with no guarantee of success and no asset to fall back on if it doesn't work out like SC STL says it will, it's a terrible proposition any way you look at it.

Simply put, the city would put a lot of taxpayer money at risk in order to help the investors behind SC STL acquire the a potentially lucrative share in Major League Soccer. You can argue the merits of various tax incentives that have been given to many other businesses in St. Louis, but there's no denying that the proposal put forth by SC STL socializes the majority of the risk while privatizing any potential for a hefty profit in the future. That's not a partnership to make St. Louis great again; it's the definition of welfare for millionaires.

In the spirit of bad analogies (thanks Mr. Hochman!), I see this "deal" as asking St. Louis to score an own goal in order to spur growth. Imagine your soccer team is coming off a string of draws and losses, but they've been playing better recently and it's unclear at this point what the outcome of the season is going to be. The next match is about to start and their opponent is much more talented and has your team outmatched. The other team comes to your team before kickoff with a proposition: we'll let you score an own goal right from the kickoff.

It will put your team behind and definitely give the other team an immediate advantage, but being behind might spur your team to play really hard over the remaining 90 minutes which could help them have a chance of coming back to tie or even win the game. While winning after scoring an own goal right away is possible, it's unlikely. A tie is probably the best your team can hope for and it's almost certain that giving the other team an advantage will just end up helping them score more goals than they otherwise would have in the rest of the game. There's always a chance it could work in your favor though. Would you want your team to accept that proposal?

My Best Day in Central London

In November of 2013 my wife Kendra and I took our first big vacation together as a married couple. Our itinerary included four nights in London, England; four nights in Edinburgh, Scotland; and three nights in Dublin, Ireland. The first full day we spent in London was my favorite beginning-to-end day of the trip as we were able to see a number of iconic sites as well as dig up a few gems that we hadn't expected to find.

Our AirBnb was located just a few feet from the Leicester Square tube station, so our day began with a leisurely stroll down Charing Cross Road and past Trafalgar Square on a sunny Thursday morning. We popped into a little sandwich shop to grab breakfast to-go. I had a bacon sandwich with a fried egg which became my go-to way to start the day in the UK and I demand an answer as to how otherwise gluttonous America missed the boat on the bacon butty sandwich.

On the way to the Millennium Bride with breakfast in hand we passed St. Paul's Cathedral. This is one of many Christopher Wren designed buildings that we would see during our trip and it's probably the most impressive of them all. We didn't have time to tour the interior, but we walked a lap around the outside and took in all of the beautiful artistic intricacies on display. The Queen Anne statue out front is also quite striking with her golden crown, orb, and scepter. Just before arriving at the Millennium Bridge, we passed the National Firefighters Memorial. This memorial was originally intended to honor firefighters who lost their lives in the London Blitz during World War II. The scope of the memorial has since been expanded to include firefighters lost during peacetime as well.

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After crossing Millennium Bridge, we made our way to Shakespeare's Globe for a morning tour which turned out to be one of the highlights of the trip for me. The self-guided Exhibition in the Globe is engrossing and covers a wide breadth of topics from Shakespeare's impact on the English language that we use it today as well as techniques they used to sew, stitch, and dye the elaborate costumes used in his productions. The guided tour offers a fascinating opportunity for visitors to get a firsthand glimpse into life in 17th century London through the lives of those who produced, performed, and attended Shakespeare's plays. An awe-inspiring amount of work went into recreating The Globe from the ground up so that this important historical insight would be available for generations to come. I would put Shakespeare's Globe among my top must-see sites for anyone visiting London.

After leaving The Globe, we continued east along the riverfront, stopping to sample Turkish delight and fresh roasted nuts at the Borough Market. We then crossed the Thames on the modern version of the famed London Bridge and made our way to the Monument to the Great Fire, also known simply as The Monument. I knew little about the Great Fire of London going in, but luckily The Monument turned out to be both informative and interactive!

The Monument stands 202 feet tall, the exact distance from its location to Pudding Lane where the Great Fire began. Inside is a narrow staircase with 311 steps that take you to an observation platform with views of Tower Bridge and a number of iconic modern buildings along the Thames. One of the biggest takeaways from our time spent in the United Kingdom was that builders of monuments are passionate about stairs. While the immediate area has been built skyward over the last 340 years, the view is still well worth the climb.

From The Monument we continue east a short distance to the Tower of London. I was slightly let down by the Tower of London overall, but part of that was our own fault. The castle is huge and you could easily spend half a day or more checking it out. I had only budgeted a couple of hours since we wanted to do both Tower Bridge and Westminster Abbey before the end of the day.

We started out doing a tour of the medieval palace and the East Wall with an audio guide. This took up a lot of time and we would see plenty of medieval castles later on in the trip that I thought made for much more interesting exhibits. We then quickly toured the Crown Jewels and walked through most of the Royal Armouries before moving on. It was neat to see the Crown Jewels up close, although I didn't find the exhibit that engrossing. I really enjoyed the Royal Armouries, but we were short on time and sort of rushed through it. I would recommend that you see the Crown Jewels first, tour the Royal Armouries, take the East Wall Walk, and then end at the Medieval Palace on your way back to the main entrance.

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Just outside the southeast corner of the Tower of London is the entrance for Tower Bridge. The exhibition here was one of my favorites in London and went very in depth on the history of engineering and constructing the bridge. After walking across via a glass-floored observation deck above the roadway, you head back downstairs to the engine rooms to learn about the mechanical side of operating the bridge. It's a great tour overall and from up high on the bridge you get some truly spectacular views of the River Thames.

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It was late in the day at this point, so we decided to take the tube to Westminster which was back the way we came and then some. Unfortunately, Westminster Abbey was closed by the time we got there, so we moved on to the Churchill War Rooms which is right across the street. The War Rooms are open until 6:00 p.m. which is at least an hour later than most of the other tourist sites we visited, so it might be a good idea to leave it until later in the day since you'll have more flexibility on time. I am a somewhat of a World War II buff, so I loved the hell out of this museum.

The War Rooms exhibit is housed inside the actual Cabinet War Rooms which were built in the late 1930s just before the outbreak of World War II. When the war ended, the secret command center was more or less abandoned for nearly 40 years before it was turned into a museum in the early 1980s. Because the War Rooms were never re-purposed, the entire underground complex is basically unchanged from when it was in use during the war. A major redevelopment in 2005 added an immense level of detail to the displays such that it feels like you could actually be involved in the key moments of the war. After the War Rooms exhibit is the Churchill Museum which is a large exhibition solely dedicated to the life of Winston Churchill. It's a brilliant and detailed museum that includes many fascinating artifacts from Churchill's life before, during, and after the war. As a history dork, I was in heaven, but Kendra actually enjoyed all of it just as much.

The streetlights were on by the time we'd finished in the Churchill War Rooms, so we made our way back toward Trafalgar Square to call it a day at our AirBnb. The weather held up well and we ended up walking over 5 miles on the day, not including all the stairs we climbed at The Monument, Tower of London, and Tower Bridge. Seeing so much in one day actually had a humbling effect as we realized we could put in another 5-10 days just like it and still have barely scratched the surface of all there is to do and see in this great city. Even so, this was my favorite day in Central London; at least until the next one. Cheers!

Stubborn German Brewing Company

With nothing much going on in St. Louis this past weekend, my wife and I journeyed over the Jefferson Barracks Bridge and visited Stubborn German Brewing Company in Waterloo, Illinois on what turned out to be a gorgeous Sunday afternoon. Southern Illinois' newest craft brewery opened in late April 2016 and I had heard positive reviews from several friends who had been there over the past few months. Our experience at Stubborn German more than backed up those claims!

Although it was too crowded to sit outside and enjoy the weather on their beautiful front porch, seats at the bar suited us just fine. Stubborn German does not serve food, but that leaves plenty of room for beer and with a wide variety of styles on offer, you'll want to do plenty of sampling. You can order full or half pints of all their beers as well as a 6-beer sampler tray for $9.

I started with a pint of their altbier which is one of my favorite beer styles. Altbier is a German style that is top-fermented like an ale and then matured at a much cooler temperature like a lager. This unique crossover of brewing techniques creates a beer with a rich and fruity malt flavor that finishes refreshingly crisp like a lager. Stubborn German's altbier is as good an example of the style as I've had and I would highly recommend it for both novice and experienced beer drinkers alike.

Stubborn German did such a great job branding their various styles of beer that I felt inclined to get one of everything on the tap list. Since we also had to drive back to St. Louis later in the day, my wife and I decided to order a sampler tray for our second round and I think she enjoyed writing out our choices on the tray with a chalk ink pen just as much as drinking them. The two IPAs, Blitzkrieg and Midnight Rye, were very good and I wouldn't hesitate to order a pint of either one, but my favorite beers from our sampler tray were the Mississippi Steam and Schitzengiggles.

Mississippi Steam is a California Common which is style that I've seen pop up at a few craft breweries recently. Also known as "steam beer", a California Common is fermented with cold-loving lager yeast at warmer temperatures more typical for ales. Similar to the German altbier, this crossover in brewing techniques creates a malty, medium-bodied beer that's also easy-drinking and refreshing. Schitzengiggles is a Munich Dunkel which is a German dark lager. This beer was fantastic and I ended up ordering an additional half pint after we finished the sampler tray. Since I've never been to Germany, the vast majority of dunkel biers I've had were imported, so having a fresh, cold pour just a few feet from where it was brewed gave me a brand new appreciation for the style.

In addition to Stubborn German, Hopskeller Brewing Company also calls Waterloo, Illinois home, although the Hopskeller taproom won't open until later this year. Two craft breweries operating in a town of roughly 10,000 people gives Waterloo a breweries-per-capita figure that's 15 times the national average. That fact alone should be reason enough for a visit!