Memo to Democrats: use financial levers and taxation to stop suburban sprawl ... by gimleteye

Over the holiday I met a young analyst who works at one of the top bond rating agencies, analyzing collateralized mortgage debt. These derivatives, in many different forms, were weapons of mass financial destruction that detonated the economy. The cozy relationship between originators, like Goldman Sachs and other investment banks, accountants and ratings agencies are components of fraudulent wealth creation that blinded government, the media and the public. Trillions of taxpayer obligations have been created to paper over the banking and financial crisis that still threatens a second Great Depression.

Today, the issue of job creation dominates every area of economic policy. But "jobs, jobs, jobs" is just whistling by the graveyard containing the remnants of so much economic carnage. Most decision makers are waiting for the miracle to come; that an economy based on construction and development will rise Phoenix-like from the ashes of the housing crash and excess of commercial real estate. There is very little critical thinking applied to what kinds of growth might be sustainable, as opposed to the addictions of the mortgage pools where everything and anything that fogs the cash flow mirror is suitable to be collateralized.

My analyst friend confirmed what we know to be true about the production housing markets for instance: that there is only a tiny fraction of bond business going through the Wall Street mills today. I had a specific and different question: how would he, if he had the chance, impose financial costs to prevent the proliferation of suburban sprawl that has lead to both so much crappy, fetid overdevelopment in the fast growing regions of the nation, like Florida, and destruction of quality of life and the environment, too.

By the time that bond rating agencies in downtown Manhattan set ratings for a mortgage pool, there is nothing vaguely resembling scrutiny of underlying environmental value. The pressure to rate mortgage pools, comprising hundreds of individual properties, results in scrutiny of only a percentage of properties within the pools. A small strip mall, for instance, built over citizen objections in a neighborhood wetland would never rise to the point of review by the bond rating agency and the mortgage pool originator. That is not to say there is no environmental impact statement associated with the bond documentation. But these statements never given more than a once-over glance. They are throw-away fine print.

I'd wager, furthermore, that the engineering cartel-- formed of the array of consultants feeding from the Growth Machine-- is paid handsomely to conform environmental statements in mortgage backed derivatives through the happy, mutual fluffing in the revolving door between regulators and the regulated communities. Simply, Wall Street is agnostic to the outcome of debt underlying America's environmental crises so long as the cash flow is positive and within the parameters of obligations.

"How would you impose costs on mortgage origination to stop suburban sprawl?" His frank answer was no surprise: impose financial penalties as close as possible to the developer, itself.

Comprehensive growth plans, like those required by the state of Florida, are not enough to discourage growth and development where it should not occur, to protect the health, safety and public welfare. The power of campaign contributions and corruption overwhelms the intent of laws and regulations.

Higher costs -- yes, a form of taxation-- could steer development away from speculation that has demonstrably harmed our environment and quality of life. There are many forms of taxation that are used to incentivize development, and many-- like tax increment financing-- are used to specifically encourage the kinds of suburban sprawl that ought to be condemned. But imposing financial costs to discourage suburban sprawl is not even on the radar.

There is too much sense in that, and of course, it doesn't fit in the profit models of big downtown law firms or campaign contributors who run production home builders, trade associations and other components of the Growth Machine. But if Democrats wanted to differentiate themselves from the economic catastrophe imposed on taxpayers by unsustainable growth, they would pay attention to more than the outrage of Wall Street executive compensation packages. Certain forms of economic development are toxic to the public interest. Tax policy as a financial lever should be used to stop the madness.