Zac Bissonnette is the author of, “GOOD ADVICE FROM BAD PEOPLE: Selected Wisdom from Murderers, Stock Swindlers, and Lance Armstrong.” He previously wrote, “How to Be Richer, Smarter, and Better-Looking Than Your Parents”, and “Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents.”
Bissonnette discusses why car loans are for suckers and why leasing a car is a poor choice.
He then talks about the influence parents have on their kids’ decisions relating to financial management and the correlation between spending and watching television.
Bissonnette finishes the discussion by analyzing some of the worst advice given in the modern day:
“When you know what you are talking about, others will follow you, because it’s safe to follow you.” —Lehman Brothers CEO Richard Fuld, 2006
“Winning is about heart…. It’s got to be in the right place.” – Lance Armstrong
“The day you take complete responsibility for yourself, the day you stop making any excuse, that’s the day you start to the top.” –O.J. Simpson, 1975
“I think the most important thing is restore a sense of idealism and end the cynicism.” –future Illinois Governor Rod Blagojevich, 2002
“The best chance for the average investor is to put money in an index fund.” – Bernie Madoff
(2:30) Discussing financing options with Randy Luebke
(6:15) Recourse and non-recourse loans
(16:43) Discussion of debt coverage ratios
(18:48) Overview of a pro forma
(25:20) Introducing Zac Bissonnette
(29:07) Zac Bissonnette talks about Wall Street and stock swindlers
(34:34) Thoughts on student loan debt
(36:41) Advice from murderers
(38:00) Closing comments
Find out more about Zac Bissonnette at www.zacbissonnette.net.
Zac Bissonnette is a personal finance writer. His first book, Debt-Free U, landed him on The Today Show, Sean Hannity, The Dave Ramsey Show, The 700 Club, and the Fox News Channel. The Washington Post called Debt-Free U “the best and most troubling book ever about the college admissions process.”
It has been featured by The BBC, The New York Times, The Huffington Post, Bloomberg, Christian Science Monitor, USA Today, The Suze Orman Show, The Boston Globe, ABC News, and many others.
His second book “How to Be Richer, Smarter, and Better-Looking Than Your Parents” was a New York Times Bestseller. He was also the editor of the Warman’s Guide to Antiques & Collectibles and he is a contributing editor with Antique Trader.
He has written for various media outlets including GLAMOUR, The Wall Street Journal, The New York Times Online, The Boston Globe, and The Daily Beast. His is currently working on his next book, the story of the Beanie Babies bubble of the 1990s.
ANNOUNCER: Welcome to Creating Wealth with Jason Hartman! During this program Jason is going to tell you some really exciting things that you probably haven’t thought of before, and a new slant on investing: fresh new approaches to America’s best investment that will enable you to create more wealth and happiness than you ever thought possible. Jason is a genuine, self-made multi-millionaire who not only talks the talk, but walks the walk. He’s been a successful investor for 20 years and currently owns properties in 11 states and 17 cities. This program will help you follow in Jason’s footsteps on the road to financial freedom. You really can do it! And now, here’s your host, Jason Hartman, with the complete solution for real estate investors.
JASON HARTMAN: Welcome to the Creating Wealth Show. This is your host, Jason Hartman, and this is episode #398. 398. And we have two guests for you today. First of all, helping me with the intro, is Randy Luebke, a mortgage planner and financial planner. Randy, how are you?
RANDY: I’m good, Jason. How are you today?
JASON HARTMAN: Good, good. And we will get to you in just a moment. And our second guest today is Zac Bissonnette, who has written a few books, the latest entitled Good Advice From Bad People: Selected Wisdom from Murderers, Stock Swindlers, and Lance Armstrong. What a title! Randy, we’ve gotta hear that interview.
RANDY: I will definitely look forward to that one, Jason.
JASON HARTMAN: There you go. Before we talk to Zac today, I wanted to have you come on, and you so graciously joined us for our members only monthly conference call, just about two weeks ago. And we talked about some very interesting financing available that is not in the mainstream conventional market. This is not the financing you’re gonna get from conventional lenders; it’s not the Fannie Mae, Freddie Mac brand of financing. And what’s nice about it, Randy, is that it is a good fit for those investors who have more than ten loans and want to be in the game, and want to be buying more income properties. Or, they want to refinance existing income properties they have, in order to buy more income properties, or at least get most of their money out of the deal. So that’s what we’re gonna talk about before we get to our guest today, Zac. So, tell us about this opportunity, and if you would, how it came about, and let’s just dive into what the opportunity is for investors.
Discussing financing options with Randy Luebke
RANDY: Essentially, as you just stated, when you’re buying these rental properties, the ideal loans to get are these Fannie Mae and Freddie Mac loans; 30 year fixed, low cost, high leverage, you can get in for as little as 20% down, and have these interest rates that are fixed for three decades. But the window, the opportunity to get into those types of loans, is very limited. There’s 20% down on the first four properties, and after that it’s 25% down, and once you hit 10 properties that are financed, you’re done! You can’t have access to anymore leverage. And so, what that’s forced people to do, until this particular product came along, is go into the private money market, which can get very expensive. 9, 10, 11, 12%, and points, prepayment penalties, and things like that. So, what this product aims is at those people, as you said, that they’re above the Fannie count, if you will, in the number of properties they have, but they still are good borrowers, and they’d like to get some very good interest rates, and have access to credit that they wouldn’t have always had. That’s what the program’s all about.
JASON HARTMAN: The thing to understand, for the listeners, is that one of the things that makes the United States such an incredible place to invest, and as I’ve said many times, I kind of hate to repeat myself, but I know I have to, because people always ask if I don’t. I’ve been to 71 countries, I’ve looked at properties in the vast majority of these countries, I’ve gone out with local real estate agents, real estate brokers, most of them in other countries are unlicensed, so they just call themselves a real estate agent, or broker, and you go out and look with them, you know? Nothing too formal. And they just don’t have the financing opportunities, and that’s one of the things—among other things, like the MLS system, and rule of law, and all kinds of attractive things—that make the US market so much more advantageous. But in terms of the financing aspect, what people have to realize is that we have it too good here. Because real estate has been basically subsidized by the government through their government sponsored entities, the GSEs, known as Fannie Mae and Freddie Mac. For Fannie Mae, really since right after the Great Depression. That’s why borrowing has always been so cheap, and so plentiful, and so easy here; because we’ve had this government guarantee—implicit guarantee, it’s not explicit, we all saw that in the last financial crisis from a few years ago. But as a secondary market that will buy the loans and keep the velocity of money going, if you will, through the system, so that banks can continue to always look for new loans, because they can always sell the loans off. And it’s made rates very low, financing very plentiful and very available here, and so, when you compare it to what’s available on the private market, it just never looks that great. But this is about the best it’s ever been, Randy. For something that’s not through a GSE, through a government sponsored entity like Fannie or Freddie, I have never seen anything quite this good as what we’re talking about today. It’s not as good as the Fannie Mae Freddie Mac type conventional stuff, but it’s pretty good, isn’t it?
RANDY: For the right person in the right situation, it’s an amazing loan. Let’s finally get into some of the details of it…
JASON HARTMAN: Definitely, it’s not 9, 10, 12% here, right? What are the details?
RANDY: Well, we’re talking about interest rates today, and it’s August in 2014. I know it’s a podcast, so they might listen to this 10 years from now. But today the interest rates run between 5¾ and 6¾%. Now, that’s pretty good for basically a commercial loan. Let’s start with my hit list here. One of the things that a lot of people have done, of course, over the last few years, is put their properties from owning them as their own, putting them into entities, owning them as LLCs or corporations. And this particular product does lend to LLCs. Not individuals. Which is a big deal in and of itself. Again, this is a commercial loan, so it’s also offered as recourse and non-recourse type loans. Do you want to talk a little bit about that?
JASON HARTMAN: Yeah, absolutely. Explain to the listeners recourse and non-recourse.
Recourse and non-recourse loans
RANDY: Typical mortgage homes, really considered a non-recourse loan. Meaning, the security for the loan, in the event of a default, would be the property itself, and it would go back to the bank if there was an issue. Some circumstances, we need to have fully non-recourse loans. So for example, if I own real estate inside of an IRA, I can’t guarantee that loan with my signature; I have to have a non-recourse loan. Well, this loan will fit perfectly for that, because it will offer it as a non-recourse, meaning the property is the only security, or, you can actually improve the interest rate, or maybe increase the loan-to-value, if you’re willing to sign forward and back the loan as a recourse loan. That means if something goes wrong, you are personally liable for it.
JASON HARTMAN: That’s one of the great things about income property. Is that you can basically delegate a lot of the borrowing responsibility to the property. Because in a non-recourse loan, only the property is liable for that debt. If you default on it—if you should ever have to default, and I call this the nuclear option. You know, it’s the last thing you want to do. In case it ever happens, where you need to default on a property—millions and millions of people did this by choice, okay, by total choice. Not because they had to. Some had to. But a lot of people did it by choice. They called it strategic default. We’ve done some shows on it, we’ve talked about it on some of the past episodes, and interviewed some experts on it. They just felt it was a good part of the business plan. The deal they agreed to with a lender is look. I am signing you the rights to this property, if I don’t pay. And then they decided at some point, you know what? I don’t want to pay. So, here’s the property. That’s the deal we entered into, okay? And it’s nothing more than that. And the only liability they had, was damage to their credit score. Which, you know, is significant, and should not be taken lightly by any means. Just understand that people made that decision consciously many times. You really do offload, or delegate, a lot of the borrowing responsibility to the property. It’s almost like cloning yourself. You can say, okay, here’s a property. The property will take on this obligation. And this property will take on that obligation. And that property over there will take on this obligation over there. It’s a great thing. Versus typical borrowing, where you personally have to take on all of the obligation. Certainly, many of our listeners own their own business, and many of them have tried to go out and get financing for their business. And you know, you can’t. And if you can get financing, which is pretty hard, with a business, you’ve gotta take on that liability yourself. You can’t delegate it to the business. Almost never can you do that. Unless the business is really large.
RANDY: And that’s a good point, Jason. This is a commercial loan, and they do look at it as a business. So, the property has to be able to support itself, which fits very nicely into the model of the properties that you represent, because they have cash flow. We have to have positive cash flow. If it doesn’t, you’re not gonna get the loan. It has to hold its own, based on the cash flow it receives. That’s the way it works.
JASON HARTMAN: Yeah. Excellent. Good points, okay. Talk about the rates again if you would, and then all of the terms on the loan. It’s not just about interest rate. There’s the length of the loan, there are the points and fees to get the loan. Does it adjust, that’s a question. There are many factors. So let’s just review all of those, if we can.
RANDY: First of all, the minimum loan size is $500,000. Now, when you think about the types of properties that we generally see and represent, we’re talking about homes that maybe range from $90,000 to maybe $150,000. So, what this loan allows the investor to do, is bulk package those properties into one loan. Let’s say we have ten $100,000 homes that were potentially owned free and clear, they paid cash for them. Well, you could get a $500,000 loan and be a 50% loan-to-value. That’s how it would work. So we bulk package the loans, the minimum loan size is $500,000, the maximum loan size is for all practical purposes, unlimited. They’ve made loans north of $10 million to investors with apartments and so on. So there’s no limit there. And there’s also no limit on cash out, which is another important thing. With the current Fannie Mae guidelines, once you have four properties financed—and by the way, one of those four includes your primary residence—you can’t get cash out on a refinance anymore. All you can do are rate and term refinances. So this opens up the door to people that have more than four properties, and they want to get out some of the equity in those properties. And the loan-to-value, Jason, we can go as high as 75%, and the last thing that’s important to understand is something we generally don’t talk about, which is debt coverage ratio. You want to talk about that a little bit?
JASON HARTMAN: In a moment, yes. Definitely want to talk about that. Because, one of the properties we’ll actually talk about today, is we’ll review the debt coverage ratio on that. It’s on the pro forma I sent you. So we can sort of use a live example, if you will, which will be interesting. And debt coverage ratio is one of the metrics we definitely look at when investing. I wanted to go back to, though, so, the minimum loan amount is half a million. And we have a lot of investors who were very wise, and they were contrarian in their thinking, and they purchased properties through our network back three, four years ago, when things looked pretty gloomy, and now they are sitting pretty, because they had the foresight, and the guts—and you needed some guts back then to do it, to see that this was going to turn around, and it of course did, it always seems to, if you look at history. But there was no financing available back then. Or, it was much more limited than it is even today. And today investors think it’s limited. It was worse back then four years ago. Now they’re sitting on a portfolio of properties that they paid cash for, but they bought them so cheap. And now, they could turn around and refinance this portfolio of properties, and pull up to 75% of the value out, so in the example you gave, and this is how it might have looked. I’ll just give you sort of a very rough concept here. Maybe they were purchasing properties for $60,000 each, and they were doing this four, five years ago, when it was pretty gloomy. And now those properties are worth $90 or $100,000 each. And in your example, they’ve got ten of them. Let’s say they put in $600,000 to buy those ten properties at 60 grand a pop, and now they’re worth—for round numbers’ sake, let me just say a million. They’re worth $100,000 each, they’ve got ten, they’ve made $40,000 per property in this example, and now, they can turn around and they can refinance $750,000, or 75%, of one million, which, following my example, is $100,000 each times 10, okay, so they not only get their $600,000 back, but they get an extra $150,000 out, for their trouble, which is really nice. Then they’ve got these properties financed, and with that $750,000, they can go shopping again, and they can go out and acquire more properties.
RANDY: They can absolutely do that. Again, it’s freeing up equity in the home that was otherwise trapped there, and that equity of course isn’t providing them any direct benefit. Yes, there’s the cost of financings being saved, but the ability to go out and re-leverage that money—buy another one, or two, or three more properties—that’s huge.
JASON HARTMAN: One or two or three? It’s way better than that, Randy.
RANDY: Well, that’s true. I mean, $750,000, you’re right.
JASON HARTMAN: Yeah. They’ve got $750,000 now to go shopping with. And with this loan-to-value ratio—if they were to pick another portfolio, okay, and say they were to go, and find $2 million worth of property to purchase. And with 25% down, they need $500,000.
RANDY: That’s right. I was only looking at the difference between the $150,000, but you’re right, they pay cash for the property, they have a lot of money, they can buy a lot more houses.
JASON HARTMAN: This whole investing thing, if you can overcome your own psychology, and some of the bumps in the road, and just understand that you’re gonna have bumps in the road, life is about dealing with problems and solving them; it’s not about whining about them. It’s like Zig Ziglar, one of my favorite mentors, the late, great Zig Ziglar—I was really excited that I got to, many years ago, go on a speaking tour with him, and do a four city engagement. But Zig Ziglar used to say that the bum on skid row, and the happiest, most successful person in the world, have on thing in common: they both have problems. The only difference is, one has learned to successfully deal with and overcome problems, and the other, unfortunately, has not. With the real estate portfolio, you know, it becomes really addictive. I mean, people love this stuff. The product that is sold through our network is just about as addictive as Starbucks coffee. So…people really want to get back in, and get in the game. So now, look at what you’ve done. I talk about the refi till you die concept. And what you’ve done here, is you’ve taken that portfolio of ten properties you bought at a bad time—what seemed like a bad time, but it was really a good time—but you know, you had to overcome all the negative psychology out there in the newsmedia, right? And all the stuff your friends were saying. And go the other direction, and usually go it alone. Worry a lot. You know, no guts no glory. And so, you did that, and now you’re sitting on that portfolio, and you can go from ten properties to 30 properties, in this example. And so, now you’ve got ten properties originally; you can buy 20 more, and still have $150,000 cash leftover to stick in the bank and use for your emergency fund. And by the way, people have asked that question, and I just want to—I haven’t talked about it much on the show lately. But, what is the reserve? What should you have in reserve when you’re buying these properties? I think the minimum number is 4% of the value of the portfolio. So if you have a $2 million portfolio, you should have $80,000 in the bank for vacancies, surprises, problems, repairs, whatever. This is what keeps you in the game. It gives you staying power. At least 4% of the value of the portfolio.
RANDY: Another way to look at it, Jason, I say 3-4 months rent if you have an RV factor of 1.
JASON HARTMAN: Right, RV ratio of 1%.
RANDY: It’s the same thing. Because really what you’re trying to do, is ensure that if there is a vacancy, or a big maintenance issue comes up, that you have the cash there to see you through that downtime that you’re gonna inevitably experience. So, by having 3-4 months of rent set aside for each property, you can easily cover that.
Discussion of debt coverage ratios
JASON HARTMAN: Tell us more about the loan. I think we were gonna talk about debt coverage ratios, right?
RANDY: Before we hit that, let’s talk about the term, because you mentioned that as well. And this is unique in that respect, because these aren’t 30 year fixed rate loans, right? These aren’t the Fannie Mae loans. These come in two durations: a 5 year fixed, and a 10 year fixed, but the loans are amortized over 30 years. So, let me explain a little bit about how that would work. Going back to the 30 year fixed, what happens, of course, is that every month you make a payment, at the end of 30 years, the loan’s completely paid off. These types of loans, though the interest rate will be fixed for 5 years, but then it’s a balloon. The whole loan needs to be paid off, and then either refinanced again, or something has to happen in either 5 or 10 years, those are your two choices. But, they’re not 5 or 10 year loans. Because if you think about it, the cash flow would be terrible if you had to pay off a loan in just 10 years, or 5 years; you would eat up all the cash flow giving the principle back to the bank. So, most commercial loans are either a 15 year duration, meaning it’s—the loan has a 15 year amortization. This one’s a 30 year amortization. You get the benefit of longer term financing in terms of cash flow, but you get again a good interest rate, because it’s only fixed for 5-10 years.
JASON HARTMAN: We’ve gone over rate and term; amortize, that’s just from the Latin term, it means, amort. To kill. You’re killing the loan. You’re amortizing it away. Debt coverage ratio—what is the required minimum debt coverage ratio? And see, what this means for the lender, is this means, how reliable is this property? See, it’s not really the borrower. It’s the property. Remember, I talked about how you’re basically outsourcing the debt or the borrowing obligation to the piece of property. So, what they’re asking, when they look at the debt coverage ratio, is, how likely is it going to be that this property is going to pay me back?
RANDY: Do we want to look at your pro forma while we’re talking about debt coverage ratio?
JASON HARTMAN: Not necessarily. We do in a moment, but what is the debt coverage ratio required?
RANDY: The requirement on this one is actually pretty low. It’s only 1.2.
JASON HARTMAN: Oh. That’s a cinch!
RANDY: Yeah. Yeah. Especially—
JASON HARTMAN: Let’s look at the pro forma!
RANDY: Yeah. Shall we look at the pro forma? Yours looks really good. The one we’re looking at—
Overview of a pro forma
JASON HARTMAN: Absolutely. Let me tell you about this property. And I picked it because we’ve got a property tour coming up there at the end of September. You gotta join us, folks, for our Little Rock property tour and Creating Wealth Boot Camp. And that has got great early bird pricing at www.jasonhartman.com. Click on events; I think it’s only $147. We basically lose money on these events. But, the way we profit is that people actually invest in properties. That will be at the end of September. You can register for that at www.jasonhartman.com in the events section. This property, the debt coverage ratio is 1.48, and it gets even better, Randy. It’s 1.48, with 20% down. Now, this lender is requiring 25% down. So, that’s gonna make the debt coverage ratio even better. I can’t do the math for you right now. But I bet you that debt coverage ratio’s gonna be like, 1.55 or 1.6. Which is phenomenal! I mean, it’s phenomenal!
RANDY: It is. I was gonna say, it’s probably 1.6, 1.65, because with that larger down payment…just so people understand what we mean, we want the rent—the net rent—to exceed the debt by a minimum of 20%. This property, with 25% down, it’s gonna exceed it by 55 to 65%. That’s crazy.
JASON HARTMAN: So this property is $92,900. It’s 100% rehabbed. This here, it’s got a brand new rehab on the property. So, it’s in really good condition. And this one is already rented. I like to say this is a pro forma. It is a pro forma. And there are multiple dimensions to the property pro forma and the projections that we’re gonna talk about. We know it’s rented for $950 a month. More than 1% of the purchase price. Which is $92,900. And $950 rent. So, your RV ratio is good. It’s more than 1%. The cash flow in this property, it is rented. Assuming the expenses stay consistent, and we’ve got some pretty conservative assumptions in here, is just over $2300 annually, making the debt coverage ratio, with only 20% down, of only 1.48%, and the cash on cash return at 10% annually, and the overall return on investment, because we know income property is a multi-dimensional asset class. So get this, folks. Are you sitting down? 39%. 39%! 1% shy of 40% annually. And this is why we like Little Rock, Arkansas. A little town, you don’t think much about it, you don’t hear much about it. If it wasn’t for Bill Clinton, you probably wouldn’t even know where Little Rock was, most of you, right? And no offense to people who live in Little Rock. I’m not sure, we’ll have a couple of those as well that come on the tour with us. This is a market that hasn’t been invaded by a bunch of big institutional investors. It’s a below-radar market. And we think that’s what represents the opportunity. Because in markets like Phoenix, where I live, institutional investors have just come in and ruined this place. We used to recommend Phoenix, but it just got stupid here. The institutional investors came in, the private equity groups, the hedge funds; they pushed the prices up too high, and it just doesn’t work. The numbers don’t work here anymore. I wish they did. I would love it if they did. But they just don’t.
RANDY: You found a winner here, Jason. This is a great property.
JASON HARTMAN: We’ve got more great properties in this market. And we always ask, by the way, our local market specialist, to save some properties just for the people on the tour. So, they will be holding properties off the market until after the tour, to give people a first come, first serve chance who are on the actual tour to buy those properties. And here’s the assumptions I wanted to tell you about. The maintenance percentage assumption especially; you’ve got your management fees, your vacancy rate, your appreciation rate built in there, those are all very conservative. But the maintenance percentage is at 8% annually. And what that means is that we’re assuming you’re gonna spend $76 per month, or almost $1000 per year, to maintain this property that was just rehabbed probably a month before you bought it. Pretty good, huh?
RANDY: I’m looking at your capitalization rate in here, it’s 7.6%—
JASON HARTMAN: Yeah, don’t try that in California.
RANDY: Well, no. That—so, if you didn’t use leverage, if you paid cash for this, it’s still giving you a 7.6% rate of return on your money, which is phenomenal, and then you see when you throw the leverage into it, that’s what enables you to multiply that, and get it up to that 39% too.
JASON HARTMAN: I like to say that leverage is a two-sided coin. It’s a two-edged sword. It’s a knife that can cut both ways, as the saying goes. Leverage is a very powerful tool, but certainly people have gotten themselves into trouble with leverage, no question about it. But when you have a debt coverage ratio of 1.48% with 20% down, you know, buying this property’s only going to take $23,000 and change, with down payment and closing cost. It’s just so unlikely that you’re ever going to get yourself into trouble with a property with a debt coverage ratio like this. Because you’ve got positive cash flow from day one.
RANDY: Leverage kind of got, especially the last few years, a bad name. The truth of the matter is, it actually protects you. Having less equity in the home makes it less of a target for people to sue you. Having less cash in the property could mean that you’d have more cash in the bank to protect you when something goes wrong. I mean, there’s a lot of benefits, besides the ability to increase your rate of return, by holding onto your cash instead of sticking it into the property.
JASON HARTMAN: So, anything more you want people to know about the financing opportunity?
RANDY: One thing I didn’t mention; this is an assumable loan too.
JASON HARTMAN: Yeah, cool.
RANDY: I forgot to say that. This is a loan that, again, we’re going to be lending to an LLC; the LLC’s gonna loan it, and the lender will allow you to sell that LLC interest to other parties at some point, and the loan goes along for the ride.
JASON HARTMAN: Great. So if you ever wanted to exit the property, got an attractive financing option that can be assumed by a new buyer. But that refi till you die example, folks, that I mentioned, where you take 10 properties, and turn them into 30 properties, and get $150,000 in change, and more positive cash flow every month—wow. I mean, I love income property. It is literally the most historically proven asset class in America, if not the entire world. But I can definitely say in America. Try and beat it. Hey Randy, thanks for joining us. We went a little long. Let’s get to our guest; here is Zac Bissonnette, with Good Advice From Bad People.
Introducing Zac Bissonnette
JASON HARTMAN: It’s my pleasure to welcome Zac Bissonnette to the show! He is the author of Good Advice From Bad People: Selected Wisdom from Murderers, Stock Swindlers, and Lance Armstrong. Great topic. Zac, welcome. How are you?
ZAC BISSONNETTE: I’m great, how are you?
JASON HARTMAN: Good, good. You’re coming to us from New York City today. Always like to give our listeners a sense of geography. Tell us a little bit about your research and background in this field of selected wisdom from murderers, stock swindlers, and Lance Armstrong.
ZAC BISSONNETTE: The book kind of started, I guess about a year ago, when Lance Armstrong was doing his sort of pathetic apology tour where he went on Oprah, and did his whole shtick about oh, I’m so sorry, I was a liar and a cheat, and I would do anything to get what I wanted. Just a few years ago, this was one of the most respected people in America, something everyone would say to their kid, you know, look at him, I want you to be like him. Then it started being like, what did we even know about Lance Armstrong that made us think he was such a wonderful guy and a great role model? He was really good at riding a bike, which until Lance Armstrong, no one gave a crap about people who were good at riding bikes. Okay. So, we know he’s good at riding a bike. Then we knew that he had cancer, which is really sad, and that he had a prognosis that allowed him to come back from that cancer, with good medical treatment, which is good for him, and I’m happy that he got the help he needed. And then he went back to riding his bike. And I remember the people who were so convinced that he was such a hero. If he had had a more aggressive, a more tragic diagnosis, you know, and he hadn’t been able to come back, would that make him less heroic, because the cancer was more aggressive? I never really understood why this guy was a hero. And a big part of why this guy was a hero, was that he told us he was a hero, and there was this huge PR campaign, and he was using it to get enormous endorsements that were unheard of in the history of cycling. Then, of course, it all came crashing down, because when Lance Armstrong said, winning is all about heart, it’s gotta be in the right place, it turned out, what he was pumping with his heart was transfused blood and testosterone, and violent threats leveled at anyone who said they would expose him.
JASON HARTMAN: Yeah, interesting, very interesting take on that. I agree with you to some extent. It’s crazy how our society just reveres people for mostly celebrity-oriented reasons. Not for the quality of the person, not for something that they’ve really done to help the human race.
ZAC BISSONNETTE: It’s often that they will have been really, really good at one thing. One often pretty narrow thing, that really is unrelated to most other sort of elements of living a successful life. In the late 1990s and early 2000s, Tiger Woods’ father wrote not one, but two parenting books. Parenting books. Not golf books. Parenting books. And all that we knew about Tiger Woods was that he was really good at golf. And he also talked about being a role model, and did the role model PR stuff, but we knew nothing about this person, and over and over again with these people who become role models and then fall, when you look back and say, wait a second, we actually really never had any basis for making this person a hero.
JASON HARTMAN: In the world of branding, this is called brand extension. People try to extend their brand into other unrelated areas, and it usually doesn’t work very well. The best example I can think of just off hand here is Paris Hilton. I mean, what has she ever done? You know?
ZAC BISSONNETTE: To Paris Hilton’s credit, which is a phrase you will never hear me say again, she never claimed to be a particularly wonderful person. She was a coked out, trashy person who built a brand around that. I never found anything particularly hypocritical about her, I just found her terrible.
JASON HARTMAN: I kept wondering and asking myself, where is her talent? She’s just sort of famous for being famous. There’s no actual reason that I can see.
ZAC BISSONNETTE: Absolutely.
Zac Bissonnette talks about Wall Street and stock swindlers
JASON HARTMAN: Very interesting. Well, talk to us about Wall Street and stock swindlers. Wall Street is like digging in a pure vein of gold, because there’s literally a scandal every day. I mean, there’s so many criminals on Wall Street it boggles the mind. I call it the modern version of organized crime.
ZAC BISSONNETTE: There are so many creepy losers on Wall Street who ascend to great power, and then you find out, wait a second, why was this person up on this pedestal? One of my favorite examples is Richard Fuld, who was the CEO of Lehman Brothers. And in 2006, at the height of his power, he went back to the University of Colorado at Boulder to do a commencement speech in which he said, when you know what you are talking about, others will follow you because it is safe to follow you, and then two and a half years later, investors and employees, and to a certain extent, the US economy, followed the leadership of Richard Fuld into the largest bankruptcy in US history. It happened precisely because Richard Fuld climbed the ranks and became CEO of a company that was involved in huge amounts of esoteric financial products that he knew nothing about.
JASON HARTMAN: It’s just mind-boggling. I mean, whenever you hear about Wall Street’s financial innovation, head for the hills.
ZAC BISSONNETTE: For real.
JASON HARTMAN: It’s just amazing. Crime today is committed really through lobbyists, lawyers, accounting firms, and PR firms. This is the way modern crime is done on Wall Street or with big corporations in general.
ZAC BISSONNETTE: And there tends to be very little accountability. There’s an old Jimmy Cagney song from a musical from like the 20s, I think, that had a line in it, steal $100 and they put you in stir. Steal $100 million and they address you as sir. And I think that’s sort of the lesson that people took from that. One of my favorite financial losers, I’m sure one of yours too, is Donald Trump, who in 1991, following up on his book The Art of the Deal, which is still a popular book, I don’t know why, he wrote a book called Trump: Surviving at the Top. And what was very interesting about this book was that it came out right as Donald Trump’s empire was unraveling under the weight of excessive debt [unintelligible]. In that book he said, you have to be confident as you face the world each day, but you can’t be too cocky. Anyone who thinks he’s going to win them all is going to wind up a huge loser. So, it was Donald Trump who I think, if you were to do a public opinion survey, most people would probably say he’s the cockiest person in America. If we were to say, oh, who’s the cockiest person in America? Oh, Donald Trump. Easy. And he was out there while his company was imploding, because of his own grandiosity, lecturing people about the dangers of overconfidence. And the title was so ironic at the time, because his financial [unintelligible] the papers that were reviewed in the Los Angeles Times wrote that Donald Trump coming out with a book called Surviving at the Top would be as if Marie Antoinette had written a book called Keeping My Head.
JASON HARTMAN: That’s hilarious. You know, one of Trump’s companies, embroiled in a huge lawsuit, and that involves his Trump University. I don’t know what the outcome is, I haven’t followed the story.
ZAC BISSONNETTE: There’s been no outcome yet, but it’s still an ongoing thing. But I think that the best thing you could say about Trump University—and I’ve read a lot about it, I’ve written about it, actually; that it was sleazy, and exploitative. Whether it was criminal is something the courts will have to decide, but it certainly was embarrassing.
JASON HARTMAN: That’s kind of the problem with today’s world. These bigwigs, big people, big companies—they have so much power in the system; they have these incredible law firms that can reduce and cloud issues that are just so obvious, into massive amounts of technicality, and—
ZAC BISSONNETTE: These issues, if you actually stop and think about them for three seconds, are not hard calls. I mean, in Trump University, I have to be a little bit careful, because there hasn’t been any outcome with it, but it’s pretty obvious that the representations made about what the program would provide for what it cost, were not in line with what the programs actually provided. That is manifest, looking at any of the legal filing. And even media coverage. Any of the company’s own ads—and yet, they argue about, you know, these technicalities.
JASON HARTMAN: There’s a really interesting one, I bet you’ve seen the video. I hope you have. It’s with Jim Cramer. Now of course, Jim Cramer is a very famous Wall Street pundit. He is literally bragging about how the SEC, the Securities and Exchange Commission—we’ll call it the Scoundrel’s Encouragement Commission, as some people do—and he is literally bragging at how he has hoodwinked them, how they are so stupid, how—
ZAC BISSONNETTE: Yeah, I remember that.
JASON HARTMAN: Then I heard stories about Cramer going around suing people for putting that video on their website. You know? I doubt it’s on YouTube anymore. I hope the listeners will look for it. It’s a shocking video. He’s literally giving investors and the law, and the government, the finger on the video.
ZAC BISSONNETTE: It’s a tough thing. I used to work at CNBC. And I think Jim Cramer is a very smart man.
JASON HARTMAN: Oh, sure he is. Of course. I’m not denying that.
ZAC BISSONNETTE: And I think there’s also—and this is true of pundits and experts in general—there is an inverse correlation between the amount of time you can spend on television, and the amount of stuff you can actually know. Jim Cramer is on television too much to actually know anything, at this point. But all the research has to be done by a bunch of people who know him and take advice from him that he’s sort of a mouthpiece for, because he’s too busy being a brand to actually do anything.
Thoughts on student loan debt
JASON HARTMAN: That’s a great equation; the inverse correlation there. I love it. Some of the topic areas that I know you cover is, student loans—we’ll call it the college student loan government complex, maybe, or something like that. But that seems to be just beyond absurdity nowadays. I mean, the cost of college is ridiculous. Student loan debt is not dischargeable in bankruptcy; it’s the only kind of debt that is that way. Is this thing just a big scam? The cost of it and the market?
ZAC BISSONNETTE: Yeah, I think largely. I would tend to agree with you. I think some of the reasons the cost has gone up are sort of outside of control, the affordability thing is, the student loan thing, and the bankruptcy thing, I totally agree with you on.
JASON HARTMAN: What did you mean there? You kind of faded out. My theory is that the government started putting all this money out there by guaranteeing student loans, and of course the universities did what any good business would do, and they are businesses.
ZAC BISSONNETTE: Then they just absorbed that and increased the prices. What’s funny, and the kind of canary in the coalmine for this stuff, is the for profit colleges. They’re publicly traded, most of them, and they release reports and talk to their investors. Of course they’re selling stock, they kind of get to brag about the business model a little bit. The parent company of the University of Phoenix—one’s actually noted that they’ve increased their tuition price because of an increase in the federal [unintelligible] in that year. They just said that because of the increase, we were able to do this increase, and no one picked it up, and no one even remembers. This was maybe ten years ago. But it was hysterical. Everyone denying, within the government, and within education. Everyone denying that this relationship existed. No, colleges aren’t raising their prices, just because the loan limits go up. But they said they did.
JASON HARTMAN: It’s the classic definition of inflation. You’ve got more money, more dollars chasing a limited supply of goods and services.
ZAC BISSONNETTE: The other side of this that I think is under covered, is that [unintelligible] appropriations for public colleges had tanked over the past 30 years. So, the increase in tuition for in state students at public colleges is in large part being driven by the fact that their tuition used to be mostly covered by taxpayer subsidies to the colleges; now those institutions have been largely privatized, where students are covering the bulk of the cost of their education. And I think that’s under covered. But that’s a huge part of it.
Advice from murderers
JASON HARTMAN: Before you go, you gotta give us some advice from murderers. We haven’t heard about them yet.
ZAC BISSONNETTE: Ah yes. Well, OJ Simpson, who, you know, was criminally acquitted, somewhat controversially—
JASON HARTMAN: Right, of course.
ZAC BISSONNETTE: But, was held civilly responsible for the deaths. I don’t really have any problem calling him a murderer, and that he admitted to it in a book. But he said, the day you take complete responsibility for yourself—the day you stop making any excuses—that’s the day you start to the top. And now he is in prison for armed robbery, but is appealing it on the grounds that his lawyer didn’t do a good job, so that’s him taking responsibility, I guess.
JASON HARTMAN: You know, lawyers don’t do good jobs, so I gotta give him a little bit of…you’ve got a great quote from Rod Blagojevich. You know, I’m not sure if you remember it, I don’t want to put you on the spot, but do you want me to say it, or do you want to say it?
ZAC BISSONNETTE: You can say it. It’s fine. You’ve got it.
JASON HARTMAN: I think the most important thing is to restore a sense of idealism and end this cynicism. I mean, Rod Blagojevich was just a hilarious character in the media.
ZAC BISSONNETTE: He want on Donald Trump’s Celebrity Apprentice after he had been indicted.
JASON HARTMAN: I didn’t know that. Wow.
ZAC BISSONNETTE: Yeah. It was really, really weird. And Chicago politics—it’s been a hotbed of corruption—he was the fourth of their last seven governors to end up in prison. Blagojevich I think certainly did not succeed in his goal of ending cynicism about government.
JASON HARTMAN: Certainly true. Well, very interesting. Well Zac, give out your website, or tell people where they can get the book, whatever you want.
ZAC BISSONNETTE: Amazon.com’s fine.
JASON HARTMAN: Amazon.com. The book is on there. And it’s entitled Good Advice From Bad People: Selected Wisdom from Murderers, Stock Swindlers, and Lance Armstrong. So, Zac, thank you so much for joining us today.
ZAC BISSONNETTE: Anytime. Thanks so much.
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Episode: CW 398: Wall Street Stock Swindlers & Student Debt with Zac Bissonnette Author of ‘Good Advice From Bad People’
Guest: Zac Bissonnette
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