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By Robert L. Cain, Copyright 2023, Cain Publications. Inc.

When will it end?  Credit card debt just hit a record high, jumping $60 billion to almost a trillion dollars, $986.5 billion, in the three months ending December 2022.  That goes along with interest rates increasing on that debt, sucking the savings rate people accomplished during the pandemic down to 3.4% from 33%.

That goes along with a jump in household debt of 2.4 percent to almost $17 trillion over the last

three months of 2022 while average credit card rates increased to 21.6 percent, up from 14.5 percent in November 2022 or just 12 percent in August 2012.

The money is running out. Greg Daco, chief economist at EY-Parthenon, wrote in a market commentary on February 22, “for lower-income families, their excess savings have vanished, and they are now dipping into their regular savings and using credit to offset the burden of inflation.”

“They’re out of cash,” Mark Zandi an economist for Moody’s Analytics, said, “They’re turning to debt to try to supplement their income, and they having trouble paying down that debt.”

Greg Daco said in an interview with Vox, “We’re seeing not just an increase in the transitions into delinquency but also an increase in the debt servicing costs because of higher interest rates and because the levels of leverage are rising. And then we’re also seeing banks and financial institutions being more cautious with credit.” Delinquencies will rise and the economy will at least shudder and at worst go into recession, how severely, we can’t predict. Too many factors enter into the picture.

The reason the economy hasn’t crashed and burned under the weight of that debt is that almost no one who wants to work is unemployed.  Most people can still make the minimum payments on their credit cards, keeping their FICO score tolerable.

Adding to that we have the monkey wrenches waiting to be hurled into the economic machines: student loans.  Some student loan borrowers have never had to make a payment nor been expected to.  Those who graduated with student loan debt in 2020, for example, got a reprieve from both Donald Trump and Joe Biden who put the payment moratoriums put in place.

Because they didn’t have to pay on their student loans, millions of people who had borrowed lots of money to go to school, more than $20,000, got pandemic cash in addition to their salaries and could spend all that money on something other than paying down student loans. Now they wait.  The moratorium, extended eight times, may be ending and threatening to make them start paying again, possibly as soon as August.

Thus, that money they’d been using to pay the rent, their car payments, and maybe stash away a little, will need to be used for that debt they ran up in student loans plus their credit cards, car payment, not to mention regular living expenses.

Their hope is that at least some of their debt will be forgiven. Maybe, but probably not.  The Supreme Court has heard arguments against that debt forgiveness and may toss the whole notion of debt forgiveness, squashing any hope of relief for borrowers with government-backed loans. Maybe the moratorium will be continued, and maybe not.  At some point, though, the payments will come due. That student-loan debt of $1.75 trillion will have to begin to be paid, month by month, eating into the incomes of people, some of whom have never had to pay a dime on their loans, and those who have gotten used to not making payments.

Betsy Mayotte of the Institute of Student Loan Advisors tells those folks to avoid spending money.  But when they don’t spend money, that affects national consumer spending, $14.227 trillion in the third quarter of 2022.  Lots of that spending came from credit card sales, those same sales that jumped the debt $60 billion to $986.5 billion.

Ending the moratorium can make living more precarious for those whose incomes barely cover their expenses now.  Already many lower-income people have to use their credit cards just to live, unable to pay them fully at the end of the month. They have to charge highly inflated food to eat and pay for gas to get to work, then have a card balance at the end of the month on which they hope they can make the minimum payment. Add the student loan payments to the mix and creditors, utilities, or landlords, or all three, will not get paid.

What happens when rent, credit card bills, and car payments don’t get made? In a couple of months, debtors won’t have a place to live, won’t have use of their credit cards anymore, or a car to drive in a few months.  Exacerbating the problem: 202 Million new credit accounts opened in the fourth quarter of 2022 mostly from adults 18 to 25 including subprime customers who have FICO scores 600 or lower. Credit card companies have begun marketing to these less-than-prime credit candidates.  Figure, as does Transunion, that delinquency rates will grow.

Incomes haven’t kept pace with inflation. Clarify Capital, a small business lender reported that in the United States, even though the average annual salary increased 31.2 percent from 2010 to May 2021, the average incomes adjusted for inflation dropped 4.5 percent. The labor department keeps saying how consumer spending is great and how it’s pushing the economy upward. But they only mention the raw figures. Never do they factor in how inflation has eaten up the purchasing power of consumers, forcing them to rely on credit cards that eventually they could max out and be unable to make even minimum payments on.

As the delinquencies begin to grow, the ripple will start affecting businesses that won’t have those previously great sales figures propped up by credit sales and negatively affecting the credit card companies that will lose money writing off debts.

Debt crisis? It’s gathering steam, fed by rising prices, stagnant to declining incomes, and late payments. Those with a vested interest in evading the facts say “not yet.” But the signs all foretell a debt debacle.

By Robert L. Cain, Copyright 2023, Cain Publications, Inc.

In 2014, Amazon got itself a new recruiting tool that used artificial intelligence (AI) to recruit employees. “Everyone wanted this holy grail,” an Amazon spokesperson said and Reuters reported. “They literally wanted it to be an engine where I’m going to give you 100 resumes, it will spit out the top five, and we’ll hire those.” It would also mean that every resume would get full attention rather than get cast aside because the person reviewing it was tired, distracted, or didn’t like the applicant’s favorite sports team.

To enable the AI machine to do a proper job of sorting the resumes, Amazon uploaded the resumes submitted to the company for the previous 10 years. They trained the computer models to look for patterns of the qualities that made for a successful employee.

By the next year, 2015, the problem became obvious. Because the vast majority of resumes came from men, the computer penalized any resume that included the words woman or women, such as “women’s rowing team” or “women’s tech club.” It also downgraded any resume from graduates of two all-women colleges. Amazon had left itself wide open for a EEOC complaint.

By the start of 2017, Amazon had disbanded the team because, according to the Reuters article, “executives lost hope for the project.”

Even with this warning in place, Reuters reported, “Some 55 percent of U.S. human resources managers said artificial intelligence, or AI, would be a regular part of their work within the next five years.”

Software companies abound with promises that employers will have the ability to recruit “fairly” and quickly, avoiding biases of HR people who might reject an applicant because of some inconsequential prejudice. But in order to recruit and screen quickly, the computer has to be told what criteria to judge applicants on. Therein lies the rub. Computers do what they’re told, and if you tell them to do something illegal or unethical, they do exactly that, no questions asked because they don’t know about laws and ethics.

The old computer maxim “Garbage in Garbage Out” rules every item of computer output. If, as in Amazon’s case, the computer’s garbage-out criteria dismisses applicants who are members of protected classes, in their case women, the employer ends up on the receiving end of a fair employment complaint or a rental owner of a Fair Housing complaint.

For example, if they tell the computer to only look in certain zip codes for acceptable employees,  that could eliminate any applicant living in a zip code with a primarily minority population. Tell the computer to only look for applicants who attended specific colleges and universities, and

that would most likely eliminate any applicant who graduated from a predominately Black college. Advertise job openings or vacancies only on Facebook, and since Facebook’s users tend to be younger, it could have the effect of eliminating employees more than 40 years old, a protected class.

It has to do with Disparate Impact, which Britannica.com defines as the “judicial theory . . . that allows challenges to employment or educational practices that are nondiscriminatory on their face but have a disproportionately negative effect on members of legally protected groups.” The key is it’s not what you meant; it’s what somebody thinks you might have meant that guides government investigations into illegal hiring and renting processes. You had no intention of illegally discriminating against anyone, but what you told the computer to do was discriminate with a disparate impact on some protected class.

AI can be a useful tool. It comes in three flavors, narrow AI, Generalized AI, and Artificial Super Intelligence.

Narrow or “weak” AI does specific tasks, ones you instruct the computer to do. It could be a robot in a factory, music selection, think Alexa and Siri that is told to find out what you prefer in shopping and music, and a neural network that runs a power grid, for example. Neural networks process information, inspired by how brains’ neural systems process data. Artificial intelligence tries to simulate biological neural networks, so they can be more like a human brain.

Generalized AI emulates the human mind and learns and remembers from what it does and can incorporate what it learned and seem to think on its own. In its infancy now, it promises to become even more “useful” in learning what works and what doesn’t. Faced with an unfamiliar task, it can figure out and remember how to do it most effectively. Designed to be able to learn new tasks and adapt to new situations, generalized AI is meant to be more intelligent than narrow AI and is capable of making decisions and acting autonomously. Examples of generalized AI include facial recognition, autonomous driving, and natural language processing, as well as more complex tasks such as machine learning and deep learning.

Artificial Super Intelligence is maybe in the future. Its current developmental progress, though, resembles a fully loaded freight train picking up speed barreling downhill, all but unstoppable. That would be or will be a machine with intelligence equal to that of humans and a self-awareness giving it the ability to solve problems, learn, and plan for the future. Search for LAMda for details. And think HAL in “2001 Space Odyssey” and Skynet in the “Terminator” movies. The doomsday scenarios have Super AI taking over the world and wiping out humanity.

AI can be a valuable tool to use in screening and recruitment. Presumably, employers and landlords have specific criteria for whom they will accept as employees or tenants. Those need to be programmed into the AI platform so they can quickly qualify or disqualify applications. Chances are you don’t have the training or capabilities yourself, so you will have to employ an AI software company to set it up for you. That’s where the peril lurks. If they set it up so it illegally discriminates against protected classes of people, you are responsible just as you are for the conduct of any contractor such as a carpenter who repairs the front steps on a rental. If the carpenter installs the steps unsafely, it’s your responsibility even though the carpenter did the work. Likewise, if a software company installs an AI recruiting system that discriminates against a protected class, it’s your fault.

How can you tell if the criteria inputted are fair to everyone? Good question. You have to do considerable “what-if” thinking. What if I were a black person? Would I feel as if I could apply for that position? What if I were a single woman? Would I feel as if I could apply to rent that unit? What if I were 45 years old and looking for work? Would I see the ad on Facebook since I don’t use Facebook but my kids do? Would it were that simple.

Amazon stopped using its biased recruiting system because they couldn’t figure a way to make AI recruiting fair even though they have some of the most highly skilled programmers and engineers in the world. You probably don’t have the equivalent programmers. What an employer or rental owner must do is look at lots of what-ifs and think critically about whom their recruiting and screening efforts end up being aimed at. Who might be left out?

Written for Zip Reports where they do employment and rental screening. Contact Robert L. Cain at bob@cainpublications.com

By Robert L. Cain, Copyright 2023, Cain Publications, Inc.

They tried to think of everything. With dummied up bank records, tax records, employer and landlord references complete with phone numbers of friends, they created a history that showed them to be stable and responsible. But they forgot one thing: social media.

Some 70 percent of employers use social media to screen applicants. Social media has been a go-to source of screening ever since Facebook, LinkedIn, Twitter, and TikTok became popular.

People say stupid stuff and think no one will notice. That’s the advantage of using social media for screening and verifying what’s on an application. All that money they paid companies to create phony documents, and time they took time preparing everything, can end up wasted because their social media accounts tell a different story,

Social media use varies by age. Khoros.com posted that of the 2.93 billion active and 1.96 billion daily users of Facebook, 86 percent of people 18–29 and 77 percent of people ages 30–49 use Facebook. Instagram’s 500 million users have 67 percent of 18-29-year olds and 47 percent of 30-49-year-olds using it daily. Of Twitter’s 436 million active and 238 million daily users, 38 percent are 18-29 and 26 percent 30-49. Since the vast majority of users of these social media platforms are in their 20s and 30s, expect that any applicant in that age group will be present on social media.

LinkedIn, a more business-oriented site, shows a different age profile. Only 21 percent of 18-24–year-olds use it daily as compared to 60 percent of 25-34-year-olds. On LinkedIn, you are more likely to find people posting about business and employment. On Facebook, Instagram, and Twitter you find more personal information and maybe some things that call into question the documents an applicant provided.

Checking social media is free, requiring only a little time searching and maybe occasional creativity. Someone with even a little experience in tracking people down on social media can avoid a bad hire or a bad tenant. Of course, it can also confirm desirable qualifications.

How to Do It

Usually, it’s easy. Just type the person’s name into a search on Facebook, Twitter, or TikTok and see what comes up. With some names, you may have to focus your search more by adding the city where the person lives or maybe their school or some other defining criteria just to be sure you are looking at the right person.

Look for anything that tells you enough about the applicant regarding his or her character and qualifications to help you decide if this is the person who deserves to work for you or live in your property.  For example, what if you find that Joe Blow brags about how he just ripped off his employer and got the blame placed on someone else? What if Geraldine Moe posted how much she hates Blacks, Hispanics, and anyone else who’s not Caucasian? What if Joe Blow’s back at it and posts pictures of himself drunk out of his mind and trashing the house where the party is? Are these people you want to hire or have living in your rental properties?

Personal information people post about themselves such as where they work and how long they’ve worked there also often shows up on someone’s Facebook or Twitter account. Does that information match what’s on their applications?

You might also find information that confirms what a responsible citizen and all-around good person he or she is. Look for information that might be in addition to or contradict what’s on his or her application.

Toggle.com provides a list of the things that employers look at when they research someone on social media. At the top of the list is “provocative or inappropriate photos and video,” followed closely by “information about the candidate drinking or using drugs.” “Discriminatory comments on race, gender, religion, etc.” comes in a close third. Naturally one of the first reasons we think to check is if your “candidate lied about qualifications” or “badmouthed previous employer.” They list a few more, any of which could help you decide on a candidate’s qualifications.

Toggle.com warns us, though, to “take everything with a grain of salt.” It’s easy to fake profiles on social media. They think nobody checks or cares, after all.

Be especially careful about illegal discrimination. If you reject an applicant who happens to be a member of a protected class, it’s not what you meant; it’s what someone thinks you might have meant. If what you found on social media causes you to reject an applicant, take screenshots of the information that caused you to reject and save it.

If you can’t locate a candidate on social media and your candidate is under 35, be suspicious. It’s possible that your candidate is one of the 14 percent of that age group that has no Facebook account but probably not. Sometimes people use pseudonyms so no one except friends will know who they are. They might also have deleted their social media accounts before they applied to you because what they posted would immediately turn off an employer or landlord. Finding them is more difficult and not always worth the time, but not impossible.

Mostly it’s a wild goose chase and you might just need to verify everything more carefully than usual because of the time it will take to drill down into social media and the unlikely results. Hashtags probably are the easiest to use to look for posts by people who have pseudonyms or have deleted their accounts. They are a sorting system to help locate specific information about any topic or person. For example, do a search using #company name (whatever that is) using either Twitter or Facebook and see what comes back. I just did a search using #wellsfargo and got hundreds of posts on both Facebook and Twitter. Probably more than you’d want to wade through.

Four things are most important to remember. First, leave social media to end of the process. Check only those who might be qualified. Second, don’t decide based solely on social media because it’s not all that reliable. Most reliable are the verifications you do. Social media only give you clues—albeit sometimes valuable ones. Third, since you can only get a limited amount of information from social media, assume nothing and verify everything on both their applications and social media. Fourth, your social media qualification criteria must match the written criteria you use for hiring and renting.

Social media screening provides another tool in the application box. You wouldn’t use a screwdriver to drive in a nail, so use the tool that best fits your needs and suspicions. But when you find information that can determine the quality of an applicant by using social media, you’ve done yourself a favor.

Written for Zip Reports where they do employment and rental screening. Contact Robert L. Cain at bob@cainpublications.com

By Robert L. Cain, Copyright 2022, Cain Publications, Inc.

If they take $11 billion out of the economy, the effects will be less than pretty. They did and it isn’t pretty. As of November 18, 120,000 tech workers had been laid off in 2022. And the layoffs continue along with hiring freezes. Marc Weil, who has worked in tech since 2010, and one of the 120,000, was quoted in a Washington Post article, “Year after year goes by and the tech economy keeps getting bigger and bigger with no end in sight. Everyone in tech has been warned by people who lived through the last few decades that this will end. And so it ended.”

Just the tip of the iceberg, tech accounts for a small part of the US economy. But considering its influence on spending and business, its effects swallow a much larger piece of the economic pie than its perceived size. The average salary of a tech workers is a little more than $94,000 a year. Every dollar spent turns over seven times, advises the economic axiom. That means that one tech worker’s salary contributes more than $658,000 to the economy every year. Multiply that times 120,000 and you get more than $11 billion. Where does that money go? Much of it goes to the incomes of such small businesses as restaurants, coffee shops, gyms, movie theaters, professional services. Those businesses employ thousands of people, but may now employ fewer and fewer. The rest may well go to the government in taxes.

The layoffs and hiring freezes go beyond tech. According to a survey by LinkedIn, most industries’ hirings have plummeted with tech not even in first place.  Far and away in first, or maybe last, place are holding companies whose hiring year over year dropped 23.3 percent, followed by tech at 17.1 percent. Others follow closely such as entertainment providers (small businesses) at 14.2 percent, professional services (another small business industry) at 15.6 percent, and retail at 12.5 percent (much of that small business).

Winners stand out, though. Utilities hired at a 23.3 percent increase, so if you’re an electrician, for example, and want to work for a power company, or a plumber and want to work for the water company, you’ve most likely got a job.

Also increasing in recent months, after declining year over year, were government, education, construction, farming, and health care.

Jim Harrison, of the Utility Workers of America, AFL-CIO, quoted in Money magazine, explained about utilities, “It’s a recession-proof sector for the most part. People still have to have the essentials of modern-day life. They need to have light, heat, power and water and those kinds of things.” But they don’t have to have restaurants, hair dressers, and holding companies.

“Big picture,” though says Julia Pollak, chief economist for Zip Recruiter, “companies are very much preparing for the possibility of a downturn. They’re focusing on hiring rather than nice-to-have hiring. But many are still continuing to hire because they absolutely have to.”

And they don’t “absolutely have to” keep raising wages. Sure, hourly earnings keep going up but more slowly. In September, for example, they rose just 0.3 percent to $32.46 an hour. Companies figure they can attract workers without increasing pay much.

Even so, some economists discount the tech layoffs and less hiring by citing the Labor Department figures of the 261,000 jobs added in October. They claim that the tech layoffs have no effect on the economy saying that tech accounts for an infinitesimal part of unemployment.  They also point to consumer spending, which increased by 0.8 percent in October as proof that everything is all right. That increase has been skewed by the inflation that rose 0.7 percent for the month with much of the rest of it consisting of people having to catch up with their unmet needs such as buying gas and groceries and taking money out of savings, which decreased to 2.3 percent down from 2.4 percent in September.

Those laid-off tech workers will have to go job hunting with no guarantees that the jobs they get will come close to paying what they made at Facebook, Google, or Twitter. That’s a good thing, says Erik Brynjolfsson, a Stanford University economist, “I think the salaries in tech were unrealistic. Now there’s a bunch of really good coders and engineers for the rest of the economy where they are needed a lot more.” Might he have been forgetting about the effect that taking a good portion of the income they had earned out of the economy? Remember, you can’t do just one thing. The unpredictable ripples of layoffs and hiring freezes affect the economy cutting into hiring both for large and small businesses.

Layoffs don’t make up the whole problem. Jim McCoy of Manpower said, “They’re planning for uncertainty. Companies are slowing down replacing people so they don’t have to do layoffs next year.” He added that companies because of “economic uncertainty” have chosen not to hire for around one-third of the open positions. It costs money to lay off workers what with severance packages. But it costs nothing to not hire in the first place. Instead, may companies hire contractors. They may not cost less, but they are infinitely easier and cheaper to lay off.

Put the layoffs and hiring freezes together and the witches brew bubbles with a smell that bodes ill for the economy. In September, 6.1 million people got hired, the lowest level since February 2021. With job growth at 261,000, the lowest since April 2021.

The upside, if there is one, is that employers can be more selective when they actually do hire someone. They can screen thoroughly and set standards higher than they were able to before. Chad Leibundguth of Robert Half Staffing remarked in a USA Today article, that employers are “taking their time to identify the right person.” That’s if they look for new hires at all. Now is the time for businesses to describe their ideal applicant and wait for him or her to show up, which might be sooner than later.

Written for Zip Reports where they do employment and rental screening.

Contact Robert L. Cain at bob@cainpublications.com

By Robert L. Cain, Coopyright 2022, Cain Publications, Inc.

They took a market served by check-cashing and payday loan stores and offered credit to their customers. Buy Now Pay Later (BNPL) began as a way to reach an underserved or ill-served $3.9 trillion credit market seen as a giant money-making opportunity. Making money hasn’t been part of the planned equation though. So far so bad.

BNPL companies such as Klarna, Affirm, Afterpay, Zip, and Sezzle lose money on every transaction. It costs them more to market their services than they make from lending with the 2 percent to 8 percent discount retailers pay when those companies’ borrowers buy from one of their merchants. Customers pay no interest if they pay off their purchase within six weeks. After that, depending on the lender, the interest rate can vary between 25 percent and 36 percent. One company, Affirm, advertises that it doesn’t charge late fees, something other companies do, but charges an interest rate of 36 percent after the six-week grace period expires and their customers still owe on the loan.

Even with extra, added charges and interest, the industry profit margin sits at a minus 2.6 percent. Apparently, they figure they can make up the loss in volume with the, according to Reuters, 180 million loans they made in 2021, a 200 percent income increase from 2019. Most likely, it just increases their number of losses by the 200 percent range.

Check cashing stores and payday lenders whose customers the BNPL companies are trying to gobble up have built-in safeguards. Check-cashing stores discount checks after they verify the funds, so they have no risk. Payday loan stores always verify customers’ employment before they loan to their customers. Traditional lenders such as credit card companies won’t even accept a customer who doesn’t meet their credit standards and report to credit reporting companies. The BNPL industry has no such safeguards in place. Their loans don’t show up on credit reports, and since they don’t communicate with other BNPL companies, don’t know if one of their customers has outstanding loans with other companies. Gee, how might that go wrong?

BNPL companies are maybe less than forthright in their marketing. For example, read the reviews on all their websites. All seem to have been written by the same person: same sentence structure and same syntax, perfect spelling and grammar, even the negative reviews. In fact, the negative reviews it appears were used as sales pitches because they all promise some kind of compensation to the “injured” reviewer. That’s no financial damage to the companies because no real customer had a problem that they published, anyway.

With the somewhat tarnished shine coming off the Yugo business model, the wheels have begun to wobble. Delinquencies are up with a 2.39 percent charge off rate in 2021, or $109 billion compared to a 1.83 percent rate, or $70 billion in 2020. In contrast, charge off rates for credit cards amount to 1.8 percent.

BNPL companies make it easy to borrow money by users installing apps on their phones that they can use at POS terminals much like using credit cards. Trouble is, they only work for companies that accept BNPL payments, which isn’t close to every one of them.

It’s Buy Now Pay Much More Later if these companies expect to turn a decent profit, something they don’t expect to do until 2026 or 2027, says the rosy picture management paints after being in business since 2008. Amazon, in comparison, showed a profit in 2003 after being in business selling books out of Jeff Bezos garage in Bellevue, Washington since July 5, 1994, but they sold tangible merchandise that people wanted with a business model that invited and propelled growth. They also didn’t loan money to the unqualified unlike the BNPL companies that rely on people who are hanging on by their fingernails.

Trying all kinds of revenue generation techniques, BNPL companies pull out the revenue-generating playbook. One technique is accepting advertising.  Afterpay’s website is cluttered with ads. Whether those advertisers get a lower discount, Afterpay isn’t telling. Another idea is a “repeat user fee.” More than one BNPL company suggests that if borrowers borrow multiple times in a month, they’ll get hit with a fee for that. Of course, that would drive them to other BNPL companies where they could tack on more loans unbeknownst to any other BNPL company.

So what? Who cares if BNPL companies find themselves teetering on the edge of insolvency? If it only affected them, it would just add an item of interest. But it can and will affect the people who are supposed to be paying their loans back.  Already, just as credit card borrowers have, BNPL customers use BNPL loans to buy groceries and gas, possibly tacking loan upon loan just to keep food on the table and gas in the car to get to work. Credit card borrowers who have maxed out their cards might even find themselves needing to use BNPL to buy food and gas with inflation chewing up their incomes.

When the recession and layoffs expected to hit next year begin, the BNPL customer base could well find itself unable to pay back its accumulated loans. Since BNPL companies already paid the bill their customers ran up, if borrowers have no money to pay back the loans, the lending companies will have to eat the money they already paid.

The successful issuers of credit have the good sense to qualify their borrowers before they let them run up bills. BNPL companies loan and hope. They hope their borrowers are qualified, but can’t find out for sure before they lend. They hope their borrowers will be able to pay back the loans but have no way of qualifying them except their experiences after they make the loan. They hope the economy stays afloat and the inflation abates so debts can be paid back. They hope to come up with additional revenue sources so they actually make a profit, even though even they don’t expect it for at least four years. That’s a huge impending downside.

By Robert L. Cain, Copyright 2022, Cain Publications, Inc.

A boss  I had once gave away his lies with a gulp in his throat immediately before and after the lie exited his mouth. Once I heard the gulp, I dismissed any and everything that had followed or preceded it. 

Our last landlord, the one we had 40-plus years ago, gave herself away with the glazed look in her eyes, looking at empty air when she made up or otherwise embellished a story.  We always knew.

I knew one sleazy businessman who gave away his lies with a short “ha-ha” laugh.  Ask him a question and he after made up an answer he thought would please you, he added a “ha-ha” exclamation point onto the lie. 

Liars give obvious signs that what they are saying is not the entire truth, or maybe any of the truth. We all can identify them.

Most people, far from being “practiced at the art of deception,” have no idea they are giving away the fact they are lying through body language or vocal spasms.

Paul Eckman, of professor of psychology at the University of California in San Francisco, says that catching liars is an art almost anyone can learn.  People show tell-tale signs, he says, when they lie.  “Liars usually do not monitor, control, or disguise all their behavior.”

In the book The Art of Questioning: Thirty Maxims of Cross-Examination Peter Megargee relates this anecdote.

“Attorney Lloyd Paul Stryker was a keen observer.  He would watch carefully how the witness behaved in the courtroom and on the stand.  He would rivet his eyes on the quarry during direct examination. . . .  He looked for clues in the ways the individual expressed herself or himself.  He listened for variations in tone of voice caused by the tightening of vocal chords.  He noticed pauses.  He noted flashes of anxiety, dryness of mouth, moistening of lips, hesitations, discomfort, and uncalled-for repetitions of coached material.  He watched for stammer and for needless reference by the witness to counsel’s name. ‘I never was there, Mr. Prosecutor.’ Eyes were of particular interest.  How and when did pupils shift and dart?  When did eyes narrow or blink?  The giveaway laugh and wipe of forehead.  Hands wring, cling, scratch, and readjust.  Legs shuffle.  A hand touches the pocket with notes taken from his lawyers on what to avoid at all costs.”

We can’t be as accomplished at spotting liars as Lloyd Stryker was without years of practice, but let’s look at some of the obvious body language signs and vocal signals people make that give clues that they may not be telling you the entire truth.

When you ask a question, a “probing point,” just as Stryker did to a witness, watch your applicant or tenant carefully. A probing point may be evident when a word or phrase “touches a nerve” during a conversation.

Your question may elicit a lip-purse, a shoulder-shrug, or a throat-clear, for example.  Other signs may be stumbling over words, a higher voice pitch, or repeated swallowing.  However, Dr. Paul Eckman points out that “is no guarantee that a lie is being told, but it signifies a hot moment when something is going on you should follow up with interrogation.” The question has hit a sore spot.  Is it always something that will disqualify him or her? Of course not.  It could just be an unpleasant memory.  But you owe it to yourself to find out if it is important to you in your selection process and your decision whether to believe the person you are speaking with.

Body language expert John Mole provides the following list of body-language cues that could indicate someone is lying:

• Touches face
• Hand over mouth
• Pulls ear
• Eyes down
• Glances at you
• Shifts in seat
• Looks down and to the left

How does it work on the field of battle with an applicant in front of you and his or her application in hand?  Here’s an example:

Finally! They look and talk like terrific people. They tour the property and pronounce it a “really nice place, someplace we could live forever.” They even talk about how close the unit is to the school their children attend and that they have friends just a couple of blocks away.

The prospect of them living there forever pleases you because the last three tenants have moved out after just a couple of months. Now here is someone who wants to stay a long time.

Hardly able to contain your excitement, you ask a simple question, “Do you think your last landlord will give you a good reference?”

“Oh, sure, no problem,” the wife says as she covers her face with her hand.

“Yeah, we got along—along fine, yeah, uh, fine,” says the husband while pulling his ear lobe.  “He’s uh, uh, uh, uh, going to sell the building.  That’s why we’re getting kic—, er,. Moving.” At that point, he stares at the ground, seemingly intensely interested in the bug crawling along the sidewalk and glances at you out of the corner of his eye.

Too bad.  And here you thought these folks looked promising. You wonder why they don’t just tattoo “LIAR” across their foreheads.  You vow to quiz their last landlord after making sure the number they gave you for him on their application is the actual phone number of their last landlord and not of their friends who “live just a couple of blocks away.”

Other things to watch for that indicate deception are pupil dilation and fast blinking rates.  Eckman observes that people make “fewer hand movements during deception compared to truth telling.”

No clue assures absolute proof that an applicant’s answers are fabrications. They do mean that the person is anxious or feeling stress. Liars though, other than the pathological subspecies, feel stress or anxiety when they spout their lies.

These cues should arouse suspicion about what they have told you.  Remember which question or at what point their body language or vocal quirks indicated deception, and be extra vigilant in checking out that spot on the application.  You are simply using your applicant’s body language to give you a better idea about where they might be trying to put one over on you.

Just pay close attention not to just what they say but how they say it.

Written for Zip Reports where they do employment and rental screening.

Contact Robert L. Cain at bob@cainpublications.com

By Robert L. Cain, Copyright 2022, Cain Publications, Inc.

“Deadbeat! Just wait until I put you on the deadbeat list that I’m going to show everybody! My law firm and I will hound you forever! I’m going to have you arrested, too! Did you get that court order I sent you? Just wait, deadbeat!”

There might have been a time when it was legal to say any and all that to a debtor, but now danger lurks. Already it was mostly illegal under 15 USC 1692 (d-f). But under the Fair Debt Collection Practices Act (FDCPA) with Regulation F added protections were implemented Nov. 30, 2021.

These updated regulations, aimed specifically at some less-than-ethical collection agencies, also apply in many cases to creditors themselves attempting to collect a past-due balance from a customer or tenant. Creditors include landlords owed rent when a tenant moved out one midnight and business owners owed a debt and who haven’t been paid for 90-plus days by a customer.

Time-Barred Debt

One trick some less-than-ethical collection agencies used was to buy up old debt, debt that aged out past the statute of limitations, and attempt to collect it. They’d sue the debtor and count on him or her not showing up in court, resulting in a summary judgment against the debtor. If the debtor showed up with evidence that the debt had passed the statute of limitations date, the judge would dismiss it. Most often, though, they just didn’t show up in court and the judge issued a summary judgment.

Under the new Regulation F, the collection agency must first prove the debt is current before it can sue.

Credit Reports

Some small debts take too much effort and time to try to collect. Collection agencies and some creditors would simply report the debt to the credit reporting agencies without the debtor knowing. When they pulled their own credit report, the debtor was in for a surprise. Under the new FDCPA regulations, the creditor must get in touch with the debtor by mail, email, or text to tell him or her the debt will be reported. Until that contact, the creditor may not report to the credit reporting agency.

The question arises, then, can a deadbeat tenant or customer hide out or just return mail as undeliverable, bounce a text, or have an email come back as undeliverable and avoid having the debt reported? The answer is a qualified no. After considerable comments from collection agencies, inserted in Regulation F came the provision that the creditor must wait 14 days for the letter, email or text to come back undeliverable before reporting the debt. They are entitled to make “judgment calls” regarding compliance with the FDCPA and hope their “judgment” meets with the approval of the federal authorities and courts. One method that requires no waiting period or contact with the debtor is reporting to a check verification company. How effective? It’s debatable.

Constant Phone Calls

Another annoying trick collection agencies used was the hourly phone calls, harassing the debtor at all times of the day and night to beat them down so they’d pay the debt. I don’t know how well that worked to collect what was owed, but it did hound the debtor. Under the new Regulation F provisions, a creditor can call, text, or email only seven times in seven days, and if the creditor has spoken to the debtor on the phone, the company must wait seven days before making another call to that person.

Debt Validation

Within five days of the first contact with the debtor, the collector, that’s either the creditor him or herself or the collection agency, must send the debtor a Notice of Debt. The collector needs to provide a Debt Validation Notice (available from consumerfinance.gov), which includes detailed information including one of five different dates such as the last statement date, the charge-off date, date of last payment, the judgment date, if there was one, or a couple more found on the form along with the name and address of the original creditor. That is supposed to ensure the debtor knows what the debt is for. The form also provides a way to dispute the debt, says under what circumstances the collector has to stop trying to collect, a way to ask for the name and address of the original creditor, and a way to ask about payment options.

Debt validation can throw a monkey wrench into the workings of collection agencies because they often don’t have the name and address of the original creditor. They may have bought the debt from another agency but without any original creditor information. They would have to get all that information from the original creditor who may not have any reason to provide it since the original creditor won’t get any of the money collected.

Creditor Responsibilities

If a company does its own collecting, the same provisions apply as those for collection agencies. Still required is supplying complete information to the debtor and following the same non-harassment rules. In addition, here’s one more vital concern. If they hire a collection agency and that agency violates any of the harassment or procedure rules, the creditor can and will be held responsible since the creditor is responsible for any and all actions of its agent. Thus, it pays to research any collection agency thoroughly before hiring them.

At least one technique survives. If a creditor gives up and figures the debt is uncollectable, it can let the IRS be its collection agency. No, there won’t be any money coming to the creditor, but it likely will result in an IRS audit of the debtor. Use the 1099-C form, forgiveness of debt if the debt is more than $600. Most likely the debtor won’t know it’s been filed and so won’t include it as income on his or her tax return. Come April 15, you can, albeit vicariously, imagine what the IRS will do to your debtor.

Debt collection just got more restrictive, but you can still get your money. Deadbeats are still on the hook for the debt. It just might be more complicated and maybe take a little longer to collect. Have a concern or question? Call an experienced regulatory attorney because some provisions of Regulation F might conflict with portions of the Fair Debt Collection Practices Act. Consumerfinance.gov warns that “substantial monetary penalties” await the unwary and indifferent violators of this regulation.

By Robert L. Cain, Copyright 2022, Cain Publications, Inc.

Warren Buffet said, “Be fearful when others are greedy, and be greedy when others are fearful.” In 2008, with other people’s fear in abundance, he bought $5 billion in “perpetual preferred shares in Goldman Sachs” that paid him 10 percent interest and had the option to buy additional Goldman Sachs shares. Goldman had the option to buy them back at a 10 percent premium, which they did.

He bought $3 billion in “perpetual preferred stock” of General Electric with an interest rate of 10 percent that GE could redeem in three years at a 10 percent premium. Likewise with shares in Swiss Re and Dow Chemical, both of which needed cash to get through the credit crisis. Buffet made billions of dollars for himself.

Jamie Dimon, CEO of JP Morgan who today expectantly predicts an “economic hurricane,” during the 2008 recession acquired Bear Stearns and Washington Mutual, both of which had been brought to their knees because of their betting on US housing. They bought Bear Stearns for $10 a share, about 15 percent of its value in early March 2008.  In September he scarfed up Washington Mutual at a price that was a fraction of its value earlier that year. Shares of JP Morgan’s value, because of this and other deals, tripled in 10 years, making shareholders and Dimon even richer.

Carl Icahn, who became famous for buying TWA and selling it for parts in 1988, remarked “Some people get rich studying artificial intelligence. Me, I make money studying natural stupidity.”  During the credit crisis, he bought the under-construction Fontainebleau in Las Vegas for about $155 million, around 4 percent of the cost to build the property, and sold the unfinished property for $600 million in 2017 earning him four times his original investment.

Rich guys love recessions. They make money because they knew opportunities when they saw them and could afford them, but mostly because they are rich. Rich guys have the cash to make more money where ordinary people don’t.  You can’t get rich during a recession but you can get richer. You need lots of convertible assets to take advantage of the “blood in the streets,” something the vast majority of regular folks don’t have. 

It takes cash, but that cash can come in the form of net worth from assets that are already cash or can be turned into cash either by selling or borrowing against them.

Income alone doesn’t make a person rich. Some people have high incomes but low net worths because they blow every penny they earn; witness professional athletes who, never having had so much money in their lives, spend it all on expensive cars, parties, luxurious houses, and jewelry and end up in bankruptcy. 

The incomes of the top 5 percent of earners aren’t so bad, with an average of $342,987 a year in 2020, but that doesn’t go far enough to take advantage of lucrative recession opportunities.  That income can get eaten up with mind-numbing house and car payments, putting kids through Ivy League schools, country-club memberships, donating huge sums to charity so they look good, and taking expensive vacations.

Penny Phillips, president and co-founder of Journey Strategic Wealth, said “A lot of people who are wealthy in this country are wealthy not because of income, but because they own assets, they have investments that appreciated, real estate or otherwise.”

Some people have high net worths but “low” income. They use their assets to buy other assets at bargain-basement prices. It doesn’t matter how much you earn but rather how much net worth you have and can convert into dollars to increase your net worth.

Who are those rich people who have the resources to become richer during a recession?  A Schwab study in 2021 said a net worth of $1.9 million qualifies a person as wealthy, down from the $2.6 million the 2020 study found. The average net worth of US households, though, comes in at less than half that. But that doesn’t tell the whole story. How much of that net worth can be used to take advantage of deals engendered by a recession? It doesn’t seem as if a little less than $2 million in assets would do that. At that level, they might have more fear than greed, afraid that they could lose it all. Still, $1.9 million looks to be a good starting point.

For the exceptionally wealthy, such as Warren Buffet, Carl Icahn, and Jamie Dimon, a billion here and a billion there doesn’t affect them. But a thousand here and a thousand there for regular people can mean the rent doesn’t get paid. The wealthy can be patient because they don’t depend on cash to pay their bills and keep the wolf from the door. As in the examples above, the profits on their investments came after at least a couple of years and often longer. They could afford to be patient.

For us fearful normal people, it seems that we save to not lose money rather than to get ahead. Socked away for retirement, we dare not risk our 401ks and SEPs. The key point is that the rich, those with assets, always think in terms of how to make more money. The rest of us think about how not to lose it.

Most people can’t take advantage of recession opportunities. And even if they have enough money to invest, it won’t help much since you have to already be rich in order to get richer.

Can ordinary folks love recessions? As Buffet, Dimon, and Icahn attest, they are filled with opportunities, less so for the not-so-rich, and fraught with peril for the poor living paycheck to paycheck. The rich hold a distinct advantage, other than just being rich; they have people whose job it is to study investment opportunities, entire staffs who do nothing but look out for their bosses’ interests.  The “experts” ordinary, not-so-rich people have to rely on are often not expert at all but salespeople who get a commission on the investments they sell. How, then, can we know if any investment we examine is worth spending our money on? It could be pure luck.

We need to make sure it’s not our “blood in the streets,” that our fear doesn’t lead to someone else’s greed, and that we don’t represent Carl Icahn’s “natural stupidity.” We need to be on the lookout for solid opportunities that arise in abundance during a recession and that we can bravely, but with careful examination, take advantage of.

How does a city manage to lose 11,521 rental units in a year? When you look at the city of Seattle, you understand how. The latest issue of Current, the publication of the Rental Housing Association of Washington suggests it is because of the “City Council’s repeated passage of ordinances that further increase the costs, risks, and onerous burdens on housing providers.” Typically, Current reports, these homes “become owner occupied rather than continuing as a rental.”

In case you haven’t heard about them, here are some of the onerous regulations instituted by the Seattle City Council.  Just three of them are those passed in June 2021, the school year eviction ban, which prohibits evictions during the school year; a prohibition of evictions for COVID debt; and mandatory lease renewal that must be offered 60 to 90 days before the lease expires. In addition, they cap move-in fees, pet deposits, and security deposits regardless of the qualifications of the applicant. They have a rental registration and inspection law and a requirement to rent to the “first qualified applicant.”

There’s more, in fact far more, that’s too much to list here. Suffice it to say that it raises the costs of owning and managing rental properties and makes it questionable whether a rental owner can even turn a profit on his or her investment.

The usual suspects think you can do just one thing. How ignorant and arrogant can you be? The effect has been the loss of rental housing in a city that already finds itself with a lack of rental housing, both affordable and market rate.

For more than 20 years, I have advised rental owners to sell their rental properties to owner-occupants in areas where government makes investing in real estate unprofitable and more difficult than in areas that welcome rental investment. Now Seattle rental owners seem to have had enough, and are getting the idea, and bailing out of the Seattle rental market. You have to wonder how their City Council will react. Figure, considering their past behavior, it will be more of the same driving more of “those evil landlords” to cities that welcome their business.

By Robert L. Cain, Copyright 2022 Cain Publications, Inc.

Retail sales beat inflation for the fourth straight month the Commerce Department reported in April. The gleeful report is wishing thinking at best, misleads at worse and misinforms at worst. Sure retail sales are higher than last year, but why they are makes for a worrisome picture. For example, Walmart reported that customers favor lower-cost store brands of lunch meat over the higher-priced national brands and buy half-gallons of milk rather than full gallons. Kohl’s department store reported its customers buy less on each shopping trip.

Other factors eat into company profits; a big one is that they have too much stuff going unsold. With supply chain issues apparently over and companies receiving goods “from overseas earlier than expected,” companies such as Costco, have 26 percent more inventory than a year ago, Gap 34 percent more, Walmart 32 percent more. Target 43 percent, Best Buy 9 percent more, and Macy’s 34 percent more. “Holding excess merchandise proves expensive as warehousing costs rise,” reported a May 27 Reuters article. And as they dump the merchandise, it cuts into profits on everything they sell.

The result: several retailers, including America’s largest retailer Walmart, lowered their full-year earnings forecasts blaming high inflation, ignoring the cost of excess merchandise sitting in warehouses. Reuters reported May 26 that “some economists believe the erosion of profits and falling share prices could force companies to pause hiring or start laying off workers.” The wheels haven’t fallen off yet, but their wobble makes for troubling news.

While companies’ wheels wobble, problems exacerbate the way consumers buy. People pay for this higher-than-last-year sales with credit cards because they don’t have the cash. Forty-nine percent of consumers depend on credit cards for essential living expenses. Getting worse, the Federal Reserve Bank of New York reported that credit card balances are $71 billion higher than the first quarter of 2021.  Household debt, they also reported, increased $266 billion or 1.7 percent above the first quarter of 2021. Non-housing balances increased by $1.7 billion.

The pain doesn’t fall equally across all economic groups. Sub-prime borrowers suffer most. Many households “are forced to choose between paying for necessities and paying a monthly loan,” the Wall Street Journal reported. In fact, almost half, 49 percent, depend on credit cards to cover essential living expenses with 57 percent having missed at least one credit card payment; almost one in three, 32 percent, used the unpaid credit card debt for food and groceries.

Experian posits that sub-prime borrowers, defined as those with a FICO score of 669 or lower, amount to 34.8 percent, about 90 million adults.

But Wells Fargo CEO Charlie Schaff said “We are still in the best credit environment we have ever seen in our lives.” The best credit environment, huh? Equifax reports that about 11 percent, more than one in 10, credit cards owned by sub-prime consumers were at least 60 day behind in their payments in March compared to 9.8 percent in 2021. Plus, car loan and lease delinquencies set a new record in February with 8.8 percent at least 60 days delinquent.

Fair Isaac reports that “Americans have significantly increased the amount of credit they have taken this year.” Capital One said that in the first quarter credit card delinquency rates were more than 30 days higher than in 2021. And the gloom goes on, except with the credit issuers, who call it “the best credit environment” they have seen.

That will work until the chickens come home to roost. With inflation rising faster than it has in 40-odd years, it’s only a matter of time before over one-third of the population, 90 million-odd adults, can’t pay their bills anymore.

A University of Michigan study reported by ABC News May 22, 2022 found that consumer sentiment dropped nearly 30 percent in the past year. Their spending outruns inflation. Economists at the University of Michigan say there has been a “historic disconnect’ between sentiment and actual consumer behavior. That connection may be re-established shortly when credit cards begin getting declined and inflation surpasses income even more.

It’s already started. Target’s CEO Brian Cornell said the chain “did not expect to see the dramatic shift” in spending away from TVs, appliances, and patio furniture. Instead people are spending money on restaurant gift cards and items reflecting people’s desire to get out and spend.

Some of it has to do with pandemic fatigue. For two years, people have been locked down and masked up afraid to venture out into the world and engage in normal activities. Now they’re maxing out their credit cards to get even. It will go on until it can’t anymore.

A false security prevails with wages rising some 6 percent in April. That looks impressive but lags behind inflation.  The national saving rate has dropped about 6 percent to below pre-pandemic levels and household debt rising 8.2 percent in the first three months of 2022 compared to the previous year because of increased use of credit cards, the biggest increase since early 2008 in the midst of the recession. Even so, economists looking through rose-colored glasses say debt hasn’t reached “problematic levels.” We still have some $2 trillion dollars to suck out of savings before everything collapses.

It falls hardest on some demographics with 61 percent of Gen Zers and 53 percent of Millennials having to use credit cards for living expenses, while only 26 percent of their parents’ generation have to.

Employers can’t keep raising wages to keep up with inflation without pricing themselves out of the market while having to dump costly excess inventory. Lacking significant increases in their incomes, which employers can’t realistically provide, employees can’t keep charging everything and skipping credit card payments and still be expected to be able to pay the rent, make the car payments, and buy food.  In spite of the rosy reports from banks and economists, danger lies patiently in wait, ready to knock the wheels off the economy.

Written for Zip Reports where they do employment and rental screening.

Contact Robert L. Cain at bob@cainpublications.com