Snagged on the Precipice
In the Friday pullout real estate section of The Miami Herald, local Latin Builder Association member Caribe Homes announces it is throwing in a swimming pool and 3 percent off closing costs and “no builder’s fee”, for its stale inventory: Antilles Isles.
But throwing in the kitchen sink or swimming pool won’t be enough to stimulate buyers because there are none-or only a few. The last dregs of the housing boom sucked up the final tranche of possible buyers-culled from frauds, deadbeats, the weak and gullible. For the foreseeable future, it is a waiting game and an unstable one at that.
Being Miami, it is always possible that a new wave of Latin American or Euro denominated buyers could come to the rescue of production home builders, but it is not likely given the unprecedented nature of the housing market collapse. This slow motion economic disaster is just starting to gather momentum.
Months ago, I wrote that the economic distress radiating from crashing housing markets, foreclosures, and financial engineering would be the main issue in the 2008 election. Yesterday, the New York Times began to explore that story: “a sign that economic issues may challenge Iraq for attention in an election year.” (“With eye on ’08, House takes on mortgage rules”, November 15th, NY Times)
But still, a closer analysis-and food for political junkies everywhere-is the role that Miami developers and bankers played in recent past presidential elections, also tied to the fortunes of cement manufacturers and other parts of the Growth Machine that promoted the destruction of wetlands, the environment, and our quality of life in South Florida. This is the insider ball that you won’t see on Tim Russert or even in the otherwise sharp wit of James Carville.
Neither main political party are anxious to take on the Florida developers, because of their prowess in generating campaign cash: one political phone call from the telephone tree of the Latin Builders Association shakes the supply chain from steel to toilet paper.
Miami homebuilders and bankers provided the political muscle to ignite the housing boom in the US-through the agency of candidates it supported to high office– Jeb Bush as Florida governor in 1998 and George W Bush in 2000. Consider one example.Family members of the publicly traded MasTec, whose late founder Jorge Mas Canosa headed the rapidly anti-Castro Cuban American National Foundation, were also majority shareholders of HABDI, a company constituted from directors of the Latin Builders Association to privatize the Homestead Air Force Base.
The plan, a factor in the 1996 presidential election and also in 2000, would have created an economic generator heralded as $10 billion worth of construction and related activities in the last farmland and open space in South Florida.
The HABDI principals enlisted an army of supporters; from major engineering firms like Post Buckley, whose former chief executives were recently indicted for violating federal campaign finance law, to lobbyists irrespective of political affiliation. Among others, MasTec was represented by a chief Gore fundraiser, Mitchell Berger.
They, and their legion of lobbyists, and were not just politically influential in their pursuit of suburban sprawl. They also controlled then county mayor Alex Penelas, Democrat and protégé of then US Senator Bob Graham who forecast political opportunity in the air base devasted by Hurricane Andrew in 1992.
Penelas, whose own election as Miami Dade county mayor was cemented by developers pushing the air base redevelopment, was the one local elected official who could have forced the recount of the 2000 presidential ballots in Miami-Dade County.But the inconvenient truth was that Penelas was “unavailable” to alter the supervisor of election’s decision to halt the recount under a near-riot by Republican operatives, who had been parachuted in from congressional offices in Washington, DC but represented themselves as aggrieved local voters. Penelas was an important business trip to Spain; more important than the presidential election. The recount was halted in Miami. And soon enough, other Florida counties stopped recounting ballots too.
Today, the Homestead Air Force Base redevelopment-rabidly promoted as critical to the survival of the region-is going nowhere fast: it is stuck in litigation by HABDI. But in the most important respect, the development industry it symbolized got exactly it wanted: a “free” market building boom fueled by low interest rates care of Alan Greenspan and the Federal Reserve that was politically agnostic in its execution but tilted strongly to the Republican Party in its results.
In just five years the assets of US Century Bank, whose founders are key development interests in Miami and prospective air base developers, has grown to more than $1.1 billion. Among its board of directors are land speculators and developers who–if they can secure the zoning changes–aim to build vast sections of suburban sprawl outside the Urban Development Boundary. They’ve called one of their projects, Krome Gold, in respect to the anticipated result of building sprawl to Krome Avenue.
Five years, mazel t’ov.But fortunes are reversing with astonishing rapidity. Today, the parent company MasTec-which provides communication and electrical infrastructure to new suburban developments-is struggling: in early November on quarterly profit warnings, in one day its stock dropped 28 percent.
And so are the homebuilders struggling, who pumped up the bubble from Miami Dade County, while dismissing critics as inconsequential to the “unstoppable” momentum of growth.
Even today, in a Miami Herald report, the deal between the state of Florida and Miami Dade County for future water supply-in a region suffering chronic drought-is painted in terms of South Florida’s inevitable growth. But the State of Florida is facing nearly weekly revisions of budget deficits totaling to the stratosphere in billions of dollars, because real estate transactions form the core of state revenues.
(A clerk at the cash register of the corner paint store-owned by a public corporation-where I bought a quart to repaint a picture frame, told me same month store sales compared to prior year were down fifty percent.)
In a season eerily absent of hurricanes, South Florida developers are facing an economic storm of unprecedented force.
Why, unprecedented? The New York Times business section provided a glimpse of perhaps the biggest single hurdle to any recovery of credit markets and related activities like housing: “Foreclosures hit a snag for lenders” (November 15, 2007) “A federal judge in Ohio has ruled against a longstanding foreclosure practice, potentially creating an obstacle for lenders trying to reclaim properties from troubled borrowers and raising questions about the legal standing of investors in mortgage securities pools.”
It is exactly to the point of what I’ve been writing for months, along the lines of “no one knows where anything is”.
The Times writes, “But as foreclosures have surged, the complex structure and disparate ownership of mortgage securities have made it harder for borrowers to work out troubled loans, in part because they cannot identify who holds the mortgage notes, consumer advocates say.
“Wall Street and bankers, many of them local power brokers, cheered the invention of financial engineering, wherein fees, commissions, and bonuses rained down in the billions of dollars through the conversion of a dollar of ordinary mortgage debt into ten or twenty dollars of manufactured liquidity.
There is going to be no recovery for housing markets, or the scarred Florida landscape, until the issues raised by the Ohio court are resolved. In the meantime, foreign buyers of financial derivatives–a market totaling in the trillions of dollars–will be either reluctant participants or sit on the sidelines as this Ponzi scheme works itself out.
The judge’s skeptical eye to the claims of distant bondholders in comparison to the millions of retail consumers facing foreclosure is going to have major repercussions in an industry that Congress and both political parties have refused to regulate. What we’ve seen, so far, is the leading edge of the “free” market orthodoxy that carpeted South Florida and the fastest growing areas of the nation with political corruption, mortgage fraud, and unsustainable suburban sprawl.