Florida should end Ponzi scheme based on growth, economist says ... by gimleteye

"It is now obvious that the reason we're experiencing a simultaneous meltdown in the financial system and the climate system is because we have been mispricing risk in both arenas-- producing a huge excess of both toxic assets and toxic air that now threatens the stability of the whole planet." That's Tom Friedman, in the New York Times today. When we said the same, twenty years ago, we were called Chicken Little and worse. Things change, but not too quickly to obliterate the history of miscalculations. Yesterday, the Orlando Sentinel reported that "one of the nation's leading economic forecasters in recent years", Sean Snaith, said, "Florida can no longer rely on an economic model built on adding more homes and attracting more people." (please click, read more)

It is only by mispricing risk that Florida's growth based on population expansion, the expansion of suburbs into Everglades wetlands, could occur at all. Now, finally, the writing on the wall as a matter of common sense and fiscal prudence for decades is now apparently available for even the mainstream media to see. It is why so many observers support Florida Hometown Democracy, the state wide referendum that would put up the failed growth model to a vote. Here is another point the media is missing: people simply don't believe the purveyors of growth-at-any-cost. Take the Latin Builders Association, for example, whose past chairman and politically connected insider, Willy Bermello, wrote in the Miami Herald-- unchallenged by any other point of view-- in 2005 of the real estate markets: "This bubble is not made of latex. It is made of stainless steel." Boo-yah. We are now in the midst of the longest recession in seven decades.

Today, the Herald reports another in its seemingly endless point-and-click stories, shaded to optimism: "Homebuilder sees sign of hope." Never mind that Lennar's "losses climbed 77 percent" or that completed home sales for the company fell 40 percent. Stuart Miller, Lennar CEO, is reading from the same set of tea leaves as the Latin Builders, "the housing market could be thawing soon."

What else could Lennar say, in defense of the failed financial model that made such a few people extraordinarily wealthy?

The Wall Street Journal reports otherwise:

FHA Default Rates By Metro
Rank MSA Dec-08 Dec-07
1 PUNTA GORDA, FL 17.99% 10.19%
4 FORT MYERS-CAPE CORAL, FL 15.07% 9.20%
7 FORT LAUDERDALE, FL 11.77% 6.47%
8 SARASOTA-BRADENTOWN, FL 11.76% 7.40%
10 OCALA, FL 11.37% 7.35%
13 NAPLES, FL 11.25% 4.99%
18 MELBOURNE-TITUSVILLE-PALM BAY,FL 10.92% 6.67%
20 WEST PALM BEACH-BOCA RATON, FL 10.71% 5.48%
23 MIAMI, FL 10.52% 5.10%
27 JACKSONVILLE, FL 10.28% 7.69%
29 FORT PIERCE-PORT ST.LUCIE, FL 10.04% 6.20%
30 LAKELAND-WINTER HAVEN, FL 9.95% 7.39%
33 DAYTONA 9.84% 6.55%
44 TAMPA-ST.PETERSBURG-CLEARWATER, FL 9.46% 6.44%
All Sum of above 10.65% 6.62%

What is most disturbing about these numbers is that a large portion of the loans in the FHA’s book in these areas represent loans originated last year, suggesting that defaults are occurring very early in the life of the loans. The number of FHA-insured homes was more than 25% higher in December 2008 than in December 2007, and in some areas ( Fort Myers-Cape Coral, Naples, Fort Pierce-St. Lucie) it was up by over 40%. Defaults are defined by the FHA as loans that are 90 days or more delinquent.

The question: why should anyone believe Lennar, the Latin Builders, the South Florida Builders or anyone half a mile within those spheres of influence? Florida's landscape-- bruised and battered by the growth Ponzi scheme-- tells the whole story.


OrlandoSentinel.com
By Jerry W. Jackson

Sentinel Staff Writer

10:32 AM EDT, March 31, 2009
Florida can no longer afford to rely on an economic model built on adding more homes and attracting more people, a Ponzi growth scheme that is "collapsing all around us," University of Central Florida economist Sean Snaith said today in his latest forecast for the state and 12 metro areas.

Snaith, ranked as one of the nation's leading economic forecasters in recent years, said Florida needs to grab all the federal stimulus money it can to help prop up an economy that clearly relied too much for too long on strong population growth.
"Any Ponzi scheme can be sustained as long as new investors continue to be added to the pyramid," Snaith said in his report this morning. "But we're seeing a breakdown in the financing of government across Florida. This steady influx of population that provided the additional revenues need to prop up the system has evaporated, and the pyramid is collapsing all around us."

Snaith said he expects the state's housing construction sector will finally bottom out in the second quarter this year, ending June 30, at a low point "deeper than many expected." Construction likely will fall to annual rate of 38,250 housing starts, a level that would be only 13 percent of the peak during the boom that crested in the fourth quarter of 2004.

Unemployment statewide will continue to rise, he predicted, and likely will remain above 10 percent for most of 2010 "before beginning a very slow decline from its peak."

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