The Miami housing crash and lenders gone wild by Gimleteye

So far, the financial news of the crisis in the mortgage industry--that totals more than the annual float of the US Treasury—is reporting a thicket of economists gathered around the explosion of the subprime mortgage market like chemistry students around a shattered beaker.

With a recession in housing well-underway, there is significant risk to the US economy through lenders gone wild.

Here in Miami, we are at the center of the wild.

A forest of construction cranes rises above the city as tens of thousands of units near completion. But there is a perceptible sluggishness to the work. Week by week there seems less energy to the activity.

Very few condo owners will be closing. Many will walk away from deposits. The busy bees look drugged.

That’s just the condo market. The bust is equally operative in single-family production homes in South Florida.

If subprime loans counted, in 2006, for thirty percent of total mortgages (or, $1.4 trillion) throughout the United States, we suspect the number of suspect loans in Miami-Dade County, alone, is at least twice that rate. (We’re still waiting for the mainstream media to report that story.)

The production home analog to the empty condo canyons in downtown Miami are former agricultural fields in South Dade that are filled with vacant units. Drive down the Florida Turnpike: you will see that farm fields are still being scarified, water and electric utilities are still being laid in platted subdivisions, and farmers want more, more, more.

They say, as they did in the New York Times on Sunday, that this is the "free" market at work. But there is nothing “free” about what is happening in South Miami Dade, or the millions of acres of platted subdivisions in Phoenix, or Orange County, or Fort Myers, or San Diego.

Lenders gone wild deformed this “free” market. Miami-Dade county and much of the South Florida landscape has morphed from farmland and wetlands to suburban sprawl, nightmarish traffic congestion, and polluted waterways on the backs of subprime mortgages, credit derivatives, and increasingly—consumers persuaded to use their homes as piggy banks for consumption out of line with disposable income.

Most of the home building in the last phase of the housing bubble gobbled up farmland the way bacteria grows in a Petri dish, fed by nutrients—in this case, compliant county commissioners willing to make any conceivable zoning decision in favor of production home builders.

This is not, however, how the story is reported in the mainstream press.

On Sunday the New York Times printed its first story on the land boom in South Dade as though it were a question of poor farmers pitted against an urban growth boundary, a more concentrated version of the Portland, Oregon development line controversy.

In the New York Times article, the head of the Farm Bureau Katie Edwards “says that she is dedicated to improve the situation of Miami-Dade farmers. That effort includes lobbying for laws allowing sterilized potted soil to be brought into the country…”

Lobbying for potted soil? The Dade County Farm Bureau represents some of the wealthiest farmers in the nation who invest millions in lobbyists to convert farmland to suburban sprawl.

The plan to move the Urban Boundary has wrapped the county commission so tightly in its warren of insider-dealing that while its attention was diverted, the Miami Dade Housing Agency, meant to serve the neediest in Miami, was pilfered and plundered, leading to the imminent takeover by the agency by HUD and political appointees with close ties to Miami production home builders.

For the most part in Miami-Dade County, servicing subprime borrowers to generate private wealth for lenders commandeered the public trust.

If you want to know what the trickle down effect looks like, take a look at the scores of vacant, cookie-cutter homes in Homestead.

The New York Times article reports on a $4 million dollar study on Miami watersheds is soon to be released that will offer a rationale for continuing to maintaining an urban growth boundary in order to preserve drinking water.

But having mastered the art of concentrating campaign contributions into single-member, county commission districts far from the area of study, the farmers and developers and lenders guarantee that the watershed study will be met with vitriol and anger and is unlikely to be tempered by any consideration the financial insanity underlying the housing bubble.

Beyond this abject poverty of imagination, there is a further lesson for the rest of the nation in the unfolding drama of the housing market crash in Miami-Dade County. As PT Barnum said, “there’s a crowd in every silver lining.”

In Miami, as in other major cities, middle class home values soared in the past six years creating a wealth effect that led many to scoop out equity for spending purposes. Now that the wealth effect has vanished, the question is how many and how quickly those consumers will react to the credit crunch.

Get out of the way, is what the nation’s largest financial institutions said to citizens who objected to the radical transformation of their neighborhoods into sprawl or anyone with the temerity to suggest tight regulation of the multi-trillion dollar market for financial derivatives tied to home mortgages.

Developers in Miami-Dade County offered local legislators insider-deal pricing on homes, undeterred by law enforcement or ethics, creating a halo effect around the bubble.

“I do think the unwind is just starting. The moment of truth is not yet here,” said a real estate professional to Gretchen Morganstern on the front page of the Sunday New York Times.

That moment will come when it becomes clear when consumers who spent far more than is reasonable on housing or housing-related lines of credit realize that their most important asset will not be rising in value and if it has to be sold, will be sold at a loss.

When that happens, all the lenders who commandeered Miami legislatures through their proxies--lobbyists and production home builders—will slink into the shadows, waiting for taxpayer bailouts and the chance to do it all over again.