Miami housing crash bubble by gimleteye

There is a simple reason Florida is the epicenter of the crash in housing markets: its only industry is real estate development. There is a more complex reason Miami is Ground Zero: that reason is political.

With its construction crane forest edging to completion of dozens of condominium towers lurching to foreclosure, the Miami skyline would seem to be an abject lesson in the tendency of free markets to irrational exuberance.

But it is the expression of national politics in Miami that deserves scrutiny. The way it played out here from the ascension of Governor Jeb Bush in 1998 to the present tells more than the hidden hand of Adam Smith ever will, about where this housing bust came from. Florida.

Jeb Bush was propelled to the Governor’s Mansion in 1998 by Florida developers. Jeb’s political base is the Miami development community where he was first hired by Armando Codina, the most polished member of Florida’s powerful Cuban American builders.

WCI Communities chairman Al Hoffman lead Jeb's first campaign and later become chair of the Republican National Finance Committee. Hoffman bubbled to the Washington Post that the sprawl of production home building into historic Everglades was "an unstoppable force". WCI is now hemorraging cash, as inventories swell. It is struggling for survival and recently hired Goldman Sachs to explore all options, including the possible sale of the company.

While the mainstream media reports such events as WCI Communities turmoil as a normal course of business, it is important to know that the Tums being consumed by the thousands by bond traders in secondary markets for financial derivatives tied to housing were manufactured in Miami politics that pushed George W. Bush to the White House.

While the Codina Group’s principal focus is commercial real estate, the forces that arrayed to fund Jeb’s rise to power were two centers of influence: production home builders and big agriculture. As the building boom materialized, these two groups virtually merged—sharing the same philosophy of growth unfettered by regulations and even sharing the same lobbyists in halls of power.

In Miami, production home builders are represented by two lobbying groups: the Latin Builders Association and the South Florida Builders Association.

The Latin Builders, or LBA, plays a very powerful role in Florida politics. Its legendary capacity to generate campaign money has dominated the political landscape of Miami-Dade, Florida’s largest county.

Hialeah is the political Bethlehem of Miami developers because voter turnout is reliably on the order of 80 percent, mostly comprised by first and second generation émigrés from Cuba who tend to be motivated by ward politics filtered through Havana-style hegemony.

Mainstream media has been silent on this political equation because it is caught between the importance of advertising revenue from real estate advertisers, mainly production home builders, and because of repetitive campaigns of intimidation that have, historically, been directed against Miami Herald executives at even the slightest hint of softening toward the Castro regime in Cuba.

These campaigns seem to originate from anonymous grass-roots but they are bought and paid for by production home building interests in Hispanic media. Complaints to the FCC have never resulted in any enforcement action.

The sturdy superstructure built around this political equation is the professional, legal hierarchy in Miami, with firms like Greenberg Traurig advising major homebuilders on zoning changes and other regulatory matters necessary to seed tract housing in distant farmland at the edge of the Everglades.

Seen from this perspective, the ascendancy of Jeb Bush from roots in Miami preordained the explosion of wealth creation in all the lands surround the historic Everglades. The 2000 election of George W. Bush sealed the deal.

Miami played a critical role in the the most damaged presidential election in US history.

While the television cameras caught, for posterity, the images of Republican loyalists from Washington DC parachuting in to halt the recount of ballots in Miami Dade, what has never been caught is the behavior of the county’s Democratic mayor, Alex Penelas, who could have ordered the recount to continue but he happened to be in Spain at the time.

Penelas served the interests of the Latin Builders Association. He was, moreover, the hand-picked protégé of Florida’s then senior Democratic Senator, Bob Graham, whose family fortune is tied to land ownership and property development at the edge of the Everglades.

Jeb Bush and Florida developers knew exactly what script to recommend for the Federal Reserve: stimulate development to keep the economy humming after the massive failure of the equity markets. It was called “the ownership society”.

Mel Martinez was elected chairman of one of Florida’s fastest growing counties, including the municipality of Orlando, in 1998—the same year Jeb Bush ascended to the Governor’s Mansion.

In 2001, President Bush appointed Martinez, a Cuban-American, to be the head of HUD. It is during the period of Martinez’ direction of HUD that the ‘ownership society’ allowed Fannie Mae and Freddie Mac to explode its derivative mortgage portfolios, igniting the housing boom that—along with historic low Fed interest rates—transformed the national economy of the United States and lead directly to the hyper-inflation of real estate markets across the country and especially in Florida.

Today, Martinez is the junior US Senator from Florida and was recently appointed by President Bush to be chairman of the Republican National Committee. His assistant at HUD, Alphonso Jackson, is now in the top position. Jackson’s assistant secretary for public and Indian housing is Orlando Cabrera. Mr Cabrera was previously Executive Director of the Florida Housing Finance Corporation and formerly general counsel of the Latin Builders Association in Miami.

In the past six years, planned communities have sprouted in Florida as though under the influence of Miracle Gro. It didn’t happen by accident, here or anywhere else.

During this time, Florida public interest groups have had a terrible time gaining traction in a state where the state flower, next to the orange blossom, is the bulldozer.

The tenure of Governor Jeb Bush was marked by a series of measures that put citizens at an ever more distant relationship to their government in order to make large scale development easier: for instance, prohibiting groups of citizens from challenging local growth plans unless they met very stringent requirements of organization and, last year, approving a change in the Florida constitution—unprecedented in the United States—that would require any future amendments to the constitution by citizen petition to be approved by at least 60 percent of voters.

But these are only the detritus of the unraveling of the housing markets in the United States, like faint squiggly lines of neutrinos caught by a camera in the decomposition of an atom.

It has taken massive force to break the housing boom, but it was broken as they all are broken by the forces of greed and excess at the highest level.

There is no telling what lengths the US government will go, to prevent the unraveling from spreading further.

In today’s Miami Herald paid real estate section Silvio Cardoso, President of the South Florida Builders Association, writes, “The softer market is national in scope, and its impact may differ in local communities, but South Florida is “taking a rest” from an overheated marketplace… it’s a great time to buy a home.”

Taking a rest is what pre-schoolers do at nap time. And that’s the advice from Miami, the epicenter of the housing boom and bust.