After the 2008 economic crash and the ensuing foreclosure crisis, AbdulAziz HouHou ran a ponzi scheme that bilked other Kuwaitis out of millions that were spent buying and flipping foreclosed houses across America, particularly in hard-hit rustbelt towns like Buffalo and Rochester.
HouHou -- now serving a 10-year prison sentence in Kuwait -- lured in investors with promises of worry-free, 15% returns on their money, which he said he would spend buying up distressed properties and then renting out to desperate people who would tolerate minimal maintenance while paying high rents.
Apparently that didn't work out -- or perhaps HouHou never intended it to work out -- and instead, HouHou bought houses and left them vacant, boarded up, not paying taxes on them. Sometimes he sold the same house to multiple investors. Sometimes he didn't even own the houses he was selling.
The scam went on for years, thanks to HouHou's ponzi tactic of paying existing investors out of the money coming in from new ones, guaranteeing a sterling reputation in Kuwait.
Even before the scam was revealed, cities were suffering as a result of HouHou's fraud. He didn't pay property taxes, and his empty houses sometimes burned down, or attracted squatters, or simply rotted away, lowering the value of peoples' nearby homes. Since HouHou was busted, some of America's poorest, most cash-strapped cities have had to spend tax dollars razing them, or dousing their fires, or rousting squatters. The houses themselves are often sold for pennies on the dollar, and many are uninhabitable thanks to neglect, which leads to catastrophes like frozen and burst pipes.
HouHou's greed is clearly to blame here, as is the willingness of his investors to become slumlords. But this is an absolutely predictable outcome of treating housing -- a human necessity -- as a mere asset. The world's great cities and the people who make them great are at the mercy of a global class of housing speculators who increase their profits through a mix of substandard maintenance, rent gouging, strong-arm tactics, and an epidemic of evictions.
It's one thing for useless "assets" like Bitcoin or gold to become the locus of investment bubbles, attracting every kind of grifter and crook, but when it's houses that are being stolen, it's a crisis of an entirely different kind.
Buffalo officials expressed sympathy for Kuwaitis who say they were scammed by HouHou, but said their bigger concerns are the neighborhoods where HouHou houses have sat boarded up and vacant, some harboring rodents and feral cats, and deteriorating to the point of being demolished. Some are located in neighborhoods the city and other investors are working to revitalize.
Sixteen became so dilapidated the city demolished them – usually at taxpayer expense.
Nine caught fire.
Squatters were found in at least one.
Many were vacant. Some were stripped by vandals or damaged by frozen pipes.
Of the 160 houses flipped in Buffalo from late 2013 through mid-2016, about a quarter ended up with housing court judgments, and about half ended up in foreclosure, The Buffalo News found.
How a Kuwaiti's Ponzi scheme left a trail of blight in Buffalo [Susan Schulman/Buffalo News]
(via Naked Capitalism)
(Image: Mubarak Almubarak)