Florida's growth machine sputters, by gimleteye

The Miami Herald reports a quarterly loss for Ocean Bank, a keystone bank in Florida’s growth machine. The article only hints at the central topic of this blog: why and how the growth machine has run Miami-Dade County’s quality of life into the ground—with implications for every other housing market in the U.S. that has experienced a similar speculative bubble in the past decade.

“Ocean Bank, which lent heavily in the condo market, said on Friday that losses for the second quarter that ended June 30 rose to $33.7 million after the bank increased its loan loss reserves to $77.5 million in June. The company, in contrast, earned a profit of $24.4 million in the second quarter of 2006.”

The Herald reports, “In March, the bank got hit with an order from regulators, who required the bank to tighten its anti-money laundering enforcement and to review its real estate lending. The order from the Federal Deposit Insurance Corp. and the Florida Office of Financial Regulation required the bank to draw up a plan to reduce and monitor its lending for condo conversions and land development.”

In other words, regulators took a close look at Ocean Bank and aside from the money-laundering issue, which nearly every bank in South Florida has run afoul of, and determined that the bank had become overzealous in applying its capital to highly vulnerable industries. Surprise, surprise.

When citizens go to city or county commission meetings, to protest the zoning decisions that lead to new platted subdivisions or condos—for markets that were crashing after the building boom peak in 2005—the power behind the throne, or dais, is held by financial institutions like Ocean Bank.

When I speak about one of the principal causes of the housing market crash, the “incestuous relationship” between builders and banking institutions, Ocean Bank comes first to mind in South Florida.

Loans for land development are an essential step in the building boom froth, and one of the first steps leading to the proliferation of suburban sprawl into wetlands and environmental sensitive areas.

Production home builders often “outsource” to business allies the acquisition of large tracts of farmland and preparation of land for development. The banks are the intermediaries that profit from financing along the way, from acquisition costs to preparing the land for development, to construction financing and consumer mortgages: the more, the better for profits.

On the other side of the volume game is the matter of diversifying risk. For example, banks work with land developers to allow production home builders to enhance their balance sheets by carrying only inventory ready to build. Commercial banks also work with bigger financial institutions to aggregate loans according to models for investment vehicles that are dependable and reliable, and those larger institutions create financial derivatives to push even more liquidity in the energy cycle that the growth machine requires.

With its $4.5 billion loan portfolio, Ocean Bank is still just a teardrop in the ocean of financial derivatives and other products engineered to diversity risk.

But the risks that citizens are concerned about: congested roadways, degraded water supply and other infrastructure, overcrowded schools—these don’t ever factor into risk aversion models that banks care about. Banks make a big deal of their donations to community concerns--and many are certainly important contributions, to the United Way or the YMCA--but even within the pattern of charitable giving, banks refuse to acknowledge how much havoc their investment models are scattering across the suburban landscape.

Banks and homebuilders say, "we are only providing what the market wants". It's fallacy. They provide what the marketplace will finance.

During the building boom, the risk to people’s quality of life multiplied exponentially as the diversification of financial risk allowed real costs to people and communities to be swept aside.

It was all about profit, for shareholders of banks and developers and their supply chain. And that is main reason that citizen's ballot initiatives by referenda, like Florida Hometown Democracy, are so resonant with voters.

The growth machine cemented real risks to our quality of life in place with too many platted subdivisions, too much service requirement for police and fire and schools and roads and water.

“Ocean Bank's loss… signals that the impact of the troubled real estate market will continue to ripple through the economy.”

I expect that the mainstream media will, within a few months, abandon the term “ripple” in favor of the more descriptive “shock wave.”

The fact of the matter is that the growth machine really doesn’t have any better ideas, how to protect our quality of life, than simply to pave over the rest of Florida. That's why you have Florida agencies, like the Department of Transportation, racing to federal court to offer its somber warnings about the cessation of rock mining in West Miami Dade, because the US Army Corps of Engineers violated numerous laws in issuing permits to destroy 5,400 acres of wetlands in order to excavate underlying limerock.

That is the story today in Palm Beach County where, in the midst of the housing market crash!, the Fort Lauderdale Sun Sentinel reports, “Palm Beach County Administrator Bob Weisman on Friday called for jump-starting stalled discussions on uses for the 1,919 acres of former orange groves north of Northlake Boulevard, which cost taxpayers $60 million to buy and another $60 million to get ready for Scripps.”

Of course, only the growth lobby was in favor of the $120 million public acquisition of Mecca Farms.

Federal laws thwarted Governor Jeb Bush from shoe-horning the bio-tech bonanza called Scripps into Mecca Farms at the edge of the Everglades. It took a lawsuit by environmentalists to stop that particular insanity, and also, the insanity of the rock mining at the edge of the Everglades in Miami-Dade County.

“Weisman's proposal calls for: Offering up to 750 acres of Mecca Farms for sale to developers by early next year. He suggested allowing as many as 1,500 homes but said proposed changes to development guidelines for western areas could push that to 2,400 homes.”

So this is how the growth machine is “solving” bad investments that lead to a speculative bubble in housing: pass MORE zoning changes to enable more crack smoking by developers and bankers without any consideration of the costs of addiction.

Miami-Dade County Commissioners are getting ready to do the same: the next cycle of amendments to the county master plan for development are moving forward.

In other words, the growth machine is playing the same game even though the game--the housing boom--is long in cinders.

It doesn’t give any particular pleasure to watch stories like Ocean Bank’s unfold: lots of ordinary people and taxpayers have watched decades recede to memory as shared concerns for the health and welfare of the public commons vanished into the miasma of blue-ribbon panels and governor’s commissions and lawsuits and restoration plans and hand-wringing by bureaucrats.

Taxpayers, again, will be on the hook—this time, the damage will be 100 times greater the savings and loan debacle of the 1980's—and because we are on the hook, that is why it is so important to also be “on the record” about how and what is happening today at the end of a week in which the cracks in the financial system widened right here in South Florida: ground zero for the implosion of housing markets and the players who strung our quality of life thinner than a spider’s gossamer web.