| December
7, 2007
Sprawl
and the Credit Crisis
Will
the Free Market Kill Suburbia?
By ALAN
FARAGO
I
wonder how much of the $6.3 trillion market for home loan bonds
(“Bush’s subprime mortgage freeze stymies bond market”,
Bloomberg, December 7, 2007) represents the failure of suburban
sprawl as an economic engine for the US economy.
Sprawl
is the unsustainable growth model that bond investors are fleeing
as if their hair were on fire. What an irony it would be, if the
free market kills suburbia.
Far
from being what the market wants, sprawl is a Ponzi scheme that
depended on the securitization of mortgages into pools mixing form,
content and risk into an unrecognizable hash. It was great bait--"what
the market wants"--until the trawler nets came up empty.
A
complete analysis of what percentage of subprime trouble is represented
by low density, scatter housing has not been published. By 2005,
this much is clear: the multi-billion dollar market for production
homebuilders had been saturated. Mortgage brokers stimulated by
egregious compensation practices were fishing in the final pool
that had not dried up: prospects who could scarcely afford to rent,
much less buy a home.
True
to form, the fine print on those hundreds of billions of sprawl-linked
bonds did not include anything like the true costs of sprawl: aquifers
destroyed to plow more production homes on poor topsoil, wetlands
gobbled up at a fearsome rate, putting drinking water supplies for
whole cities at risk, not to mention the role of gas-guzzling automobiles
as an priori condition of long commutes from tract housing to places
of work.
The
Growth Machine in the United States depends on the externalization
of true costs and on bond buyers being agnostic. All that mattered
was the assurance of ratings agencies and bond insurance to cover
any unforeseen damages.
There
may be a good reason for Treasury secretary Hank Paulson to seek
a broad based, global solution that parses the subprime mortgage
crisis for well-meaning, God fearing and gullible home owners—based
on renegotiating with those who can afford to pay teaser home loan
rates for some limited period of time.
But
the stickiness of government intervention in the contract obligations
between bond holders and issuing banks is not lost on investors,
especially foreign credit holders whose confidence in the United
States is badly eroded by malfeasance in the execution of US foreign
policy.
The
Bush administration adamantly denies that there is any connection
between these two areas of public policy. But the world-wide credit
crisis, triggered by the home loan mortgage industry and Wall Street
financial engineers, is unlike anything the global economy has ever
experienced.
In
our global village, the relationship of trust is not likely to be
helped by the Bush administration and Congress spinning government
intervention as a release-valve for limitations of the free market,
involving so much wealth. It all comes across as theft.
And
so there is a window of opportunity for a national debate on how
to reform, not just the mechanics of securitization and assurances
and lending practices, but the whole enchilada: regulating the financial
engineers and the operating rules for the Growth Machine.
It
is important for the American public to get the big picture: on
the one side, you have the Growth Machine pounding the table against
government interference, regulations, and taxation. On the other
side, you have the same forces that have used government interference,
regulations and taxation to promote a Ponzi scheme as a social benefit--sprawl--connecting
financial engineers, bond holders and oblivious taxpayers.
Which
is worse: a bankrupt deal for which billions of dollars of bonuses
have already been banked, contributing to massive inequities in
American society, or the bankrupt deal for which taxpayers will
ultimately be held accountable, while the instigators are left to
bank more fees and commissions for an unsustainable model of growth?
Shouldn't the equation change?
It
would be a shame if the 2008 election in the United States failed
to expose the social engineers for who they are and what they represent.
But that will take a candidate for president to stand up to the
Growth Machine. It will take a candidate who will patiently explain
it is time for a truly new direction.
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