Read geniusofdespair's post below: it's a good one. All those crappy subdivisions in Homestead. What do they really represent?
Remember how it worked, just a few years ago. Developers of sprawl claimed they were providing a public service, draping themselves with awards and honors at Latin Builder banquets, claiming "we provide what the market wants".
You don't hear much, do you, these days about "elitist critics" of crappy development schemes. What you hear, are hundreds of thousands of Florida citizens furious how the right to petition our own government, by changing the rules of land use planning through a ballot petition drive--Florida Hometown Democracy--, was systematically repressed by the Florida Chamber of Commerce, Associated Industries, and developers. That's with a small "d".
With a big "F", what you hear is how Federal Reserve has stepped in, to bail out the crappiest and most toxic of the financial derivatives cookie stamped from platted subdivisions like the ones you see in the post, below.
Suburban sprawl and platted subdivisions weren't what the market wanted.
It turns out, these were simply the best places to perpetrate fraud and manifold violations of RICO, that the FBI would be prosecuting if it wasn't so busy chasing terrorists.
You couldn't make this stuff up! While Americans passively herd into chutes at airline terminals to be checked by Homeland Security, Wall Street and the Growth Machine pilfered the US economy. In Florida, they took Florida's natural resources and shook it like a money tree. On foreign wars and domestic thievery of the public treasury, the United States economy is headed to the shoals.
It is really hard to imagine there won't be a day of reckoning. In a few big ways, there already is: the cratering value of the US dollar. Federal Reserve policy that will add to the worst inflation since the 1980's. (You'll see: one of the strategies of "controlled inflation" is to bleed up all the costs of living to come to parity with the cost of housing. In other words, if you feel poorer today than you were four years ago or eight, you are about to feel a whole lot poorer.)
And then, there are costs to the court system. It may well turn out that the enormous backlog of court cases related to the implosion of housing markets is what will finally require "nationalization of the banking crisis". Well, there is good news for lawyers, in it.
Voters should be drawing the line between photos of foreclosed properties in Homestead, elected officials joined at the hip to developer pals, and the budget crises mushrooming from the collapse of housing markets in Florida, including the unexpected massive rise in financing and interest costs for municipal debt (reported by Miami Today).
Isn't it interesting how car crashes and natural disasters always command the front page of the nation's mainstream newspapers, or politicians nabbed by illegal sex, but when it comes to the biggest forms of theft of democracy and its promises-- silence.
3 comments:
by gimleteye:
Question: did Miami, Miami Dade County, any of its agencies or has the South Florida Water Management District engaged in ANY credit default swaps?
NEW YORK TIMES
March 12, 2008
High Finance Backfires on Alabama County
By KYLE WHITMIRE and MARY WILLIAMS WALSH
BIRMINGHAM, Ala. — In 2002, a banker named Charles E. LeCroy arrived here with a novel pitch to ease taxpayers’ burden. Some Wall Street wizardry, he said, could lighten their load.
Six years on, officials here are still struggling to untangle the financial web that Mr. LeCroy and his fellow bankers spun. Jefferson County is teetering on the brink of bankruptcy after a series of exotic bond deals that the bankers concocted went wrong, and the interest on its debts, rather than shrinking as the bankers had promised, has ballooned like a bad subprime mortgage.
Officials from Birmingham, the county seat, are trying to persuade Wall Street creditors to let them soften the terms of the deals. If they fail, the county could sink into in one of the biggest public bankruptcies in American history.
The running credit crisis and looming recession are squeezing communities across the country. But perhaps nothing else comes close to the financial fiasco unfolding here.
During the last few years, Jefferson County entered into a series of complex transactions, called swaps, worth a staggering $5.4 billion. The accusations and recriminations are flying. Talk of Wall Street tricks — and local corruption — has captivated residents and left many wondering how the county will pay its bills.
“There are 101 messes up there, and they are not all cleaned up yet,” said Jim White, the president of the Birmingham law firm of Porter White, which is advising the county on its finances.
At the heart of this story are Mr. LeCroy, who arranged many of the transactions; a Montgomery investment banker, William Blount, whose firm, Blount Parrish & Company, earned larger fees than any other adviser on the transactions; and Larry P. Langford, the local official who signed off on the deals.
As a managing director at JPMorgan Chase, Mr. LeCroy persuaded the county to convert its debt from fixed interest rates to adjustable rates. He also recommended that the county use interest-rate swaps that he said would protect it if interest rates rose.
Mr. LeCroy, however, is no longer in the bond business. He landed in prison for three months in 2005 in connection with a municipal corruption case in Philadelphia. He has left JPMorgan Chase and declined to comment for this article.
Mr. Langford, now the mayor of Birmingham, previously oversaw the county’s finances. He says he had no idea what Mr. LeCroy and the many other bankers on the deals were doing, and he asked for Mr. Blount’s help in vetting their proposals.
“I needed somebody to be able to tell me what all that stuff was,” Mr. Langford said in a deposition in June. “And even when they told me, I still don’t understand 99 percent of it.”
Mr. Langford, though, faces legal troubles of his own. The Securities and Exchange Commission is investigating whether he steered bond underwriting business to Mr. Blount’s company in return for payments, a claim he has denied.
Mr. Langford has a history of financial problems, including an ill-fated plan to build a local amusement park called VisionLand, and a self-professed propensity to shop. “I like clothes,” Mr. Langford said in his deposition.
Bettye Fine Collins, who succeeded Mr. Langford as commission president in 2006, says Jefferson County is negotiating with its creditors, but the results are still uncertain.
“Those at the poverty level, those parents on the free lunch programs, I don’t know how much they can bear,” Ms. Collins said. “They’re probably paying $4 a gallon for regular gas, and everything in sight is going up except their salaries or their Social Security checks.”
The troubles in Jefferson County, which is perched on the foothills of the Appalachian Mountains, began more than a decade ago. The county’s sewers were discharging raw sewage into the Black Warrior and Cahaba Rivers during heavy rains. In 1996, a federal court ordered the county to refurbish the system.
Mr. LeCroy, first as a swap adviser and broker with Raymond James and later with JPMorgan, helped the county sell bonds to pay for the upgrade. But in 2002, after Mr. Langford was elected county president and vowed to rein in costs, Mr. LeCroy urged the county to reduce its interest payments by refinancing its debt and switching to adjustable rates from fixed rates. As a hedge, he recommended swaps.
The county ended up with 18 different swaps at one point, an extraordinary number for a county government. The notional value of the swaps surpassed the value of the bonds they were supposed to hedge.
Mr. Langford agreed to the plan — and in the process locked Jefferson County into borrowings that may ruin the county, even though they have richly rewarded its bankers.
Last week, the county warned that it did not have enough money to cover the hedges, which ended up costing it money when rates moved in unexpected ways. The situation became critical when the insurance companies standing behind the bonds had their own credit ratings downgraded. Officials are trying to work out a stabilization plan, but the outcome is far from certain.
The county’s financial dealings have also raised thorny legal questions, which in turn may make it harder to negotiate with its creditors. The S.E.C. deposed Mr. Langford last year in an effort to learn whether any securities laws had been broken when Jefferson County refinanced its bonds — particularly the laws that bar bankers and others from “buying” lucrative municipal bond business by giving gifts to the officials who control the bond deals.
Instead of letting these bankers compete for the county’s business in an open bidding, the five county commissioners divided up the deals among the people they knew.
Mr. Langford said he chose people who had responded to his calls for money to send children to Bible camp and to support a charitable skeet shoot-off, as well as people who had helped him pay off his many debts. One of his donors was Mr. Blount. The S.E.C. also asked Mr. Langford about an e-mail message in which Mr. Blount warned Mr. LeCroy that the county commissioner was “hitting us up” for contributions to a ministry project.
Mr. Langford said he chose the people he did because he knew they were capable and he trusted them. He said that Mr. LeCroy did not make any unusual payments to him. The S.E.C. also questioned him about payments that Mr. Blount had made to a local lobbyist who had paid off one of Mr. Langford’s delinquent loans at about the same time. Mr. Langford said he did not know where the lobbyist got his money.
Jefferson County’s case is an extreme one, but its missteps are not unique. Other communities around the country have also found themselves holding complex financial instruments that did not perform as advertised. As the troubles in the credit markets continue to spread, more such problems are likely to surface. Nor do many local governments hold open, competitive biddings when they issue bonds.
“I don’t think there’s anyone who has been involved in the swaps and derivatives market to the extent that the Jefferson County sewer system was,” said Paul Maco, director for the Securities and Exchange Commission’s office of municipal securities during the Clinton administration.
Of 11 swaps and similar contracts Jefferson County went into from 2001 to 2003, eight were with JPMorgan Chase. A spokesman for the bank declined to comment.
For now, the residents of Jefferson County are bearing the burden of the ill-fated deals. Residents’ sewer rates have tripled. And, residents say, the sewers still do not work properly.
Kyle Whitmire reported from Birmingham and Mary Williams Walsh from New York.
Derivatives the new 'ticking bomb'
Buffett and Gross warn: $516 trillion bubble is a disaster waiting to happen
By Paul B. Farrell, MarketWatch
Last update: 7:31 p.m. EDT March 10, 2008
http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid=%7BB9E54A5D-4796-4D0D-AC9E-D9124B59D436%7D&print=true&dist=printTop
ARROYO GRANDE, Calif. (MarketWatch) -- "Charlie and I believe Berkshire should be a fortress of financial strength" wrote Warren Buffett. That was five years before the subprime-credit meltdown.
"We try to be alert to any sort of mega-catastrophe risk, and that posture may make us unduly appreciative about the burgeoning quantities of long-term derivatives contracts and the massive amount of uncollateralized receivables that are growing alongside. In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal."
That warning was in Buffett's 2002 letter to Berkshire shareholders. He saw a future that many others chose to ignore. The Iraq war build-up was at a fever-pitch. The imagery of WMDs and a mushroom cloud fresh in his mind.
Also fresh on Buffett's mind: His acquisition of General Re four years earlier, about the time the Long-Term Capital Management hedge fund almost killed the global monetary system. How? This is crucial: LTCM nearly killed the system with a relatively small $5 billion trading loss. Peanuts compared with the hundreds of billions of dollars of subprime-credit write-offs now making Wall Street's big shots look like amateurs.
Buffett tried to sell off Gen Re's derivatives group. No buyers. Unwinding it was costly, but led to his warning that derivatives are a "financial weapon of mass destruction." That was 2002.
Derivatives bubble explodes five times bigger in five years
Wall Street didn't listen to Buffett. Derivatives grew into a massive bubble, from about $100 trillion to $516 trillion by 2007. The new derivatives bubble was fueled by five key economic and political trends:
1. Sarbanes-Oxley increased corporate disclosures and government oversight
2. Federal Reserve's cheap money policies created the subprime-housing boom
3. War budgets burdened the U.S. Treasury and future entitlements programs
4. Trade deficits with China and others destroyed the value of the U.S. dollar
5. Oil and commodity rich nations demanding equity payments rather than debt
In short, despite Buffett's clear warnings, a massive new derivatives bubble is driving the domestic and global economies, a bubble that continues growing today parallel with the subprime-credit meltdown triggering a bear-recession.
Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland. The BIS is like the cashier's window at a racetrack or casino, where you'd place a bet or cash in chips, except on a massive scale: BIS is where the U.S. settles trade imbalances with Saudi Arabia for all that oil we guzzle and gives China IOUs for the tainted drugs and lead-based toys we buy.
To grasp how significant this five-fold bubble increase is, let's put that $516 trillion in the context of some other domestic and international monetary data:
• U.S. annual gross domestic product is about $15 trillion
• U.S. money supply is also about $15 trillion
• Current proposed U.S. federal budget is $3 trillion
• U.S. government's maximum legal debt is $9 trillion
• U.S. mutual fund companies manage about $12 trillion
• World's GDPs for all nations is approximately $50 trillion
• Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
• Total value of the world's real estate is estimated at about $75 trillion
• Total value of world's stock and bond markets is more than $100 trillion
• BIS valuation of world's derivatives back in 2002 was about $100 trillion
• BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion
Moreover, the folks at BIS tell me their estimate of $516 trillion only includes "transactions in which a major private dealer (bank) is involved on at least one side of the transaction," but doesn't include private deals between two "non-reporting entities." They did, however, add that their reporting central banks estimate that the coverage of the survey is around 95% on average.
Also, keep in mind that while the $516 trillion "notional" value (maximum in case of a meltdown) of the deals is a good measure of the market's size, the 2007 BIS study notes that the $11 trillion "gross market values provides a more accurate measure of the scale of financial risk transfer taking place in derivatives markets."
Bubbles, domino effects and the 'bad 2%'
However, while that may be true as far as the parties to an individual deal, there are broader risks to the world's economies. Remember back in 1998 when LTCM's little $5 billion loss nearly brought down the world's banking system. That "domino effect" is now repeating many times over, straining the world's monetary, economic and political system as the subprime housing mess metastasizes, taking the U.S. stock market and the world economy down with it.
This cascading "domino effect" was brilliantly described in "The $300 Trillion Time Bomb: If Buffett can't figure out derivatives, can anybody?" published early last year in Portfolio magazine, a couple months before the subprime meltdown. Columnist Jesse Eisinger's $300 trillion figure came from an earlier study of the derivatives market as it was growing from $100 trillion to $516 trillion over five years. Eisinger concluded:
"There's nothing intrinsically scary about derivatives, except when the bad 2% blow up." Unfortunately, that "bad 2%" did blow up a few months afterwards, even as Bernanke and Paulson were assuring America that the subprime mess was "contained."
Bottom line: Little things leverage a heck of a big wallop. It only takes a little spark from a "bad 2% deal" to ignite this $516 trillion weapon of mass destruction. Think of this entire unregulated derivatives market like an unsecured, unpredictable nuclear bomb in a Pakistan stockpile. It's only a matter of time.
World's newest and biggest 'black market'
The fact is, derivatives have become the world's biggest "black market," exceeding the illicit traffic in stuff like arms, drugs, alcohol, gambling, cigarettes, stolen art and pirated movies. Why? Because like all black markets, derivatives are a perfect way of getting rich while avoiding taxes and government regulations. And in today's slowdown, plus a volatile global market, Wall Street knows derivatives remain a lucrative business.
Recently Pimco's bond fund king Bill Gross said "What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August." In short, not only Warren Buffett, but Bond King Bill Gross, our Fed Chairman Ben Bernanke, the Treasury Secretary Henry Paulson and the rest of America's leaders can't "figure out" the world's $516 trillion derivatives.
Why? Gross says we are creating a new "shadow banking system." Derivatives are now not just risk management tools. As Gross and others see it, the real problem is that derivatives are now a new way of creating money outside the normal central bank liquidity rules. How? Because they're private contracts between two companies or institutions.
BIS is primarily a records-keeper, a toothless tiger that merely collects data giving a legitimacy and false sense of security to this chaotic "shadow banking system" that has become the world's biggest "black market."
That's crucial, folks. Why? Because central banks require reserves like stock brokers require margins, something backing up the transaction. Derivatives don't. They're not "real money." They're paper promises closer to "Monopoly" money than real U.S. dollars.
And it takes place outside normal business channels, out there in the "free market." That's the wonderful world of derivatives, and it's creating a massive bubble that could soon implode.
"could" implode?
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