Counterpunch: The housing crash, the environment, and the way forward

August 29, 2007

So far, environmentalists have been silent on economic and political calamities tied to the housing bust. One could not expect otherwise. Environmentalists may be natural conservatives, but they are not natural capitalists.

The way forward is first of all to understand the nature of the opposition, usually painted by special interests as “what the market wants”.

What the implosion of credit markets reveals, in particular related to home mortgages, is that the development patterns that engaged environmentalists in futile struggles during the housing boom now in cinders was not what the market wanted so much as what could be financed.

Environmentalists don’t need to become financiers or economic experts to decode the way forward: what they do have to do is understand that the better way to provide for growth and economic development is to demand that the securitization of home mortgages should take into account all the costs to the environment.

Putting the sharp regulatory pen to America’s vast market for housing along the lines of what benefits the environment would be anathema to so-called conservatives who made fortunes during the housing boom by wringing maximum productivity from the mass marketing and efficiencies of production home building on cheap land.

On this point, though, environmentalists need to be very clear: suburban sprawl as represented by platted subdivisions far from places of work represented the biggest subsidy ever given to any industry by the federal and state government. It wraps up billion dollar bonuses to Wall Street financiers and the budgets of the US Department of Transportation. And it turns out to wrap up trillions of dollars worth of toxic debt to investors.

In recent days, the Federal Reserve has opened the spigots hoping to ease the credit crisis in the United States. But the fallout from the housing bubble and crash is not over by a long shot.

Environmentalists need to make the case to the American people that we, the taxpayers, are becoming the lenders of last resort to a failed scheme for developing the American landscape that put hundreds of thousands of communities at risk, not to mention ecosystems, species and habitats.

The scale of financial devastation is all over the news. But the devastation to the environment has scarcely been mentioned. That imbalance must be redressed.

Environmentalists–who have been shut out from Wall Street and its important business with government in creating unsustainable debt–should do exactly as foreign investors are trying to do, today, according to a New York Times report, “Calls grow for foreigners to have a say on U.S. market rules.”

“Politicians, regulators, and financial specialists outside the United States are seeking a role in the oversight of American markets, banks and rating agencies after recent problems related to subprime mortgages. Their argument is simple: The United States is exporting financial products, but losses to investors in other countries suggest that American regulators are not properly monitoring the products or alerting investors to the risks.”

The products in question, environmentalists need to understand, are trillions of dollars of mortgages pooled from a building boom defined to a large extent by subdivisions whose low prices and homogeneity are not just because they were allowed to be built in wetlands or farmland but also because they conformed to financial formulas that allowed them to be priced at a “reasonable risk” while offering higher returns, or yields, than conventional debt.

On the retail side of the mortgage equation, liar loans and mortgage fraud ruled the day. On the wholesale side, the return on investments to indifferent investors depended on deliberately omitting “external costs” like environmental impacts–or those related to civic concerns like overburdened infrastructure, traffic, schools, and water supply.

Understand that it is as much within the rights of environmentalists to demand that underlying financial instruments should be regulated and marked to risk of species and habitat loss or poor integration with surrounding infrastructure as it is for foreign investors to ask for accountability.

“Banks and investment funds from China to France suffered losses after buying mortgage-related securities and complex financial products based on them in the United States.”

It’s true. And it is also true that the US taxpayer, as the lender of last resort, has suffered massive losses to quality of life and the environment without really understanding the complaints of foreign investors is the same as theirs.

If “moralizing financial capitalism” is going to happen, as suggested by the President Nicolas Sarkozy of France—and should—then environmentalists should prepare themselves to be at the head of the line to testify to House and Senate banking committees.

It is perfectly reasonable, for instance, to ask that rating agencies be required to penalize securitized mortgage pools that include “assets”, ie. subdivisions, built on wetlands or in buffer areas for environmentally sensitive lands like the Everglades.

The French finance minister gets the last word in the New York Times article, “Once the dust has settled we will see where the different powers stand and what will be on the bargaining table.”

If environmentalists are smart, they won’t waste a minute getting to that bargaining table—and if not invited then forcing their way in, because the home building lobby will be standing with arms-crossed barring entrance the way it always has.


Counterpunch: The pain of the paper millionaires, The housing crash, dissent, and the next president of the US

August 23, 2007

“Everybody just standing round ‘neath the tree shooting pigeons on the limb,
But when Quinn the Eskimo gets here, them pigeons will go to him.”

The Mighty Quinn, by Bob Dylan 1967

A thousand and one bearish pundits have been leaping on the staggering bull of the stock markets. Even the presidential candidates are on the sidelines, wondering how to place their bets.

The bull rises to shake them off, nostrils flaring. The infusion of hundreds of billions by the world’s central banks lubricates its joints.

This is what taxpayers must want, for the world central banks to be commanding liquidity and the printing presses forward, faster, harder. It is a great bull that can summon such resources.

But is there a plan? Is there an end in sight? Is there a candidate to be president who can seize the moment as millions of Americans worry for the value of their homes?

Losses in hedge funds and investment banks around the world dwarf the last great financial debacle, nearly a decade ago, when Wall Street and the Federal Reserve came to the multi-billion dollar rescue of one of their own, Long Term Capital Management.

The news is filled with investment banks and mortgage firms announcing big layoffs. Still it will take months even quarters for the extent of damage to world debt markets to reveal, with so much investment tied up in hedge funds and private equity opaque even to investors.

It is a seeming paradox: how federal regulators are fanning across Wall Street like NIH teams sniffing for bird flu, while financial executives egg on the bull: “confidence is returning to credit markets”.

What else could they say and who would listen, given that fellow citizens never cared much about tomorrow so long as their gas tanks can be filled at a reasonable cost today. That is what the presidential candidates know to be true.

But this is what I know to be even more true.

For a decade, the state of Florida has been sniffing glue from the paper bag of the multi-billion dollar construction and development industry. This is not hyperbole.

From the governor’s mansion to the state legislature, straight down to the scurrying and scratching of local city and county commissions, the thrall of the bubble in Florida has most people and media casting a wistful glance backwards in time.

Meanwhile, the Everglades and tens of thousands of acres of wetlands and billions of dollars in coastal real estate have turned forever pale. Aquifers are so depleted in sandy parts of the state that the local growth industry is sinkhole insurance.

This is how the confused dream of compassionate conservatism—exemplified by former Governor Jeb Bush—played out: that the best way to “protect” the environment is through economic growth and stifling dissent by the way.

So it is no surprise that Florida is hip-deep in red algae washed ashore, furious environmentalists, and the dominant concern of the Chamber of Commerce is; can’t we just get the machines, and the graders, and the nail guns going again?

No, we can’t. Not until there is a discussion about what forms of economic growth can sustain and nurture a democracy that is wobbling on its knees.

Of course Americans are so conditioned to passivity bred by the triumph of the inconsequential that accountability has more or less disappeared as an anchor for democracy.

But nothing hurts like a recession or worse. Now is the time for dissent.

Incipient anger is rising in the United States, but the deep stresses underlying the world’s largest economy, transformed by the force of globalization, remain poorly observed.

Here is the simple version: as jobs and manufacturing poured from the American heartland to low-labor cost nations like the tide ebbing at the Bay of Fundy. (click here, for a visual representation:, the US economy became increasingly reliant on growth generated by housing and construction: a stool built on two legs.

This was the genius of the Republican gains in Congress and control of the White House: the growth machine provided political contributions through the funnel of construction and development, primed by historic low interest rates of the Federal Reserve and marginal, ineffective supervision of lending practices and financial derivatives.

Critics of this point of view argue that the dispersion of risk, through derivatives, is a net good to society, making global economies safer: that is only true if risk is clearly priced. But there are so many external costs of growth—like carbon emissions—that are not included in pricing risk, that even if financial derivatives were clearly packaged, the underlying models still won’t work.

Others argue that technology and productivity gains represent important fuel for economic growth: the third leg of the US economic stool.

But technology gains serve the American consumer whose purchases are determined, mostly, by preferences in housing and construction.

The epitome of these preferences, suburban sprawl, is described by advocates as “what the market wants”. Clearly, humans were not created to live in zero lot line subdivisions: suburban sprawl is what the market can easily finance, not what the market wants.

Patterns of construction and development in the US act in the same way as chutes for cattle: steering, herding, moving Americans into strip malls, platted cul de sacs, and cities serving the purposes of automobile executives and not ordinary people who haven’t been blessed by sales training programs, seminars, and other techniques to market features as benefits and wants as needs.

In this sense, the gains to the economy from technology and productivity represent a better-designed chute.

That the two-legged stool has been sold as a three-legged stool is no less remarkable than the conversion of an ordinary mortgage by Wall Street bankers and fresh-faced MBA graduates into structured financial derivatives worth ten or a hundred times the original value.

Democratic and Republican candidates to be president might be vaguely or even acutely aware that the crisis in the nation’s housing markets has something to do with billion dollar bonuses garnered by Wall Street executives goading armies of lawyers, consultants, and engineers; teams that conjured an ocean of debt from the hard labor of American homeowners and workers, not to mention unions largely oblivious, as unions are to any other way of doing business.

“An unstoppable force!” is what Jeb’s former campaign finance chief, Al Hoffman, called the growth machine to the Washington Post in 2003.

And even though the engine of growth in Florida is sputtering as elsewhere, even though Al Hoffman is ensconced in a sinecure ambassadorship in Portugal, even though Hoffman’s company, WCI Communities, staggered into an agreement earlier this week with corporate raider, Carl Icahn, even though another sinecure ambassador, from the era of George HW Bush, Charles E Cobb Jr., is vice-chairman at WCI; no one became king, recently, by arguing as prince that something is rotten in the heart of Denmark.

And so, let dissent help interpret what is happening in world financial markets.

Firstly, understand that attributing the world-wide credit debacle to lowest quality home mortgagees, represented as “subprime”, is a red herring.

If the credit derivative problems are contained to homeownership—and that’s emerging to be a big ‘if’—who is really of consequence are America’s paper millionaires, numbering according to Marketwatch in 2005, 8.9 million people. Many of these paper millionaires are readers, wondering if they have bitten off in housing expense more than they can chew.

Since so much of the American economy is wrapped up in housing and construction, whether these paper millionaires are valuing their holdings as real estate wealth or stocks of companies like Home Depot or Countrywide Financial or Thornburgh Mortgage: the pain of the paper millionaires has yet to be accounted for in the presidential campaign.

Secondly, be sure in the knowledge that the reading public is only getting half the story as world-wide financial markets pulse with uncertainty.

We know as much about what is going on today in consideration of the risk to the global financial system as the public knew about Jekyll Island in 1910 or Quinn the Eskimo in 1967.

The problem of financial derivatives is a lot like taking several origami models made of paper, unfolding them, laying them on a single plane, cutting them into four squares, shuffling them, and asking teams of lawyers to put them back in their original shapes as cranes or butterflies.

Wall Street appears to believe that lowering the key interest rate of the Federal Reserve is a better task. It certainly is an easier one.

What’s wrong is that the federal government allowed financial institutions to spin without friction solid assets into a confection of liabilities so complicated, so vast, so difficult to unwind, that world credit markets are in a “coalition of the willing” whether they want to be, or, not.

The world’s biggest sumps for excess liquidity—China and oil producing nations—are struggling to keep their own demons in check.

That a Fed interest rate cut, or even a series of cuts, could lure the American consumer from his or her home into more debt–or help to elect the next president of the United States–makes very little sense.

Counterpunch: Housing crash to reverse in 64 years

August 21, 2007

It’s a big project, replacing all the sand that is washing away from Miami beaches.

One way or another, taxpayers have spent more than $125 million, in just a couple of years, to put back what nature is taking away. Now, a new dilemma has cropped up; there’s not enough sand left in Florida for the job.

My suggestion is to start pumping the sand from between the ears of elected officials who presided over the housing boom, now in cinders here and everywhere.

The weekly Miami Today reports of Brickell Avenue, the downtown Miami corridor, where four developments planned for completion in late 2008 would increase the area’s total condo inventory from 5,348 to 12,299 units.

“Only nine condos closed from June 19 to July 18,” according to one professional. “If that pace continues, absorbing the entire projected inventory would take up to 64 years.”

64 years?

We are not aware of a single elected official, in Miami or in Washington, DC, who raised the question whether or not it was advisable to zone and permit a construction frenzy that has rapidly unspooled into a world-wide credit crisis involving hundreds of billions of dollars.

How did it happen?

You see, removing brain matter and replacing it with vast amounts of sand is the highly profitable business of American democracy.

The roots of the empty Miami condos soaring to the skyline are buried deep in the arterial system of Wall Street where inventive financiers, some still with baby fuzz on youthful faces, proliferated liquidity out of thin air with the encouraging support of the nation’s grey-haired financial overseers.

On either side of massive fees, commissions and bonuses are the suckers: individual investors, teams of investors, and the plain old folk who bought into the condo craze in Miami, or San Francisco, or Las Vegas, or Pheonix, or LA, or Manhattan.

Don’t feel bad; the bigger suckers are on the other side of the deal. That would be distant investors persuaded by banks and financial institutions collaborating with rating agencies to purchase securitized debt instruments, like CDOs (collateral debt obligations) believing them to be credit-worthy investments.

An investment professional notes the scam as “the greatest bait and switch of ALL TIME”. In a letter to clients, he reports a conversation with a Wall Street insider. (Note: the following was also referenced in Baron’s financial weekly.)

“This individual proceeded to tell me how and why the Subprime Mezzanine CDO business existed. Subprime Mezzanine CDOs are 10X20X levered vehicles that contain only the BBB and BBB- tranches of Subprime debt. He told me that the ‘real money’ (US insurance companies, pension funds, etc.) accounts had stopped purchasing the mezzanine tranches of US Subprime debt in late 2003 and that they needed a mechanism that could enable them to ‘mark up’ these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!!! He told me with a straight face that these CDOs were the only way to get rid of the riskiest tranches of Subprime debt. Interestingly enough, these buyers (mainland Chinese banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, UK banks) possess the ‘excess’ pools of liquidity around the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the US in USD, 2) petrodollars.”

For non-financial readers, here is a primer: the housing boom, now in cinders, was not built on your desire for a new home, a bigger home, or any kind of home. It was manufactured by builders and developers and Wall Street.

After the internet bubble collapsed in 2001, the Federal Reserve initiated the series of interest rate cuts spurring the “ownership society” that manifested its last gasp in 2005, with an astonishing rate of mortgage fraud, liar loans, and collusion between bottom feeders and the wing-tipped crowd. Some 20 percent of subprime mortgages issued in that year alone are expected to collapse in foreclosures, ultimately affecting more than 1.7 million homeowners.

But to focus on the subprime sector–that is to say, buyers of lower priced homes–is a red herring. The bigger pools of blood are from buyers of credit-worthy financial instruments that are now essentially worthless on the secondary trading markets. The carnage is spreading to commercial financial derivatives, too.

If the quoted individual is to be believed then as early as 2003, the ‘real money’ on Wall Street knew that the only way to keep the Ponzi scheme going was to fob off the toxic mortgage waste on suppliers of cheap foreign imports and oil. Co-dependency is a bitch.

Which brings us back to Miami, where a rising sea laps the sand away and towering condos show the willingness of builders to build anything that can be financed and elected officials to allow the “free market” to have its way, so long as a spigot from the money flow is welded into their campaign accounts.

Miami Today reports that the local county commission chair, Bruno Barreiro, is asking for a resolution “urging the Army Corps of Engineers to expedite the authorization of foreign sand and for Congress to appropriate funds for county beach renourishment projects” since “no suitable domestic sand is available.”

Perhaps there is a solution, if the sand between the ears of elected officials is inadequate to the purpose of fighting off an indifferent sea.

Put the Army Corps of Engineers in charge of regulating financial derivatives sold on Wall Street, and put Wall Street financiers in charge of finding sand for the nation’s vanishing beaches.

I’m sure some public official can be found to serve that formula as “mission accomplished”.

Counterpunch: When Washington is far away as Lisbon

August 12, 2007

July 19th was a big day in Portugal for the US Ambassador Al Hoffman, former chairman of WCI Communities.

Secretary of State Condoleeza Rice was in Lisbon for a day-long visit. According to the Embassy website, she met with Portuguese Foreign Minister Luis Amado, who hosted a lunch, and the two took questions from reporters at a joint press conference afterwards.

The press—at least the press earning salaries in Euros—might have noted the irony of Ambassador Hoffman, former campaign finance chair for President Bush and for two-term Governor of Florida, Jeb!, in Portugal, a nation that can lay claim to a superpower past of its own.

Put another way, it’s the fall in value of the US dollar that permits the European press and every other tourist from Europe to visit American cities that are no longer affordable destinations for Americans, like Manhattan where the price of a good but average room has spiked to $600 to $700 a night.

Maybe the Rice stopover was just to refuel and lunch in a place friendlier than Iraq, or maybe it was a thank-you for Portugal being a member of the Coalition of the Willing until its small contingent was pulled in 2005.

Maybe the press should have thanked Mr. Hoffman, for helping make the US cheap.

By that, I mean the massive instability in the US dollar, not just from trade imbalances, but the effect of sequential speculative bubbles in the US economy–the last of which, in housing markets, is just starting to unwind.

Since Florida is the epicenter of the cratering mortgage markets, and since Florida-based WCI Communities and Al Hoffman were in the middle of cheerleading the frothiest housing bubble in modern US history, my questions would have been along those lines.

In the 16th century Portugal was hounded from its territories because other, bigger players in Europe got the same technology and had more weight to throw around the seven seas.

It takes a lot of weight to instigate a world-wide credit panic, built on the back of liar loans in America’s platted subdivisions, mortgage fraud, and more wing-tip brands of scamming. Not that WCI Communities offers anything but high class condominiums to qualified buyers who can’t be blamed, it’s not their fault, that development encroached on wetlands from all directions during the housing boom, with legislatures cheering from one end of Florida to another, and Mr. Hoffman and Jeb’s right hand–the chairman of Florida’s Council of 100–crowing to the Washington Post in its series on the Everglades, that development is “an unstoppable force”!

For that alone, Ambassador Hoffman should have got London, or Paris, or Madrid, don’t ya think?

Maybe not. Maybe the empire of Portugal is exactly the framework in which the former chief of WCI Communities places well, who only three years ago was on top of the world, a Bush loyalist consolidating campaign contributions from the development lobby and every engineering firm planning to reap windfall profits from the industrialization of Florida’s water supply.

WCI Communities was in the thick of the madness. It turns out that many investors in Europe, maybe even some in Portugal, were persuaded to buy mortgage backed securities that made the Florida condo market take off like Icarus.

Today, WCI Communities is a company with $2 billion in annual revenue that can’t find a buyer, at least not at an honorable price for its principal shareholders.

Yesterday, The Miami Herald reported on the company’s woes. Since early this year, the volume of buyers who abandoned deposits are roughly twice what the company forecast earlier, for 2007. WCI’s stock price has plummeted more than 70 percent in the past year.

Wall Street asserts that production home builders are stuck in a difficult cycle. The oracles also say that Florida—the epicenter of the housing market crash—and other states prone to real estate speculation like California and Arizona are containable problems that will not spread to the broader economy.

The Miami Herald report on WCI Communities cracks a very tiny window on reasons both these assumptions are not true.

“WCI is one of the few publicly-traded high-rise developers in Florida, so its reports are a rare view into an industry dominated by privately-held firms.”

Most consumers take the retail view of the housing crash: liar loans, mortgage fraud, and other shell games.

The wholesale view is something different. It’s wrapped up in private transactions that don’t make it to the financial pages because laws in the United States compelling disclosure simply do not exist.

President Bush has been trying to calm jittery markets. It is not clear whether anyone is listening. Among his sunny points on the economy, he assures the world that US employment remains strong.

But as economist Joseph Stiglitz noted recently, “By some reckonings, more than two-thirds of the increase in output and employment over the past six years has been real estate-related, reflecting both new housing and households borrowing against their homes to support a consumption binge.”

Who needs any more numbers and who cares, when Lisbon is so very far away?

Counterpunch: No one knows where anything is

August 8, 2007

Used to be, when you bought a home your mortgage was owned by a local bank. They were called savings and loans. The bank held the loan until maturity.

Maybe you did or maybe you didn’t know the loan officer. In time, the local savings and loan became a branch office of a bigger bank. But they held your mortgage. You knew where it was, and it was a plain vanilla matter knowing the return to expect if you invested in a share of a savings and loan.

By charter, savings and loans were conservative institutions. That is because real estate, traditionally, is a conservative investment. “Real”, as in tangible. “estate”, as in property.

In the past decade, Congress and Wall Street benefactors turned everything inside out: it was no longer enough for real estate to represent the most significant asset in most people’s lives.

Under loosened regulatory controls and the intent of “diversifying risk”, the Federal Reserve allowed credit to proliferate the way a genie conjures smoke from a bottle. Today your home mortgage is a data point to investors in mortgage backed securities or the synthetic instruments derived thereof.

The investors—who could be from Kalamazoo or Katmandu—have only a semi-tangible link to you: a rating agency.

Who knew the mortgage you owe disappeared into the ether of financial derivatives?

The mortgage your local banker used to underwrite is now used to proliferate credit in 10, 20, 100 times the mortgage value.

Your mortgage literally disappeared, and every time it disappeared it rained commissions to traders and Wall Street investment bankers.

Of course it’s not your mortgage alone: it’s hundreds of thousands, millions of mortgages from homeowners with similar credit profiles, square footage requirements, beds and bathrooms as yours, all mashed together in credit-worthy instruments that summoned interest rates higher than debt otherwise tied to US taxpayers and, so, of interest to investors.

But this is not how I came to understand the terror of the mortgage pools.

That happened differently.

A decade ago, I was driving to a youth soccer game at a park I had never visited in a platted subdivision in suburban Miami.

I knew roughly the coordinates of the park. But as I turned into the subdivision, covering many units of measurement and distance, there were so many cul de sacs and sections of the subdivision inaccessible from adjacent ones except through unmarked arteries I began to despair in the way Kafka might have with his son in the backseat of the carriage, hurrying to a recital.

I asked several people who were walking or stopped in cars: the field had to be less than a mile away, but every direction looked the same and not a single passerby knew that a field even existed there.

Eventually I found my way. I never forgot my informal roadside poll.

I had a similar experience, a few years later, on a rain-slicked night in Salt Lake City where suburbs materialized in the thin air from one visit of mine to the next.

At convenience stores on a congested suburban artery, I asked attendants where the nearest supermarket was. No one knew.

After driving aimlessly, I stumbled across one, a few stoplights and turns later.

Now you can assign various conclusions to these observations: that, Americans are idiots. Or that, Americans I meet are idiots. Or that, my sample polls are too narrow. Or that, I ascribe a sense of aimlessness to society where individuals are so busy being productive, we are doing our best while traveling our own alleyways of life.

Around the same time, I had another epiphany in a Florida town called Wellington. Again it was a youth soccer tournament in consecutive years at the edge of the Everglades that drew me in.

(You are wondering if I only have epiphanies at youth soccer tournaments near the Everglades. I promise, no more. There is a point: that southeast Florida has been so badly developed, with so little lack of concern for public spaces, the only sports fields with acreage adequate to the purpose are where open space still exists, at the edge of the Everglades. There, the pressure of millions of people to recreate converges with the pressure to build new suburbs and resolves, once in a while, with the creation of a regional park big enough to hold a youth soccer tournament.)

One year, the park was in the middle of farmland. Nearby, tractors and graders were building a six lane road from scratch, in the middle of what appeared to be nowhere.

The next year, the park was dwarfed by more road construction, pavement, buildings, developments with banners flying out front. Where the graders had been the year before, a massive super-mall was open, with hundreds of thousands of square feet of retail opportunities where none had existed but for cows chewing cud still appear in the rear lots behind strip malls and retail and feeder roads and subdivisions all growing apace, probably allowing an agricultural tax deduction for another distant investor.

Everything was pink, the color of stucco in the ubiquitous Mediterranean style, and white, the color of fossilized coral ground up for cement and fill.

The mall was new and empty: customers hadn’t arrived yet in the form of sufficient numbers of homebuyers for the thousands of units in subdivisions under construction.

But I found a store selling the paintings of the charismatic artist, Thomas Kincaid. This is the sharing moment.

Maybe you know Kincaid’s work. His paintings are fully saturated landscapes, often at dusk where the home—the central feature—is bathed in glowing light and Christianity, served by nature darker at the fringe but pulling in towards warmth of the family hearth, with sincerity that bore absolutely no relation to the zero lot line condominiums sprouting up in the Wellington heat, as though Miracle Gro works not just on roses but subdivisions too.

What is going on in the American psyche that people buy dream homes but the art they buy to represent the value of their home bears no relation to the reality of their home in fact? Does anyone know where anything is, the conundrum seems to ask.

It took me ten years and the subprime mortgage crisis to understand the answer: no one knows where anything is because, really, no one does know where anything is.

Kincaid’s homes are Christian suffused new urbansim. But new urbanism was nowhere in sight among Kincaid’s audience in Wellington. Platted subdivisions are.

Across the United States, Americans are living in places where no one knows where anything is, in part because places and homes have been made into commodities, and in part, because familiarity with sameness leads nowhere.

This is what the market wants, according to the National Association of Homebuilders and the real estate lobby. But that’s a fallacy.

The particulars of suburban sprawl, the zoning codes, the cul de sacs and production homes look interchangeable as they do and exist with minor variations in the real estate section of every single local newspaper in America because homogeneity fits the financial models required by the big investment banks that package pools of mortgages, then slice, dice, and re-arrange the mortgages—while taking hefty commissions—making newly created credit a better deal for investors than it really is.

Who are these investors? No one knows. Is the landscape we live in, meant to serve foreign governments, or wealthy investors, or pension funds or insurance companies’ tolerance for risk?

Does anyone know where anything is?

Here’s the part that is the new epiphany: the financial press is as bewildered as anyone else about the phenomenon now called the “subprime mortgage meltdown”.

You can just picture, as easily as I, that too many people bought into the housing bubble—and that many of these people are middle and upper-middle and even rich Americans for whom real property was confused with speculation.

So it’s not a subprime mortgage crisis. That much is clear. But the nature of the credit crisis is hard to grasp precisely because no one knows who owns the debt on the secondary market for residential mortgage backed securities, CDO’s, and other financial derivatives with names that could mean anything.

Today, we are hearing words of reassurance from the titans of Wall Street. This, too, shall pass.

To me, the Wall Street titans seem like synchronized swimmers, the dancers you see in the swimming pool in the Summer Olympics: heads all moving in unison, arms lifting out of the water with the grace of birds while underneath their legs churn like madmen.

So far it’s an impressive performance, depending on your point of view.

Counterpunch: Dancing in the light of Florida

August 7, 2007

Last weekend, the spiritual advisor to the Dalai Lama visited Florida, a state that does not lack for religious affiliations. It’s all here: from Promise Keepers in the Panhandle to voodoo in Little Haiti.

Ven Thupten Ngodup, considered to be an oracle, brought an environmental message with a certain urgency regarding climate change, according to Miami TV reporter Michele Guillen on the local CBS affiliate website.

The Dalai Lama’s Tibetan oracle advises us that humanity is at the verge: “It is what we call in our philosophy the time of the five degenerations. Outwardly you see that manifest in greed.”

“Tibetans rely on oracles for various reasons. The purpose of the oracles is not just to foretell the future. They are called upon as protectors and sometimes used as healers.”


The last bit spurred me to imagine what would happen if Ven Thupten Ngodup met with Florida’s protectors and healers of nature: the state bureaucrats who preside over the commodity essential to life: water.

In subdivision after platted subdivision, what is manifest in the housing boom now in cinders is that every step of the way was over objections by citizens to development that required a consumptive use permit for water.

So many consumptive use permits have been issued by water managers to develop suburban sprawl in Florida’s sandy counties that a whole new industry has sprung up to advise homeowners how to save their homes from sinkholes.

Sinkhole insurance is killing property values in parts of Florida as surely as hurricanes. There is no question which one is man-made.

Typically Tibetan oracles do not concern themselves with permits from government agencies. In Tibet, when the government is coming the best thing for a follower of the Dalai Lama to do is hide.

So here is what is strange about the interconnectedness of the world: while Wall Street financiers and Federal Reserve governors haggle how to keep the disaster in the housing mortgage industry from creating a world-wide credit meltdown—their version of holistic health for the planet—at the same time the creation of financial derivatives Wall Street needs gave birth to ten thousand malls and sprawl, defiling Florida wetlands, draining Florida aquifers, ruining the Everglades and spawning an entrenched class of engineers, technocrats and apologists for unsustainable growth.

In the battle between the River of Grass and the River of Easy Credit, the winner is liar loans and mortgage fraud and backroom deals to make sure the party still goes on, once the dust settles.

Now I might not even care about the River of Grass, or in a Zen-like way be willing to trade it, if there was a shred of a chance that the pattern of development that defines Florida could host a society different from what Robert Putnam railed against in “Bowling Alone”.

I don’t have any idea if the Dalai Lama, who visits New York City regularly, understands that the average cost of a two bedroom apartment in Manhattan, about $1.5 million, is kept aloft by billions of dollars of Wall Street bonuses tied to mortgage backed securities in the chain that turned nature as expressed by Florida’s Everglades into a ghostly shadow of creation.

Ven Thupten Ngodup’s words set me to further thoughts of this imaginary meeting between a Tibetan oracle and water managers in one of the nation’s most politically influential states.

I don’t know about the technical aspects of five degenerations, but greed and hubris are twinned around Florida’s trunk like snakes.

Relative to their infestations in American politics and the environment, it would not take the oracle long to grasp that the water managers’ forty five minute powerpoint presentation, stuffed with graphs of how the state is spending billions to fix the Everglades, noting Congress has failed to live up to its end of the bargain, and repeating that “we’re doing everything we can” is not the whole story.

In floods, where does the water go in Florida, if it is not used by the Everglades or farms or people? Ven Thupten Ngodup asks.

In 2005, the water managers say, we had hurricanes and released many hundreds of billions of gallons of polluted water from Lake Okeechobee into the ocean.

This leads the Tibetan oracle to an understanding. Because of so much pollution, massive algae blooms drape Florida’s coastal waters, killing fish and harming local economies, causing real estate values to decline and common sense to vanish in a swirl of engineering reports and contracts and revolving doors between lobbyists, government agencies and public office holders.

Perhaps the Tibetan oracle would imagine this chain of causality as part of the dark cloud that envelops human desire.

Ven Thupten Ngodup shares, glacial ice melt in the Himalayas is occurring massively. Tibet has grown measurably warmer, four degrees Fahrenheit in only the last two decades. Glacial melt is our bank account. We have to be careful not to spend from our principal.

The oracle adds, knowledge is not the same as wisdom.

When it rains in Florida too much, the water managers admit, we don’t put the water in the Everglades because it would flood sugar, an industry that provides so much sweetness to the American diet.

To which Ven Thupten Ngodup responds, yes but if I have a dollar and go to an American grocery store, I find my dollar buys 875 calories of soda but only 170 calories of orange juice.

Perhaps this is a Buddhist koan, a riddle the water managers have heard of but never experienced first-hand.

To which the district managers might have answered with their own koan: Our water is fishable but not swimable, or, it is swimable but not drinkable.

(Were they to say so, they would be referring to the recent classifications proposed by the State of Florida to redefine pollution of water in generic terms, as opposed to state requirements for numeric standards.)

But this Monday, district officials were not exchanging koans.

They were on helicopters for a VIP tour of the Everglades with Wal-Mart executives.

That would be the same Walmart accounting for $27 billion in U.S. imports from China in 2006 and, in the five years beginning in 2001, for the loss of nearly 200,000 U.S. jobs according to the Economics Policy Institute.

Now I’ve never had a VIP tour through the depleted Everglades, but I do like to fish and finding such plentiful bait in the appearance within a conscribed space of a Tibetan oracle, Walmart and water managers, that I am compelled to a few observations, some of which I’ve gleaned from knowledge and some from wisdom:

The reason the least healthful calories in the supermarket are the cheapest is that those are the ones the Congress encourages farmers to grow.

The reason global warming will cause sea-level rise threatening Florida’s future is that government policy ensures burning carbon is the cheapest source of fuel to power the US economy.

The reason Wal-Mart produces in China is that it is the cheapest source of goods American consumers want.

The reason that billions of gallons of polluted water is dumped into Florida’s estuaries and rivers and bays is because that is the cheapest political alternative.

The reason government bureaucrats need cheap political alternatives is self-evident everywhere.

And murdering followers of the Dalai Lama is what China needs, the nation that supports America’s standard of living through its purchase of hundreds of billions of US debt while supplying such goods as provided by Wal-Mart to US consumers.

Americans neither want nor need the destruction of the Everglades, of the climate, or of human rights in Tibet.

Thank you for visiting Florida, Ven Thupten Ngodup. Come back, soon.

Counterpunch: Presidential candidates mis-pricing risk to American voters in dismal housing markets

August 5, 2007

In the summer of 2000, I looked out this same window in a small house on an island in Maine and, watching the tide emptying and filling the cove, contemplated what it would take for Gore to win the 2000 election.

I had a lot of company in despairing that advisors had prevailed in persuading candidate Gore to stifle the environment as a campaign issue.

At the time, I was spearheading a campaign to stop the Clinton administration from allowing political insiders and powerful campaign contributors in Florida’s largest county, Miami-Dade, from hijacking a former military base at the edge of the Everglades and turning it into a privatized, commercial airport.

Voters were upset enough how Clinton and Gore both were avoiding the environment that the beneficiary in the November 2000 election would be Ralph Nader—as indeed he was in Florida.

To be fair, Gore advisors had a rationale for believing that “the environment’ was on balance negative. The air base fiasco was far from the only mistake made in that respect.

But the lesson is this: insiders, cocooned in political campaigns and preoccupied with the challenge of raising campaign cash from an economic elite, tend to mis-price specific risks that touch ordinary people and ordinary voters.

In this respect, Florida is again instructive to candidates who may be the next president of the United States.

Bloomberg reported (July 20, 2007) on the weird manifestation of the housing boom and bust as dozens of construction cranes in Miami edge skyscraper condominiums toward foreclosure. “The oversupply will force prices down as much as 30 percent, the worst decline since the 1970s, and help push Florida’s economy into recession as early as October, said Mark Zandi, chief economist at West Chester, Pennsylvania-based Moody’s, who owns a home in Vero Beach, Florida.”

Forget about October: the Florida economy is in a recession today.

“Thirty-seven new high-rise condos and 20,000 new units are being built in Miami’s 1,040-acre downtown, where sales fell almost 50 percent in May, according to the Florida Association of Realtors. The new units will join the 22,924 existing condos in Miami-Dade County that were for sale in April, according to Jack McCabe, chief executive officer of McCabe Research & Consulting LLC in Deerfield Beach, Florida.”

Government statisticians roll out serial reasons for optimism in the broader economy: employment remains strong, unemployment at 4.5%, and consumer confidence is said to be high.

But I’m on the side of the recent Wall Street Journal/NBC poll conducted July 27-30 showing that the nation’s economic mood is gloomy.

In coastal Maine you can feel it big time. “More than two-thirds of Americans believe the U.S. economy is either in recession now or will be in the next year.”

Florida is the epicenter of the housing bust in the United States, for the political connections between Jeb Bush’s election in 1998, W’s in 2000, and a cast of characters tied to the biggest speculative bubble in housing in Florida history.

Al Hoffman, the former chair of Florida-based WCI Communities crowed in 2003 to the Washington Post that development in Florida was “an unstoppable force”. Indeed, during the housing boom local county commissions and the Florida legislature spent entire sessions making it harder and harder for citizens to intervene in protecting their water quality, their communities from bad development, and even from petitioning their own government.

Hoffman was campaign finance chair for Jeb Bush in 1998 and 2002 and national co-chairman for President Bush in 2000.

Today Florida’s housing markets are in tatters. The state budget is nearly $1.5 billion in the hole, as receipts from real estate transactions dry up.

WCI Communities’ stock price has plummeted. The company retained Goldman Sachs to explore options for the sale of its business or assets and can’t find a buyer.

The reason WCI Communities can’t find a buyer is that company decision-makers price its value at the other side of the economic chasm into which the fortunes of publicly traded homebuilders are falling.

So far, the presidential candidates are ignoring the distress, as if to avoid taking the hit when you are forced to mark an asset to the market and not some conjured value.

This is exactly the discussion that is ricocheting around Wall Street today and hundreds of billions of dollars of financial derivatives whose value is up in the air.

With each passing day and report of condo busts in Miami and production homebuilders leaning into the stiffest headwind in modern history, it is becoming clearer and—and with as much certainty as the tide moving in and out of Long Cove—that the defining issue in the 2008 campaign will be the unfolding maelstrom in housing markets across the nation.

David Leonhardt, in the New York Times “Keep your eyes on adjustable-rate mortgages” (August 1, 2007) dryly noted, “… the carnage in the mortgage market thus far has come even before the bulk of mortgages have reset.”

President Bush called it “the ownership society”. You don’t much about that anymore. Nor did you hear much about the recent visit to China by HUD Secretary Alfphonso Jackson who was rebuffed in his effort to persuade the Chinese to buy more US mortgage debt. In early July, Jackson told the Chinese, according to Bloomberg: “Mortgage securities offer China’s central bank better returns than U.S. Treasury bonds at the same level of credit risk.” Is that so?

“The peak month for resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the nation’s total will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt—a few billion dollars—was resetting each month.”

The odds of containing the financial contagion in mortgage markets to a few hedge funds or just the matter of financial derivatives tied to housing and not the massive markets in corporate debt before November 2008 are low.

Wall Street and the current administration are applying tremendous pressure to keep traders from marking risk to market. It has been a Herculean effort and the sweat is showing.

The economic tide is now running as inevitably against Wall Street as it does here on Long Cove: on one side, millions of homeowners at or beyond the point of distress as they struggle to meet the costs of maintaining high mortgages in falling property markets, and, on the other side, holders of petrodollars and the beneficiaries of America’s trade imbalances who are disinclined to make bad investments, or, to be scammed.

Ordinary people and most voters aren’t up to the challenge of understanding the risks in financial derivatives. But the signals are everywhere.

The candidate who can tap into the frustration around collapsing home markets and the proliferation of unsustainable risk to the economy will be the next President of the United States.