Starting with the Same Lie on Both Sides

I was just rereading an old article on Time rethinking the American dream: http://www.time.com/time/magazine/article/0,9171,2013850,00.html One interesting point about it is that as much as liberals may now want to malign the concept of so-called homeownership, they used to respect it just as much as conservatives back when they were accusing bankers of racism when they were just objectively evaluating the risks associated with mortgages (yet even now no one dares suggest the very concept of a mortgage is part of the root problem). No one on either side dares question the application of the term "owner" to a person who has absolutely no equity in the house he/she occupies. It may have been a minimal risk for someone to take a 50% loan or less on a house back in the mid-20th century when the fundamentals of the US economy were sound & therefore the risk of job loss low. But it's frankly irresponsible to encourage anyone now to take on debt & get tied down to one location when they may lose their job tomorrow & have to move out of state or even overseas to find work. But beneath all this is an even more sinister problem. The article's author rightly bemoans American politicians for idolizing the American dream while making essentially a similarly materialist mistake by considering only monetary morals divorced from acknowledgement of God. It's easy to make this mistake; in our fallen state we naturally avoid the thought of God's painful holiness hovering over our shoulders. Yet if we're to get on the right road we must consult the map made by the same One who aligned & paved the road. Similar to de Tocqueville's statement, we ceased to be great when we ceased to follow God. So while many may say our greatest problems are the holocaust of 50 million unborn dead, $16T in debt & over $100T in unpayable obligations, or inability to compete in a global market w/ poorly educated workers who demand tens more in pay than their well-taught foreign rivals; the true problem is our sin and our hatred of God. Dear God, please have mercy & lead us back to You.

Tinkering w/ a Wrong Strategy

http://www.azcentral.com/community/swvalley/articles/2012/02/18/20120218arizona-homes-verrado-development.html

In the above article, the writer suggests DMB has rethought its approach to development & fixed it by putting jobs before houses, but I posit that it's still wrongheaded in trying to be overambitious from the start in an effort to build big commercial/industrial projects to drive sales for expensive homes (plus the fact that its new Eastmark development is partly centered around a failing company, First Solar, as a potential employer).

Urban redevelopment needs to reorient toward the way urbanization used to happen centuries ago (which requires patience but I believe pays off in monetary, aesthetic, & health ways in the long run). Farmers would pool their defensive resources in order to fend off marauders & thieves, & this would often involve building their homes close together in villages. Eventually as their farms became more successful & they built up their wealth, they could improve their homes & even build defensive walls around their villages -- the start of small cities. Gradual improvement further required the addition of roads & other infrastructure such as water & wastewater distribution systems.

Urban planners & developers could incorporate some of this in fixing our cities by trying to implant more bucolic environs in the desolate empty lots & barren developments that blight our recession-fraught cities. Some of this is already happening with the urban gardening movement. But it could be improved on a larger scale, I believe, if planners rezoned failed developments for agricultural use & the developers were willing to give up their failed development models & start thinking in a more traditional way (by traditional I don't mean early 20th century but thinking more 19th & further back where possible). Amerindians could be employed in teaching urbanites how they herd sheep & farm corn (not GMO corn, of course). If this is done in a slower way, not trying to achieve economies of scale which merely look at the short-term unit costs of food but also considering the severe longterm medical costs of farming in a more industrial way which produces unhealthy food & more pollution, society would benefit greatly. I also think urbanites would enjoy learning a slower way of life which tears them away from their nerve-wracking addiction to 24-7 wireless connectivity to a demanding commercial world & revisits the more patient days of yore.

Real Estate Domino Chain Extends Abroad

I watched as Bear Stearns, Countrywide, & Lehman led off the entire financial/housing bust which hit home "owners'" pocketbooks (I use quotes since I would bet most underwater residents didn't even have 30% equity in their homes). As they got laid off and/or foreclosed & stopped buying, retailers started folding: Circuit City, Mervyn's, Linens 'n' Things, etc. That eventually led to a collapse in commercial real estate -- both multifamily housing such as the portfolio of Mortgages Ltd. & office buildings such as the Viad (formerly Dial) Tower.

But the pain didn't stop there. At the height of the housing boom in 2005, the Chicago Spire project was initiated w/ Anglo Irish Bank as the primary lender ($US70million). This was the culmination of a tricountry (US, UK, & Ireland) portfolio of loans at Anglo Irish built up by Sean Fitzpatrick, who had taken the bank's helm in 1986. Competition led Allied Irish Banks & Bank of Ireland to develop similar risky loan portfolios. Thus the American financial bust dragged the major Irish banks under. Since the Irish gov't just as stupidly as the American gov't subscribed to the "too big to fail" philosophy, now the entire Irish economy is collapsing in order to rescue those precious Irish idiot bankers. The Wall Street Journal C Section on Nov. 23 article on Ireland's banks detailed how the National Asset Management Agency (Ireland's version of TARP) plans to buy €73B ($US100B) in bad loans from the banks. Isn't it wonderful when big corporations who made huge, stupid mistakes can con the taxpayers into cleaning up their messes?

I haven't had the chance to research this hypothesis yet, but I wouldn't be surprised if major banks in Portugal, Spain, & Greece had also heavily invested in American real estate.

NAHB Housing Market Index July 2010

http://www.nahb.org/news_details.aspx?newsID=11078

The HMI was down in July, but the NAHB's Bernard Markstein on MarketWatch's podcast was arguing that record low mortgage rates & home prices ensure a good second half for 2010. He seems to be missing the fact that no matter how low rates & prices are, they won't entice the unemployed & underemployed to buy new homes.

Commercial is the 2nd Shoe to Drop

Bank Fix for Unpaid Commercial Property Loans: 'Extend and Pretend' - WSJ.com

Chateaux on Central Avenue in Phoenix Sells for $7 Million | KEYTLaw

See the link for the :
Yvonne & Caleb Correa's unfulfilled listing of Chateaux for $2.8-$4M per unit (Pro*Star Realty)

The Chateux (above) were part of Mortgages Ltd's portfolio, which included condo complexes in downtown Phoenix & Tempe which only sold handfuls of units (Scott Coles, Mortgages Ltd's CEO, committed suicide in the middle of the real estate collapse).



As the Viad (formerly Dial) Tower (right) completes another stage in the slow bursting of this commercial bubble, get ready for another round of federal bailouts using taxpayer dollars.
Viad Tower in Phoenix Subject of a Foreclosure | KEYTLaw

California's Unemployment Crisis

The columnist seeks to show that California's high unemployment is tied to an imploded construction sector; however, on a county-by-county basis there is no significant correlation between construction jobs lost and unemployment levels (the R^2 value has to be close to 1 for reliable correlation). This suggests that either the construction workers who lost their jobs had long commutes (so jobs usually showed up in different counties than their unemployment filings) or (I believe more likely) construction is not the most significant factor in California's unemployment. For one, I believe the California economy is a lot more diverse than Arizona's, which is heavily dependent on construction -- so even though California may have had a larger real estate bubble, it possibly represented a smaller percentage of the overall state economy.

Death Cross a Self-Fulfilling Prophecy

AHEAD OF THE TAPE: Dark Omen Threatens Stock-Market Bulls - WSJ.com (WSJ's Kelly Evans explains the death cross -- the S&P 500's 50-day moving avg. crossing below its 200-day moving avg.)

She illustrates well the ambiguity of this indicator, showing how half the recessions since 1972 were preceded by death crosses. I've been hearing a lot of analysts on CNBC making a big deal out of it, but Ms. Evans points out that the hype surrounding a death cross puts downward pressure on investor sentiment, making it a self-fulfilling prophecy. Her counterpoint is that over the last 40 years, death crosses were followed by an average 6-month gain of 5% in the S&P 500. Here's hoping this one's above average.