HuffPo's Investigative Fund has come up with a sharp story on the ever-expanding tax lien investment market, which you'll be surprised to know is just another way for Wall Street to gouge American taxpayers. Here are the relevant
October 19, 2010


HuffPo's Investigative Fund has come up with a sharp story on the ever-expanding tax lien investment market, which you'll be surprised to know is just another way for Wall Street to gouge American taxpayers. Here are the relevant parts:

Nearly a dozen major banks and hedge funds, anticipating quick profits from homeowners who fall behind on property taxes, are quietly plowing hundreds of millions of dollars into businesses that collect the debts, tack on escalating fees and threaten to foreclose on the homes of those who fail to pay.

The Wall Street investors, which include Bank of America and JPMorgan Chase & Co., have purchased from local governments the right to collect delinquent taxes on several hundred thousand properties, many in distressed housing markets, the Huffington Post Investigative Fund has found. [...]

Some states allow the investors to tack on as much as 18 percent interest and a passel of legal fees and other charges. When property owners fail to make full payment, the investors can sue to foreclose - in some states within as little as six months. [...]

Years ago, the big banks left the buying of tax liens largely to local real estate specialists and small-time investors. These days, banks and hedge funds, stung by the failure of many speculative investments, see tax liens as a relatively safe option that can yield returns of around 7 percent.

Some banks also are packaging tax liens as securities - in a similar way to how unpaid home loans are securitized - and selling them to investors.

So broke local governments, instead of taking the time to collect taxes properly, are essentially forking over people behind on their taxes to Wall Street, where they'll have the lovely choice of paying off their taxes at usurious interest rates or losing their house to the banks that bought their tax liens. This is a great investment for banks since, even in this horrible real estate market, they can make a significant profit from selling someone's home for the relatively low price of paying off one year's worth of property taxes to the government. Either way, it's KA-CHING, KA-CHING, KA-CHING!

For those interested in learning more about how to become a financial vulture, I found this swell how-to video posted by the National Association of Tax Lien Investors. Note the sociopathic disregard for human suffering throughout it:

My favorite line comes at the 5:15 mark: "You can... purchase some great investments and take over property for a fraction of the value!"

If you're a student of history, you know that these sorts of practices aren't, in fact, new. During the time of the Roman Empire (and before and after), this sort of thing was known as tax farming:

Tax farmers (Publicani) were used to collect these taxes from the provincials. Rome, in eliminating its own burden for this process, would put the collection of taxes up for auction every few years. The Publicani would bid for the right to collect in particular regions, and pay the state in advance of this collection. These payments were, in effect, loans to the state and Rome was required to pay interest back to the Publicani. As an offset, the Publicani had the individual responsibility of converting properties and goods collected into coinage, alleviating this hardship from the treasury. In the end, the collectors would keep anything in excess of what they bid plus the interest due from the treasury; with the risk being that they might not collect as much as they originally bid.

Tax farming proved to be an incredibly profitable enterprise and served to increase the treasury, as well as line the pockets of the Publicani. However, the process was ripe with corruption and scheming. For example, with the profits collected, tax farmers could collude with local magistrates or farmers to buy large quantities of grain at low rates and hold it in reserve until times of shortage. These Publicani were also money lenders, or the bankers of the ancient world, and would lend cash to hard-pressed provincials at the exorbitant rates of 4% per month or more.

In the late 1st century BC, and after considerably more Roman expansion, Augustus essentially put an end to tax farming.

So there you have it. In the 21st Century United States, our government is allowing tax-collection practices that even the Roman Bleepin' Empire eventually outlawed because they imposed too much financial hardship on their citizens. But hey, at least we're not alone since free-market paradises such as Bangladesh have also revitalized tax farming. Hooray for freedom!

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