I know, I know, it is not cool to have a negative outlook on life in general; and particularly on the future of our great economy but sticking your head in the sand is equally uncool, in my humble opinion. Empire of Debt is a good book to read if you want to keep your eyes and ears open.

“Let us take a moment to stand back and gaze at America’s great Empire of Debt. It is the largest edifice of debt ever put up. It sustains the most magnificent world economy ever assembled. It brings more wealth to more people than any system ever before devised.

Not only is it incomparably effective, it is also immeasurably entertaining. For it has its burnished helmets and flying banners; its intellectuals and its gladiators; its Caesars, Antonys, Neros, and Caligulas. It has its temples, its forum, its Capitol, its senators; its praetorian guards; its via Appia; its proconsuls, centurions, and legions all over the world as well as its bread and its circuses in the homeland and its costly wars in periphery areas.

The Roman Empire rested on a classical model of imperial finance. Beneath a complex and nuanced pyramid of relationships was a foundation of tribute formed with the hard rock of brute force. America’s empire of debt, on the other hand, stands not as a solid pyramid of trust, authority, and power relationships, but as a rickety slum of delusion, fraud, and misapprehension.

“My tax guy has been bugging me…You know, real estate is where it is at.” In June 2005, NBC quoted a young woman who had bought a second home at a Colorado resort. According to the report, more than a third of the houses sold in the previous 12 months were not primary residences, but second homes or investments.

Down at the bottom of the pyramid are petty agents spreading deceit and misinformation - such as the aforementioned “tax guy.” You would think a young woman could trust her certified tax advisor to give her sound counsel. Instead, he urges her to get into the most bubbly property market in American history. Naturally, she went for it, aided no doubt by a whole industry of professional dissemblers. Press reports tell us that appraisers routinely stretch valuations to help close a deal. Mortgage lenders know perfectly well the appraisals are lies, but they wink at them with one eye while winking at the borrower’s phony income declaration with the other. Again, according to the press reports, lenders no longer verify income claims. They have gone blind!

In California, house prices have raced so far ahead of incomes that barely one in ten buyers can afford the median house. Yet thanks to “creative finance,” more houses are being sold than ever before. Thus the foundation of the debt pyramid is laid down in a bed of mutual deceit and cupidity, and covered with another level of fabrications. Lenders do not stick around to see how the loans work out. Instead, they pretend the credits are good, and package the mortgages into convenient units so that investors can buy them. The financiers know damned well that many buyers can’t really afford to pay for the houses they buy, but they see no point in mentioning it. Nor do the investors want to know.

They’re in on the scam, too. The smartest of them even have figured out how it works: The Fed holds down short-term rates below the inflation rate so that investors in long-term mortgage financing and buyers of U.S. Treasury obligations can make an easy profit.

Further up the steps of imperial debt are whole legions of analysts, economists, and full-time obfuscators whose role is to make us all believe six impossible things before breakfast and a dozen more before dinner. Quack economists at the Bureau of Labor Statistics do to numbers what guards at Guantanamo did to prisoners. They rough them up so badly, they are ready to say anything. This abuse of statistics is what allows Americans to deceive themselves about their own economy. It is healthy, they say. It is growing. It is stable. All these so-called facts are little more than elaborate prevarications.

Economists, commentators, and policymakers take up these distortions and add their own twists. It is obvious to anyone who bothers to think about it that an economy that spends more than it earns is in decline. But try to find an economist willing to say so! They’ve all become like rich notables in the time of Trajan, doing the emperor’s work whether they are on his payroll or not. They will tell you the economy is expanding, but it is an expansion similar to what happens when a compulsive eater escapes from a fat farm. The longer he is on the loose, the worse off he becomes.

On the issue of the trade deficit, they will say what the senators and consuls want to hear, as Levey and Brown did in Foreign Affairs magazine: “The United States’ current account deficit and foreign debt are not dire threats to its global position, as would-be Cassandras warn. U.S. power is firmly grounded on economic superiority and financial stability that will not end soon.” In fact, the story of international trade, circa 2005, is the most preposterous tale economists have ever heard. One nation buys things that it cannot afford and doesn’t need with money it doesn’t have. Another sells on credit to people who already cannot pay and builds more factories to increase output.

Every level colludes with every other level to keep the flimflam going. On the banks of the Potomac, people of all classes, rank, and station are pleased to believe that all is well. And there, at the Federal Reserve headquarters, is another caste of loyal liars. Alan Greenspan and his fellow connivers not only urge citizens to mortgage their houses, buy SUVs, and commit other acts of wanton recklessness, they also control the nation’s money and make sure that it plays along with the fraud. They do not even have to clip the precious metal out of the imperial coins; there is none in it.

From the center to the furthest garrisons on the periphery, from the lowest rank to the highest - everyone, everywhere willingly, happily, and proudly participates in one of the greatest deceits of all time. At the bottom of the empire are wage slaves squandering borrowed money on imported doodads. The plebes gamble on adjustable rate mortgages (ARMs). The patricians gamble on hedge funds that speculate on huge swaths of mortgage debt. Near the top are Fed economists urging them to do it! And at the very pinnacle is a chief executive, modeled after Augustus, who cuts taxes while increasing spending on bread, circuses, and peripheral wars. (It might be added that some of the biggest lies in the history of warfare were told to the American lumpen public to stir up support for the war against Iraq, but it hardly seems worth mentioning it.)

The spectacle is breathtaking. And endlessly entertaining. We are humbled by the majesty of it. Everywhere we look, we see an exquisite but precarious balance between things that are equally and oppositely absurd. On the one side of the globe - in the Anglo-Saxon countries in general, but the United States in particular - are the consumers. On the other side - principally in Asia - are the producers. One side makes, the other takes. One saves, the other borrows. One produces, the other consumes. This is not the way it was meant to be. When America first stooped to Empire, she was a rising, robust, energetic, innovative young economy. And for the first six decades of her imperium - roughly from 1913 until 1977 - she profited from her competitive position. Every country to which she was able to extend her pax dollarum became a customer. Her businesses made a profit.

But gradually, her commercial advantage faded and her industries aged. The very process of spreading the soft, warmth of her protection over the earth seemed to make it more fertile. Tough, weedy competitors sprouted all over the periphery of the empire - first in Europe, then in Japan, and later, throughout Asia, even are as she had never been able to dominate.

By the early 21st century, the costs of maintaining her role as the world’s only superpower, and its only imperial power, had risen in excess of five percent of her GDP, or $558 billion per year. Not only had she never figured out a good way to charge for providing the world with order, now order was working against her. The periphery economies grew faster. They had newer and better industries. They had higher savings levels and much lower labor rates. They had few of the costs of bread or circuses and none of the costs of policing the empire. They were freer, lighter, faster. Every day, the competitors took more of America’s business, assets, and money. If the empire were an operating business, accountants would say it was losing money.

The empire no longer pays because the entire Western world - including Japan - has lost its competitive edge. Globalization of the pax dollarum era served the United States well after World War II. The global economic system in the pax dollarium era was perfectly balanced. For every credit in Asia, there was an equal and opposite debit in the United States. And for every dollar’s worth of demand from the United States, there was a dollar’s worth of supply already waiting in a container in Hong Kong. But while the imperial finance system was flawless, its perfections were devastating.

For the moment, Americans salute their imperial standards. They gratefully paste the flag to their car windows, their jackets, their hats, their beer mugs, their shirts and even their underwear. Americans are proud of their empire - and should be. Without it, they could never have gotten so far in debt. What central banker would fill his vault with Argentine pesos or Zimbabwe dollars? What drug dealer or arms seller would want Polish zlotys in payment? What insurance company would want to buy Bolivian or Kyrgzstan bonds to cover its long-dated liabilities? The dollar has not been convertible into gold for 34 years.

Yet, people still take it as though it were as good as the yellow metal - only better. Ultimately, lending money to a foreign government is a bet that the government will put the squeeze on its own citizens to make sure you get paid. The United States doesn’t even have to squeeze. When one foreign loan comes due, other foreigners practically line up to refinance it; it is as if they were bringing pastries to an extremely fat man, just to gawk and wonder when he might explode.”

-Bill Bonner The Daily Reckoning

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TAMPA - Matthew B. Cox and Rebecca M. Hauck were dubbed the Bonnie and Clyde of mortgage fraud, accused of brazenly stealing identities and forging documents in several southern states to make off with more than $1-million.

Now, Bonnie is behind bars.

Hauck, 34, a former legal secretary who left behind a young son to join Cox, was arrested by the U.S. Secret Service last week in Houston. She awaits transfer to Atlanta for arraignment on a 42-count federal indictment that could subject her to more than 400 years in prison on charges of conspiracy, wire fraud, bank fraud, money laundering and use of stolen identities.

Clyde, meanwhile, remains on the lam.

Cox, 36, a former University of South Florida art student, aspiring author and one-time Tampa mortgage broker, is named in the indictment with Hauck and faces the same charges. But he is also believed to be the mastermind of a wide-ranging mortgage-fraud scheme in Tampa being investigated by the FBI.

Two of Cox’s associates already have been convicted of fraud charges in Tampa and sent to prison, and a federal prosecutor told a judge last year that as many as 13 more persons face indictment in schemes involving the use of phony records on dilapidated homes in Tampa Heights and Ybor City to defraud lenders of millions.

In Atlanta, U.S. government prosecutors hope Hauck will provide clues to Cox’s whereabouts.

“Sentencing provisions provide for the possibility of leniency for cooperation,” said Gale McKenzie, an assistant U.S. attorney in Atlanta. “We would still very much like to know where Mr. Cox is.”

The 63-page indictment against Cox and Hauck, unsealed and made public for the first time when Hauck was arrested on March 21, alleges the couple began a 22-month interstate crime binge in late 2003, crisscrossing Georgia, Florida, Tennessee, Alabama and the Carolinas to steal identities, set up mail drops and apply for credit using counterfeit IDs.

Cox, using an array of real and invented identities, has frustrated federal agents by managing to disappear each time an investigative noose was being tightened.

In Tampa, where he was already on probation for fraud and grand theft, he used the aliases Brandon Green, James Redd and others to sign for more than $2.7-million in fraudulent loans, according to court papers. He vanished in December 2003, around the time the St. Petersburg Times published “Dubious Deals,” an article detailing questionable real estate transactions by an Ybor City investment firm called Urban Equity, where Cox worked as acquisitions director.

In Atlanta, Cox and Hauck established headquarters and adopted new identities for a new round of fraudulent loans, the indictments say. Cox stole the identity of Gerald Scott Cugno, a Tampa mortgage broker who had worked with Cox for several years. Hauck took the name of Michielle V. Joseph, a former in-law, before becoming Grace E. Hudson, who checked in to an Atlanta plastic surgery center for a $12,000 facelift to change her appearance, authorities said.

By the time Georgia residents discovered they had been victimized, Cox and Hauck were in Columbia, S.C., where Cox was using phony names to sign for new loans. Tipped off by a suspicious attorney, authorities in South Carolina actually had Cox in custody for questioning. But no one realized who he was. Cox was released and vanished again.

Officials were keeping mum this week about whether Cox and Hauck were still working together when she was arrested in Houston.

The indictments of the couple reveal a systematic approach to enrichment with a mind toward avoiding detection by committing illegal acts in two or more states at once.

On Jan. 29, 2004, for instance - just weeks after leaving Tampa - Cox traveled from Georgia to Tallahassee and used a stolen identity to rent a home owned by Theresa A. Knight at 1537 Procter St.

Eleven days later, according to the court papers, Hauck paid for a mail drop at the UPS Store outside Atlanta. For ID, Hauck presented a fake Florida driver’s license in the name of Theresa A. Knight, the Tallahassee homeowner.

On the same day, Cox again traveled from Georgia to Tallahassee, this time making a stop at the Leon County Clerk of Courts. There, he filed a counterfeit satisfaction of mortgage form with forged signatures, thus creating the appearance that a loan previously made to Knight on the Procter Street home had been paid in full. The satisfaction form lacked the required corporate seal, but it worked.

Now, it was time to assume the identity of Knight and apply for a new mortgage loan on the Procter Street property. On Feb. 23, 2004, the indictments say, Hauck faxed information for an application for a $53,000 loan to a bank in Davie. The application, in Knight’s name, gave a phony employer and listed Knight’s address as the mail drop previously established by Hauck.

A week later, Cox and Hauck drove to Tallahassee for the loan closing, where Hauck signed the loan documents in the name of “T. Knight.” At Cox’s request, the loan proceeds were disbursed in several names - all stolen identities - and then deposited in accounts set up in those names.

On March 17, 2004, about six weeks after the fraud sequence had begun, Cox and Hauck appeared at the Swan Center for Plastic Surgery in Atlanta. Cox tendered an $11,545 cashier’s check from the fraudulent Procter Street loan to pay for Hauck’s facelift. Again, both used identities stolen from others.

The strategy, perfected by Cox in Tampa, according to court records, was repeated in the metro Atlanta area and later in South Carolina.

In every case, lenders were left holding loans made to mythical borrowers on real estate actually owned by someone else. Victimized homeowners faced the real possibility of a foreclosure suit on the loan Cox and Hauck would never repay, and as a consequence, ruined credit.

For Bruce and Bridget Brown, it was even worse.

The Browns agreed to make a short-term $201,000 loan to an earnest young businessman named Gary L. Sullivan to facilitate Sullivan’s purchase of their Sandy Lake Road home in Columbia. Until a call from the FBI, the Browns had no clue that Sullivan was actually Cox.

Records show a phony satisfaction was filed appearing to show the $201,000 loan paid in full. That paved the way for Cox-as-Sullivan to apply for three new loans on the property.

The Browns were left without title to the Sandy Lake Road home, now with new mortgage liens on it, and a $201,000 note signed by Sullivan that is all but worthless.

“I’m living in the middle of a nightmare,” Bruce Brown said.

Cox did not get away with all the money he’s accused of taking.

The Secret Service, tracking the various aliases used by Cox, discovered several bank accounts in the phony names and recently began court action to claim the funds by forfeiture.

The cash, totaling $239,856, was left behind in eight accounts at banks in three states. The favorite alias was Gary L. Sullivan. Government agents found an account in that name with $28,884 in Greenville, S.C., another with $35,363 in Fort Lauderdale and a third in the Sullivan name in Marietta, Ga., this one containing $168,957.