More Highway Waste

Unfortunately, I recently drove most of the eastern portions of I-275.  I noticed that miles and miles of precast concrete sound barrier has been installed and continues to be installed.  A quick internet search shows that these walls cost in the range of $3 million per mile, and effectively reduce the sound by 4 decibels within a few hundred feet of the walls.  But the walls also sometimes bounce sound and have negative effects further out.

I understand that living near a interstate sucks and that they REDUCE property value, so I can understand the lobbying to mitigate the hazard.   But no walls are proposed to help residents anywhere near downtown.

I once considered living on historic Dayton Street in the West End.  But the house was on the western end of the street, and the highway noise was oppressive.  I've never seen sound barriers on any of the western half of I-275.  Just wondering.. Why would  Milford, Loveland, Indian Hill, Blue Ash and Springdale get more attention than say Colerain, Harrison, Mt Airy and Northside?  Gee I couldn't begin to guess...

But despite the inequity of the chosen locations, is this really an important priority for transportation dollars? Seems extremely wasteful to me.

In related news: Parking lots and highways kill cities.

Also related, vehicle miles traveled  (VMT) is decreasing for the first time in the history of the automobile, and Millennials have less interest in cars than previous generations.

Also, car / truck oil consumption graphs here. And why we should dismantle freeways here.

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

417 Hopkins

While riding bikes with my son Sunday, I noticed this building in the West End that I had never noticed before. It caught my eye, because it is a very nice stone building that is obviously divided between two owners. It is in the Betts Longworth area, in a strange cul-de-sac that was created long ago when the streets were re-configured during some urban renewal program.
 

Curious, I looked up the ownership, and found that the building is actually made up of two 16 foot wide lots. That is a pretty skinny lot. The right side has a long history of solid ownership and slowly rising value, and that the left side has passed from one absentee owner to another for years.

That might be the end of the story, except that I did notice one funny blip in the ownership history. In September 2001, Jackie Shropshire sold this vacant half to Jeffrey D. Blovits for $98,000! A few years later is was sold for $5,000 and then later for $1,000! Googling Shropshire, I came up with the fact that she was part of the Black United Front, which was a political organization prominent during the 2001 riots. Then I googled Blovits and found this (tragic / comedic) description of himself written before the mortgage meltdown:

Jeff Blovits is the branch manager of the Westerville Franklin Bank, a mortgage franchise location of the publically traded ssb out of Texas. Jeff has been in the financial services industry for 12 years as bank manager, underwriter, and mortgage lender. His innovative mortgage planning concepts are paving the way for countless clients to improve their financial lives.

I wonder who wrote the appraisal for that $98,000 loan.

Finance Quote of the Day

"Construction lending is really the cocaine of the banking industry..."

At least it was... until 17% of them went into default ...

"If a bank forecloses on a house, it's a house. Everybody knows what to do with it,..But if you're dealing with a half-constructed hotel or a half-constructed strip mall, not only does no one want it, you now have to maintain it" ... many bankers have chosen to wait it out, extending the terms of loans to troubled developers to keep from having to foreclose and take possession of a half-built headache. Which leaves bad loans and troubled property in limbo...

- USA Today article

Don't Subsidize Home Construction

... The difference between Germany and Spain, when you get down to it, is that Germans work for companies which provide goods and services that the rest of the world wants. In doing so, they make good money, which they save up. That’s how they became rich. The Spanish, by contrast, have massive unemployment, and most of the country’s GDP growth in recent years has come from the construction industry. Their main export is tourism, if that counts as an export, and the main way that Spaniards have become rich in recent years is by sitting back and watching the value of their real estate grow exponentially.

The U.S., going forwards, needs to be less like Spain and more like Germany. So let’s not subsidize housing. That way lies fiscal disaster. - Felix Salmon

Cincy Stadium Woes in NY Times

In case you missed the Christmas day article in the NY Times, the financial train wreck over the lopsided Bengal's Stadium was explained:

...the gap between expected and actual sales taxes continues to grow, something the county administration had been warning for years. In August, the administrator predicted not only a $14 million shortfall next year, but also a $94 million gap in 2014, a year after interest payments on the stadium bonds rise 44 percent. By then, the Reds will no longer be paying rent.

Last month, two of the three commissioners voted against cutting the property tax rebate, fearing a voter backlash. Raising the sales tax again was not proposed for the same reason.

“It can’t be 100 percent on the backs of taxpayers,” said Greg Hartmann, the lone Republican commissioner. “We gave away too much to keep the Bengals in Cincinnati. There has to be some middle ground.”

Hartmann and Portune want to introduce a tobacco tax, but lawmakers in Columbus, the state capital, may be unwilling to approve it.

So they have ordered more cuts in basic county administrative services, something that creates a slippery slope, said David Pepper, the commissioner who voted against the proposal.

“It’s like the movie where the blob keeps growing and eating away at other elements of county government,” Pepper said. “We’re beginning to cross a line in the sand by taking money from the general fund to pay for the stadiums. Once you put that money in jeopardy, you put the whole county at risk.”

National Debt Revisited

The national debt roughly doubled during the eight years of the Bush administration. It has multiplied almost 10 times what it was when Reagan took office. I blogged about this many times. It is now estimated that it may double again in the next decade. Is there a solution to this?

This article lays out a reasonable series of measures that could control this:

- Reinstate the President's power of impoundment (removed in Budget Control Act of 1974). This would give similar power as a line-item veto, which Reagan was always asking for.

- Start an independent accounting board that would set the rules of accounting for the government. Give it the power to monitor programs and their cost effectiveness. Congress now monitors itself and this is the problem.

- Adopt a limit on total spending so that it could only increase with inflation and growth, unless 2/3 vote to suspend the limit in crisis situations. California had a law like this that they repealed in the early 90's and look what happened to them.

New American Dream: Renting

Article from Wall Street Journal requires a subscription to view in its entirety.

It's time to accept that home ownership is not a realistic goal for many people and to curtail the enormous government programs fueling this ambition. By Thomas J. Sugrue

...Surveys show that Americans buy into our gauzy platitudes about the character-building qualities of home ownership—at least those who still own them. A February Pew survey reported that nine out of 10 homeowners viewed their homes as a "comfort" in their lives. But for millions of Americans at risk of foreclosure, the home has become something else altogether: the source of panic and despair....

... One third of respondents don't believe that they will ever be able to own a home. And 42% of those who once purchased a home, but don't own one now, believe that they'll never own one again.

...In France, Germany, and Switzerland, renting is more common than purchasing. There, most people invest their earnings in the stock market or squirrel it away in savings accounts. In those countries, whether you are a renter or an owner, houses have use value, not exchange value.

... the story of how the dream became a reality is not one of independence, self-sufficiency, and entrepreneurial pluck. It's not the story of the inexorable march of the free market. It's a different kind of American story, of government, financial regulation, and taxation.

We are a nation of homeowners and home-speculators because of Uncle Sam.

It wasn't until government stepped into the housing market, during that extraordinary moment of the Great Depression, that tenancy began its long downward spiral. Before the Crash, government played a minuscule role in housing Americans, other than building barracks and constructing temporary housing during wartime and, in a little noticed provision in the 1913 federal tax code, allowing for the deduction of home mortgage interest payments.

Until the early 20th century, holding a mortgage came with a stigma. You were a debtor, and chronic indebtedness was a problem to be avoided like too much drinking or gambling. The four words "keep out of debt" or "pay as you go" appeared in countless advice books. As the YMCA told its young charges, "If you can't pay, don't buy. Go without. Keep on going without." Because of that, many middle-class Americans—even those with a taste for single-family houses—rented. Home Sweet Home didn't lose its sweetness because someone else held the title.

In any case, mortgages were hard to come by. Lenders typically required 50% or more of the purchase price as a down payment. Interest rates were high and terms were short, usually just three to five years....

...Herbert Hoover signed the Federal Home Loan Bank Act in 1932, laying the groundwork for massive federal intervention in the housing market. ...Frankin Roosevelt created the Home Owners' Loan Corporation... created the Federal Housing Administration, ...instituted 25- and 30-year mortgages, and cut interest rates...and created the Federal National Mortgage Association (Fannie Mae) which created the secondary market in mortgages...

Easy credit, underwritten by federal housing programs, boosted the rates of home ownership quickly. By 1950, 55% of Americans had a place they could call their own. By 1970, the figure had risen to 63%. It was now cheaper to buy than to rent. Federal intervention also unleashed vast amounts of capital that turned home construction and real estate into critical economic sectors. By the late 1950s, for the first time, the census bureau began collecting data on new housing starts—which became a leading indicator of the nation's economic vitality.

... Tens of millions of Americans owned their own homes because of government programs, but they had no reason to doubt that their home ownership was a result of their own virtue and hard work, their own grit and determination—not because they were the beneficiaries of one of the grandest government programs ever. The only housing programs prominently associated with Washington's policy makers were underfunded, unpopular public housing projects...

Federal housing policies changed the whole landscape of America, creating the sprawlscapes that we now call home, and in the process, gutting inner cities, whose residents, until the civil rights legislation of 1968, were largely excluded from federally backed mortgage programs. Of new housing today, 80% is built in suburbs—the direct legacy of federal policies that favored outlying areas rather than the rehabilitation of city centers. It seemed that segregation was just the natural working of the free market, the result of the sum of countless individual choices about where to live. But the houses were single—and their residents white—because of the invisible hand of government.

But by the 1960s and 1970s, those who had been excluded from the postwar housing boom demanded their own piece of the action—and slowly got it. The newly created Department of Housing and Urban Development expanded home ownership programs for excluded minorities...

During the wild late 1990s ...New tools, including the securitization of mortgages and subprime lending, made it possible for more Americans than ever to live the dream or to gamble that someone else would pay them more to make their own dream come true..

... If there's one lesson from the real-estate bust of the last few years, it might be time to downsize the dream, to make it a little more realistic. James Truslow Adams, the historian who coined the phrase "the American dream," one that he defined as "a better, richer, and happier life for all our citizens of every rank" also offered a prescient commentary in the midst of the Great Depression. "That dream," he wrote in 1933, "has always meant more than the accumulation of material goods." Home should be a place to build a household and a life, a respite from the heartless world, not a pot of gold.

UPDATE: here are a few studies about the effect of apartments on nearby
housing values:

Apartments Have Positive Impact on Property Appreciation Rates

Effects of Mixed-Income, Multi-Family Rental Housing Developments on
Single-Family Housing Values

America's Working Communities and the Impact of Multifamily Housing

National Multi Housing Council has resources about "Apartment Myths":

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)

Treadmill of Debt and Family Bankruptcy

I was referred to a lecture that Elizabeth Warren gave last year called The Coming Collapse of the Middle Class. I don't think most blog readers want to spend an hour listening to an economics lecture, but I found it very interesting, especially since she used as her reference point a 2 parent, 2 child family in 1970 and 2005. I grew up in the first (plus 2 more kids) and am parent of the second. And the gist is that today's family is on a faster treadmill, and much closer to bankruptcy than the same family in 1970.

She investigated expenses and found that in today's dollars, families now spend LESS on clothing, appliances and food but spend MORE on Health Insurance, Housing/ Education and Taxes (because the second income is taxed as supplemental to the first). She says children today are more likely to be in a family that experiences bankruptcy than a family that experiences divorce.

She also says that car ownership is NOT more expensive but that now, 2 cars are a requirement, not just an option:

"With an [inflation-adjusted] income of $42,450, the average family from the early 1970s covered their basic mortgage expenses of $5,820, health-insurance costs of $1,130 and car payments, maintenance, gas, and repairs of $5,640.
...
"With both people in the workforce, the family spends more than $8,000 a year on its two vehicles."

Instead of 3 classes (poor, middle, rich) she says it is more appropriate to classify people into those on the treadmill of debt, and those who are healthy and maybe childless, who stay debt free.

I had never heard of Ms Warren before yesterday, but she is apparently widely read and appears often on talk and news shows. If you google her, you will get many results. She was recently appointed to the Chair the Committee that will oversee how the government spends that $700 Billion bailout of the banking industry.

It's Time to Raise the Gas Tax

Time makes an argument for raising the gasoline tax:

As unemployment heads toward double digits, we can use this found money to encourage people to create jobs (by lowering the FICA tax), or we can use it to encourage people to use more gasoline. It's a pretty easy choice, don't you think?

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.