I wonder how much of the $6.3 trillion market for home loan bonds (“Bush’s subprime mortgage freeze stymies bond market”, Bloomberg, December 7, 2007) represents the failure of suburban sprawl as an economic engine for the US economy.
Sprawl is the unsustainable growth model that bond investors are fleeing as if their hair were on fire. What an irony it would be, if the free market kills suburbia.
Far from being what the market wants, sprawl is a Ponzi scheme that depended on the securitization of mortgages into pools mixing form, content and risk into an unrecognizable hash. It was great bait--"what the market wants"--until the trawler nets came up empty.
A complete analysis of what percentage of subprime trouble is represented by low density, scatter housing has not been published. By 2005, this much is clear: the multi-billion dollar market for production homebuilders had been saturated. Mortgage brokers stimulated by egregious compensation practices were fishing in the final pool that had not dried up: prospects who could scarcely afford to rent, much less buy a home.
True to form, the fine print on those hundreds of billions of sprawl-linked bonds did not include anything like the true costs of sprawl: aquifers destroyed to plow more production homes on poor topsoil, wetlands gobbled up at a fearsome rate, putting drinking water supplies for whole cities at risk, not to mention the role of gas-guzzling automobiles as an priori condition of long commutes from tract housing to places of work.
The Growth Machine in the United States depends on the externalization of true costs and on bond buyers being agnostic. All that mattered was the assurance of ratings agencies and bond insurance to cover any unforeseen damages.
There may be a good reason for Treasury secretary Hank Paulson to seek a broad based, global solution that parses the subprime mortgage crisis for well-meaning, God fearing and gullible home owners—based on renegotiating with those who can afford to pay teaser home loan rates for some limited period of time.
But the stickiness of government intervention in the contract obligations between bond holders and issuing banks is not lost on investors, especially foreign credit holders whose confidence in the United States is badly eroded by malfeasance in the execution of US foreign policy.
The Bush administration adamantly denies that there is any connection between these two areas of public policy. But the world-wide credit crisis, triggered by the home loan mortgage industry and Wall Street financial engineers, is unlike anything the global economy has ever experienced.
In our global village, the relationship of trust is not likely to be helped by the Bush administration and Congress spinning government intervention as a release-valve for limitations of the free market, involving so much wealth. It all comes across as theft.
And so there is a window of opportunity for a national debate on how to reform, not just the mechanics of securitization and assurances and lending practices, but the whole enchilada: regulating the financial engineers and the operating rules for the Growth Machine.
It is important for the American public to get the big picture: on the one side, you have the Growth Machine pounding the table against government interference, regulations, and taxation. On the other side, you have the same forces that have used government interference, regulations and taxation to promote a Ponzi scheme as a social benefit--sprawl--connecting financial engineers, bond holders and oblivious taxpayers.
Which is worse: a bankrupt deal for which billions of dollars of bonuses have already been banked, contributing to massive inequities in American society, or the bankrupt deal for which taxpayers will ultimately be held accountable, while the instigators are left to bank more fees and commissions for an unsustainable model of growth? Shouldn't the equation change?
It would be a shame if the 2008 election in the United States failed to expose the social engineers for who they are and what they represent. But that will take a candidate for president to stand up to the Growth Machine. It will take a candidate who will patiently explain it is time for a truly new direction.
7 comments:
Don't forget about the other Ponzi scheme that developers and governments have been selling the public for a long time. It goes something like this: New houses are good because the tax roll increases; the more we build, the better off we are. The falicy is that when these houses are sold the demand for new services, roads and schools soon outpace the taxes that are collected. In order to keep up, more houses have to be built to pay for yesterday's houses. It never ends. Eventually the quality-of-life is degraded, taxes have to go up to support services and the downward spiral continues with the hole getting deeper every year. The next time you hear some government official say construction is "economic development" ask them who pays for this "bonanza". Homestead is living proof construction is a loser for the consumer.
there is a window of opportunity for a national debate on how to reform
I hope you're not holding your breath.
Not holding my breath.
The first writer is correct: the myth of constantly expanding tax base to pay for needed services goes right along with the "sprawl is what the market wants" deceit.
In Miami-Dade county, one way to measure the indirect subsidy of new development at the fringe is the backlog of county projects/infrastructure improvements to accomodate the surging population.
It is not a number the county likes to broadcast: $7 billion last I checked.
But this number even understates the case for failed schools, bad parks and impoverished maintenance budgets, and so forth.
Gimleteye,
The following is nonsense:
"Far from being what the market wants, sprawl is a Ponzi scheme that depended on the securitization of mortgages into pools mixing form, content and risk into an unrecognizable hash. It was great bait--"what the market wants"--until the trawler nets came up empty."
As you know, sprawl is a phenomenon that long pre-existed the recent packaging of mortgages as investment vehicles. Most of Miami-Dade County can be defined as suburban sprawl, from the very first subdivisions west of the Miami River, to Coral Gables, to new developments in Homestead.
All of the suburban development of the last 75 years, which meets your definition of sprawl, was undertaken before the recent financial vehicles were created.
It therefore clearly did not depend on these vehicles.
You like to repeat the trope that sprawl development is not what the market wants. I think that is demonstrably false. Suburban development patterns are, like it or not, what most Americans seem to want. I live the suburbs; I assume you do as well.
I agree with you that suburban development patterns are not the most efficient use of land. If the market did not exist for this kind of development, however, it would not occur.
To Lee Allan,
I guess we are finding out that the market for sprawl is not so great.
Lee Allen -- you said:
suburban development patterns are, like it or not, what most Americans seem to want. I live the suburbs; I assume you do as well.
you assume to much. We don't like sprawl suburbs. I can actually say: I hate the suburbs. I live in a dense community myself. I would move out of Florida if I had to live in west miami sprawl neighborhoods. My sister lived west on bird road in Bent Tree. I went to visit her and it was always hours stuck in traffic. Not for me...hate it.
genius,
Pinecrest is "the suburbs".
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