Advice for Obama in Florida, by gimleteye

Barack Obama is in Florida today as the most tumultuous week in Wall Street history draws to a close. The presidential campaign now hinges on a single issue: the economy. The unravelling is hard to grasp, as is the news yesterday that cheered stock markets around the world causing a violent upward swing to a week marked by more violent downward swings: that the US government is going to suck up all the toxic debt, putting the US taxpayers in the position of ownership for all the mistakes of Wall Street bankers and Main Street operators-- mostly production home builders, mortgage originators and lenders of disposable housing in suburbs across America. It is an economic model that produced fabulous profits and is now chewing itself into unusable pieces.

I woke up this morning, filled with thoughts around the economic calamity unfolding under the supervision of the Herbert Hoover/ George W. Bush White House and a president who was-- as he appeared to try to calm world markets and investors yesterday-- irrelevant. The adage that stuck in my head was the old Hollywood saying, in relation to why certain movies get made and others do not: "No one knows anything."

As I sipped my cup of morning coffee, I read through the week's financial news:

"The total value of credit default swaps, a type of insurance policy against a corporation's defaulting on its debt, stood at $62 trillion recently. Derivatives transactions are struck privately and the market is unregulated, with no central exchange where trades are disclosed... 'The really interesting question that no one knows the answer to is, if you were to go into liquidation and sell off all the derivatives contracts, what is the value?' said Frank Partnoy, a law professor at the University of San Diego and author of 'Infectious Greed: How Deceit and Risk Corrupted the financial markets'" (NY Times, Firm's Creditors, large and small, compete for a piece of what's left, September 16, 2008).

"No one knows anything." The reason this occurred to me was in context of the scant information leaked to the press yesterday around a rescue plan that sounds like what some economists have long been calling for-- a Resolution Trust Corporation-like entity to rescue the banks that had failed, as occurred in the aftermath of the savings and loan fiasco. But it is an imperfect comparison: firstly, only a few banks have actually failed yet. (The Bush administration certainly knows that dozens of banks are insolvent right now; government agencies are more concerned about fending off a widespread panic-- notwithstanding news that a few money market funds are not allowing dollar-for-dollar redemptions.)

But the news was enough to send stock markets, yesterday, giddy with optimism that indeed the band will play again, the orchestra will be re-assembled and the champagne will flow even though the meaning of contracts has been pulverized. The best business to be in of all is supplying printing presses, paper, and ink to the US Treasury.

In essence, this week the sovereigns of the nation's economy have been revealed to be making it up as they go along. On network news last night, the anchor said that the Fed Chair Ben Bernanke and US Treasury Secretary Henry Paulson would be working on the weekend to disclose details on how we will survive so much destruction. Glad they're taking the weekend to do it.

If I understand correctly, the federal government intends to manage its ownership of hundreds of billions and possibly trillions of toxic debt through the same accounting sleight-of-hand that brought down Enron. That is to say, in short, the creation of a garguantuan Special Investment Vehicle, or, below ground financial reservoirs to dump the crap. (Apparently, the State of Florida already has its own version of an SIV in the state investment fund and details of that, too, are scant.)

"No one knows anything" is supposed to apply to fiction, not to the economy. The sober captains of the Wall Street and their multi-hundred million dollar pay packages are not supposed to be alchemists; they are supposed to be fiduciaries of trust. It used to be that Wall Street ran Congress and the White House: now, we have a better way: politicians run Wall Street.

So how does this add up to advice for Obama who certainly understands that the scale of today's economic crisis makes the savings and loan fiasco look like a pimple on an elephant's ass? Well, as the devil is always in the details, it is worth taking a close look at a very particular pimple in South Florida-- one that recently emerged into my own field of view thanks to an eagle-eyed reader of our blog.

That pattern of growth in Florida-- that has been very successful over the past seventy five years and accounts for tax policies that rely mostly on real estate transactions-- is suburban sprawl. All the features of sprawl, from land use planning to zoning and permitting, from limerock for roadways to wells to dump sewage, are like small gears that mesh with the big gear: the financing of sprawl through derivatives and the laying off of risk-- risk to developers, to municipalities, and to banks and insurance companies-- from default.

There are so many ways that Florida is emblematic of the ills afflicting the nation's economy. Miami-Dade, Florida's most populous county, is the epicenter of the credit crisis because its political origins started here. This is place where gears and ratios for suburban sprawl, from derivatives collecting platted subdivisions like dustballs to the hijacking of local county commissions by the development lobby: it all worked here, first. (see our archive feature "housing crash" for more.)

In Miami-Dade County, we have something called the Urban Development Boundary. It is a line that serves the unique purpose of illuminating the pressures of suburban sprawl; on one side is development and its delivered riches and on the other side is speculation and its promised riches. On the developed side of the line, the machine is intact. On the undeveloped side of the line-- including the remnant Everglades, farmland and the last open space in South Florida-- the machine is geared to deliver profits and riches according to the economic model that just blew up into hundreds of billions of pieces.

The rationale for moving the Urban Development Boundary is grounded in data and statistics about patterns of growth and absorption of existing housing stock inside the line. As a result-- and because the only native industry in South Florida is platted subdivisions in farmland--all the politics in Miami-Dade is organized around using new, cheap land for development. Mostly, it is outside the Urban Development Boundary (see archive feature, UDB).

In other words, the formula for profit that begins in obscure and secretive conference rooms of Lehman Brothers and Bear Stearns and so forth, where derivative debt is conjured and risk is layed off, manifests as a boil on the public interest at the Urban Development Boundary where community activists are pitted against extremely wealthy and powerful lobbyists, speculators and corporations like Lowe's Home Improvement (see our archive feature ,"Krome Gold"). This is a little bit of a shaggy dog story, I know, but bear with me.

The September 12 issue of the Daily Business Review includes an article that could give some insight to Barack Obama, "Miami-Dade watershed study criticized". An environmental firm spent five years and countless thousands of volunteer hours working with county planners, the regional planning council and water management district to determine how to accomodate both the needs of the environment and population growth in the next 50 years in the remaining open space, some 371 square miles, in Florida's most populous county. The study, costing nearly $5 million, arose out of repeated conflicts between developers, bankers and community activists, environmentalists, and civic associations.

Bill Losner, a cantankerous banker who cashed out his Homestead holdings at the top of the market, is now leading the charge of development interests who are blasting the use of the study-- which is by all accounts the most sophisticated data analysis of a regional watershed ever developed in the United States-- by county planners. County commissioners tried to kill the study outright, citing "the disapproval of a committee formed to review the study." But the reality is the study, in which environmentalists and community activists sought good faith compromise, was torpedo'd by developers and bankers like Losner, a chronic complainer who has mightily profited from the chaos of rampant sprawl in Homestead. (see archive feature, "Shiver")

Losner says, "This was an absolute waste of taxpayer money. The committee saw that the agenda was to regulate land outside of the national parks in order to decrease the value of the land so that it could be purchased at a lower value for environmental purposes."

In fact, the five year process that Losner and the building industry representatives undermined from the very first, allowed for a committee voting structure that sought by all means and fairness to build consensus around the future of growth. Put another way, environmentalists and civic activists were shoe-horned into an evaluation and a study where the underlying assumptions about the growth model were immutable: there will be population growth, it will be accommodated. And, lastly, it doesn't matter how good your science is: we will do what we want. This is a spectacular result in a region suffering from chronic drought and highly susceptible to the impacts of global warming.

South Florida's builders, whose interests Losner represents, detested the watershed study process from the start: don't tell us what to do, they said. Let the free market determine the shape and substance of our communities.

The point is really this: in foisting on taxpayers the damage and toxic debt that Losner and his allies in the development industries foisted on consumers, the economic machine of disposable housing and communities hopes to revive itself, laying off even more risk and creating even more wealth for the same entrenched forces that used the gearing and ratios of suburban sprawl to their own personal profit and advantage. It is an ugly picture.

The intense struggles to maintain status and wealth are wrapped up, now, in such places where honest plans and efforts like the South Dade Watershed Study are stacked and buried, and in government agencies where good and reasonable professionals continue to be threatened and intimidated by lobbyists, highly paid attorneys and campaign contributors.

The awful part of it is: this competition has already been resolved. It is revealed in the blasted fortunes of Wall Street this week. But there are plenty of entrenched interests in Florida and around the nation who insist that the band be allowed to play on without any accountability at all. Barack Obama should keep it on his to-do list: have a look at how the Urban Development Boundary and every effort at consensus, at involving community activists and industry, has been defeated by the same imperatives that brought down Wall Street and triggered a world-wide credit crisis.