A river runs through it by gimleteye

On this blog, we highlight the political origins in Florida, and in Miami in particular, of the housing bubble now bursting. It has a long way to go.

Florida had already mapped out wealth creation through suburban sprawl. Long before former Fed chief Alan Greenspan lowered interest rates, the Florida dredge bucket had replaced the orange blossom as the state flower.

The housing bubble has been an equal opportunity employer for both political parties. The two terms of former governor Miami resident Jeb Bush coincided neatly with the building boom that also propelled George W. Bush to the presidency.

Terry McAuliffe, former chair of the Democratic National Committee, holds mortgage banking interests in Florida. In the 2000 presidential race, Al Gore’s key advisors included Florida real estate lawyers, one reason why environmental issues were supressed in Gore's state campaign.

At a key moment after the November 2000 election, Republican congressional staffers were airlifted to Miami to create chaos at the supervisor of election office and stop the recount.

There was one public official who could have kept the recount alive. His name was Alex Penelas, a Democrat, and at the time he was the mayor of Miami Dade County.

As housing markets crash, every boom town will have its own version of how the public trust was pillaged, how benefits of the boom were privatized and risks were socialized. Miami is the index case.

In Miami, the socialization of risk happened in particularly toxic ways: wealthy rock miners, for instance, who supply aggregate for roadways and construction by excavating Everglades wetlands for lime stone, suppressed information that timed explosives used to expand mines were injecting cancer-causing benzene into the drinking water aquifer supplying 2.4 million people.

Today, cracks in the foundation are showing everywhere, and they lead to interesting places.

Local elected officials have long served the purpose of facilitating land speculation and development in farmland. When too much light shone on decision makers or county department heads, providing that they weren’t indicted, more often than not they moved out of government service and into consulting jobs with big engineering firms, or, lesser municipalities.

In either case, having done their service to the housing bubble, they could ride out pensions to retirement.

But the collapse of housing markets is like a messy divorce: details of the bust-up emerge that might otherwise never have appeared.

Now Alex Penelas had been a prodigy of the Democratic party in Florida, even mentioned as high on the lists for candidate for Vice President. In Miami, the telegenic, youthful Cuban American had the full faith and support of the Latin Builders Association—the powerful industry group that runs permitting and zoning through designated elected officials.

The lobbyists Penelas empowered while mayor as conduits for county business—Rodney Barreto, Chris Korge, and Brian May—quickly became wealthy developers, riding the housing boom ignited by low interest rates, compliant regulators, and a clear mandate from the Republican legislature: “let a thousand housing subdivisions bloom”.

After the 2000 presidential election, Penelas fell off the face of the political map to seek a quieter life as a private attorney in Miami Lakes.

This week, Penelas’ name resurfaced in an article in the local weekly, Miami New Times, about the recent firing by Carlos Alvarez, the current mayor of Miami Dade county, of the county planning and zoning director, Diane O’Quinn Williams.

According to the New Times, an elected officials who asked to remain anonymous claims “O’Quinn Williams displayed favoritism for projects involving Miami Lakes-based land use consultant Reinaldo Villar. In 1998 Villar lost his high-profile county position as assistant director of permitting and zoning when he was arrested and charged with four felony counts of official misconduct for failing to disclose $62,000 in unexplained pay. A year later, prosecutors dropped the charges.”

Villar is partners with Alicio Pina, a real estate investor. According to New Times, “the two men are partners in A & R Investments… they share their Miami Lakes office with former Miami-Dade County Mayor Alex Penelas.”

Penelas was mayor in 1997, when Pina bought land around the county well field that is virtually surrounded by rock mining interests.

Pena and his partnership paid $76,000 for 26 acres, through a county tax sale. The deed wasn’t recorded, for some reason, until 2001. The average price per acre, about $3,000.

In 2005, an adjacent property sold for an average price of $312,000 per acre.

If there is a good explanation for what happened to the price of land, near the well fields in Miami Dade County, between 2001, when the Pena deed was recorded, and 2005, it awaits further investigation.

You can’t draw conclusions, just because the price of land bought by a politically connected person through a county tax sale increased 100 times in apparent value over a few years.

But there is one conclusion to reach. For all its palm trees, and breathless night life, Miami Dade County is a place of shadows.

Our traffic, underfunded schools, decrepid infrastructure are just the outward manifestation—as they are in so many other cities—of attention paid to personal gain by the powerful.

President George Bush calls it “the ownership society”, but as the housing boom unravels it is exposing a thousand stories that the mainstream media is having a hard time getting its hands around.

On Capitol Hill, Fed Chief Ben Berrnanke is assuring Congress that the damage to the subprime mortgage industry is contained.

But the market is doubtful and the market should know: it was the market, after all, that employed collateral mortgage obligations, a form of financial derivatives, like kindling to keep the fire burning.

The US economy is on the edge of a major recession because of excesses in lending that fueled land speculation and, in Florida, the biggest housing bubble in history.

So far, the blame—to the extent it is being ascribed in Congressional hearings—is on the outward manifestation of the problem: lax standards and regulation of exotic mortgages foisted on unwitting buyers, threatening to put millions of homes into foreclosure.

The real problem is what you can't see: the proliferation of financial derivatives, “structured financial products”, that have made Wall Street bankers so much money they have created their own housing bubble.

While the bubble expanded, the mainstream media sat by silently—grateful for the advertising revenue in real estate sections, and unwilling to jeopardize friendships and associations of senior executives with big downtown law firms, like Greenberg Traurig in Miami, that built major businesses from zoning and permitting work at the county and city.

All for the greater good of the building boom, and through the boom, a virtually untraceable network of shareholders hidden in shell corporations with interlocking interests all pointing in one direction: more development in more wetlands to satisfy the cravings for wealth, irrespective of social or environmental costs.

And it is still going on.