So far what a century by gimleteye

From San Francisco to San Diego, from Pheonix to Austin to Fort Myers: every place the housing bubble manifested will have its own chapter of a common story: how historic low interest rates by the Federal Reserve, triggered by the internet stock collapse in 2000, acted as a catalyst to socialize the risks and privatize the benefits of the biggest housing boom in US history.

Cratering housing markets will leave taxpayers and voters shaking their heads—how did that happen?—, not by accident. Take Florida, for instance, where the 2000 presidential election changed America’s relationship to the world.

At the time, Jeb Bush was governor and he had already decided that the key to political power was in the gold rush to build suburban tract housing in Florida’s wetlands and water-scarce areas of the state.

His finance chair in 1998 was Al Hoffman, then chairman of WCI Communities, Inc., a high-flying production home builder. Hoffman and homebuilder allies in Florida also played important roles in George W. Bush’s presidential campaigns.

By 2000, Wall Street financiers had perfected the business of packaging mortgages as collateralized debt. The market for mortgage backed securities has ballooned into a scarcely regulated, trillion dollar business. It political analog was nick-named “the ownership society.”

In Florida, Jeb Bush paid keen attention to the minutae of governance. He used state policy “streamline” permitting for production home builders, minimize the drag of regulations on water supply and water quality, raided funds for environmentally sensitive lands for the purpose of funding water infrastructure to supply cities, and strengthened tactics to divide and conquer opponents of suburban sprawl. His political appointees at the state water management districts focused on the “industrialization” of Florida’s copious water supply to serve unending suburban growth.

As the Federal Reserve began to lower interest rates in response to the implosion of equity markets around the internet stock bubble, quick and ready financing for the building boom was in place: mortgage backed securities took flight. Florida was primed for the biggest land rush in the state’s lustrous history of growth.

The ownership society, however well intended, would quickly be defined by excesses in subprime lending—the sector of the mortgage industry that is sowing instability throughout world financial markets today. In terms of subprime lending, Florida will prove to be king of the realm.

Rewind to the beginning of the housing boom in Florida for a closer glimpse of the excesses that conferred great wealth and privilege on a few, while running rough-shod over wetlands, the environment, quality of life and, last but not least, distorting municipal and county budgets like there was no tomorrow.

In 2001, as terrorist planes were crashing into the World Trade Towers and the Federal Reserve positioned interest rate cuts to launch the biggest housing bubble in US history, Governor Bush appointed Miamian Rodney Barreto to the board of the Florida Fish and Wildlife Commission.

For many years Barreto had been at the top of lobbyists in Miami-Dade, Florida’s biggest and politically important county with a $7 billion annual budget—one of the largest in the nation. Because of their pervasive influence at County Hall, Miami-Dade lobbyists are not required to disclose the terms of their contracts with clients, including “completion” fees that have made top lobbyists very rich.

Barreto was one of Governor Bush’s most valued fundraisers. He was called “one of the powerful behind-the-scenes-movers” and “the man to know if you want access”. As recently as this past January, Barreto was conferred the ultimate validation of influence: chair of the host committee for the Superbowl, America’s premier sporting event.

His firm’s clients included Dade Aviation Consultants, the company “overseeing” the expansion of the county-run Miami International Airport, where cost overruns for capital improvements total in the billions.

The mission statement of the Florida Fish and Wildlife Commission is not strictly environmental: “managing fish and wildlife resources for their long-term well-being and the benefit of people.”

Barreto was chair of the FWC when the manatee was downlisted from endangered to merely “threatened”. Carl Hiaasen wrote in the Miami Herald, “As adorable as they might be, the sea cows had become a nuisance. They were getting in the way of plans by people with big bucks.”

But there are always opportunities at the shoreline or anywhere an edge of land requires environmental protections. Edges create scarcity. Finding those edges is a road to wealth.

In Miami Dade County, the road to wealth has a name: it is called Krome Avenue.

Krome Avenue is the westernmost roadway traversing the length of Miami Dade County. It stretches from the southernmost reach of the county beyond its northern border. Until the building boom, it was a two lane road serving farmer tractors, migrant workers and, at night, teenage joyriders who sometimes got into horrific, fatal accidents.

Krome Avenue fronts as a major transit corridor for the remaining 70,000 acres of farmland in Miami Dade County. To comply with state law requiring “concurrency” of infrastructure along with zoning and building permits, roadways must offer adequate service capacity. As a two-lane road, Krome Avenue needed to be widened in order to unlock the vast wealth in converting nearby farmland, at the edge of the Everglades, to suburban sprawl.

In 2003 (when farmland acres in Miami Dade County was closer to 90,000) the environmental group Friends of the Everglades wrote about the plan to widen Krome Avenue: “The argument by proponents is that the road will be safer. Originally opposed by the Florida Department of Community Affairs because it violated state regulations designed to prevent sprawling development at urban edges, the project won approval after advocates led a successful effort to approve the widening on the grounds of safety. But what doesn’t fit the widening for safety argument is that most of the deaths on this road happen at the northern end, a 20 plus mile stretch from Kendall Drive north to Okeechobee Road.”

Barreto, as a private citizen, lobbied the Miami Dade County Commission to widen Krome Avenue, appealing as an aggrieved relative of a victim of the dangerous roadway. Local bankers weren’t far behind.

Friends of the Everglades noted, “The north segment, not on the table for widening, is mostly water containment areas and Everglades prairies. The stretch to the south, however, leads to land that calls to developers like a siren song. It is thousands of acres of arms and ranchettes now, but it isn’t difficult to imagine condos, subdivisions, townhouses and malls there.”

Barreto is an “investor” in Century Partners, a production home builder whose principals are also influential lobbyists in Miami-Dade County and key political allies of Governor Bush.

A company owned by the same names and investors, US Century Bank, serves to lend mortgages to developments built by its founder: Sergio Pino, a major homebuilder, lobbyist, and former president of the Latin Builders Association. Barreto recently partnered with Pino to circumvent laws that restrict suburban construction near the Kendall Tamiami Airport. (The extent to which Miami homebuilders like Century Builders has been driven by subprime mortgages by banks like US Century has yet to be made clear.) Pino and Barreto also showed up in 2006 at the Miami Dade County Commission to successfully lobby for an exception to the Urban Development Boundary for a major development project in Hialeah planned by another key Bush ally, Armando Codina.

In 2005, Barreto proposed to fellow US Century Bank board members to form a company to buy 465 acres of land outside county’s urban development boundary near Krome Avenue.

A 1999 US Department of Justice “Market Study, East Everglades Report First Revision,” analyzed land sales near Everglades National Park, in the vicinity, and made the following observation about land values: “We can not discover any measurable or objective criteria that indicates that there was any change in the market value of the South Florida wetlands associated with date of sale, 1974 to 1997.”

According the Daily Business Review, “Bank founder and developer Sergio Pino and board members Agustin Herran and Armando J. Guerra jumped at the chance to own one of the few available large parcels west of Krome Avenue. … Barreto, Guerra, Herran and a dozen undisclosed investors paid $46 million Dec 8th for the agricultural land between Southwest 124th Streets and Southwest 136th Streets and 188th Avenue levee that separates the Everglades from rural Miami-Dade… Barreto’s group paid $98,924 per acre for the parcels.”

In Sunday’s New York Times story on South Florida land development, one South Miami Dade farmer states that open farmland inside the Urban Development Boundary is selling for $800,000 an acre.

The value of the arbitrage in land values defined by scarcity has created havoc in Miami. It has also created great wealth and led to the inescapable tendency for those with access to power believe that they are right to profit, and more right when they can profit more.

For the past three days, the Miami Herald has devoted consecutive front page stories to a sale of submerged land—that is to say, land this is underwater—that amounts to a swindle on both sides of the deal.

Rodney Barreto was part of the small lobbying team that recently extracted $7.2 million from the State of Florida before Governor Jeb Bush left office for six acres of unbuildable, un-developable underwater land, at virtually the same time the buyers completed a purchase agreement with the owner, an octogenarian widow for $445,000.

In this context, costing the state a fortune for unbuildable submerged lands simultaneously purchased from an 80 year old widow for a song is simply a punctuation mark on the excesses of speculation that have become grafted onto the housing boom.

Just two months ago in a January, 2007 letter to the Miami Herald, Barreto answered his critics on the de-listing by the agency he chairs: Florida's signature mammal, the manatee. “The FWC has hundreds of dedicated employees fighting tooth and nail to help manatees recover from past losses.”

Part of the fighting, not incidentally, entails enforcement of legal protections mandated for state owned submerged lands: forget about building, most homeowners near bay waters have insurmountable difficulties permitting construction of a dock.

Those hundreds of FWC employees are probably composing letters to the editor in their heads for their chairman extracting $7.2 million for bay bottom the state holds in public trust.

Suburban growth is “an unstoppable force”, Bush fundraiser Al Hoffman crowed to the Washington Post in 2002. Today WCI is on the ropes and has retained Goldman Sachs to seek options, including the sale of the business. The corporate raider Carl Icahn is floating a hostile bid for the company. The trillion dollar subprime mortgage markets are in disarray, with fracture lines spreading upwards into better credit-quality debt.

Already there is a clamor in Washington to “do something” about the threat to the US economy from collapsing housing markets. It is a cycle that began in Florida and deserves a much closer look.