Wednesday, May 8, 2019

Commentary: 'The House on Lake Minnetonka That Never Existed' by Aaron Clarey

A Tale of Two Lakes 

Allow me to regale you with the tale of two lakes - Lake of the Isles and Lake Minnetonka.

Many years ago, when the Captain was but a wee corporal, he was attending the University of Minnesota- Minneapolis.  Close to the campus was "the lakes." "The lakes" included four lakes that were chained together and formed the "crown jewel" of the Minneapolis parks system.  These lakes were:

Cedar Lake
Lake of the Isles
Lake Calhoun, and
Lake Harriet.

These lakes served as the hub of nearly all outdoor summer activity in Minneapolis and to this day remain the most popular part of the Twin Cities to be during summer.  But of the four lakes "Lake of the Isles" was the most prestigious.  Here the "old money" captains of industry built their Minneapolis mansions in the 1880's and 1900's, and thus Lake of the Isles is perimetered by beautiful mansions and even some modern day ones as well.

Because of its proximity to the campus me and my friends would regularly bike and run around this lake.  Not only for the beauty of the lake, but the architecture of the houses that surrounded it.  And even though one would prefer to run around this lake during summer, one of my fonder memories of the Twin Cities was running around Lake of the Isles at night during winter.

Even though it may have been -5 outside, I still enjoyed running around Lake of the Isles because it gave me my goal, my inspiration, and my incentive to work hard and study hard in school.  I did not come from wealth, but at night (and not in a creepy, stalker type sense) many of the mansions would have their lights on allowing me to kind of peer into these homes and wonder about what life was like on the inside.

What was it like to have a nice warm home and not sleep in a basement?
What was it like to have so much wealth you didn't have to worry about student loans?
Is that a wall oven I see?  Is the wife of that home making dinner?  Gosh, a home cooked meal would be great.
And forget dinner, I bet those people have nothing to worry about. They're RICH.  They got it made.

It also helped that while running during winter it was usually Christmas time, allowing my mind to further wander and dream, speculating about awesome Christmas gifts, nuclear family meals, perhaps sitting down and watching the Charlie Brown Christmas Special.  And adding to this spectacle was that (at least in the 90's) nearly every house would put up an impressive display of Christmas lights.  I may had been the only fool running around Lake of the Isles at 10PM in -5 degree weather, but it was and remains today one of my fondest memories.

Enter in Jeff.

I met Jeff through a tango dance class and he lived on a lake called "Lake Minnetonka."  I had only heard of this lake before, but never had the time nor inclination to go visit it (as it would turn out I had gotten lost on my bike one time and meandered across one of its bays by accident when I was 18, but at the then age of 25 I had yet to knowingly visit it).  He was having a party on his boat and was going to take some friends out on the lake and wondered if I would like to come along.  Having been on my fair share of pontoon boats in Wisconsin, I though "sure, fun little boat, fun little lake, grand ole time."

Little did I know what I was about to see.

For Lake Minnetonka is not some "puddle" in the middle of Wisconsin.  It's a large, vast, multi-chambered, multi-bayed monster of a lake.  It's so beautiful and has so many tucked-away bays that it was the number one vacation destination of the United States before the national parks were started.  It had an amusement park on an island for a couple decades.  Ports that steam ships could travel inbetween with luxury hotels at each stop.  But the most impressive thing about this lake is not so much its size or its rich history, but the incomprehensible level of wealth that it has attracted.  The houses mansions that are built on this lake are as numerous as they are spectacular.

And they put to shame the paltry shacks I was once enamored with on Lake of the Isles.

What I was witnessing was the difference between "old money" and "new money."  The beautiful pieces of architecture on Lake of the Isles were built by "old money."  The Dayton's, the Pillsbury's, the General Mill's, the Phillips.  But they were outdone (by technology and economies to scale) by the Cargill's, the Carlson's, the Petter's and the Hecker's.  But regardless of whether it was a house on Lake of the Isles or a mansion on Lake Minnetonka, at this point in my life I was slowly realizing that the real world was not going to allow me to achieve what I had desperately worked for.  I chose my profession poorly, and no matter how hard I would work, banking was just too inefficient, corrupt, and nepotistic that instead of starting to squirrel away money for a house on Lake of the Isles, I was hoping to just get enough money to afford groceries that month.  Alas, all the houses on Lake of the Isles would remain a movie-like dream I would run through my mind as I'd run around the lake, while the houses on Lake Minnetonka would be just a laughable, comical, even cartoonish delusion of wealth, stability, and happiness.

But then something happened.

Look Under the Hood

While I am an absolutely horrible banker, I am exceptionally good at finance and economics.  To be a banker requires you wear a suit, you have an IQ below 110, you focus on sales, and become a "wheeler-dealer-idea" type of guy.  You play the game, you play ball, you suck cock, and you kiss ass.  You do anything and everything you can to avoid real work, real detailed analysis, or anything that would take thought or effort, yet portray yourself as a "business man" too busy to be bothered with details and who is the powerhorse behind seeing "the big picture" and "getting the deal done."  I say this not because I hate bankers or have a score to settle with them.  I say this because I hate bankers, have a score to settle with them AND it's also true.  Bankers are truly inferior, incompetent, scumbags. And I'm not joking in the slightest when I say most should be shot.

However, even though I was horrible at being a banker, I was still hired on in 2006 to work at a bank as an analyst and economist.  And where did this bank happen to be?

Lake Minnetonka.

It looked like I was actually going to get a peek into the world of "laughable, comical wealth."

But while I was under the impression our clientele would be rich people, high-networth individuals, and millionaires with houses on the lake, the reality was something completely different.  And not only different, but a bizarro world different where things just didn't make sense.

First, nearly every commercial client we had would pull up in a luxury car.  A Mercedes, a BMW, a Maserati, and (if you were of the female persuasion) a Range Rover. Invariably it would be your "stereotypical middle aged white man" who presumably epitomized wealth, riches, and success, but when you looked at their balance sheets, income statements, and tax returns, they were anything but.  ALL their cars were leased, their loans and lines were maxed out, they were coming to the bank to ask for more money, and there wasn't a sliver of equity in their homes.  Yes, their homes were on Lake Minnetonka. Yes, their homes were worth $4.5 million.  But when you added up all their assets and all their liabilities, they would have $5 million in assets, but $6 million debts. Most waitresses I  knew had a higher net worth than most of these guys living on Lake Minnetonka.

Second, there was no money, cash flow, or profit.  I was under the delusional belief that in order to be rich, in order to have assets, somewhere, some how, you had to make an income of some sort to build up the cash to purchase things or at least invest in them.  And maybe you wouldn't pay 100% cash for a $3 million house, but you'd likely be making $450,000 a year to qualify for the $2.5 million mortgage you'd need to pay for such a house.

Nope.  Cash flow and profit were ne'er to be seen at this Lake Minnetonka Bank.

The tax returns would show losses (but I was assured that's because they were "trying to lower their tax bill.")
Their audited income statements would also show losses (but that's because they were section 179-ing some major capital purchases)
Their cash flow statements showed a bleeding of money (but that's because this one year was a bad year and Jim hadn't paid him yet). 
And their cash accounts would be perpetually overdrawn (suggesting to me there was no profit in the first place and their financial statements were bupkis anyway).

In short, the only way these "successful Lake Minnetonka millionaires" had any assets was they borrowed stole other people's money from our bank of which they had no ability nor intention of every paying back.

I could go on with details about the horrifically poor state of these "rich people's" finances, but the larger point is that out of ALL the clients we had at this Lake Minnetonka bank, only...


we actually "rich."  Let alone rich enough to live and afford a house on Lake Minnetonka.  The rest were all posers using other people's money to act rich.

Here Comes the Boom

I was hoping it was just this one bank I worked for, but I knew better.  The other banks I had worked for had equally appallingly bad clients and equally appallingly bad finances.  And you didn't have to work for a bank to look at their finances.  You could go to the FDIC and look at their institution directory and see that ALL banks were making horrible loans to horrible people and were using over-inflated properties to collateralize them and finance their money-losing "businesses."  OREO, delinquent loans and loans in default were going up as a percent of bank's portfolio.  When I'd audit appraisals I'd see the most outlandish assumptions and lies just to "get the valuation" needed to "magically" make the loan to value at 80%.  I'd ram heads with gray haired baby boomer bankers who I knew were desperate to get their 2% commission on dead-deals because I knew they had just signed the lease on a Mercedes themselves to impress wifey-poo.  And when the president of our bank said, "We're going to lend out way out of this mess" in 2007 I knew we were in for a world of hurt.  It wasn't until one of my bankers got a visit from an FBI agent did I really realize just how totally and utterly fucked this Lake Minnetonka bank was.

From 2007 on you all know the rest of the story on a national level.  But locally the "stars" of the Lake Minnetonka scene were quickly falling.  Tom Petters - a "successful Minnetonka businessman" - was busting on the largest financial scandal in US history ( that is until Bernie Madoff outdid him).  Local auto-magnate and Lake Minnetonka property owner, Denny Hecker was also ensnared by the Great Recession, landing him in jail.  Local Minnetonka celebrity realtor Adam LaFavre ran into trouble.  And though I never knew his name, there was a local guy who drove a yellow Lotus sports car.  I even remember seeing him in the local Lake Minnetonka "elite-look-at-us-rich-people-masturbation" magazine in articles such as "Thadeus McThadeusson, local playboy extradorinaire is hanging out with Bambi Bamberson in his iconic yellow Lotus."  His Lotus and himself quickly disappeared once the recession hit.  I guess my local waitress had more equity and cash in her accounts than he did.

Lake Minnetonka anecdotes aside, it wasn't just local celebrities that were biting the dust.  During the Great Recession a ton of "for sale signs" went up on properties all around Lake Minnetonka.  The bank I worked at got taken over by the feds, their executive team and board replaced.  Our competitor on the "other side of the lake" also had to close up shop.  And there were a lot less boats at hot spots like "Lord Fletchers" and "Sunsets" (popular places people with other people's money like to spend other people's money).  It wouldn't be until a full decade later of money printing and artificially low interest rates would Lake Minnetonka return to normal, but the sheer amount of for sale signs, foreclosures, drop in boat traffic, piss poor financial statements, and other economic indicators in 2008 showed me that this "laughable, comical, cartoonish" level of wealth I saw on Lake Minnetonka was precisely that - it didn't exist. Nearly every house on Lake Minnetonka was a house of cards built on debt and only a very few people who lived there actually had any cash flow or genuine wealth to the level they could legitimately claim they could AFFORD to live on Lake Minnetonka.

Return to Lake of the Isles

By this time I had moved out of the Twin Cities and would only return to get Sebastian Joe's ice cream, Rumpleminze at Mancini's, martinis at Jax's Cafe, or whiskey at Lee's Liquor Lounge. However, a run around "the lakes" had become a tradition for me and if time permitted it, I would run it.  And in 2008 what was happening on Lake Minnetonka was also happening at my beloved Lake of the Isles.

For sales signs were up.  Some foreclosure signs too.  I recall a house or two that had construction stalled and were temporarily boarded up.  But unlike Lake Minnetonkans where their borrow-and-pray strategy was failing, the Lake of the Isles-ians were simply running out of trust-fund money.  These homes were built long ago on business empires that were sold long ago.  And unless you were a lucky baby boomer like Mark Dayton and they empire your grandfather had left you was in the billions, many-o-baby boomer trust funders were simply unable to afford the egregious marxist property taxes they kept voting in upon themselves.

But whereas the "for sale" signs on Lake Minnetonka was vindicating for me, the "for sale" signs on Lake of the Isles were somewhat stinging and depressing.  15 years previous I had ran around past those homes scores of times, viewing them as invincible castles of wealth, prosperity, and stability.  They were the foundation of what I wanted and what I built my dreams off of.  I wanted the warm, cozy fire on a -5 Christmas Eve night.  I wanted the nuclear family that was SURELY in that home, with a beautiful wife who could be cooking for me.  I wanted those awesome Christmas gifts.  And I wanted the millions of dollars that was SURELY in the bank account that would ensure I would never have to worry about affording food, lodging, clothing, or a heat bill ever again.

The "for sale" signs and "foreclosure" signs made me realize these houses, and thus my dream, was never a reality, and thus a possibility.  The warm lights at night I saw were not reflecting upon a stable nuclear family, but a standard, typically baby boomer couple who were likely going to get divorced.  The fire place I saw was not heating up a stable nuclear family, but a spoiled rotten brat family whose trust fund had made their kids soft and likely on drugs.  And the perfectly ordained Christmas lights were not put up because of any kind of Christmas cheer, but perhaps a competition to keep up with the "Pillsbury the IV" or a "Dayton the VII."  Like other people who inherited their wealth, it was soon squandered and any stability I thought I saw was never there.

The House on Lake Minnetonka That Never Was

Even with my dreams dashed in front of me, running around Lake of the Isles in 2007, it wasn't until a full 9 years later did I fully comprehend, recognize, and appreciate the importance of the lesson presented to me at that time.  I knew I was sad.  I knew it was depressing to see those houses and what I thought was in them go away.  But it didn't fully crystalize into an understandable epiphany for my frontal lobes to understand concretely until I was on another boat 9 years later on Lake Minnetonka.

This time it was my buddy Bob's boat.  We were riding with his parents who were one of the lucky few to actually OWN AND AFFORD a house on Lake Minnetonka.  It was a beautiful summer evening, no mosquitoes, no wind, and thus a smooth-as-glass lake to ride across on this small, humble pontoon boat.  A couple beers in we were just skirting the shoreline.  Bob's folks were telling us about the different houses and the neighbors.  And while nothing particularly interesting was said aside from when the house was bought, or whether they were nice neighbors or not, when we got to a particularly nice looking house Bob's mom said,

"Oh, that's the Johnson's house.  That poor woman.  She'll never make her business go."

I asked, "What's her business?"  To which Bob's mom said, "Mary Kay."

It took a bit to register, but I looked back at the house as we had passed it.  Here was this $400,000 McMansion of a house.  The property of which it sat on was easily $2 million.  And the wife of the household is selling Mary Kay?

Then it finally hit me.

Be it a house on Lake of the Isles or a mansion on Lake Minnetonka, every expensive, beautiful house is like this.  Nearly every house - whether it's a mansion, a McMansion, a castle, or palatial estate - every house is a house of cards, a display, an act, a facade.  Very few people actually have the money to own their houses (like Bob's parents), but even if they did the Norman Rockwell life we picture inside these homes does not exist.  90% of the case because they money really isn't there.  It's just borrowed money they don't have.  But also because in 90% of the cases the people themselves are not who we imagine them to be.  They are divorced, on the verge of bankruptcy, trust fund babies, from broken homes, running money-losing hobbies, constantly fighting against one another, banging the secretary, banging the pool boy, or relying on Mary Kay to make ends meet.  And while as a young person you may understandably be led to believe that a rich house and the life you think you see in it is what you want, it's more important you understand how statistically unlikely that is, but also how the people and personal life you lead is more important than the house you have.

Many years ago as a kid I would be invited to another kid's birthday party.  We would go to their house and every time I was excited that the house had two things:

1)  A color television
2)  A second story

Throw in a bunch of toys these kids had in the garage, and I thought these kids were rich.  Perhaps they were, perhaps they weren't, but in each and every instance those kids' folks inevitably got divorced.  Some filed for bankruptcy.  And whatever dream-like wealth, happiness, and stability I thought was there was gone.  Worse, it was never there in the first place because no matter whether you have a television or not, a second floor or not, or a garage full of toys or not, it was the minority of instances you had a stable, loving family that did not get divorced or have problems.

This has two major ramifications that will help you out in life, especially if you are younger and just starting to assess what you would want most out of life.

First, do not focus on what society tells you you should want.  There's nothing wrong with beautiful homes, rich homes, even palatial estates if you can afford them.  And there is nothing wrong with actually being rich.  But unless these homes house stable, loving relationships either through the form of a family or spouse, it doesn't matter how beautiful or expensive the house is.  You will be miserable.  Additionally, unless you are one of the rare 10% who can actually afford your home, then that home will simply become the financial bane of your existence making your life infinitely worse, even if you do in fact like on Lake Minnetonka.  Yes, I'm sure it was nice living on Lake Minnetonka or Lake of the Isles either on trust fund money or borrowed money for that short decade you lived there.  But once it ran out and you had to return the Lotus, your life will forever be inferior henceforth.

Second, envy.  I cannot emphasize enough how envy, jealousy and greed ruins millions of people's lives.  You simply see somebody who you THINK has more than you and at best you envy that person to become like them, but more likely you envy that person and hate him.  That jealousy and hate is not only going to ruin you and lessen your life, but there TRULY is nothing to be jealous or envious of.  For every rich, middle aged, gray haired white guy you see driving a convertible Porsche this summer, I'll show you a car loan at 11%, a credit score of 540, alimony payments to a former trophy wife, children who hate him, and an old man who knows he's dying and is vainly trying to give his pointless, meaningless life value with a car he can't afford.  For every trophy wife soccer mom driving her SUV to the nail salon, I'll show you a 38 year old woman who is deathly afraid of growing old, deathly afraid of her husband running off with a 28 year old, who is STILL in the middle school mentality of playing "queen bee" of the social world who actually thinks buying Prada shoes or Gucci handbags gives her statusm AND has to suck dick of a guy she doesn't particularly like because her degree in "Sociology" from St. Kates won't compensate her for the allowance and spending account her husband gives her (which he borrows from the bank of course).  These people are just one recessionary hiccup away from losing it all and losing face in front of their equally insolvent and vain faux-rich friends, and what's sad is that "facade," that "face" is all they have in life.  Trust me, you don't want to envy them.

What I recommend instead is you focus your efforts, resources, care, and love on your fellow man and surrounding yourself with good, quality people in your life who make you happy.  You do not focus on material things be it a car or a house, let alone one that is not truly own, and instead owned by the bank.  Because if I learned anything from those houses on Lake of the Isles or Lake Minnetonka it's that

the wealth never existed
the stability was never there
and the happiness was all but a facade.

Enjoy the decline.

Editor's note: This article was originally published at Captain Capitalism and has been rerun with permission.