Building Types That Caused the Recession

“We built the wrong product in the wrong location, and nobody wants it any more, that’s the reason for the housing crisis, and therefore the mortgage crisis, and therefore the Great Recession.”

“A number of things are positive about recessions – and this is for all recessions – and one is that it gives businesses a chance to rethink their strategy, they’re forced to rethink their strategy,” he says. “That’s a very positive thing. Now will those old dogs learn new tricks? Some have, some won’t. And those that don’t will go bankrupt after their federal stimulus money runs out.”

- The Atlantic Cities

Infrastructure Cult

We need smart infrastructure, not just wider roads:

...we want our infrastructure maintained. In fact, it's the common denominator of a Strong Town. But the reason why we can't maintain our infrastructure is not because we lack the money or are afraid to spend it. It is because the systems we have built and the decisions we've made on what is a good investment are based on the kind of ridiculous math you see reflected in this ASCE report. We spend a billion here and a billion there and we get nothing but a couple minutes shaved off of our commutes, which just means we can build more roads and live further away from where we work. - Charles Marohn

Detroit Demo Map

Last Wednesday, Mayor Bing announced a list of residential buildings to be demolished:
 

Detroit Border

This aerial photo shows a partially demolished Detroit neighborhood with an intact neighborhood just across a moat in Grosse Point. No commentary, just thought it was interesting:
 

This location on Google Maps here.

Similar aerial views can be seen when looking at Israel and both sides of the wall that divides Jews from Palestinians.

48 Vacant Buildings in Detroit

Wow, interactive map of 48 prominent vacant buildings in downtown Detroit.
 

Another Detroit Neighborhood Falls

A story about the Robinwood neighborhood in Detroit and how quickly it turned: “in the blink of an eye”.

“Robinwood was an integrated and well-kept block just five years ago, the remnant people say. And then it was gone in the blink of an eye. It started at the east end of the block when a house was rented to 5 adults and 20 children. More families moved out. More renters moved in. The radios started. The brown bags. The gangs of young men. The gunshots. The dope houses. The fires. The insurance checks.”

AP Story on Emptiest Neighborhoods

An AP story about the continuing decline of the Rust Belt makes significant mentions of OTR and Cincinnati. What is interesting is that this is a national story by the AP, it is run on the Enquirer's front page, but it has no Cincinnati reporters contributing. Thus it barely scratches the surface of the reality in OTR.

The story notes that 3% of all homes in the US (4 million) have been vacant for at least 90 days. What they don't say is that is also the equivalent to 4 to 5 years of new home construction in the U.S.

Maybe it is time to stop building and start rehabbing.

R Crumb's Short History of America

And Crumb asks "what next?.." Well we have had 30 years of development since this was drawn, and I think the 13th panel of the above intersection would show larger cars and maybe some vacant stores. And the shame of it is that a few miles further out of town, they may still be on panel #10 or 11, headed down the same path.

A year after publishing the above series, Crumb added the following three scenarios:

Disaster:


Futurama:

Ecotopia:

In reality, we have gotten a bit of all three of these final panels. Some cities (or parts of cities) look more like the Disaster panel, and after the disinvestment and abandonment, the final two are often tried as solutions. I would equate the Futurama panel to grand Urban Renewal plans in which everything is demolished and new modern buildings are built. The Ecotopia is closer to a Hippie version of the New Urbanist model, with all the walking and biking, though much more rural. I was thinking that someone should draw a more realistic and optimistic new panel. What would it look like?

Crumb Family Official Site Go there to buy a poster of this.

Investment Deficit Disorder

...As a country we have been spending too much on the present and not enough on the future. We have been consuming rather than investing. We’re suffering from investment-deficit disorder.

You can find examples of this disorder in just about any realm of American life. Walk into a doctor’s office and you will be asked to fill out a long form with the most basic kinds of information that you have provided dozens of times before. Walk into a doctor’s office in many other rich countries and that information — as well as your medical history — will be stored in computers. These electronic records not only reduce hassle; they also reduce medical errors. Americans cannot avail themselves of this innovation despite the fact that the United States spends far more on health care, per person, than any other country. We are spending our money to consume medical treatments, many of which have only marginal health benefits, rather than to invest it in ways that would eventually have far broader benefits.

... And transportation: a trip from Boston to Washington, on the fastest train in this country, takes six-and-a-half hours. A trip from Paris to Marseilles, roughly the same distance, takes three hours — a result of the French government’s commitment to infrastructure.

These are only a few examples. Tucked away in the many statistical tables at the Commerce Department are numbers on how much the government and the private sector spend on investment and research — on highways, software, medical research and other things likely to yield future benefits. Spending by the private sector hasn’t changed much over time. It was equal to 17 percent of G.D.P. 50 years ago, and it is about 17 percent now. But spending by the government — federal, state and local — has changed. It has dropped from about 7 percent of G.D.P. in the 1950s to about 4 percent now.

Governments have a unique role to play in making investments for two main reasons. Some activities, like mass transportation and pollution reduction, have societal benefits but not necessarily financial ones, and the private sector simply won’t undertake them. And while many other kinds of investments do bring big financial returns, only a fraction of those returns go to the original investor. This makes the private sector reluctant to jump in. As a result, economists say that the private sector tends to spend less on research and investment than is economically ideal.

Historically, the government has stepped into the void...

The Big Fix, a long article in the NY Times yesterday

Death of the Mall (again)

In the New York Times, yesterday.

...There are roughly 1,500 malls in the United States, according to the International Council of Shopping Centers, many of them ailing, some of them being converted into office buildings, and others closing their doors for good.
...
We have changed, not the mall.
...
The economic crisis has caused shoppers to go into an essentials-only mode. But the mall has never trafficked in essentials. You can’t, for instance, fill a prescription at the Mall of America, because it doesn’t have a pharmacy. You can, however, buy a vanilla hazelnut fragrance candle in the shape of a miniature cooking skillet. Or a $13 baseball hat that looks as though it’s made of cheddar cheese. A store called Corda-Roy’s sells a variety of bean bags that convert into beds. Magnet Max sells a battery-operated guinea pig that runs continuously on a spinning exercise wheel.

And, as ever, the Mall of America is filled with I-dare-you combinations of fast food and entertainment. You can nibble on a carton of Long John Silver’s buttered lobster bites, then ride the SpongeBob SquarePants roller coaster. You can grab an A & W Coney cheese dog and barbecue fries and then take a virtual submarine ride. You can treat yourself to Mama’s Cinnamon Bread Pudding at the Bubba Gump Shrimp Co. and try the flight simulator at A.C.E.S.
...
“There are days now when I make $160 and think I had a good day,” says Mark Classen, co-owner of Just Dogs! Gourmet, a store in the mall that sells, among other items, signs that say “My Labrador retriever is smarter than your honor roll student” and dog treats shaped like fire hydrants.
....
.. a kiosk that sells hermit crabs as recession-friendly pets.

Next Bust: Retail Real Estate

 

...Shopping malls are losing anchor stores, and large chains are closing stores and even going out of business altogether. Developers who borrowed to finance commercial ventures are in trouble as are the holders of the mortgages, derivatives and other financial junk associated with the loans.

The main source of the economic crisis is the infantile belief of US policymakers that an economy could be based on debt expansion. ...

...Life is already cruel for Americans living on retirement savings. Not only has the stock market bust reduced their wealth by half, but also their remaining assets are producing no income. ... Retirees are living by consuming their capital.

...Interest rates have to be raised in order to encourage saving and to provide incomes to retirees.

...a credible policy of reducing both budget and trade deficits must be announced. In the near term the budget deficit can be reduced by $500 billion by withdrawing from Iraq and Afghanistan and by cutting a bloated defense budget that represents the now unattainable goal of US world hegemony.

...gangsters are using the crisis as an opportunity to steal from taxpayers and to finance their misdeeds and exorbitant salaries with Federal Reserve loans. Their shills among economists and the financial press tell the people that the solution is to fatten up the banks with funds so they will resume lending to an over-indebted public that will then return to the shopping malls.

This unrealistic approach to a serious crisis indicates a leadership crisis on top of an economic crisis. - Alternet (Graph is from a post of mine 18 months ago)

5 Innocent Bosnians Ordered Released

I haven't written about Bush's torture and detention policy, because that is not what this blog is about. However, it is a slow news day locally, and I thought this was significant:

The five men ordered released today have been imprisoned in a cage by the Bush administration for 7 straight years without being charged with any crimes and without there being any credible evidence that they did anything wrong. If the members of Congress who voted for the Military Commissions Act had their way ...or if the four Supreme Court Justices in the Boumediene minority had theirs, the Bush administration would nonetheless have been empowered to keep them encaged indefinitely...

....in 2001 ... the Bosnian Government succumbed to the pressure of the Bush administration and turned them over to the U.S. as they were being released ("hooded, shackled, and packed into waiting cars while their horrified families watched"), after which they were shipped to Guantanamo.

One of the detainees ordered released today had a wife who was pregnant at the time he was shipped to Guantanamo, who then gave birth to a daughter, now 6, whom he has never met. Another of the Bosnian-Algerians had an infant daughter at the time he was put in Guantanamo who died last year of congenital heart disease at the age of 6. ...

Peter Schiff was Right

For the past 2 years or longer this guy has been saying the same thing and being laughed at. Unfortunately he was right. We have had too much borrowing and not enough production and saving. When our economy is 70% consumption it's obvious that our disease is debt. I especially like his quote, that "...we should embrace recession because the disease is all this debt finance consumption... The cure is that we stop the spending and start saving and producing ... sometimes the medicine is bitter but needed"

Video Here

PS: just because Peter is the son of jailed Tax Evader, Irwin Schiff, does not make his views incorrect or less prescient.

Coldstream

The Cincinnati Business Courier reports today, that Coldstream Financial has closed.

Here is an excerpt of the article:

...The firm grew quickly during its five-year history, earning the Business Courier’s Fast 55 designation in 2005 and 2006. According to Courier research, it closed 3,076 loans worth $486 million in 2006, with an average loan size of $158,000. Last year, volume dropped to 1,732 loans worth $302 million.

...“There is a lot of finger-pointing to brokers for the downfall, for the easy mortgages,” ...

I had an close call with this firm a few years ago that is very relevant to the current financial crisis. I think it is worth putting my story out there, so as to put a real face to the current epidemic in foreclosures

A few years ago, we had significant credit card debt. I don't want to explain how we came into this debt, but be assured it was not the result of extravagant living at all. However, the debt was more than a year's salary, and we were unable to pay it off. The minimum payments alone were killing us.

So one day in early 2005, I was at a Home and Garden Show and I came upon a Coldstream Financial booth. I talked with a very young guy in a suit who was advocating that people refinance their mortgages to finance home improvement projects. He suggested that I could pay off this credit card debt through a refinance.

I visited their offices in Sharonville/Tri-County. They had a fancy office with glass walled meeting rooms and they were willing to meet after 5pm to accommodate my schedule. They laid out a potential re-finance, but with higher interest rates than what I currently had. In order to make the payment reasonable they extended the term. They sent our an appraiser. The appraiser did not feel the property was worth the increased value, and said so.

I thought that would be the end of story with them.

However, they kept calling saying they could still work something out. So I went back into their offices, and they laid out another proposal for me to refinance through another lender. The payments would be based on a 30 year loan, but the loan was only for 2 years!. I asked what would happen at the end of the two years, and their response was "we'll just re-finance again". But the real shocker was when the woman in charge, Barb told me that they didn't need an appraisal at all. At that point it smelled way too fishy, and I walked. They continued to pursue me for a year or so, but by then my wife and I decided to just buckle down and start paying the credit cards down directly.

It may be hard to imagine now, but at the time, I had never heard of a sub-prime mortgage. I didn't really even realize what a mortgage broker was. But if I had signed the loan papers, I would now be without a home.

The owners of Coldstream Financial, and many of their managers made lots of money. On the proposal they had for me, they were proposing to take a $20,000 fee! And they did it by getting people to borrow more than they could possibly ever pay back.

Now I am reading articles that are blaming the sub-prime mess on the CRA, or on Bill Clinton, or on Fannie Mae. But from my personal experience this was not heart of the problem. It was ignorance and greed. Ignorance and imprudent decisions by homebuyers, and greed of the lending industry. And the funny thing is their greed paid off ...for them.

Fortunately I wasn't quite desperate or dumb enough to fall for the trap, and it looks like sometime next year we will make our final credit card payment. But many others were not so fortunate...

UPDATE: This article has statistics to back my story. Private Sector sub-prime loans, not Fannie and Freddie, or the CRA are the main source of this collapse.

UPDATE 2: Here is another article disputing the claim that lending to poor black people caused this crisis.

A Better National Debt Graphic

Better than others I have linked to, because it is measured against Gross National Product:

...On the day President Bush took office, the national debt stood at $5.727 trillion. The latest number from the Treasury Department shows the national debt now stands at more than $9.849 trillion. That’s a 71.9 percent increase on Mr. Bush’s watch.

The bailout plan now pending (passed) in Congress could (did) add hundreds of billions of dollars to the national debt – though President Bush said this morning he expects that over time, “much if not all” of the bailout money “will be paid back.”

But the government is taking no chances. Buried deep in the hundred pages of bailout legislation is a provision that would raise the statutory ceiling on the national debt to $11.315 trillion.

Note: if it gets to 11.4 trillion, then Bush will have succeeded in doubling it in 8 years! - CBS news via Yglesias

See previous post on graphs, with household spending, transit and deficits.

Indebtedness, Oil Dependence and the Resultant Crisis

Some quotes relevant to the current crisis:

The White House just asked the national debt ceiling be raised another $700 billion, for the proposed financial-sector bailout. If that happens, in 2008 alone, $1.5 trillion will have been added to the national debt: every penny borrowed from your children and their children. Stated in today's dollars, in 1979 the entire national debt was $1.5 trillion. George W. Bush and Congress have in a single year added an amount equal to the entire national debt one generation ago. And the year's not over!

"...deficits don't matter." - Dick Cheney

...the housing industry in the Midwest and the Northeast routinely floods local markets with new, ever-larger houses. ...more than 27,500 houses were constructed between 2000 and 2004, even though the population grew by only 3,000. In the process, older houses and many older neighborhoods … have become as disposable as used cars.

...We have obdurately resisted the reality of the energy crisis that hangs over everything we do (as slavery hung over the 1850s), from the way we inhabit the landscape to the way we do daily business in our 240-million-plus fleet of cars and trucks that ply the ribbons of asphalt and the lagoons of parking that now run from sea to shining sea where the fruited plain was replaced by the Wal Marts.

Mr. Obama isn't kidding either when he alludes to the change America faces, though history has not yet rhymed enough for his rhetoric to really set forth the terms of this change in its stark particulars. And even if he is able to articulate these things, he won't forestall the convulsion anymore than Lincoln held back a war between the states. That prior crisis was when America learned good and hard how tragic life could be, and it colored our national character for a century -- until we chucked it all to become a society of overfed clowns, with God Almighty replaced by Ronald McDonald. That pageant of happy idiocy is now ending. Like everyone else in this fraught and nervous land, I'm standing by to see what transpires in the days just ahead.
....
That said, there really IS a new economy. We may characterize it as we will, but what it clearly is NOT, is a manufacturing economy. The "old" economy (Made In America) has long since disappeared, and will never return to these shores. In its place we have the Post-Industrial Economy. We don't make anything anymore; we flip burgers. We don't even earn enough to buy what we import; we have to borrow ... $2 billion per day ... from foreigners!-Jim Kunstler

The long term crisis is about energy. And it a crisis only because we are such oil hogs. We spend hundreds of thousands of BTUs just to drive to the grocery. We have stick-framed houses with vaulted ceilings that take thousands of cubic feet of Methane to heat. We use petroleum based fertilizers to grow more corn on fewer acres. We cover the old farmland with strip centers and petroleum asphalt. Corn is oil. We are oil. Everything about who we are, what we eat, what wars we fight, how much our house is worth ...is about oil.

Expert predicts oil may hit $500 per barrel...

In fact, a lot of how we did things in the pre-oil era makes good sense for a post-carbon 21st century. Without cars to skew our sense of distance and place, we developed cities, provisioning systems and even cultural and social norms suitable to a lower-energy world. That doesn't mean we need to revert to some 19th century or anti-technology lifestyle. We simply need to rediscover those ways of running a society and an economy that don't completely depend on petroleum-powered engines. - Sacremento Bee

Ross Perot is Back

...with his infamous charts, demonstrating the fiscal straights this country is in:

 

Notice how the debt was actually going down there during Clinton, and so modest in retrospect during Carter, and the steepest rise when the GOP had control of Congress and the Presidency...

In his Father's Day speech Sunday Obama talked a lot about responsibility and sacrifice. I like that. We shouldn't be living beyond our means. It is a sickness to expect something for nothing or to expect that some one else will pay our bills.