Bends Mayor Arrested and Jailed For Embezzlement

Yup, that's my next prediction for little old Bend.

Well, it's just a variation on my October 15 post, when none of this Inn of The 3rd Rock - Pape - Cascade Bookkeeping business had come public. I think I put it pretty eloquently:

SOME DUMBFUCK IS GOING TO JAIL FOR FELONY FRAUD.

Prediction:

One or more Bend City Councilors will be perp-walked out of City Hall in the next 3 years.

Anyone who's been in Bend knows that local government & local business is so incestuous, that they will ultimately co-mingle their interests to such an extent that someone will hang, IF it ever leaks. And leaks happen when the feeding trough goes dry. It's dog-eat-dog time, and the jackals are turning on each other. During the Bubble it happened, of course, but Kool-Aid was flowing in such volume that they were all comfortably numb. To wit, the Ridgewater small-scale HOA scam by Cascade Bookkeeping (pdf):

October 11, 2006
To: All Ridgewater Home and Lot Owners
From: Ridgewater Board of Directors
Subject: Dues increase for 2007

At the October 10, 2006 Board meeting, the Board voted to raise the dues $4.00 per
month. To help all homeowners understand the need for this dues increase, the following information has been provided to you. This increase will be effective for the 2007 Fiscal Year that runs from January to December and will be payable with the June 1, 2007 billing.

HISTORICAL INFORMATION
In 2002, when Ridgewater was formed as a HOA, the dues were set at $40 per month.
Shortly after the formation of the HOA, the dues were decreased to $36 where they have remained through 2006. The dues were structured so that $28 was for operations and $8 was for reserve funding.
At the February 2006 Board meeting, the first meeting of the current Board, we
discovered that the Reserve funds were not present in any cash account in the amounts
expected for the time period dues have been collected. The past management firm,
Cascade Bookkeeping, was allowed by the past Board to co-manage the checking and
reserve funds. As a consequence, Cascade had occasionally transferred cash from reserve funds to operations. The major reason for these transfers appears to be the extraordinary expenses for Cascade Bookkeeping’s services, averaging close to $1000 per month for the first 4 months of 2006. As best can be determined, the reserve funds were short about $10,000.
For this reason and others, your Board terminated the services of Cascade and began to run the HOA day-to-day affairs internally. We also hired the services of Peterman Inc to do our bookkeeping/financial management with strong Board oversight.
Besides carefully managing expenses, the Board setup a Money Market Fund for reserve funds that required a majority vote of the Board to use any funds from this account. At $8 per month per lot, the reserve funds should have around $4900 per year contributed each year.
To begin to recoup the expended $10,000, the Board decided to contribute 35% of 2006 dues to this reserve account that amounts to a total contribution of around $7700. At this rate, we would recoup about $2800 each year. In other words, in about 3 to 4 more years (beyond 2006) we would recoup the $10,000.
Also during the February 2006 Board meeting, the Board voted to monitor our cash
position and expenses to determine if a dues raise would be necessary rather than raising dues for the current 2006 fiscal year. In the next section, this review is summarized.
CURRENT FINANCES
Using historical costs for the last year, your Board prepared a pro-forma budget (Table 1) that indicates at the current $36 dues, we would be in deficit about $3700 for the next year. Since that is an untenable situation, the options were:

1. Cut expenses
2. Raise dues
3. Reduce contributions to reserve funds

The Board viewed as unfeasible options numbers 1 and 3. Expenses have already been
cut to the minimum and maintaining the additional catch-up contribution to the reserve
funds was seen as crucial for future years. For example, this next month we will seal
cracks in the streets. While this only will cost $425 within 3-5 years we will need to do seal coat on all the streets. By doing this, we hope to have our pavements last 30 years.
However a seal coat currently costs about $13,000-$15,000 for our streets. The cost of oil products will determine the actual cost at the time a seal coat is needed. Other items to be paid from reserves include, repairing or replacing the commons fence, the mail kiosk, and irrigation system.
By raising the dues to where they were at the start of 2003 ($40 per month) and
maintaining the reserve contribution at $7700, the Board estimates that the deficit will be $1230. The Board feels that this is manageable since if certain expenses, such as snow removal, catch basin services or legal expenses, do not come in as high as predicted, then the budget will be close to balanced. The Board selected this option and voted unanimously to increase the dues to $40 per month ($480 per year). The billing time will be the same as currently done in June.
As previously noted, the Board is providing you with this information so that you can
better understand the facts leading up to this decision. By our By-Laws, the Board is
authorized to raise dues up to 20% by simple resolution and a vote of the Board.

Ahhh yes. The usual Central Oregon Shuffle. How many accountants are actually jailed for embezzling funds around here? 50%? Seems like it.

Ridgewater is some penny-ante neighborhood that wanted to start an HOA, and figured they'd do things right & hire a bookkeeping firm with connections. Little did they know that CONNECTIONS COST MONEY, and one of the side-effects of having the Mayor do your taxes, is that he steals from you.

All in a days work in Bend, Oregon.

What's sad, is you can see in this letter, that Cascade has ripped these people off for HALF of their yearly revenue. Do you know any business or entity of any kind that pays HALF their revenue for "Accounting Services"? I owned a business and considered 2% of revenue to be outrageous.

50% was for "extraordinary expenses" for Cascade Bookkeeping, like Linda Johnson throwing a Botox party for local developers after giving away millions in taxpayer land, such as prime downtown parcels where Lava Court apartme.... errr, condos, will go.

Again, this sort of thing has been happening in this 2-horse shithole town FOREVER. It's just that now, there ain't no wildebeests anymore, so the jackals are going to eat each other.

And if you know ANYTHING about the US Justice system, you know the outcome is usually determined BEFORE anyone sets foot in the courtroom. It's about money, pure & simple, and Pape's got it, Friedman don't, so he'll go down, HARD. We can only hope Linda Johnson goes with him.

And I guess there were some errors in who owns what, and then the requisite whaling... my philosophy is that errors are OK as long as you try to self-correct them, or at least acknowledge that in a forum of this type, they'll get rooted out & "exposed". Better that than what we have now, which is egregious lies knowingly spread by local media. Why "knowingly spread"? Cuz they NEVER correct glaring errors. "Most of The Plaza units were sold"? "Franklin Crossing sold out"?

This blog is about getting to the truth, and I myself have been waxed when I've made errors. Waxed HARD. Don't take it too hard Brucey. Even when you're right, BendBust will let you have it if he's been to Silver Moon for an evening cocktail. Nature of the beast I suppose.

I owe you a burrito

Speaking of egregious errors, I bet BendBB that we'd see medians in the $200's by years end. Alas, it did not come to pass.

See, I picture Bend RE like a big co-op bazaar: Vendors (Realtors) selling goods made by others (home sellers). Now, my bet was that the Vendors would act in a profit-maximizing fashion, and ratchet prices lower, in response to dramatically lower demand when the financing went away.

Well, the financing & demand DID go away, but the high price remained. Why?

The Cult of Bend. The idea, spewed forth from every person & institution for years, that Bend Is Special & The People Of Bend Are Special, And That We Therefore Must Not Accept Anything Less Than Absolute Top Dollar For EVERYTHING, Most Especially Our Homes.

They asked us to believe this myth so persistently and for so long that it literally has become part of the ethos. It is unquestioned.

I assumed rationality & free-market behavior would out when I made my bet with BendBB. Wrong. That simply doesn't work when you are in a cult. People were asked to drink the Kool-Aid, and they did. Now Jim Jones is asking them to do something counter to their brainwashing, and they are balking.

And so we have arrived at the current state of affairs: 78 residential homes sold in Bend in December, probably one of the lowest per-capita figure EVER.

Now, I haven't really seen final price data for December, but I'm willing to concede that BendBB got the better of me on this one, and won this bet. But he isn't saying much about it. And I'll just guess that it's like this: I bet we'd be overwhelmed by a volcanic eruption, and he bets No, and ultimately he is right, because there is a tsunami instead.

One sort of disaster didn't happen, but another did, and it seems that maybe the second disaster is actually worse. And this is the reason:

Would you rather place a $1 bet on a coin flip & get $2.20 if you're right, or bet $1 & roll a dice and get $4 if you're right?

I'd take the first, despite the fact that the dollar payoff is smaller. Bends housing market is like the latter bet: People are ASKING high prices, but precious few are actually cashing in. (If you are in fact deluded, and believe that you are Special & in some way immune from The Odds, you would take the second bet, because the dollar payoff is higher, PERIOD. THAT is the current state of the Bend RE market.) That's the "Months Of Inventory" equation. Technically BendBB won our bet, but even he seems to realize that determining a real "market clearing price" is damn hard when volume dries up. From a June 15 post (sorry, I only go there via anonymous proxy anymore, so I can't grab a URL):

Bay Area home sales continued their downward slide in May, with fewer properties changing hands and the mix of sales tilting toward higher-priced houses.
...
"Sales are really low; you'd have to set the clock back 12 years to find another May with lower sales," said Andrew LePage, an analyst with DataQuick.
...
The rising median does not mean that home values are on the upswing. Instead, it shows that the proportion of high-end sales is increasing, while comparatively fewer lower-cost houses are selling.

So I guess I lost this bet. But I think even BendBB may think it's a Pyrrhic victory: Medians in the $200's would probably actually be preferable to what actually happened; a market in the doldrums at multi-decade lows in terms of volume.

We'll see medians drop, no doubt. But I guess it'll be predicated on how long it'll take the Programmers (Bend media, Realtors, etc) to deprogram the Bend zombies. And look no further than the Complete Failure of the Fake Auctions around here, and you see the aftereffects of The Kool-Aid are still in control. It's taking longer than I thought. So I guess I owe BendBB a burrito.

Norma DuBois: Still Shoveling Shit

A few weeks ago I went to Typhoon to have lunch (really good, but WAY too expensive for what you get...), and I picked up Norma "Sold Out Again" DuBois' flyer for the commercial space in Franklin Crossing. Now, it's been well established that Norma is a lying sack, but she also has a flair for the Idiotic. From her flyer:

Just four streets define Bend Oregon's most precious asset -- it's popular Downtown District. Between Greenwood and Franklin, and between Wall St. and Bond, the indefinable spirit of Bend (both past and future) becomes visible.

Any given day, you can see the mix of business and bohemia, the blend of tourists and locals, the mindset of a mountain town driving an agenda for global business.

Seriously, I have to stop reading at that point because it's so ridiculous.

Our "most precious asset"? Awesome. Right, it's the "Downtown District", which MUST be capitalized, as it is equivalent to being it's own country. Maybe if we suffer from some sort of mass-extinction ala I Am Legend, Norma will see that without any humans, that the Downtown District isn't quite as vibrant.

I like how the INDEFINABLE becomes VISIBLE downtown.

Q: "Holy Shit, do you see that?"

A: Yeah, it's like some sort of Indefinable Spirit that has become visible in Bend's Downtown District!"

And it's both PAST and PRESENT. My Lord.

"... the mindset of a mountain town driving an agenda for global business."

Ummm, what? Were you in front of an art gallery, an overpriced sushi restaurant, t-shirt shop, or a shoe store, when you saw our "agenda for global business", Norma? Illusions of Grandeur. Or is it Delusions?

This Eyes Bigger Than Stomach phenomenon is still widespread amongst Bend's Bubble Elite. They still believe Bend is something it ain't. They honestly do.

We're a town of about half to 3/4ths redneck contractors with a 6th grade education that stumbled into a once-in-a-lifetime Bubble, and have mistaken 12 wins in a row betting red for talent, but we just lost it all on Lucky 13 are in the throes of having our winnings forcibly returned.

We ain't a a hub for Global Business.

We're a town at the end of a dead end drive that takes a minimum of 3 hours from anywhere, a drive that costs about 500% more than it did a few years ago. And our Biggest Industry of Selling Unneeded Homes to Tourists at 500% than a few years ago, has just imploded. Family wage jobs are the only thing imploding faster than the RE trade. And we're just waking up from The New Math, where 2 + 2 COULD equal 9. But now, without the leverage, without the Kool-Aid, and without the money for implanting DD's on every 50 year old skank, it ain't so great to be here.

Well, it's OK. It's just not as great as it was for that short span a few years back when everyone was a genius, everyone ate fillet mignon & drove Hummers and the silicon implants still held.

It's called Reality. And unfortunately, when it hits, all of a sudden 2 + 2 DOES equal 4 again, and we all have to get by without the punch bowl. And those with brutal hangovers seemed to be blaming those of us without, for their own indulgence:

Besides, since you are just a loser renter, this blog IS your life. Please keep it up. It is fun entertainment laughing at losers.

A comment from last weeks entry, someone obviously upset that they are suffering brutal losses, or cannot sell a home to save their life. My response:

But you're right, I'm pretty angry.

Angry that instead of blowing $3K/mo. on the house I'm renting, I blow $1K, and put the rest in the bank, so I can buy your shit shack in 5 years after you've lost EVERYTHING.

Yeah, I'm real angry about that.

I'm actually socking away more money than I have in my life, thanks to Renting In Bend. I've said ad nauseum, that I thought Rent And Invest the Difference is far and away The Best Investment ANYONE could make in Bend. And as an addendum, just so I'm clear: When I say "Invest the Difference", I DO NOT mean invest the difference in Bend real estate.

As BEM said long ago: There is NOT an affordable housing issue in Bend. There is PLENTLY of cheap, "decent" quality housing if you want to rent. In fact, factoring in what will almost certainly be exorbitant maintenance costs of upkeep for the shoddy quality of what has been built, Renting In Bend is damn near the Only Option. If you bought ANYTHING built in this town after 2003, then you know what I mean. And by "decent" quality, I mean you can rent it Brand Spanking New for the first 3-4 years for 1/3rd the cost of buying, and then abandon it & move on to another brand new rental once the first starts falling apart.

Rent And Invest The Difference: The Only Thing I'm Totally Sure Will Work Here Over The Long Haul

And finally, I guess it's becoming brutally clear that the housing-led implosion of the US economy is moving to the forefront of national attention. It is now THE leading issue in the run for President. It is constantly in the national news. It is #1 on any online media business outlet. It's not a question of "IF" anymore, but "HOW BAD".

Strangely enough, it is hardly mentioned locally. Real estate pieces that proliferated like rabbits when the Bubble was in full-swing, have all but disappeared. The Bulletins Saturday stand-by, "What's Going Up", which used to cover mega-commercial ribbon-cuttings, has been reduced to covering 2-unit condo starts.

I know we'll see The Bulletin cover last years RE performance, and there'll be some small measure of gloom. But there will be far more misdirection & unfounded ebullience, if they stay true to form. Look for it. And realize that it is this sort of misguided "We'll Market Our Way Out Of This" Kool-Aid induced catatonic embolism, that will keep Bend from recovering for many, MANY years to come.

You can easily see that people are so used to perceiving that news SHOULD BE spun for the benefit of some chosen few, that I got this sort of comment last week:

Q: Are you willing to comment about your holdings or business goals? Without that info, it doesn't add up that you're trying to help Bend homeowners.


I'm neither trying to help or harm anyone... I just don't think that's possible. I ~think~ I can give people a much clearer & less biased view of what is happening in Bend RE, that they certainly are not getting from local mainstream media. I am trying to mitigate the institutionalized spin that is firmly entrenched in this place.

I don't really benefit from any sort of collapse in Bend RE, and do not expect to own here ever, because I will ONLY buy when it is very compelling from a personal finance standpoint, which I doubt will happen in any relevant time period. Bend will literally have to collapse overnight for me to buy. I can buy today... but I won't because it is financial suicide. I like fattening my bank account every paycheck, not some mortgage company.

I have to dispute the idea that MY own holdings somehow shed light on my motivations. I don't really have any motivations for "moving the market" because as I've said many times, I think that's impossible. This thing will collapse of its own accord. But if it helps you, I'm largely in cash.

In fact, the point of this blog was to air views regarding real estate that are not HEAVILY influenced by some media agenda. Maybe there are people with some pre-determined agenda posting on here, but they will be thrown into the pot with everyone else. ALL views are aired here, from the ludicrous to well-spoken, and all in between.

I'm sick of being SOLD THE NEWS. Tell me the news, STOP selling me a condo, STOP printing RE PR, stop the BULLSHIT, stop the SPIN.

If Bend media would stop spinning for the benefit of a chosen few, this blog would probably go away due to lack of interest.

Believe it or not, I don't make money from this blog. I know, unbelievable. And I NEVER expect to buy a house in Bend. I think that by the time medians hit some sort of free-market price & I find a house I would actually WANT to buy, that the local economy will be in such sad shape that I and many others will have fled.

It's a Catch-22: We need affordable homes on a massive scale AND we need living-wage jobs. Our economy has been skewed so massively by Bubble-nomics, that I'm not sure we'll EVER be able to achieve both in some time period relevant to many people who live here. The financial contagion spawned by the Bust will infect every corner: look no farther than a chart of CACB to see the impact of this spreading plague. And note Patty Moss' change in tone, from the 3rd quarter to the 4th:

Q3:

Cascade Bancorp President and CEO Patricia Moss highlighted the positives, noting that the bank has avoided much of the financial damage inflicted on more aggressive players in the residential mortgage markets.

“In an environment of slowing real estate activity that triggered recent turmoil on Wall Street, Cascade continued to deliver solid financial results,” Moss said in the press release. “I am pleased to report the company does not have direct exposure to the highly publicized subprime mortgage issues because it neither originated nor purchased such assets in its loan or investment portfolios.”

In a phone interview, Moss said the bank’s continuing deposit and loan growth is a sign that its long-term growth prospects remain strong, despite the drag from residential real estate.

“We are in such fabulous markets, with Bend, Medford, Portland and Boise, over the long term we think we are positioned better than anybody,” Moss said. “... We have the number one growth footprint in the Northwest.”

Q4:

"The softness in our real estate markets has worsened in the past quarter, putting increased pressure on cash flows of developers and builders of new homes and subdivisions," said Patricia L. Moss, CEO. "While we are disappointed in reporting this action, we feel strongly that it is prudent to be assertive in recognizing the heightened risk in this segment of our loan portfolio." She added, "Despite the immediate cost of these steps, Cascade remains a solidly profitable and well-capitalized institution serving some of the best growth markets in the nation. I am confident that the long-term strength of our markets and our experienced management team will enable us to effectively navigate this downturn in the real estate cycle."

You see Moss, despite being slapped upside the head with Reality, is still is bobbing for apples in the Kool-Aid vat.

The Cult of Bend: It'll be the death of us all.