Yesterday, Bloomberg reported, “Florida: just first to face National Run on the Bank.” And it is big news, indeed, that might be subtitled, “Hoist by their own petard”.
How fitting that the detonation of the credit crisis would occur in Florida. The political influences that carried Jeb Bush to the governor’s mansion in 1998 and W. in 2000 were fueled by Miami campaign contributors who pushed the housing boom in Florida, and everywhere.
Al Hoffman, former finance chair for both Jeb! and W, and former CEO of Florida WCI Communities, crowed to the Washington Post in 2003 that suburban sprawl was “an unstoppable force.” (see eyeonmiami.blogspot.com archive feature: housing crash)
We now know that in addition to being unstoppable, sprawl is an engine of unparalleled financial destruction. WCI, itself, is in tatters.
The root cause is the so-called “diversification of risk” through securitized mortgage pools. It now turns out, that after more than a trillion and a half dollars of such debt was issued, investors have lost confidence that the worth of these investments can be accurately assessed.
The problem is mushrooming into a world-wide credit crisis, hastened by foreign investors in US debt who have also lost confidence. American policy makers are lost in a wilderness of their own making: so long as the underlying causes are not addressed, that wilderness will just grow deeper and deeper.
Most mainstream economists are of the view that if we are not already in a recession, we are headed there. But this recession won’t be tamed by a simple easing of interest rates by the Federal Reserve.
If the credit crisis is due to financial models that badly missed the proper assessment of risk to financial derivatives, there is no solution until the nation gets a grip on controlling the forces that drove the model in the first place: the economics of suburban sprawl and the fiscal policies that promote it.
Sprawl itself is an unsustainable model of economic growth-fostering “low cost” housing far from places of work, only accessible by cars on over congested highways. It is also an unsustainable model of social growth-it promotes dysfunctional families and communities.
And last but certainly not least-in a time of chronic drought, water scarcity and the loss of biodiversity, sprawl is an unsustainable model for the environment.
In Florida, the Growth Machine has succeeded in chewing up wetlands at a ferocious rate. It has subjugated every government agency nominally charged with wetlands protection. (The unabsorbed and unaccounted costs of sprawl are why so many Floridians will vote for Florida Hometown Democracy–an amendment to the Florida Constitution that would require popular vote for changes to local comprehensive development plans required by the state– if they get the chance.)
The front page of the Miami Herald covered the story: “The financial problems that provoked hundreds of local governments to pull billions out of a state-run investment fund over the past two weeks prompted the resignation Tuesday of the agency head responsible for investing the money.” That would be Jeb Bush loyalist, Coleman Stepanovich.
Yesterday, the Wall Street Journal featured the story, too, reporting on Jefferson County that found itself unable to pay teachers’ salaries because the money had disappeared and had to take out an emergency line of credit.
What is going on?
Well, here is one version: local governments invested in Florida’s investment pool that invested in subprime mortgages most of which are, in Florida, the manifestation of local zoning and permitting decisions to foster sprawl in environmentally sensitive lands.
The entire financial scheme that ungirds sprawl-financial derivatives based on pools of mortgages-is unraveling.
The media, that depends on real estate, sprawl-driven development for advertising revenue, has been loathe to dig deep into the nature of the credit crisis.
Local elected officials are watching hundreds of millions of taxpayer dollars disappear in puffs of financial smoke.
Sprawl would not exist but for the Chambers of Commerce, the building associations, the lobbyists and local elected officials who said, “Just trust us.”
In addition to regulation of lending and a much tighter grip on who exactly is able to borrow, America needs to reign in economic growth based on the model of suburban sprawl. Look no further to Floridians denied access to their hard-earned money, for the most compelling reasons why.
ALAN FARAGO of Coral Gables, who writes about the environment and the politics of South Florida, can be reached at email@example.com.