JEROME GENTOLIA - COMMERCIAL LENDING - WESTCHESTER NY

Vehicle Reclamation Services

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Fri, 07 Aug 2009 13:14:55 -0500

Jerome Gentolia, Chief Operating Officer of Oxford Group Services, is in talks with Vehicle Reclamation Services of Maryland, LLC (VRS) concerning their state-of-the-art vehicle reclamation/disassembly operations project.

In the USA alone there are over 18 million vehicles a year that reach the end of their useful life (EOLVs) or are to be scrapped at the traditional, open-air junk yards/shredders. These numbers will increase in 2009 from the impact of the Cash-for-Clunkers U.S. government program and are estimated to increase to over 20 million for 2010. VRS provides an indoor, environmentally friendly system that reclaims significantly more(99.5%) of the reusable constituent parts, materials and products than the traditional junk yard (40% to 60%)would and provides efficient removal of scrap metals, plastics, glass, rubber and other products to be sold in commodity lot sizes so that they can be recycled into new products by others. VRS will process a high volume of vehicles on the semi-automated disassembly line. This is based on a proven Dutch-manufactured system that can be built on a relatively small site.

Starting with one facility, VRS plans to acquire large numbers of EOLVs or scrap vehicles, disassemble the reusable parts to reclaim them for refurbishment or resale and process the remaining uncross-contaminated scrap. One center at full operation has the potential of providing scrap metal that would come from hundreds of junkyards, making it much more convenient and cost-effective for the purchaser. This one-stop shop also reclaims a much higher percentage of the vehicle's parts for resale than the traditional junkyard. They have already begun discussions with several companies to acquire EOLVs and scrap vehicles as well as for purchase agreements for the reclaimed materials and parts. Initial studies conservatively estimates that the United States alone could support more than 100 centers.

VRS has an experienced management team led by the founder, Mr. Gary R. Sander. They have already assembled several people with exceptional expertise in their respective fields. Mr. Sander has been involved in the manufacturing, construction, steel and chemical industries and his team has experience ranging from automotive and plastics industries to plant management and environmental engineering.

Jerome Gentolia has been keeping a close eye on the project as it has many of the qualities that Unilion Oxford Group is looking for in new projects. It uses state-of-the-art technology that also has a proven track record. It is economically viable and also environmentally friendly. Lastly, it will be generating income within 12 months.

Jerome Gentolia is the Chief Operating Officer of Oxford Group Services and also the Senior Vice President of Unilion Development Group, a private equity firm. He can be reached at jgentolia@uhl-unilion.com.

Automotive Reclamation

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Thu, 09 Jul 2009 09:59:19 -0500

Jerome Gentolia is in talks with Vehicle Reclamations Services of Maryland, LLC (VRS).

With over 18 million automobiles reaching their end of usefulness each year, the market is open for a modern state-of-the-art automobile disassembly system. Unlike traditional open-air shredder/junkyards, the VRS system is an indoor operation that is environmentally sound, can handle large volumes, and produces more reclaimed materials and parts than a traditional yard would. The technology is based on an existing Dutch manufactured system that is already proven in Europe. The potential volume of scrap steel from one VRS Center is more than the volume of what a hundred junkyards can produce.

The plan is to acquire large volumes of End-of-Life Vehicles (EOLVs) and scrap automobiles, disassemble and reclaim the component materials and parts and resell these to existing markets for these materials. VRS has stated that several companies have already expressed willingness to award purchase agreements for the reclaimed materials and parts.

Jerome Gentolia, Chief Operating Officer of the Oxford Group Services, is keeping a close eye on the project. The VRS project being technologically advanced, environmentally friendly, and economically viable is in line with the Gentolia's direction with Oxford Group.

Under the leadership of Gary R. Sander, the VRS team boasts of people with exceptional expertise in their field. Sander himself has been involved with major corporations in the construction (Chicago Bridge and Iron), steel (Bethlehem Steel), and chemical (W.R. Grace, Davison, Chemical Division) industries.

Jerome Gentolia is the Chief Operating Officer of Oxford Group Services and also the Senior Vice President of Unilion Development Group, a private equity firm. He can be reached at jgentolia@uhl-unilion.com.

COO Keeping an Eye on Biogas Project in LeMars Iowa

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Wed, 01 Jul 2009 14:42:59 -0500

Jerome Gentolia has been discussing investment opportunities with 5 Porticoes, LLC. 5 Porticoes is planning to build a biogas facility in LeMars, Iowa. The facility will convert plant and animal waste into biogas, a clean, renewable energy source.

With the support of the University of Iowa, the 5 Porticoes plant is in a very good position to contribute to the ever increasing demand for natural gas. Their microbiological team, with the support of the university, plans for the development of production rate increases through microbiological research. This program ties in other departments of the university, for research and development.

Mr. Gentolia has cited a couple of factors that ensures the success of the project. One of them is the location of the plant. Situated in the largest hog producing state, LeMars, Iowa has a large concentration of these facilities. There are also 5 meat packers nearby as well as a major gas distribution and rail lines running through LeMars.

Jerome Gentolia, Chief Operating Officer of Oxford Group Services, believes in the environmental and community opportunities of the project. With the current US Administration's focus on green projects and the employment opportunities the 5 Porticoes plant presents, Gentolia is confident of the project. Through Gentolia, The Oxford Group Services has always prioritized financially viable projects that are innovative, address environmental issues, and present employment opportunities to the community. The project has full support of the State of Iowa.

With the current global economic situation, investments in large scale projects, such as this one, are slow and careful. Gentolia has his eye on this particular project and is monitoring its progress closely.

"The personalities involved in this project are impressive. Their combined knowledge and experience guarantees success in the 5 Porticoes biogas facility. I've even recommended that we use these people in our other projects as consultants and project planners...", Gentolia notes.

The core group of 5 Porticoes LLC brings in the top talents of the industry. Three members of the team were involved in building the largest digester plant in the USA. William "Bill" Bond, is the Chief Executive Manager of 5 Porticoes. Bond has been a leader in banking and corporate development areas for over 30 years. Mr. Bond currently is a lobbyist and business owner serving chemical and agricultural company's interest in legislative, regulatory and state law concerns. Mr. Bond has developed and brings knowledge through numerous relationships in governmental and business levels crossing a broad spectrum of areas. Bill brings the expertise needed in corporate development and structures needed for our success.

Joining Bond is Bruce Stockman, Chief Operating Manager. He has over 20 years of experience in a leadership role working with agriculture and renewable energy development. Bruce has contributed significantly to the development of ethanol and other renewable energy as Executive Director of the Minnesota Corn Growers Association. Bruce brings a broad background of successful experience in working with boards, directing staff and contractors, while maintaining a great relationship with community and elected leaders.

Michael McFadden (Operations Development Manager), Lance Crombie PhD (Biology Science Leader) and Kent Wolfe (Consultant) round out the 5 Porticoes group.

eQSolaris Develops Efficient Solar Cell Technolgy

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Fri, 30 Jan 2009 01:35:00 -0600

eQsolaris of Los Alamos, NM, has developed solar energy panels that can achieve electrical production at competitive or even superior pricing compared to current and traditional methods. This simple and cost effective approach is a highly simplified engineering technology called "micro-concentrator photovoltaic arrays".

These products combine the lowest cost produced solar cells, highly manufacture-able electrical contacts, heat removal materials, with concentrating and protective optics to produce a robust photovoltaic module array with the best power/price performance. It is projected to be four times cheaper than the average currently available equivalent on the market.

Without government subsidies, current solar energy products are at cost four times too expensive to act as standalone generators. Robert Hockaday, President and Founder of eQsolaris points out, "The problem with solar (power generation) is that it is too expensive. The eQsolaris technology answers this issue by maximizing cost effectiveness by incorporating the most efficient use of semi-conductor material. The semi-conductor material is the most expensive component-reduces the amount used with good design and engineering and you reduce the overall cost. This is what we have done with the eQsolaris ‘eQarray' technology."

This project caught the attention of Jerome Gentolia. Gentolia is the Chief Operating Officer of Oxford Group Services, a subset of private equity firm, Unilion Development Group. Jerome's direction into technology that is innovative, cost efficient, and effective is what led him to consider partnering with eQsolaris.

"With rising fuel and energy costs, a cost efficient and effective solution such as what eQsolaris is developing is difficult to pass up. This type of technology pushes energy production into the 21^st century. We at UDG would like to be part of it...", Jerome states.

Currently, UDG is in talks with eQsolaris in financing the project. They have already started the due diligence process.

With over 24 years experience in the energy producing sector, Robert Hockaday is the President and Founder of eQsolaris.

BioCast Systems Introduces New Wastewater Treatment Technology

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Fri, 30 Jan 2009 01:05:17 -0600

BioCAST Systems Inc. has designed a new proprietary wastewater treatment technology that is efficient, easy to operate, cost-effective, and environment friendly. Targeted towards the municipal, industrial and agricultural sectors, BioCast can reduce sludge management costs by more than 60%.

The BioCAST tertiary treatment technology efficiently removes nutrients, nitrogen and phosphorous, from wastewaters. This combined with small footprint, low maintenance requirements, ease of handling as well as the environmental benefits offered by the technology including minimal sludge production and reduced greenhouse gas generation make BioCAST technology very attractive in the advanced wastewater treatment and site bioremediation markets.

Discharging improperly treated wastewater to surface waters such as lakes and rivers can result to health and environmental concerns. Worldwide, the money spent on water pollution related problems run into the billions of dollars. With BioCast, companies can lower costs while at the same time, exceed environmental regulations and requirements covering wastewater treatment.

Jerome Gentolia, Chief Operating Officer of Unilion Oxford Group, is focused on the benefits behind the technology and is currently in talks with BioCAST regarding the project. Unilion, a private equity firm, has started the due diligence process with BioCAST. Gentolia believes in the technology which is cheaper, more efficient, and environmental friendly.

"By licensing this technology, many companies can benefit from its reduced cost and efficient process. It also opens up a lot of employment opportunities. It is good to find a project that touches up on health concerns, environmental issues, and cost effectiveness all at the same time..." Jerome states.

BioCAST Systems Inc. is comprised of Chairman Michael Ogilive, CEO/President Robert Kalinowicz, Chief Technology Officer/VP R&D Laleh Yerushalmi and Directors Frank Candido and Ronald Fon.

BioCAST Systems Inc. forecasts that by the third year of implementation, BioCAST will be available in the international market.

Medical Technology Company Achieves Breakthough In Organ Preservation and Transportation

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Tue, 06 Jan 2009 16:20:27 -0600

The days when human organs used for transplants are stored in plastic bags and placed in Styrofoam containers are numbered. Organ Transport Systems, Inc (OTS) developed a human organ preservation technology that will dramatically improve the quality and increase the availability of vital organs.

Called Life Cradle^TM, it will drastically elevate a US$ 9 Billion dollar industry by improving the preservation and transportation of human organs by 80% of current US statistics. More so, the cost of Life Cradle ^TM is just around 25% of current competing technologies.

As of the present, organs can only be stored up to 4 hours before transplant of which only 35% of organs procured are actually used. OTS Chairman and CEO, Michael B. Holder, stated that post-procurement life of organs can be extended up to 4 times longer with Life Cradle^TM. Prolonging the storage of organs will dramatically increase the number of lives that can be saved.

The Oxford Group of Unilion Development Group (UDG), a private equity firm, led by Jerome Gentolia, is in talks with OTS to finance the project. Mr. Gentolia, whose wife is a heart transplant coordinator at Montefiore Medical Center, got interested in the project because of his familiarity with the industry and the personalities behind OTS.

According to Gentolia, "Life Cradle^TM is a perfect example of what UDG looks for in a project; a focused company, innovative technology and a direct benefit to people around the world..."

ORGAN TRANSPORT SYSTEMS, INC.

The OTS roster boasts of the top men in their respective field. Michael B. Holder, prior to his role in OTS, ran the Technology Solutions business for Premier, Inc, an $18 Billion healthcare company.

The OTS Board of Directors consists of:

•· Tommy G. Thompson, former Secretary of Health and Human Services;

•· Gene A. Pierce, founder of United Network for Organ Sharing (UNOS) and the South East Organ Procurement Foundation;

•· Marvin J. Slepian MD, Director of Interventional Cardiology and the Director of the Tissue Engineering Laboratory at the University of Arizona Sarver Heart Center

OTS is founded by Hyman P. White, whose international experience includes the complete development of master health care plans for both Malaysia and Indonesia. He currently serves as Executive Vice President of OTS.

Project Financing Boo Boo Volume 1

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Thu, 20 Nov 2008 11:34:32 -0600

I recently worked on an early stage biomedical project that got lynched immediately. The project principals claim that the company is worth $18M. So far they invested $2M on the project and they need an additional $6M capital. The project has merit and potential. We are interested in investing as equity partners so we gave them our Investment Structure Format to iron out the equity participation.

They sent us a proposal and told us that they are willing to give us 7% ownership. LOL! Are kidding you me! We’re not born yesterday! Let’s do the math here:

· They put in $2M and they get 93% ownership. We put in $6M and we get 7%. Does this make sense? LOL! They are already making money before we even get started! And we are taking most of the financial risk!

To top it all, the broker who sent us the deal is charging 7% in fees! Holy moly!

People seeking financing through VC funds should remember that VC funds should be out of the “red” before they get a profit. If you do not understand this basic fundamental then you should not be talking to a VC fund in the first place.

They may have a good project but without the funds the project will go nowhere. The project will either perish or "miss the boat" since another biomedical project with a better or similar technology might get financing before they do.

Quality of Source and Brokers

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Wed, 19 Nov 2008 23:52:54 -0600

Venture Capital groups put a lot of emphasis on the quality of source or origin of projects. They tend to favor projects that are from trusted sources; or someone they have a history with. Most VC funds only take deals from their network partners (lawyers, accountants, financial consultants, bankers, etc).

A source that has history of submitting good quality projects is something they value. Brokers may be a good source of projects. Unfortunately a lot of brokers have a tendency to submit all the deals they come across (without qualifying them) and fill the VC fund’s mailbox with junk projects. The mentality of “throw everything up there and see what sticks” is something you should avoid if you are trying to build a relationship with a VC fund. This is one of the many reasons why less and less VC funds entertain brokers.

Some brokers even try to charge ridiculous finder’s fee. You have to remember that that VC funds are investors. They take risk by using their capital to fund a project in exchange of equity ownership. They rather use their money to fund a project and see a return than to pay a lot fees. In short they are always looking for the most “bang” for their bucks. So if you are a broker who wants to build a relationship with a VC fund be reasonable.

Some brokers argue that they get paid by the “other side” but what they don’t realize is that the money that the project principal will pay them will come from the VC fund. Remember this is not a loan it is a venture!

Do not hide additional fees under “consultant fees” on the use of fund schedule to get more commission. What they don’t realize is that VC funds will scrutinize every allocation of funds. This stunt is a deal killer.

Many VC funds also do not like to deal with a “daisy chain” of brokers. I am appalled that many brokers do not want to share fees with other brokers that they will charge ridiculous fees to accommodate everyone’s greed or pull a stunt like adding consultant fees as I have mentioned above.

It’s unfortunate that this trend affects the few good brokers out there.

Overall I still beleive that brokers are a good source. VC funds just have to constantly weed out the good from the ugly. I currently work with a few excellent brokers and I am happy with them.

Green Fuels LLC Signs US $220 Million Deal to Fund Bio-Diesel

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Sun, 01 Jun 2008 22:42:58 -0500

NEW YORK - Jerome Gentolia has secured a $220 million deal for Indianapolis, Indiana based Green Fuels LLC. This is the fourth bio-fuel project that members of Green Fuels LLC's management team have been an integral part of, with three key executives having previously served as plant managers for other ethanol and bio-diesel plants.

The deal by Gentolia is in conjunction with a Wall Street based structured project finance company that will serve as investing Collateral Guarantor for Green Fuels and provide a direct contribution of cash-backed banknote instruments as full collateral backing for the complete financing package.

"The Green Fuels management team is sophisticated, experienced, and very successful at choosing, acquiring, permitting, and operating efficient bio-fuel plants. Beyond that, an important factor for us is that their primary feedstock is not used as food for humans or animals, thus not having an adverse impact on growing global food shortage issues, which is a growing concern with some methods of alternative energy production," said Gentolia.

"It is a business that we choose to be in and are proud to be a part of. America needs more cost-effective energy, reduced air pollutant emissions, and a reduction in the reliance on imported oil," said a Green Fuels LLC representative of their current plans to build 4 bio-diesel plants in Indiana and 1 in Illinois over the next few years, adding that "as technology changes - which is now rapidly occurring in this industry - new opportunities and methodologies to produce bio-fuels likely will emerge and we are open to pursuing those future possibilities, as well."

JMK Hospitality, Inc signs US $381 Million Deal to Fund Luxury Hotels in U.S. Mid-Atlantic

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Mon, 26 May 2008 16:02:52 -0500

NEW YORK - Jerome Gentolia has secured a $381 million deal for North Carolina based JMK Hospitality, Inc., which was formed to invest in and manage existing hotel properties, as well as to develop upscale properties, in the Mid-Atlantic region (NC, SC, GA, VA, WV) of the United States.

The deal by Gentolia, in conjunction with a Wall Street based structured project finance company which will serve as investing Collateral Guarantor for JMK and provide a direct contribution of cash-backed banknote instruments as full collateral backing for the complete financing package, will be utilized for acquisition and development of numerous luxury properties, capitalizing on the Mid-Atlantic Region's tremendous recent growth, marked by the increasing strength of it's tourism industry.

This burgeoning region, stretching from Virginia and West Virginia in the North to Georgia in the South, boasts 3 of the Top 10 Most Visited US States, according to the Travel Industry Association website. (http://www.tia.org/pressmedia/fast_fact_states.html)

"The management team behind JMK breeds a great deal of confidence," remarked Gentolia. "Co-Founders James Bazluki, Matthew D. Adams and Kimberly Scott each bring a wealth of general business, legal and hospitality-industry experience, and we have every reason to believe that they will achieve their business objectives. We want to be a part of what they're doing."

Finding Money For Your Project

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Thu, 20 Mar 2008 01:08:05 -0500

Here are 3 of the major sources of project financing:

Debt Financing: You can borrow money and incur debt that you need to repay.
Equity Participation: You can sell shares of your company to investors or equity players in exchange for money needed to fund your project.
Debt and Equity Combination: Elements of both Debt Financing and Equity Participation is present.

It is important to consider how much debt you want to take. You have to take into consideration projected income and see if you have the ability to pay. It is also important to elucidate how much equity you should sell.

The decision is often not made by you but by the investors or lenders based on what you qualify for. It is important to understand that you are competing for their money, not the other way around. Many project owners make a mistake thinking that Project Financing is like "Lending Tree" where investors are competing for your business. It is the other way around. These investors receive hundreds of projects a month and cherry pick the best project. They are not only looking for good project and good management. They are also looking for principals that are already committed and principals that will not give them a headache.

Again, you are competing for thier money. It is important to remember the Golden Rule of finance, "He Who has The Gold Makes The Rules".

CDO Structured Finance Conference in New York

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Tue, 18 Mar 2008 17:56:46 -0500

Last week I attended the CDO Structured Finance conference here in New York. Most of the big players of Structured Finance are in attendance joining the panel to disucss the future of CDO. Conclusion: Bleak...very bleak!

Anyway, I noticed that majority of these Asset Managers that buys CDO and MBS have no exposure to the mortgage industry. There's also plenty of blame that went around (asset managers, investors, secondary market, sub-prime banks, rating agencies, etc).

Some of the panelist are complaining about the lack of information of CDO portfolios especially sub-prime pools. They pointed that it does not have DTI information.

Well they wont find it in a lot of files. The NO DOC and NO RATIO loans does not have any DTI information to begin with. LOL!

It is safe to conclude that no one has a solution to the current problem and that the future is uncertain. Let's just hope that it gets better.

GLOBAL ECONOMICAL CRISIS

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Wed, 05 Mar 2008 22:53:09 -0600

'PRACTICES of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men.' (Franklin D Roosevelt's First Inaugural Address, 1933)

Humanity is undergoing in the post-Cold War era an economic crisis of unprecedented scale leading to the rapid impoverishment of large sectors of the world population. The plunge of national currencies in virtually all major regions of the world has contributed to destabilising national economies while precipitating entire countries into abysmal poverty.

The crisis is not limited to South-East Asia or the former Soviet Union. The collapse in the standard of living is taking place abruptly and simultaneously in a large number of countries. This worldwide crisis of the late 20th century is more devastating than the Great Depression of the 1930s. It has far-reaching geo-political implications; economic dislocation has also been accompanied by the outbreak of regional conflicts, the fracturing of national societies and in some cases the destruction of entire countries. This is by far the most serious economic crisis in modern history.

The existence of a 'global financial crisis' is casually denied by the Western media, its social impacts are downplayed or distorted; international institutions, including the United Nations, deny the mounting tide of world poverty: 'The progress in reducing poverty over the [late] 20th century is remarkable and unprecedented....'¹ The 'consensus' is that the Western economy is 'healthy' and that 'market corrections' on Wall Street are largely attributable to the 'Asian flu' and to Russia's troubled 'transition to a free- market economy'.

Evolution of the global financial crisis

The plunge of Asia's currency markets (initiated in mid- 1997) was followed in October 1997 by the dramatic meltdown of major bourses around the world.

In the uncertain wake of Wall Street's temporary recovery in early 1998 - largely spurred by panic flight out of Japanese stocks - financial markets back-slided a few months later to reach a new dramatic turning point in August with the spectacular nose-dive of the Russian ruble. The Dow Jones plunged by 554 points on 31 August (its second largest decline in the history of the New York Stock Exchange) leading in the course of September to the dramatic meltdown of stock markets around the world. In a matter of a few weeks (from the Dow's 9,337 peak in mid-July), $2,300 billion of 'paper profits' had evaporated from the US stock market.²

The ruble's free-fall had spurred Moscow's largest commercial banks into bankruptcy, leading to the potential takeover of Russia's financial system by a handful of Western banks and brokerage houses. In turn, the crisis has created the danger of massive debt default to Moscow's Western creditors, including the Deutsche and Dresdner banks. Since the outset of Russia's macroeconomic reforms, following the first injection of IMF 'shock therapy' in 1992, some $500 billion worth of Russian assets - including plants of the military industrial complex, infrastructure and natural resources - have been confiscated (through the privatisation programmes and forced bankruptcies) and transferred into the hands of Western capitalists.³In the brutal aftermath of the Cold War, an entire economic and social system is being dismantled.

'Financial warfare'

The worldwide scramble to appropriate wealth through 'financial manipulation' is the driving force behind this crisis. It is also the source of economic turmoil and social devastation. In the words of renowned currency speculator and billionaire George Soros (who made $1.6 billion of speculative gains in the dramatic crash of the British pound in 1992), 'extending the market mechanism to all domains has the potential of destroying society'.⁴

This manipulation of market forces by powerful actors constitutes a form of financial and economic warfare. No need to recolonise lost territory or send in invading armies. In the late 20th century, the outright 'conquest of nations', meaning the control over productive assets, labour, natural resources and institutions, can be carried out in an impersonal fashion from the corporate boardroom: commands are dispatched from a computer terminal, or a cellphone. The relevant data are instantly relayed to major financial markets - often resulting in immediate disruptions in the functioning of national economies. 'Financial warfare' also applies to complex speculative instruments, including the gamut of derivative trade, forward foreign exchange transactions, currency options, hedge funds, index funds, etc. Speculative instruments have been used with the ultimate purpose of capturing financial wealth and acquiring control over productive assets. In the words of Malaysia's Prime Minister Mahathir Mohamad: 'This deliberate devaluation of the currency of a country by currency traders purely for profit is a serious denial of the rights of independent nations.'⁵

The appropriation of global wealth through this manipulation of market forces is routinely supported by the IMF's lethal macro-economic interventions which act almost concurrently in ruthlessly disrupting national economies all over the world. 'Financial warfare' knows no territorial boundaries; it does not limit its actions to besieging former enemies of the Cold War era. In Korea, Indonesia and Thailand, the vaults of the central banks were pillaged by institutional speculators while the monetary authorities sought in vain to prop up their ailing currencies. In 1997, more than $100 billion of Asia's hard currency reserves had been confiscated and transferred (in a matter of months) into private financial hands. In the wake of the currency devaluations, real earnings and employment plummeted virtually overnight, leading to mass poverty in countries which had in the post-war period registered significant economic and social progress.

The financial scam in the foreign exchange market had destabilised national economies, thereby creating the preconditions for the subsequent plunder of the Asian countries' productive assets by so-called 'vulture foreign investors'.⁶In Thailand, 56 domestic banks and financial institutions were closed down on the orders of the IMF, and unemployment virtually doubled overnight.⁷Similarly in Korea, the IMF 'rescue operation' has unleashed a lethal chain of bankruptcies, leading to the outright liquidation of so-called 'troubled merchant banks'. In the wake of the IMF's 'mediation' (put in place in December 1997 after high-level consultations with the World's largest commercial and merchant banks), 'an average of more than 200 companies [were] shut down per day (...) 4,000 workers every day were driven out onto [the] streets as unemployed'.⁸ Resulting from the credit freeze and 'the instantaneous bank shut-down', some 15,000 bankruptcies are expected in 1998, including 90% of Korea's construction companies (with combined debts of $20 billion to domestic financial institutions).⁹South Korea's Parliament has been transformed into a 'rubber stamp'. Enabling legislation is enforced through 'financial blackmail': if the legislation is not speedily enacted according to the IMF's deadlines, the disbursements under the bailout will be suspended, with the danger of renewed currency speculation looming.

In turn, the IMF-sponsored 'exit programme' (i.e., forced bankruptcy) has deliberately contributed to fracturing the chaebols, which are now invited to establish 'strategic alliances with foreign firms' (meaning their eventual control by Western capital). With the devaluation, the cost of Korean labour had also tumbled: 'It's now cheaper to buy one of these [high- tech] companies than [to] buy a factory - and you get all the distribution, brand-name recognition and trained labour force free in the bargain....'¹⁰

The demise of central banking

In many regards, this worldwide crisis marks the demise of central banking, meaning the derogation of national economic sovereignty and the inability of the national State to control money creation on behalf of society. In other words, privately held money reserves in the hands of 'institutional speculators' far exceed the limited capabilities of the world's central banks. The latter acting individually or collectively are no longer able to fight the tide of speculative activity. Monetary policy is in the hands of private creditors who have the ability to freeze State budgets, paralyse the payments process, thwart the regular disbursement of wages to millions of workers (as in the former Soviet Union) and precipitate the collapse of production and social programmes. As the crisis deepens, speculative raids on central banks are extending into China, Latin America and the Middle East with devastating economic and social consequences.

This ongoing pillage of central bank reserves, however, is by no means limited to developing countries. It has also hit several Western countries including Canada and Australia where the monetary authorities have been incapable of stemming the slide of their national currencies. In Canada, billions of dollars were borrowed from private financiers to prop up central bank reserves in the wake of speculative assaults. In Japan - where the yen has tumbled to new lows - 'the Korean scenario' is viewed (according to economist Michael Hudson) as a 'dress rehearsal' for the takeover of Japan's financial sector by a handful of Western investment banks. The big players are Goldman Sachs, Morgan Stanley, Deutsche Morgan Grenfell, among others, who are buying up Japan's bad bank loans at less than 10% of their face value. In recent months, both US Secretary of the Treasury Robert Rubin and Secretary of State Madeleine K Albright have exerted political pressure on Tokyo, insisting 'on nothing less than an immediate disposal of Japan's bad bank loans - preferably to US and other foreign "vulture investors" at distress prices. To achieve their objectives, they are even pressuring Japan to rewrite its constitution, restructure its political system and cabinet and redesign its financial system.... Once foreign investors gain control of Japanese banks, these banks will move to take over Japanese industry...'¹¹

Creditors and speculators

The world's largest banks and brokerage houses are both creditors and institutional speculators. In the present context, they contribute (through their speculative assaults) to destabilising national currencies, thereby boosting the volume of dollar denominated debts. They then reappear as creditors with a view to collecting these debts. Finally, they are called in as 'policy advisers' or consultants in the IMF- World Bank-sponsored 'bankruptcy programmes' of which they are the ultimate beneficiaries. In Indonesia, for instance, amidst street rioting and in the wake of Suharto's resignation, the privatisation of key sectors of the Indonesian economy ordered by the IMF was entrusted to eight of the world's largest merchant banks, including Lehman Brothers, Credit Suisse-First Boston, Goldman Sachs and UBS/SBC Warburg Dillon Read.¹² The world's largest money managers set countries on fire and are then called in as firemen (under the IMF 'rescue plan') to extinguish the blaze. They ultimately decide which enterprises are to be closed down and which are to be auctioned off to foreign investors at bargain prices.

Who funds the IMF bailouts?

Under repeated speculative assaults, Asian central banks had entered into multi-billion-dollar contracts (in the forward foreign exchange market) in a vain attempt to protect their currency. With the total depletion of their hard currency reserves, the monetary authorities were forced to borrow large amounts of money under the IMF bailout agreement. Following a scheme devised during the Mexican crisis of 1994- 95, the bailout money, however, is not intended 'to rescue the country '; in fact the money never entered Korea, Thailand or Indonesia; it was earmarked to reimburse the 'institutional speculators', to ensure that they would be able to collect their multi-billion-dollar loot. In turn, the Asian tigers have been tamed by their financial masters. Transformed into lame ducks, they have been 'locked up' into servicing these massive dollar-denominated debts well into the third millennium.

But 'where did the money come from' to finance these multi- billion-dollar operations? Only a small portion of the money comes from IMF resources: starting with the 1995 Mexican bailout, G7 countries, including the US Treasury, were called upon to make large lump-sum contributions to these IMF- sponsored rescue operations, leading to significant hikes in the levels of public debt.¹³ Yet in an ironic twist, the issuing of US public debt to finance the bailouts is underwritten and guaranteed by the same group of Wall Street merchant banks involved in the speculative assaults.

In other words, those who guarantee the issuing of public debt (to finance the bailout) are those who will ultimately appropriate the loot (e.g., as creditors of Korea or Thailand) - i.e., they are the ultimate recipients of the bailout money (which essentially constitutes a 'safety net' for the institutional speculator). The vast amounts of money granted under the rescue packages are intended to enable the Asian countries to meet their debt obligations with those same financial institutions which contributed to precipitating the breakdown of their national currencies in the first place. As a result of this vicious circle, a handful of commercial banks and brokerage houses have enriched themselves beyond bounds; they have also increased their stranglehold over governments and politicians around the world.

Strong economic medicine

Since the 1994-95 Mexican crisis, the IMF has played a crucial role in shaping the 'financial environment' in which the global banks and money managers wage their speculative raids. The global banks are craving for access to inside information. Successful speculative attacks require the concurrent implementation on their behalf of 'strong economic medicine' under the IMF bailout agreements. The 'big six' Wall Street commercial banks (including Chase, Bank America, Citicorp and J P Morgan) and the 'big five' merchant banks (including Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Barney) were consulted on the clauses to be included in the bailout agreements. In the case of Korea's short-term debt, Wall Street's largest financial institutions were called in on Christmas Eve (24 December 1997) for high-level talks at the Federal Reserve Bank of New York.¹⁴

The global banks have a direct stake in the decline of national currencies.

In April 1997, barely two months before the onslaught of the Asian currency crisis, the Institute of International Finance (IIF), a Washington-based think-tank representing the interests of some 290 global banks and brokerage houses, had 'urged authorities in emerging markets to counter upward exchange rate pressures where needed...'¹⁵This request (communicated in a formal letter to the IMF) hints in no uncertain terms that the IMF should advocate an environment in which national currencies are allowed to slide.¹⁶

Indonesia was ordered by the IMF to unpeg its currency barely three months before the rupiah's dramatic plunge. In the words of American billionaire and presidential candidate Steve Forbes: 'Did the IMF help precipitate the crisis? This agency advocates openness and transparency for national economies, yet it rivals the CIA in cloaking its own operations. Did it, for instance, have secret conversations with Thailand, advocating the devaluation that instantly set off the catastrophic chain of events? Did IMF prescriptions exacerbate the illness? These countries' moneys were knocked down to absurdly low levels.'¹⁷

Deregulating capital movements

The international rules regulating the movements of money and capital (across international borders) contribute to shaping the 'financial battlefields' on which banks and speculators wage their deadly assaults. In their worldwide quest to appropriate economic and financial wealth, global banks and multinational corporations have actively pressured for the outright deregulation of international capital flows, including the movement of 'hot' and 'dirty' money.¹⁸ Caving in to these demands (after hasty consultations with G7 finance ministers), a formal verdict to deregulate capital movements was taken by the IMF Interim Committee in Washington in April 1998. The official communique stated that the IMF will proceed with the amendment of its Articles with a view to 'making the liberalisation of capital movements one of the purposes of the Fund and extending, as needed, the Fund's jurisdiction for this purpose'.¹⁹ The IMF managing director, Mr Michel Camdessus, nonetheless conceded in a dispassionate tone that 'a number of developing countries may come under speculative attacks after opening their capital account' while reiterating (ad nauseam) that this can be avoided by the adoption of 'sound macroeconomic policies and strong financial systems in member countries' (ie. the IMF's standard 'economic cure for disaster').²⁰

The IMF's resolve to deregulate capital movements was taken behind closed doors (conveniently removed from the public eye and with very little press coverage) barely two weeks before citizens' groups from around the world gathered in late April 1998 in mass demonstrations in Paris opposing the controversial Multilateral Agreement on Investment (MAI) under Organisation for Economic Cooperation and Development (OECD) auspices. This agreement would have granted entrenched rights to banks and multinational corporations overriding national laws on foreign investment as well as derogating the fundamental rights of citizens. The MAI constitutes an act of capitulation by democratic government to banks and multinational corporations.

The timing was right on course: while the approval of the MAI had been temporarily stalled, the proposed deregulation of foreign investment through a more expedient avenue had been officially launched: the amendment of the Articles would for all practical purposes derogate the powers of national governments to regulate foreign investment. It would also nullify the efforts of the worldwide citizens' campaign against the MAI: the deregulation of foreign investment would be achieved ('with a stroke of a pen') without the need for a cumbersome multilateral agreement under OECD or World Trade Organisation (WTO) auspices and without the legal hassle of a global investment treaty entrenched in international law.

Creating a global financial watchdog

As the aggressive scramble for global wealth unfolds and the financial crisis reaches dangerous heights, international banks and speculators are anxious to play a more direct role in shaping financial structures to their advantage as well as 'policing' country-level economic reforms. Free-market conservatives in the United States (associated with the Republican Party) have blamed the IMF for its reckless behaviour. Disregarding the IMF's intergovernmental status, they are demanding greater US control over the IMF. They have also hinted that the IMF should henceforth perform a more placid role (similar to that of the bond-rating agencies such as Moody's or Standard and Poor's) while consigning the financing of the multi-billion-dollar bailouts to the private banking sector.²¹

Discussed behind closed doors in April 1998, a more perceptive initiative (couched in softer language) was put forth by the world's largest banks and investment houses through their Washington mouthpiece (the Institute of International Finance). The banks' proposal consists in the creation of a 'Financial Watchdog' - a so-called 'Private Sector Advisory Council'- with a view to routinely supervising the activities of the IMF. 'The Institute [of International Finance], with its nearly universal membership of leading private financial firms, stands ready to work with the official community to advance this process.'²² Responding to the global banks' initiative, the IMF has called for concrete 'steps to strengthen private sector involvement' in crisis management - what might be interpreted as a 'power-sharing arrangement' between the IMF and the global banks.²³

The international banking community has also set up its own high-level 'Steering Committee on Emerging Markets Finance' integrated by some of the World's most powerful financiers, including William Rhodes, Vice Chairman of Citibank, and Sir David Walker, Chairman of Morgan Stanley. The hidden agenda behind these various initiatives is to gradually transform the IMF from its present status as an intergovernmental body into a full-fledged bureaucracy which more effectively serves the interests of the global banks. More importantly, the banks and speculators want access to the details of IMF negotiations with member governments, which will enable them to carefully position their assaults in financial markets both prior to and in the wake of an IMF bailout agreement.

The global banks (pointing to the need for 'transparency') have called upon 'the IMF to provide valuable insights [on its dealings with national governments] without revealing confidential information...' But what they really want is privileged inside information.²⁴

The ongoing financial crisis is not only conducive to the demise of national State institutions all over the world, it also consists in the step-by-step dismantling (and possible privatisation) of the post-war institutions established by the founding fathers at the Bretton Woods Conference in 1944. In striking contrast with the IMF's present-day destructive role, these institutions were intended by their architects to safeguard the stability of national economies. In the words of Henry Morgenthau, US Secretary of the Treasury, in his closing statement to the Conference (22 July 1944): 'We came here to work out methods which would do away with economic evils - the competitive currency devaluation and destructive impediments to trade - which preceded the present war. We have succeeded in this effort.'²⁵

Have we?

Developing World Affected By Financial Entanglement

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Wed, 05 Mar 2008 00:15:40 -0600

JUST as the world was recalling the 1997 Asian financial crisis on its 10th anniversary, evidence was accumulating that the global financial system was once again vulnerable. The extent of vulnerability was driven home by the simultaneous collapse of stock indices in the world's leading financial markets on 27 July, including those in so-called ‘emerging markets' in developing countries. What is disconcerting is that this synchronised collapse of markets was not the result of developments in each of the countries where these markets were located. Rather, the source of the problem was a crisis brewing in the housing finance market in the US, the ripple effects of which encouraged investors to pull out of markets globally.

Underlying these ripple effects is the financial entanglement which results from the layered financial structure, the ‘innovative' financial products and the inadequate financial regulation associated with the increasingly liberalised and globalised financial system in most countries. Few deny that the sub-prime housing loan market in the US - consisting of loans to borrowers with a poor credit record - is faced with a crisis, reflected in payment defaults and foreclosures. The problem lies in the way in which the preceding boom was triggered and kept going. Housing demand grew rapidly because of easy access to credit, with even borrowers with low creditworthiness scores, who would otherwise be considered incapable of servicing debt, being drawn into the credit net. These sub-prime borrowers were offered credit at higher rates of interest, which were sweetened by special treatment and unusual financing arrangements - little documentation or mere self-certification of income, no or little downpayment, extended repayment periods and structured payment schedules involving low interest rates in the initial phases which were ‘adjustable' and move sharply upwards when they are ‘reset' to reflect premia on market interest rates. All of these encouraged or even tempted high-risk borrowers to take on loans they could ill afford, either because they had not fully understood the repayment burden they were taking on or because they chose to conceal their actual incomes and take a bet on building wealth with debt in a market that was booming.

What needs to be understood, however, is that the problem is largely a supply-side creation driven by factors such as easy liquidity and lower interest rates. Utilising these circumstances, mortgage brokers attracted clients by relaxing income documentation requirements or offering grace periods with lower interest rates, on the completion of which higher rates kick in. As a result, the share of such sub-prime loans in all mortgages rose sharply. Estimates vary, but according to one by Inside Mortgage Finance quoted by the New York Times, sub-prime loans touched US$600 billion in 2006, or 20% of the total as compared with just 5% in 2001.

The increase in this type of credit occurred because of the complex nature of current-day finance that allows an array of agents to earn lucrative returns even while transferring the risk associated with the investments that offer those returns. Mortgage brokers seek out and find willing borrowers for a fee, taking on excess risk in search of volumes. Mortgage lenders finance these mortgages not with the intention of garnering the interest and amortisation flows associated with such lending, but because they can sell these mortgages to Wall Street banks.

The Wall Street banks buy these mortgages because they can bundle assets with varying returns to create securities or collateralised debt obligations, involving tranches with differing probabilities of default and differential protection against losses. They charge hefty fees for structuring these products and valuing them with complex mathematical models, before selling them to a range of investors such as banks, mutual funds, pension funds and insurance companies. These entities in turn can then create a portfolio involving varying degrees of risk and different streams of future cash flows linked to the original mortgage. To boot, there are firms like the unregulated hedge funds which make speculative investments in derivatives of various kinds in search of high returns for their high-net-worth investors. Needless to say, institutions at every level are not fully rid of risks but those risks are shared and rest in large measure with the final investors in the chain.

Turning Illiquid

This structure is relatively stable so long as defaults are a small proportion of the total. But as the share of sub-prime mortgages in the total rises and the proportion of defaults increases, the bottom of the barrel gives and all assets turn illiquid. Rising foreclosures affect property prices and salability adversely as foreclosed assets are put up for sale at a time when credit is squeezed because lenders turn wary. And securities built on these mortgages turn illiquid because there are few buyers for assets whose values are opaque since there is no ready market for them. The net result is a situation of a kind where a leading Wall Street bank like Bear Stearns has to declare that investments in two funds it created linked to mortgage-backed securities were worthless. The investors themselves have to sell off other assets to rebalance their portfolios, sending ripples into markets such as those in developing countries that have little to do with the US sub-prime market.

The problem is not restricted to the Wall Street banks. For example, in early August, the French bank BNP Paribas suspended withdrawals from three of its funds exposed to the mortgage-backed securities market. The bank reportedly attributed its decision to ‘the complete evaporation of liquidity in certain market segments', which constrained it from meeting withdrawal demands that could have turned into a run on the fund. Other cases included that of Dusseldorf-based IKB bank, which through offshore front company Rhineland Funding had invested as much as $17.5 billion in asset-backed securities. As the value of its assets fell, Rhineland had to call on a _12 billion line of credit that it had negotiated with a group of banks, including Deutsche Bank, besides IKB itself. Deutsche Bank decided to opt out of its promise to lend, resulting in the discovery that the fund had suffered huge losses and needed a bailout led by state-owned KfW. A similar plight reportedly afflicts a number of German Landesbanks as well. In sum, the effects of the sub-prime crisis are weakening distant segments of the global financial system, as a result of financial entanglement.

Entanglement also makes nonsense of the theory that a complex financial system with multiple institutions, securitization, proliferating instruments and global reach is safer because of the fact that it spreads risk. This was illustrated by the example of IKB referred to above. Banks wanting to reduce the risk they carry, resort to securitization to transfer this risk. But institutions created by the banks themselves, linked to them in today's more universalized banking system or leveraged with bank finance, often buy these instruments created to transfer risk. In the event, as The Economist (11 August 2007) recently put it, ‘banks (that) have shown risk out of the front door by selling loans, only... let it return through the back door.' This, it notes, is what exactly transpires in the relationship between the three major prime broking firms - Goldman Sachs, Morgan Stanley and Bear Stearns - that offer prime broking services, including loans, to highly leveraged institutions like hedge funds. The bailout of Long Term Capital Management in 1998 was necessitated because of entanglement of this kind involving all the leading merchant banks.

Investments by banks, pension funds and mutual funds are driven by the search for high and quick returns in a world of excess liquidity. In deciding to make investments on structured products intermediated at different levels, these institutions, ill-equipped to judge the true value and risk of these assets, rely on rating agencies. But these ratings have turned out to be unreliable and pro-cyclical, serving as erroneous and belatedly corrected signals. Noting that ‘in a matter of weeks thousands of portions of sub-prime debt issued as recently as 2005 and 2006 have had their ratings slashed', The Economist (11 August 2007) argued that investors should not have trusted the original ratings because ‘the rating agencies were earning huge fees for providing favorable judgments'. What is more, even when there is no deception involved, rating agencies themselves are not equipped to assess these products and rely on information and models provided by the creators of the products themselves. Once an asset is rated there is much reluctance to downgrade it, because it would raise doubts about related ratings as well as trigger a sell-off that affects prices of related securities that may warrant further downgrades.

Emerging Market Exposure

The problem is that if these factors result in the accumulation of doubtful assets by investors such as banks, pension funds and mutual funds, any downturn spreads the effects into markets where these institutions have made unrelated investments. In fact, institutions overexposed to complex structured products whose valuation is difficult are saddled with relatively illiquid assets. If any development leads to liquidity problems they are forced to sell off their most liquid assets such as shares bought in booming emerging markets. The effect that this can have on those markets would be all the greater the larger is the exposure of these institutions in these markets.

Unfortunately this is precisely what has been happening in most emerging markets including those in Asia. There has been an acceleration of financial flows to developing countries during recent years when as a group they have been characterized by rising surpluses on their current account. Net private debt and equity flows to developing countries rose from a little less than $170 billion in 2002 to close to $647 billion in 2006, an almost four-fold increase over a four-year period. While net private equity flows, which rose from $163 billion to $419 billion, dominated the surge, net private debt flows too increased rapidly. Bond issues rose from $10.4 billion to $49.3 billion and borrowing from international banks from $2.3 billion to a huge $112.2 billion. And, net short-term debt, outflows of which tend to trigger financial crises, rose from around $0.5 billion in 2002 to $72 billion in 2006.

What is more, there is a high degree of concentration of these flows to developing countries, implying excess exposure in a few countries. Ten countries (out of 135) accounted for 60% of all borrowing during 2002-04, and that proportion has risen subsequently to touch three-fourths in 2006. In the portfolio equity market, flows to developing countries were directed at acquiring a share in equity either through the secondary market or by buying into initial public offers (IPOs). IPOs dominated in 2006, accounting for $53 billion of the $96 billion inflow. But here too there were signs of concentration. Four of the 10 largest IPOs were by Chinese companies, accounting for two-thirds of total IPO value. Another three of those 10 were by Russian companies, accounting for an additional 22% of IPO value.

Despite this rapid rise in emerging-market exposure, with that exposure being excessively concentrated in a few countries, the market is still overtly optimistic. Ratings upgrades dominate downgrades in the bond market. And bond market spreads are at unusual lows. This optimism indicates that risk assessments are pro-cyclical, underestimating risk when investments are booming, and overestimating risk when markets turn downwards. But two consequences are the herding of investors in developing-country markets and their willingness to invest a larger volume of money in risky, unrated instruments. When liquidity problems arise, even for reasons unrelated to these markets themselves or the countries in which they are located, these investments are quickly unwound precisely because those markets are still liquid, and a collapse of the kind seen in end-July ensues. It hardly bears stating that a collapse that is in the form of a mere ‘correction' can soon turn into a full-fledged crisis.

There is another reason why such a danger exists. Surges in capital flows to developing countries tend to increase the incentives to invest in these markets. Consider the case of India. Foreign direct investment into India rose sharply between 2005 and 2006 from $6.7 billion to $16.9 billion or by more than $10 billion. Much of this is in the form of new equity inflows, often from private equity firms, that acquire for speculative purposes stock in even unlisted companies that is in excess of 10% of their total share capital. As a result these speculative flows get recorded as foreign direct investment. Moreover, flows defined as portfolio flows (less than 10% of equity) declined only marginally from $12.2 to $10.6 billion.

Another change in recent times seems to be a huge increase in commercial borrowing by private-sector firms. With caps on external commercial borrowing relaxed and interest rates ruling higher in the domestic market, Indian firms seem to be taking the syndicated-loan route to borrow money abroad at relatively lower interest rates to finance their operations, investments and acquisitions. Net medium-term and long-term borrowing increased from $1 billion in 2005 to $13 billion in 2006, or by a huge $12 billion.

A consequence of these flows is excess availability of foreign exchange, since India's current-account deficit is relatively small because of remittances from overseas workers and exports of software and IT-enabled services. In the event, among the many indicators of India's post-reform economic success is one that is proving an embarrassment: swelling foreign-exchange reserves. Over the year ending 4 May 2007, these reserves rose by close to $42 billion to touch $204 billion. Two-thirds of this 26% increase in reserves occurred over the first four months of this year.

This galloping rise in reserve levels reflects the effort being made by the Reserve Bank of India (RBI) - India's central bank - to mop up the large inflow of foreign exchange into the country. By filling the gap between the demand for foreign exchange and its availability within the country, the central bank has in the past ensured a degree of stability of the rupee.

However, more recently the rupee has been gaining in strength, despite the RBI's efforts as reflected in the sharp increase in reserves. This occurs not because the RBI has not made an effort to prevent such appreciation. The RBI has indeed been intervening vigorously in foreign-exchange markets, resulting in a sharp increase in the reserve of foreign-exchange assets it holds. The problem seems to be that the inflow of foreign exchange into India has been so massive that it has not been matched by even this enhanced intervention by the central bank, resulting in an excess supply of foreign currencies and a consequent appreciation of the rupee.

Rupee appreciation incentives foreign investment, inasmuch as investors not merely benefit from the high rupee returns available in India's hitherto booming stock market, but gain in dollar terms because of rupee appreciation, if such appreciation persists till they sell their assets and convert their rupee receipts into foreign exchange for repatriation. This encourages carry trades by speculative investors who borrow in markets characterized by depreciating currencies and invest in markets with appreciating currencies in search of high returns. Conventionally, it was argued that anomalies of this kind would be self-correcting. A country with an appreciating currency would experience a widening of its current-account deficit, increasing the risk of investing in that currency. But in a world where excess liquidity and the proliferation of speculative investors has reduced risk aversion, these corrections do not come soon enough and can be dramatic when they do. There are many examples of this, including, in particular, crisis-prone Turkey.

High Risk

There are a number of implications of these tendencies that have at their core the phenomenon of financial entanglement. To start with, the risk associated with the current surge in capital flows to developing countries can be and is much greater than was true during previous episodes involving a similar surge. Moreover, the surge is accompanied by the growing acquisition of assets in developing countries outside the stock market with objectives that are largely speculative, so that a sell-off, if it occurs, would be far more widespread. And the persistence of the herd instinct has meant that the surge in fixed and portfolio investment flows has resulted in a revival of credit flows that is unbridled since it is accompanied by risk-mitigation techniques that transfer risk to those who are least equipped to assess them. Unfortunately, all of this occurs in an environment in which the target of both investment and debt flows is the private sector, which makes it difficult for governments that have liberalized financial regulation to control such flows.

One consequence of this large and concentrated flow of capital is that when assets have to be retrenched by financial firms because of developments in any component of their portfolio, a few emerging markets can become the sites of that sell-off. This partly explains why stock exchanges in emerging markets have turned bearish and volatile in recent weeks, primarily because of the ripple effects of the sub-prime mortgage crisis in the US. Investors incurring losses in those markets are reordering their global portfolios to meet immediate commitments, resulting in a sell-off that has global repercussions. This is not because all, or even most, of these investors are directly involved in mortgage financing. Rather, it is because of their investments in assets - derivatives or collateralized debt obligations - linked to sub-prime mortgages.

There are many lessons that are once again being driven home by these developments that are of particular significance for developing countries that are rapidly liberalizing their financial systems. First, excess liquidity in a loosely controlled financial system provides the basis for speculative and unsound financial practices, such as excessive sub-prime lending that increases fragility.

Second, such practices are encouraged by the ‘financial innovation' that liberalization triggers, which increases the number of layers of intermediation and allows firms to transfer risk. As a result, those who create risky ‘products' in the first instance are less worried about the risk involved than they should be.

Third, as the product moves up the financial chain, investors are less sure about the risk and value of these products than they should be, rendering even low-risk, first-stage tranches prone to value loss. Fourth, this inadequate knowledge appears to be true even of the rating agencies on whose ratings investors rely, resulting in erroneous ratings and belated rating downgrades. This implies that as and when a rating downgrade does occur, the asset turns worthless, since there is nobody willing to buy into the asset.

Fifth, new forms of self-regulation appear to be poor substitutes for more rigorous control, since the current crisis originates in a country whose financial sector is considered the most sophisticated, well regulated and transparent and serves as a model for others reforming their financial sectors. And finally, financial globalisation and entanglement imply that countries that have more open and integrated financial systems are prone to contagion effects, even if the virus originates in remote locations and markets. These are lessons that must inform policy in these so-called emerging markets.

Financial Crisis and Deregulation

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Fri, 29 Feb 2008 01:28:54 -0600

It would be nice to write off the current crisis on Wall Street and global financial markets as something that only matters to the investor class.

Unfortunately, the effects are already being felt in the lower-income communities around the United States. Worst-case scenarios for what spins out from the US mortgage meltdown are truly frightening - a severe world recession is a distinct possibility.

Whether such worst-case scenarios can be averted, or softened - and preventing the recurrence of similar crises in the future - depends on abandoning the laissez-faire financial regulatory regime entrenched over the last decade.

The current crisis is predictable (and predicted) result of a massive U.S. Housing bubble, which itself can be traced in part to global economic imbalances that could have been prevented.

At least five distinct regulatory failures led to the current crisis.

•1. Failure to Manage the U.S. Trade Deficit - The housing bubble (as well as the surge in leveraged buyouts of publicly traded companies ("private equity") was fueled by cheap credit - low interest rates. One reason for the cheap credit was influx of capital into the United States from China. China's capital surplus was the mirror image of the U.S. trade deficit - U.S. corporations were sending lots of dollars to China in exchange for the cheap stuff sold to U.S. consumers.

•2. Failure to Intervene to Pop the Housing Bubble - Along with an influx of capital, Federal Reserve policy kept interest rates very low. There were good reasons for the Fed Policy, but that did not mean the Fed was helpless to prevent housing bubble. As economists Dean Baker and Mark Weisbrot of the Center for Economic and Policy Research insisted at the time, Federal Reserve Chair Alan Greenspan simply by identifying the bubble - and adjusting public perception of the future of the housing market - could have prevented or at least contained the bubble. He declined, and even denied the existence of a bubble.

•3. Financial Deregulation and Unchecked Financial "Innovation." - A key reason that mortgages were made available so widely and with such little review of recipients' qualifications was a shift in which institutions hold the mortgages. Traditionally, banks and non-bank mortgage lenders made loans, but then sold to others. Investment banks packaged lots of mortgage loans into "Collateralized Debt Obligations" (CDOs) and then sold them on Wall Street, with a promise of a steady stream of revenue from interest payments. These operations were pretty much unregulated. Despite the supposed sophistication of the investors involved, no one took account of how shoddy the loans were or - more fundamentally - the certainty that huge numbers would go bad if and when the housing bubble popped.

•4. Private Regulatory Failure - It was the job of ratings agencies (like Standard and poor's, and Moody's) to assess the CDOs and give investors guidance on how risky they were. They failed totally, likely in part because they wanted to maintain good relations with the investment banks issuing the CDOs.

•5. No Controls Over Predatory Lenders - The toxic stew of financial deregulation and housing bubble created circumstances in which aggressive lenders were nearly certain to abuse vulnerable borrowers. The terms of your loan don't matter, they effectively purred to borrowers, so long as the value of your house is going up. They duped borrowers into condition they could not possibly satisfy, making the current rash of foreclosures on subprime loans inevitable. Effective regulation of lending practices could have prevented the abusive loans, but none was to be found.

Unfortunately the consequences of the mortgage meltdown go far beyond the foreclosure epidemic, as horrible a toll as this is taking. The entanglement of the financial sector with mortgage instruments, and the ripple effects of the housing bubble, have made lenders uncertain of who even among large corporations and financial institutions is credit worthy. The resulting credit crunch endangers the functioning of the global economy. Less acute, but probably more profound, the popping of the housing bubble is driving down home prices. U.S. consumer demand over the last five years has been driven by consumers borrowing against the increased value of their homes; with housing values falling, that process is working in reverse. The depressed housing market is also ravaging the construction sector, a nontrivial portion of the U.S. economy. A serious recession looms as real possibility.

Mitigating these harms and preventing the worst now depends on active and interventionist government - a government stimulus plan, aggressive efforts to force lenders to adjust mortgage terms and let people stay in their homes, new standards of transparency and regulation for high finance. The coming months will tell whether any lessons have been learned.

Robert Weissman

ARE YOU KIDDING ME! ...PART 2

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Sat, 25 Aug 2007 16:41:23 -0500

I just saw this post (see below) on one of the mortgage forum boards. Are you kidding me? Haven't this guy learned anything about the sub-prime demise? Does he know that giving loans with scenario like this is the reason why we have close to 2 million foreclosures this year alone.

Why would this guy even consider pulling this one off? Second liens on a negative amortization loan? Are you kidding me! To top it off this is a Stated Income and Stated Asset.

I know they exist before, but don't even try asking if it is still available! Gee Whiz! They should'nt have been created in the first place.

This is the post on the board:

ANY LENDERS STILL DOING SECONDS BEHIND NEG AMS?

Was hoping to find a lender doing 2nds behind a neg am. Not sure if the product exists anymore. If so... please leave contact info and I'll get a hold of you. Thanks much...
Stats:
CA
SISA
88%
432000 LA
488000 Appraisal
686 FICO
Owner Occ
SFR

ARE YOU KIDDING ME!...PART 1

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Sat, 25 Aug 2007 16:28:36 -0500

I just saw a post on one popular scenario forum asking if there is a bank that pays 5 points broker compensation. I said to myself "You've gotta be kidding me!". Now who is the hell would like to work with an LO who charges 5 points to a client? Asking the question in the first place is criminal enough!

I understand that brokers don't work for free and we should be compensated for our hard work. But 5 points? This guy is a crook! How about Section 32 my friend?

AFFORDABLE HOUSING VS HIGH-END HOMES

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Mon, 13 Aug 2007 22:40:12 -0500

Recently commercial private investors have more appetite on affordable housing developments than high-end home developments. Exit strategies have to be continually revisited and revised in accordance to the market because of the sluggish sales and increasing inventory due to foreclosures.

The sub-prime demise and increasing foreclosures rendered stringent guidelines making it more arduous to qualify for a loan. Guidelines now require more down payment, higher FICO scores, and traditional documentation. There is now more focus on risk management and repayment which is scanty a year ago.

During the Real Estate boom the emphasis was leaning towards buying "bigger" and "more expensive" by using hybrid programs and low documentation programs as a tool.

Although the new changes might be a nuisance it is necessary to heal the market.

RENEGADE LENDING

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Sat, 04 Aug 2007 22:45:24 -0500

Brokers are intermediary between borrowers and lenders.

Brokers should explain and educate borrowers what the lender requirement and guidelines so they can meet them, NOT the other way around. However, somewhere between the "refi-boom" and before the sub-prime demise the industry took a 180 degree turn. Borrowers took control and start demanding 100% financing, 6% seller concessions, negative amortization loans, high LTV even on sub-prime borrowers, heck there are even 125% financing available. FICO requirement dropped to 500 from 620. Guidelines have changed to meet the borrower's appetite during the growing real estate boom with little emphasis on repayment and risk management.

Hundreds of new programs spawned with hardcore "outside the box" (or should I say "way way outside the box") guidelines. The industry became tactless and softened their guidelines to close more loans and meet the robust real estate growth. Like a lamb in a lion's den brokers and borrowers feasted on these new programs.

Everything came to a grinding halt early this year with the sub-prime demise. Lenders once again went back to the basic of repayment and risk management. The floodgate that was opened 5 years ago is now bottlenecked by strict guidelines. The practice of renegade lending is over.

COMMERCIAL REAL ESTATE INVESTING 101

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Tue, 24 Jul 2007 22:52:35 -0500

Finding an office building with high occupancy rate is not the only factor to consider it a good investment.

Know the market and research the market.
Where is the market going on the area where property is located?
What is the vacancy rate on the surrounding areas?
Are the current tenants financially sound or are they on the verge of bankruptcy?
How long are their lease agreements?
Are there other office buildings being built or about to be built on the already high vacancy area?

COMMERCIAL REAL ESTATE INVESTING 101

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Tue, 24 Jul 2007 22:44:04 -0500

Finding an office building with high occupancy rate is not the only factor to consider it a good investment.

Know the market and research the market.
Where is the market going on the area where property is located?
What is the vacancy rate on the surrounding areas?
Are the current tenants financially sound or are they on the verge of bankruptcy?
How long are their lease agreements?
Are there other office buildings being built or about to be built on the already high vacancy area?

GAS STATION FINANCING

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Mon, 11 Jun 2007 14:50:54 -0500

Many are asking what requirements and paperwork are needed to finance a Gas Station. Commercial Lending is all about cash-flow! The better the cash-flow is the better your chances of getting financed.

There are 2 options. You can go Full Documentation; meaning you are going to disclose Income Tax Returns and we'll use the data from your ITR and the operating expense to calculate the DCR (Debt to Coverage Ratio). However, most business owners are using "creative taxation". And "creative taxation" requires a "creative financing", the solution; NO Documentation Loan. The problem with a NO DOC loan is it lowers the amount of financing. you can ONLY get to 60-65% LTV. It also requires a higher credit score. You can finance up to 85%-90% on a FULL DOC loan and credit score is not much of a factor depending on the cash flow.

Lenders usually require 3 years ITR and a YTD P & L for a FULL DOC loan.

Find out how old is the gas tank, capacity of the tank and the contents of the tank. Ask for Phase 1 Environmental Report. A new phase 1 environmental report is usually not required for newer gas tanks (less than 10 years).

Ask if there is a convenience store, automotive repair and other amenities. Oh by the way did I tell you that most gas stations make the bulk of their income from the convenience store and not from the gas sales.

Ask how many gallons are pumped every month, what is the profit margin per gallon? Ask if it is a flagged gas station or not.

Some lenders are going to use appraisal value based on "improved land only" others will base on the value of the Real Estate and business. Borrowers should at least have some Management experience in the industry.

Are You Investing On Your Clients?...Part 2

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Mon, 11 Jun 2007 13:25:38 -0500

Do you invest on your clients? One good way of investing is by sponsoring a "house warming party" for purchase mortgages. What is a $300-$400 catering if you made $4,000-$5000 on the closing?

At the "house warming party" I usually propose a toast before the meal congratulating the new homeowners and by reminding everyone (by introducing myself) that I am the Mortgage Professional responsible for bringing them into their new home. This is also a good way to build relationship with their Real Estate Agent by inviting them in such events to get more exposure. After the party you now have a more personal relationship with both the borrower and their Real Estate Agent.

Sometimes I even help my clients "register" their house warming parties, and I have become quite an expert on it. After the party you can assure that you are now their mortgage consultant for life.

Just to tell you how successful these parties have been, I have become a Godfather to a few of my clients' children because of the good relationship that got forged from the parties. Talk about building friendship!

Are You Investing On Your Clients?

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Mon, 11 Jun 2007 08:18:03 -0500

I just got a call from an old client. His sister is buying a house and he made sure that she calls me to take care of her loan. This is the 5^th referral I got from this client. I do not do residential loans anymore so I promised him that I will refer his sister to a very reputable LO and I myself will oversee everything. It's been a while since I traded residential to commercial lending but I will not abandon my old clients who still call me regularly to help them with their residential mortgage.

Why did I get this phone call? Because I invested time and money with this client. I did his purchase mortgage years ago and I remember him complaining about the how old the washer and dryer in the house. So I decided to invest after closing the deal. I bought him a new washer and dryer! I figured what is a few hundred dollars investment compared to the thousands I made on this deal.

He told me that he remember me every time he does his laundry. Because of this one act I've become a trusted friend and mortgage advisor.

Looking for more ideas on how to invest in clients? Subscribe to my blog! This is just Part 1 of 10. I have more articles to come!

Joint Venture Capitalists & Hedgefund Group for Development Financing

JEROME GENTOLIA (UNILION DEVELOPMENT GROUP) — Wed, 06 Jun 2007 00:48:20 -0500

Awesome new financing program platforms available for Developers and Builders:

100% DEVELOPMENT FINANCING (GOLD PLUS PROGRAM)

CAN FUND 100% OF THE LOAN UP FRONT AND PLACED IN AN ESCROW ACCOUNT IN AS LITTLE AS 30 DAYS.
THE LTV IS NO MORE THAN 70% OF THE COMPLETED APPRAISAL VALUE
THE ONLY CLOSING COST IS 10% CASH OF THE TOTAL LOAN AMOUNT TO BE PAID AT FUNDING (10% cash down will be used to secure the loan with insurance policies from AAA rated insurance carriers).
THE LOAN IS A NON-RECOURSE LOAN
WE DO ALL PROPERTY TYPES WORLD WIDE
RATES ARE FROM 1%-3.75% OVER THE TRUE PRIME

100% JOINT VENTURE PROJECT FINANCING PLATFORM
(PLATINUM PLUS PROGRAM)

NO INTEREST, NO DEBT ACCRUED, NO PAYMENTS, AND NO PAY BACK.
THIS IS 100% FUNDING WITH JOINT VENTURE TAKING 30-50% OF THE EQUITY.
AFTER APPROVAL THERE IS A $80,000 FEE (this is to cover Due Diligence, Audit Company and etc.).
THERE IS NO UPFRONT COST PRIOR TO APPROVAL
IF FOR SOME UNFORSEEN REASON THE APPORVAL IS REVOKED THE FEE IS REFUNDABLE.
FUNDING WILL TAKE PLACE IS 60 DAYS
DRAW SCHEDULE OF FUNDS TAKING PLACE EVERY 60 DAYS (if construction needs a shorter time frame, draw amounts can be increased or structured for a project).
NOTE: This is project based not buyer/borrower based; there is no need to show large amounts of assets or liquidities. It is straight forward and simple (if the project makes sense it will work).