Buying time, by gimleteye

“Now that residential development has hit the wall, builders and lenders are partners in misery,” reads the article from last week’s Daily Business Review ("Developers stuck with land they have no use for"). You can be sure the sound of that misery reached the Bush White House from Miami-Dade.

The Daily Business Review interviews one land owner who negotiated last year for a payoff with Ocean Bank due this week. The speculator, according to DBR, “predicts he will ‘work things out’ with the bank and plans to hold the parcel until the market turns.” How long will he be able to afford to hold it? ‘Who knows,’ he said. ‘I don’t know how long it will take for the market to turn.’ Ocean Bank executives did not return calls seeking comment.”

Ocean Bank executives figure prominently in the group of Republican campaign contributors clustered around the Latin Builders Association, who plowed production homes into wetlands and farmland in South Florida with reckless abandon-- fortified with the assurance that to be wealthy is to be right.

Now these same interests -- by no means exclusive to Florida or to the Republican party--have prevailed upon the Federal Reserve to use toxic mortgage debt as collateral for $200 billion in loans to banks. Those banks, in turn, will use that money to support their balance sheets, aggravated by tons of toxic derivatives. The idea is to ease the credit crisis.

But it is also a form of nationalization, and it has been enacted by the party of limited government and free markets.

What this does is to buy time. It buys time for the banks and for campaign contributors who have been begging the White House for help.

What it also does is give certain Congressional Democrats the chance to drive a wedge with the builders and speculators who had been solidly Republican, like US Senator Bob Menendez (D-NJ) who in a press release yesterday said: “I am glad to see the Federal Reserve is on high alert, but it's clear the Fed alone can't resuscitate our economy. We need more than empty reassurance from the administration - we need strong action to address the heart of this crisis: the housing market.” Read, speculators.

On NPR yesterday, I couldn’t believe my ears, hearing an economist argue that mortgages should be re-pegged to realistic home values because the economy cannot withstand the hit to homeowners.

A more extreme measure I cannot imagine, except that the Federal Reserve has already taken a radical, extreme measure in taking pressure off banks whose customers include land speculators holding mortgages for property that cannot be sold except perhaps at twenty or thirty cents on the dollar.

The new definition of “the ownership society” is that for which no ownership can ever be claimed. The South Florida developers and speculators-- like those who own land outside the Urban Development Boundary-- may have bought time.

But, at what cost?