The month and year deserve marking. With these words, Jeb Bush layed down an important signpost for the Republican Reformation that began, not with the election of George W. Bush in 2000, but with his own in 1998. As national politics wind toward the 2012 presidential election, the refrain “eliminate burdensome and ineffective regulations” has become a mantra repeated so often that its context has lost meaning. Jeb Bush said it first in Florida.The government workers Bush wanted to eliminate most fervently were regulators. And they were regulators most closely associated with the business that had established his own credentials: construction and development. Jeb Bush had been propelled to his first elected office—governor—by South Florida developers. Organized through trade groups for political activities like the Latin Builders Association, their primary aim was to seed the state with platted subdivisions and condos on Florida shorelines.
In South Florida, due to the proximity of the Everglades to urban centers, green fields for development were circled by environmental regulations inhibiting bulldozers, the laying of pavement, rebar, and sheetrock. January 2003. It was the same month and year Mel Martinez, former chairman of Orange County Florida, and then Secretary for Housing and Urban Development, addressed a national convention of builders in Las Vegas: “We also must work in close partnership to dispel the myth that our nation is experiencing a "housing bubble." (Wed. Jan 22, 2003, http://www.hud.gov/news/speeches/nahb0103.cfm)” Bubbles of course do burst, but the housing market is not in the same category of other weaker and less competitive sectors of the economy… this Administration is making it easier for people to purchase their own homes - a change that will help drive home development and sales. And, it will help more minorities become homeowners.”
Two years later, former LBA president Willy Bermello would be given OPED space by Miami Herald editors to write, “this bubble is not of latex but of stainless steel”. It was “The Ownership Society”. In Florida, Jeb Bush had empowered new management at the state’s environmental agency, the Department of Environmental Protection, and a new motto, “More protection, less process.” Santa's Republican wordsmiths were in their icy workshops coming up with warm messages for the revolution.
In 2003, Karl Rove—Bush consigliere—was interviewed by New York Times writer Ron Suskind. Rove, now a leader of GOP super PAC’s, told Suskind; “… that guys like me were ''in what we call the reality-based community,'' which he defined as people who ''believe that solutions emerge from your judicious study of discernible reality.'' I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ''That's not the way the world really works anymore,'' he continued. ''We're an empire now, and when we act, we create our own reality. And while you're studying that reality -- judiciously, as you will -- we'll act again, creating other new realities, which you can study too, and that's how things will sort out. We're history's actors . . . and you, all of you, will be left to just study what we do.'' (“Without a Doubt”, New York Times, October 17, 2004)
More protection, less process. At that moment, the most exuberant expression of the anti-regulatory culture that triggered the housing bubble was at work at the Miami corporate headquarters of a prominent Bush supporter, financier R. Allen Stanford. In 2001, under undisclosed circumstances, Stanford secured from the State of Florida rights to conduct offshore banking from Miami, a privilege that had never been extended to any other financial institution in the United States.
Stanford proceeded to construct a $7 billion Ponzi scheme for which he was indicted and arrested in 2009 and has yet to stand trial. “When Florida regulator Keith Jasper arrived at the opulent Miami trust offices of billionaire banker Allen Stanford in 2001, he expected to see records showing that money turned over to the company was safely invested.” But when the veteran bank examiner asked for the reports, he was told there were none. In fact, records of the millions of dollars that flowed through the office had been shredded. State regulators could have demanded the documents, or even taken steps to shut down the office to protect investors… (but) over the next eight years, Stanford's offices were allowed to continue selling investments, destroying records and sending money overseas on private jets in what prosecutors are now calling an enormous Ponzi scheme.” (Florida regulators never acted on troubled findings regarding banker Allen Stanford, Miami Herald, July 18, 2009)
(I wrote, on January 8, 2011—the month set for his trial date-- “Will R. Allen Stanford make it out of jail, alive?” One reader responded, “Your paranoia is ridiculous.” Stanford was severely beaten by an inmate in November, 2009. His trial date, having been postponed for medical health reasons, is now scheduled for January 2012.)
By January 2003, scarcely two years had passed between the first round of interest rate cuts by the Federal Reserve in response to the box cutter wielding Saudis on 9/11. Alan Greenspan had a pretty good idea what their effect would be and who would benefit. The housing bubble was the antidote to the national economic emergency.
Less process meant more speed in execution, and speed in execution was its lynchpin. The challenge wasn’t just to offer mortgages to anyone who could fog a mirror. It was to do it, as fast as possible. As the economy limps to 2012, the costs of abandoning fiscal prudence – of surrendering to Rovian “new realities”—is literally incalculable.
One can get a sense of those costs driving through the ghost suburbs of Miami or through condo canyons on the fringes of downtown where car break-ins are common and feral cats roam the streets. Even on Brickell Avenue— where less process meant less attention and no commitments to planning traffic before thousands of new condos were added, congestion is a nightmare. Condo residents negotiate lengthy delays extracting cars from high floor parking, only to face grinding stop and go traffic to get off Brickell. In this case, less regulation means that the horror of auto-centric commuting begins even before the commuting starts.
“2004 has been stellar for Fortune International,” begins the Sunpost in its Christmas issue, “… with its ever-present founder and president, Edgardo Defortuna, at the helm. Just last month Defortuna opened the doors to Fortune's iconic tower, Jade Residences at Brickell Bay, co-developed by Hong Kong-based Swire Properties. The $290 million luxury tower is 48-stories tall with more than 300+ residences along Biscayne Bay.” The high end units sold for $5 million.
Scarcely three years later, the Icon was done. “… new owners have listed 112 condos for sale and 17 units totaling $15 million are in foreclosure. Jade Residences developer Edgardo Defortuna, president of Fortune International Realty, didn't return calls seeking comment. (July 20, 2007) And things didn’t get better. “The sun isn't shining these days on Miami-based Fortune International's real estate portfolio,” begins one 2009 report. “The third-largest residential developer in South Florida faces the loss of most its $30 million equity in a previous partnership deal with Boston-based Sonesta (NASDAQ: SNSTA) this month when the shuttered Sonesta Beach Resort is sold to Argentine developer Consultatio S.A. (9/7/2009, Real Estate Channel)
“At just 30 years old, Lissette Calderon has emerged as one of Miami's rising developers,” writes the Sunpost in December 2004. “In fact, Neo Lofts and NeoVertika, two progressive development projects located on the south bank of the Miami River, have been met with an overwhelming response from buyers. Her pioneering spirit, coupled with her vast experience, led residents to the riverfront for the first time in almost a century. Now on her third endeavor, Neo Wind, Lissette upholds her commitment to infuse a unique look and feel into her projects. Once a fresh face on the scene, she is now respected as one of the trendiest and most forward thinking professionals in real estate."
By September 2009, the South Florida Business Journal reported, “Wachovia Bank filed a $22.8 million foreclosure lawsuit against the developer of the proposed second phase of the Wind by Neo condominium tower in downtown Miami. In December, the bank filed a $46.6 million foreclosure lawsuit against the unsold units in the first phase of Wind by Neo, which is owned by Neo Epoch 2. That 42-story building was placed under the control of a court-appointed monitor in August as the lawsuit continues. On Sept. 2, Wachovia filed a foreclosure action against Neo Epoch 1 and managing members Frank Guerra, Lissette M. Calderon and Maria T. Calderon, according to Miami-Dade County Circuit Court records. It targets the 1.8-acre site, at 24 S.W. Fourth St., along the Miami River. Neo Epoch 1 bought the site for $30 million in 2004 and obtained a $22.8 million mortgage from Wachovia. The site has been used as a parking lot. No major construction has taken place. The completed Wind by Neo is on its north side. Lissette Calderon, CEO of Neo Holdings of Florida, did not immediately return a call seeking comment. (S Fl Business Journal, Sept. 10, 2009)
The Miami River, where Ms. Calderon had been “a fresh face on the scene”, is a particular travesty in the loss of the public realm. As a signature landmark in Miami, connecting the city to its storied past, the Miami River could have been—if city fathers had chosen to zone its land use properly—a focus for growth, the way it had been for the city in the past.
But condominium developers—Jorge Perez, chiefly—invested major lobbying efforts through the region’s most powerful and politically influential law firm, Greenberg Traurig (the same firm that employed Jack Abramoff) to restrict public access along the river. As a result, instead of a vibrant community developed along the riverfront, options to create pubic value were lost in the 1990’s and during the building boom along the lines of socializing risk and privatizing profit.
For banks that survived the real estate collapse, the trouble is far from over. Meanwhile, processing foreclosures has significantly slowed in the past two years. Banks had attempted to deploy the same speed in execution to de-leverage with robo-signing of foreclosure documents, spurring its own wave of criticism and lawsuits, like sloshing water in a bathtub. In the meantime, courts are so clogged with defaults against borrowers, that the process of unwinding ownership has slowed to a crawl.
“When I see it taking more than 650 days for a foreclosure to go through, I think I am in favor of non-judicial foreclosures," said Sean Snaith, director of the University of Central Florida's Institute for Economic Competitiveness. "Think of everyone not going through a foreclosure and what's happening to them as they see their home values erode. It wears away confidence and wealth."
The wearing away continues. More than 40 percent of South Florida home mortgages are underwater. Recently the Mortgage Bankers Association reported that 25% of the country’s foreclosed homes are located in Florida. Nearly 1 in 7 homes is in foreclosure, and nearly 1 in 5 homes are in foreclosure or are delinquent on their mortgage payments.
Mortgages held on balance sheets are dead wood, and no one knows the extent to which failing to “mark to market” the real price of real estate allows banks to maintain a phantom illusion of safe capital ratios. From practically giving away loans, banks have retreated to safety; trying to repair their balance sheets before the next outburst of public revulsion.
It is difficult for anyone to claim that the economic calamity tied to the hubris and greed of the building boom was unforeseen. … to be continued
(Also see 11th day of Christmas)
and (9th day of Christmas)
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