Month in Review: March 2008
[Previous Months In Review available here: Feb 08 Jan 08]
[A complete set of 2007 Month In Reviews available here: Dec 07, Nov 07, Oct 07, Sep 07, Aug 07, Jul 07, Jun 07, May 07, Apr 07, Mar 07, Feb 07, Jan 07.]
Besuboru opens in
In my copious leisure time, I serve as the non-faculty advisor (aka the “Client”) for a select [Oh, yeah – very select – Ed.] few of Harvard’s Kennedy School of Government students who prepare their graduate theses (called, in the governmental—academic lexicon, a Policy Analysis Exercise, or PAE), and over the last academic year I’ve had the pleasure of serving as advisor for several such, each doing a country assessment of the housing finance ecosystem in a place that interests both them and me, such as Brazil, Ghana, Mexico, or Morocco (all fusion countries, you will observe).
Ready to train you to rule the world
To give them a starting point, during March I posted Four observational questions: Part 1, buying and lending, and Part 2, moving and building:
When one encounters a new ecosystem, how do you come to understand it?
Just push the AHI blog button
A housing financial ecosystem is hard to grasp; not only are its boundaries theoretically infinite — everything influences everything else — but also many of its features are intangible, perceived mainly in the minds of its participants, expressed or memorialized in paper that itself may not be immediately accessible. The students, bright and educated though they are, have no particular grounding in their chosen country (although several of them have family or ethnic connections to their choices). Where do they begin?
Just as the ultimate philosopher could imagine the entire universe from a single seed (Zelazny, Lord of Light.), paleontologists deduce the dinosaur from its teeth, because if you know what it eats, you can learn how big it is, where it gets its food, and thus its ecosystemic niche.
Deducing the universe from a single seed
The two-part post finished with:
The four questions: not answers, but places to start.
While Alexander Pope posited that ‘The proper study of mankind is man,’ for a housing person, the proper study is of the housing financial ecosystem. If you can understand what it costs, how it’s paid for, what the choices are, and where it comes from, you’re well on your way to describing the ecosystem, and even if its totality can never be perfectly comprehended, as I’ve often quoted Yogi Berra, “you can observe a lot just by watching.”
“I’d like to thank you for making this day necessary.”
With the continuously evolving story (whose current avatar is the credit gridlock), I couldn’t let pass the utterly remarkable sequence of events surrounding the enormous bet of Banking on value:
Weakening dollars create a yen for other investments
Ten days ago, the Federal Reserve made a bet that economic students will be studying for decades. Under Ben Bernanke, the Fed pushed $200 billion – that’s your money and my money – into the global capital markets pot, in effect making a bet that assets the market won’t buy have the value their originators say they do.
These tickets are valuable
[…]
Herein lies the real meaning of Bernanke’s big bet — it’s not that the financial world has suddenly gone broke, but rather because the financial world has suddenly become scared. Everybody’s slammed on the brakes at once, leading to both financial gridlock and financial pileups.
The markets were running smoothly just moments ago!
[…]
If Ben Bernanke and the Fed are right, their moves will unjam the gridlock and get capital moving again.
If they’re wrong, the consequences could be disastrous for all of us.
I hope they’re right. Fortunately, I think they’re right.
– and its proximate cause, the acquisition-recapitalization of Bear Stearns, in One foot in the bear trap: Part 1, ouch! and One foot in the bear trap: Part 2, all better now?:
Who loses and who wins?
Losers are holders of Bear common stock – the largest chunk of whom are Bear’s employees.
Winners include JP Morgan/ Chase – probably – because even $10 a share looks like a fire-sale bargain relative to Bear’s price as recently as three months ago. Tort lawyers are likely winners too, as the collapse of Bear’s share price, and the very nasty negotiations over the last few days, will offer a fertile documentary and communication trail to uncover, imagine, or impute impropriety.
Interested bystanders are all of us taxpayers, and beyond us, the global economy.
Am I about to get free of this web?
My spidey-sense is starting to tingle that we’re at the bottom of the credit gridlock. As I posted on Monday, Ben Bernanke’s Big Bet on Value may do its job of both backstopping the capital markets and also creating a value point under which liquidity will once again flow.
Be one with the wave
naturally, such a momentous change would also have secondary consequences, such as So much for tighter GSE regulation:
Roughly ten days ago, the Administration officially flew the white flag in attempting any further regulation of the GSEs.
Legislation not pending?
As reported by The Wall Street Journal, with its usual Burma-Shave sub-headlines:
Firms, Once Hemmed In,
Are Freed for Bigger Role
In Aiding Mortgage Market
We’re constrained as to our market movements
To that end, I observed a useful development regarding appraisals brokered by New York State Attorney General Andrew Cuomo, in Declaration of Independence:
Fannie Mae and Freddie Mac will put up $24 million to create the Independent Valuation Protection Institute, a group that will accept complaints from consumers and appraisers.
The institute will put the new rules into place and monitor their enforcement, reporting to Mr. Cuomo’s office and the Office of Federal Housing Enterprise Oversight, or OFHEO, the regulator that monitors Fannie Mae and Freddie Mac.
I’ll bet OFHEO is thrilled, just thrilled, to have dual reporting.
Cuomo’s involved!
Non-economic ventures were featured in posts on
Why should the NBA take Bill James’s recommendations that it:
Lengthen the shot clock. Shorten the games. Move in the 3-point line. Shorten the playoffs.
Who, you may ask, is Bill James, what does he know about basketball [Hint: not bloody much — Ed.], and what does this have to do with affordable housing?
It takes balls to write about baseball
Patience, grasshopper.
You may not kill me until the last reel
In the more practical realm, I took a look at remote security and service in The (im)personal touch, and talked about what can happen behind quietly rented apartments in The ultimate deadbeat:
We’ve all had roommate problems, but few have faced the complete lack of cooperation experience by the flatmate of this Bristol (UK) council housing resident, as reported a while back by The Guardian Weekly:
An inquiry was under way last night to discover how the body of a dead man lay on a sofa for at least eight years while an elderly tenant continued to live in the same warden-controlled council flat.
Now that’s a lead sentence that says, Keep reading!
The corpse of a former lodger was discovered on January 30 by council workers after neighbours reported a bad smell emanating from the
There’s more, as the Daily Mail reported […]
Slums and the global south are a continuing theme here, about which I posted several times: on Kenya’s power-sharing deal, Let that be your last battlefield; on the importance of personalized knowledge in The wetware credit bureau; and with a two-part discussion of a paper I recently wrote for Development Innovations Group, Meta-Finance: Part 1, the challenge of group benefit lending, and Part 2, the basic model:
I’ve previously posted my hypothesis that there ain’t no such thing as free infrastructure, which has a corollary: all public-benefit infrastructure has a non-recoverable capital cost. If you want infrastructure, you need to fund it from a benefactor: a private individual or charity, an emperor, or the state. This principle appears to hold since antiquity. So I formulated the Basic Model, which is a public-private partnership with clearly defined roles.
As described in the DIG report:
For meta-finance to work, the physical improvement whose cost is beyond the members’ capacity has to be fully created by a single funding source (in this case, government). Incremental construction and incremental financing work fine for private-benefit goods like houses, because people will protect the work in progress. For a public-benefit construction, you have to protect it until it’s completed (as every subdivision developer knows), which requires that you cannot afford to have construction stop halfway through. You need the improvements package, and the government funding to get it fully completed.
Then you further need a sustainable operating model: a mechanism whereby the costs of keeping the facility going are paid by the residents, so the whole neighborhood contributes to its upkeep. In Ahmedabad’s Jadibanagar slum, the public-space improvements are funded with monthly subscriptions that are collected by the savings co-operative. In Mumbai’s Dharavi public toilet, all resident households pay a monthly membership fee of roughly Rs 40 per household (or roughly five family uses per rupee), which is a very good deal for them since walk-in use costs Rs 1, five times as much.
In the Dharavi public toilet, walk-in charges are assessed, and maintenance is provided, by the operator family, who mans the desk 24/7 because the household lives upstairs, in a flat built as part of the overall package.
Once developed, it’s that most valuable of inventions, a machine that will go of itself. Like an arranged marriage, meta-finance projects and schemes require three players: a capital provider (the lender/ investor, often a government offspring), a capital consumer (the sponsor), and a matchmaker (the facilitator, usually a CDC or technical assistance entity). Of these, the facilitator is the most active — I say this from over twenty years’ making a living in precisely this role in the US — the sponsor takes the most ongoing risk, with the most operating control, and the capital provider is the one who has to be persuaded to come to the closing table.
Come to the closing table with me …
Put it all together, and you have the condensed definition of the Basic Financing Model:
The more I work in housing, the more I come to appreciate the value of controlling the use of urban land. Land value is a residual, and urban land is valuable directly in relation to what it can be developed into. Municipally owned land and its corollary, zoning approval, are particularly useful as policy instruments because they are off-balance sheet assets that can be turned into affordability.
Late in the month, I offered yet another take on Slums: a municipal definition:
I’ve come up with yet another definition, the urbanist’s municipal definition:
A slum is an urban environment where informal housing has outstripped formal utilities
of which water and sanitation is the most primitive and most essential
This definition is consistent with others I’ve proposed:
Slums are spontaneous communities because they are formed by people who choose to move to a place — almost always in search of money income.
Slums are economically rational because they sustain themselves out of a stable set of bargains among tenants (who want to consume as little housing as possible, because that’s all they can afford) and landlords (who want to provide as little maintenance as possible, because that’s how they make money despite low rents).
Slums are a wealth-extraction machine because the effect of under-investment is wealth transfer from the very poor to the landed.
Slums have existed ever since humanity urbanized. We find them in
This was a prelude to a monstrously long (10,000 words and over 100 images) seven-part post on The economics of water: Part 1, piping invents cities, and Part 2, pre-urban rules for individuals. (Five more parts followed in April.)
Finally, I paid my respects to one of science fiction’s foundational pillars, Arthur C. Clarke, in an obituary that focused not on his characters (most of whom were cardboard) but on his vision of The ultimate future city: Arthur C. Clarke’s Diaspar:
There were no real emotions, no deep passions, in the immortal city. Perhaps such things only thrived because of their very transience, because they could not last forever and lay always under the shadow which Diaspar had banished. Page 165
The shadow of death? The shadow of birth? We never learn, for there is very little story in The City and the Stars aside from its conception of the immortal city, self-preserving through its inanimate computer guardian. Yet there is a curious linkage because Mr. Clarke’s antiseptic Diaspar and Mr. Silverberg’s bountiful urbmons. Both of them assume that the human reproductive urge is a powerful driver not only of civilization but also of urbanization — that we make cities in order to be fruitful and multiply beyond nature’s un-technological bounty. At the same time, whereas Mr. Silverberg’s world is so consumed with procreation that every form of leisure is sacrificed, Mr. Clarke’s is so consumed with eternal leisure that procreation itself is banished as unnecessary.
For Mr. Silverberg, homo urbanis is a baby-making swarm; for Mr. Clarke, homo urbanis is urbanely childless. Despite their antithetical approach to the child-rearing problem, by taking their imperatives to their logical conclusion, they have respectively produced cities that are as much dead ends as Asimov’s antipodes of the enclosed steel caves or the wide-open empty spaces populated by narcissistic recluses.
In the eternal city, we watch each other watching each other
Postscript: Arthur C. Clarke had no children. His progeny were exclusively in the realm of ideas, and in the realm of ideas they will live on long after him.
Another ultimate future city: the ship Discovery
The future is always worth visiting