It is now clear how the “ownership society” was part of a Ponzi scheme that skimmed the cream from financial derivatives tied to mortgages and used earlier profits to pay off later adopters; spreading wealth through a well organized supply chain to create, through the housing asset bubble, frictionless growth.Although this confidence game is over, the principal actors are still in place. The difficulty reviving the economy is that frictionless growth only worked when risk was mispriced.
The very notion of orderly risk analyses, of accounting rules to “mark to market” the value of assets, and of clarity and transparency is anathema to the old economy. Today, there is an effort to rewrite the history of who, exactly, mispriced risk: that consumers are to blame for taking on too much debt, too much house, or that regulations protecting wetlands and land use drove up the price of housing, luring buyers into untenable contracts with lenders. In other words, don’t put the dope dealers in jail: encourage the addicts to “just say no”.
There is indisputable misery in cities, where homeowners for one reason or another used home equity lines of credit for lifestyles and consumption they guessed were within their means. But the tinder for this economic collapse was not in urban areas.
The subprime crisis was not triggered in slums or on leafy middle class streets. It started in the suburbs where platted subdivisions provided energy for financial derivatives because their uniformity, consistency, and easy packaging matched the needs of Wall Street for scalability.
XYZ tree-lined neighborhood could not form the basis for trillions of debt. Financial derivatives, to be attractive to large investors like banks and insurance companies and wealthy investors who sought higher returns from fraudulent parsing of risk, needed fraudulent assets on a massive scale. Suburbia, with its homogeniety, was the golden calf.
Suburbia, especially in California, Nevada, Texas and Florida—where the mechanics of mass production of housing reached to perfection—is the toxic heart of the world-wide economic crisis.
It is easy enough to diagnose in the real estate section of your local newspaper. Here, the Miami Herald’s “Home Guide” section was once the muscular core of profits, filled with glossy advertisements of production homebuilders and proliferating the notion that suburbia was ‘what the market wants’.
What Wall Street needed were more and more mortgages to package. Without those mortgages, there is no real estate section of the daily paper. In 2005, the former president of the Latin Builders Association, Willy Bermello, crowed–unrefuted–from the editorial page of the Miami Herald, “This bubble is not made of latex. It is made of stainless steel.”
Critics, of course, were afforded no similar space for opposing points of view. The Herald recently announced further additional layoffs. The stock price of its corporate parent, McClatchy, is headed to the pink sheets, and the “Home Guide” is a thin tombstone folded into the paper, behind sports news of steroid abuse.
9/11 may have pushed Alan Greenspan and the Federal Reserve to unleash a historic flood of easy credit, but the politics of the building boom lay down tracks to disaster long before external threats provided the rationale. Those politics propelled a younger Bush brother to the Governor’s Mansion in Florida in 1998 and Miami lobbyists into kingmakers at County and City Halls.
What is clear from the Miami example of excess is that the housing boom was never about supplying housing for people in need. Marketing sprawl was easy as selling dope. In a recent “Home Guide”, there was a single page rendition of reality, as though all the builders had chipped in to eek out: “auction-like prices on luxury estate homes” at a more than 50 percent discount from original prices. Below the fold; a second advertisement, “HUGE price reduction at Sunset Falls”.
The ad is paid for by GL Homes, a big production homebuilder in South Florida that grew profitable by inserting platted subdivisions that fit derivatives profiles into irreplaceable wetlands edging the Everglades. That’s why its subdivisions are prefixed “Sunset”: from the western reaches of Miami and Fort Lauderdale and Palm Beaches, the suburbs face west to catch the light glimmer over what is left of the Everglades.
Fifteen years ago, in December 1994, GL Homes’ predecessor corporation—called Atlantic Gulf Communities—won a bitter fight against community activists for a 2000 unit development called Sunset Lakes. (Sun Sentinel, December 21, 1994, Sunset Lakes in Miramar gets OK).
Sunset Lakes was a Waterloo for Florida environmentalists. The battle lines had been clearly drawn. A blue ribbon panel, The Governor’s Commission for a Sustainable South Florida, specifically and explicitly sought to tamp down building in areas that were critical for water storage and Everglades restoration. Earlier massive suburban sprawl, like Arvida’s Weston (the real estate fortune of Republican frm. ambassador Chuck Cobb) or Miami Lakes (the real estate fortune of the the family of former US Senator Bob Graham) had elicited calls for reform of land use in Florida.
“Broward County took its finger out of the dike today. You can’t restore what you’ve given away,” said Patti Webster of the Environmental Coalition of Broward County to the Sun Sentinel at the time of the zoning approval in historic wetlands, only a mile and a half from the Everglades.
In July 1995, a Democratic administration in Florida waved concerns that had been expressed by the weakest regulator in the nation, the US Army Corps of Engineers, that the land in question should be considered as a buffer between the Everglades and urban development—and approved the project, unmoved by the clamor that Sunset Lakes would destroy open land “crucial for replenishing water to the Everglades and restocking underground reservoirs that will be the primary source of drinking water.” (Sun Sentinel, Miramar project heads for OK, July 26, 1995)
That is what Miami and its pass-through economy were destined to provide through gated subdivisions at a scale replicable throughout the state. The Sunshine State’s traditional attractions– warm weather throughout the year, a place to start over– comprised a sturdy funnel to pour people in at one end, and money out the other.
In November 1999, Atlantic Gulf sold its interest in Sunset Lakes to sprawl builder GL Homes, now dumping old inventory like jet fuel from a plane attempting an emergency landing. Today, ten years after GL Homes picked up Sunset Lakes, Broward land near the Everglades has been sucked dry by developers and special interests.
The damage that was done is still being done by special interests tied to the spawl lobby, now gaming Congress for bailouts, bonuses, subsidies and stimulus money to “improve” roadways near other sprawling projects in nearby Miami Dade, like Lennar’s Parkland, whose only conceivable purpose is to rescue wealthy and influential land speculators who are major Republican donors.
Production homebuilders in Miami-Dade controlled local politics and state politics by extension for decades. Its profit model, built around suburban sprawl and related infrastructure, is in full disarray but it is still in power.
In Tallahassee, the legislative session is underway, and the same forces are pushing to eliminate growth management and the agency that they have suppressed for decades; using the general chaos to specifically eliminate what they perceive to be “obstacles to growth” along the lines of the Jeb Bush mantra: you need economic growth to afford environmental protections.
There is nothing, in principle, wrong with enlisting bottom feeders to the purpose of cleaning up pollution. They troll the remnants of once valued property and scavenge efficiently until a new equilibrium is created between supply and demand. The mainstream media is least likely to call the meaning of these serial financial rescues for what they are, gearing our economy to the requirements of bottom feeders: a massive economic failure.