Florida State Investment Pool: no confidence ... by gimleteye

In 2003 Enron collapsed after investors lost confidence through gathering disclosures of off-book accounting transactions-- employing special investment 'vehicles' to enrich top executives. The tactic-- off-book transactions-- denies clarity to investors and yet in a key respect it is the same technique being embraced by the US Department of Treasury responding to the the worst financial crisis since the Depression.

The shocking decline of world stock markets this year, and particularly in the last quarter, is on account of the massive "de-leveraging" of hedge funds and investment banks desperate to restore solvency. The absence of buyers also reflects a massive lack of confidence; with special investment vehicles, investors know they are not getting the full picture. The result has been to turn equity markets into a form of casino gambling where the house rules.

One of the ways the financial industry is attempting to recover-- and causing investors sleepless nights-- is by segregating "assets" that are worthless, or virtually worthless, in "bad banks"; allowing their books to reflect only "good assets".

Here's a broad example how I imagine it to work ("imagine", because there has been no accounting detail--anywhere in the mainstream press): the bank takes its mortgage backed securities representing 100 platted subdivisions dotted with foreclosures in South Dade, Collier, and Orange County and puts them in a black plastic trash bag only to be counted when the market for platted subdivisions revives; it then shows you only those assets in mutual funds representing, for instance, corporations that make beer, toothpaste, and light bulbs. Presto: solvency.

This is the tactic apparently being used by the State of Florida ("Investors wary of state pool", Miami Herald, November 27 2008). "Last November, when municipalities and other government agencies rushed to withdraw money from (the State Investment Pool) ... healthy investments were segregated in one account with limited withdrawals while the troubled securities were sequestered in another, temporarily off limits to investors."

There is an appalling lack of detail on the composition of the toxic debt being held by the State Investment Pool. In Thursday's article, it appears there are two troubled investment vehicles, including Citizens Property Insurance. The article should have stated how much toxic debt was originally in each pool, and the percentage that has been recovered to date. The State of Florida must provide detail, as well, on what exactly the toxic debt represents.

Apparently, three broker dealers-- including Lehman Brothers-- were responsible for selling the toxic crap to the State of Florida. The public is due a full accounting; who exactly sold the toxic crap to Florida, what underlying properties do the financial derivatives represent, and who are those underlying owners or developers whose projects were "securitized"; are they, for instance, Florida bankers, developers, and speculators, and did they make campaign contributions to elected officials and the political parties?

One of the most opaque aspects of local government concerns the disclosure of who, exactly, is syndicating debt and organizing the sale and purchase of investments. You can be sure there are many, many vested interests who are hoping this information is not disclosed to the public.

Their hope is that the origins of the financial crisis are segregated from information disclosed to the public the way that toxic assets are being held in separate accounts from the "good" assets. They are hoping, too, that the mainstream media doesn't link the two, but only publishes stories like the November 17 report by the Orlando Sentinel, re-printed in today's December 2nd Miami Herald:

orlandosentinel.com/news/local/lake/orl-subdivisions1708nov17,0,3224254.story

OrlandoSentinel.com

Instead of bustling neighborhoods, some folks live in lonely subdivisions
Martin E. Comas
Sentinel Staff Writer
November 17, 2008


Todd Vandre keeps his lawn neatly manicured, but the clipped grass alongside the driveway seems out of place in his quiet Mount Dora subdivision.

Most lots here, including those next to and across from Vandre's property in Lake County, sit vacant and overgrown with weeds. There's little prospect of new homes being built nearby anytime soon. Even so, Vandre remains hopeful.

"Eventually, we'll have more neighbors," he said. But for now, scenes such as Vandre's are increasingly common across Central Florida. Neighborhoods that were supposed to be filled with families and homes instead have one house or two amid a barren landscape.

A couple hundred unfinished housing developments pockmark the region with empty lots and paved roads leading to nowhere. The construction crews and their trucks are gone. The collapsed housing and credit markets have left few new-home buyers.

County property appraisers in Seminole, Orange, Osceola, Volusia and Lake reported 155,835 vacant residential lots this year. Most are lots in new subdivisions approved during the peak of the housing boom in late 2005 and early 2006.

"Right now there is a glut of vacant lots on the market," said Frank Royce, Lake's deputy county property appraiser. "I think there are enough lots platted out there that we would not, in my opinion, see them all developed within our lifetimes."

Anthony Crocco, Central Florida director for MetroStudy, a Texas real-estate research and consulting company, said the Metro Orlando area has at least an 82-month backlog of vacant residential lots.

"The problem is that there is so much inventory -- including resale and foreclosure -- of homes," Crocco said. "The buyers stopped suddenly in late 2005, but the developers and the builders just couldn't cut the [construction] process quick enough."


Like 'Jurassic Park'

When Vandre moved in to his spacious two-story home in early 2007, construction workers were busy building other homes in the subdivision, one of several off State Road 46 in Lake. Vandre figured it would be a short time before his quiet street was filled with children riding their bikes, neighbors holding block parties and folks waving as they walked their dogs. )

Today, 69 of the subdivision's 571 planned single-family residences and town homes have been finished.

"Right now, I'm willing to wait [for more new homes]," he said. "But what happens when we want to move? . . . So far it's not so bad. It's quiet and we have more privacy. . . . But I worry about the resale value sometimes, if I ever do decide to sell."

Vandre's concerns are shared by new homeowners across the area -- residents who can handle their mortgages but are indirect victims of the real-estate and credit crises nonetheless.

Kerri Day and her husband, Robert Walker, live about 45 miles south in Osceola County's Turtle Creek subdivision, where they bought a home last year. Their house is among 53 completed out of 456 lots in the subdivision.

However, only about 17 houses in Turtle Creek are occupied. The builder, Levitt and Sons, stopped new-home construction and filed for bankruptcy protection a year ago, citing falling prices and an overabundance of new homes.

Now Day's new home is surrounded by grassy lots and empty streets.

"I hate it here," she said. "We have no neighbors. . . . It's like we're living in Jurassic Park. . . . It's very weird."

Day fears if she puts her house on the market now, it would not sell for near the $450,000 she paid.


Backlog in Lake, Osceola

Nancy Miller and her husband, Jimmy, moved into their home in an almost-empty Orange County subdivision near Apopka last spring.

Like Day and Vandre, Miller said she purchased the house "with the anticipation that other people would soon move in."

But today, only about 20 homes are completed out of 56 approved lots.

Miller admits "it feels odd" to live in a subdivision with so many empty lots and a few homes scattered on a circular road. Even so, her neighborhood sits near a busy intersection and several other built-out subdivisions, including Sweetwater Oaks.

"So it's not like we're completely out in the middle of nowhere," she said.

The backlog of vacant lots is especially evident in more rural counties, such as Lake and Osceola, where developers rushed in during the housing boom and secured approvals to build on huge tracts of inexpensive land.

Since the start of 2006, Lake County approved 5,398 new homes in its unincorporated area, but just fewer than 400 houses -- or about 7 percent of the total approved -- have been built since then, according to county planning officials.

Osceola County has a backlog of 30,806 vacant residential properties, according to the county Property Appraiser's Office. That includes the Reunion subdivision, where 1,626 lots were approved and platted, but only 579, or 33 percent, of the homes have been built in seven subdivisions.


Loving the privacy

Not everyone living in the solitary subdivisions finds it lonely.

Jim Myers and his wife, Laura, moved into their two-story Grand Island Reserve home in Lake County soon after it was completed in December. But construction at the 269-unit subdivision has since stopped. Today, about 40 homes have been completed. Their home sits on a hill like a ship in a sea of empty lots.

"We certainly anticipated that it [the subdivision] was going to be finished," Myers said. "But otherwise we love it. It's the privacy."

But Myers does have some concerns.

"When the market does come back and when they start building again, I would like to see something comparable in value to what has been started here," he said.

With Lake Eustis visible from his front windows, Myers asked the builder, Ryland Homes, whether he could purchase nearby lots to prevent another two-story home from spoiling his view.

His request was denied.


Martin E .Comas can be reached at mcomas@orlandosentinel.com or 352-742-5927.
For map of neighborhoods, see printed copy.

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