Month in Review, March 2009: Part 2, the markets’ mending
[Continued from yesterday's Part 1.]
[Previous Months In Review available here: Feb 09, Jan 09.]
In our review of a very busy month, we turn from how we got into this mess toward how we will get ourselves out, starting with Auctioning our headaches: Part 1, the why, and Part 2, the how:
A month ago, I predicted the structure –it wasn’t hard to do so –
With AHI blogs, you too can be psychic!
– in State of the Market 16: Auctioning Your Headaches (.pdf), from which I’ll quote (in this font) alongside the Journal’s commentary
Core to this plan is the hypothesis, as I’ve written extensively before, that the assets aren’t without value, they are merely – ‘merely’ – highly complicated and require restructuring, simplification, and resolution.
“This will help banks clean up their balance sheets and make it easier for them to raise private capital,” Mr. Geithner said.
In terms of moving and making the market, this program has two goals: (1) create demand for these securities (’buy-side’ intervention) by providing leverage, which increases buyer upside potential, and (2) increase that demand by bringing into the market capital that until now had been sitting on the sidelines – the vast pools of private equity. As I wrote in State of the Market 16:
Treasury Secretary Geithner’s announcement of a shift in TARP policy to an ‘aggregator bank’ is proposing the classic workout/ recapitalization strategy, good-bank/bad-bank, successfully used in similar asset-pricing collapses going back through the centuries [at least as far back as Genoa’s 15th century Banco di San Giorgio – Ed.].
Such a move is now appropriate, but does not tackle the fundamental challenge – fixing the ‘broken’ assets.
Who’s going to fix my broken assets?
Meanwhile, as the pileup in slow motion moved from homes to banks and now to a contracting economy, we looked at the triage choices being faced by Department of Transitional Assistance chief Julia Kehoe, who’s managing the lifeboats:
The ship is sinking.
Women, children, and credited cast members first
You have lifeboats in the water.
We’re lowering them as fast as we can
But you have fewer lifeboats than passengers.
We thought they were enough, for the ship could never sink
What do you do?
Get away from the wreck as quickly as possible?
As reported in the Boston Globe, that dilemma confronts Julia Kehoe:
Julia E. Kehoe, the commissioner of the Department of Transitional Assistance, which oversees state shelters, said the system is “overburdened” and must change to provide services more equitably.
Trying to provide services equitably: Julia Kehoe
[Full disclosure; I worked with Julia when she was executive director of the Metropolitan Boston Housing Partnership. MBHP does great work, and Julia’s good people, so I’m biased. – Ed.]
Basically, you have two choices:
Fill the lifeboats with the first in, and then repel all boarders.
Have a rotation, some in and some out of the boat.
Leo, you’ll have to understand, I’m in the lifeboat
[Snip]
Ms. Kehoe has the evidence on her side:
While hundreds of families will likely lose their shelter beds, she said the changes would open space for qualifying families, many of whom the state is now paying an average of $85 a night to stay in motels. Last week, more than 630 families, including about 1,000 children, were staying at motels, waiting an average 22 days for a spot at the state’s 59 shelters.
Thus we have families staying in motel rooms – at the state’s expense (average $85 a night, or a whopping $2,550 per month) – because there is no room in the homeless-shelter lifeboats.
Sometimes the choice is living in a car
By reducing those eligible for shelter, Kehoe said the new regulations would save the state $520,000 this fiscal year and more than $11 million in fiscal 2010. “Given our limited resources, we wanted to encourage people to find housing or stay where they are, rather than encouraging them to come into the system,” she said.
Now are you more willing to push out into the market those who have been evicted from affordable housing, who haven’t used their time in the shelter to work or save a little money, who are staying in the shelter even though their income has risen, and so on?
I haven’t finished using it
I covered The challenge of mold: Part 1, the sickness and Part 2, the liability:
Whatever the outcome, whatever the settlement, that is the lesson: supervise your subs!
You have no idea what’s going on under the surface
We discovered When and where modern housing was born, starting with a definition:
What defines modern housing? Tour enough castles, abbeys, and stately homes and it isn’t hard to identify the five critical features:
State of the art, thirteenth century
1. Central heating rather than fireplaces
2. Running water instead of basins and pitchers
3. Flush toilet and sewer instead of chamber pots and outhouses
4. Bright lighting instead of candles
5. Electricity for appliances
One of housing’s five great technological advances
Reflecting on a talk I gave at NAHRO’s spring
2. Durability and longevity
“How does it feel to be 100?”
“Beats the alternative.”
– George Burns, when asked
I’ve outlived all my critics
Theorizing from a historical perspective, I continued my series on The ecology of a slum: Part 3, work flows and Part 4, family flows:
[Continued from last week’s Part 2 and Part 1.]
[Editorial justification for the tour: If we want to improve slums, we have to see them as ecosystems – spontaneous self-generated communities, self-organized, economically rational, economically efficient, adaptive and robust. We may not like the slums (like Dharavi in Mumbai, Kibera in Nairobi, or Sao Paulo’s favelas) we may wish them away or wave our hands (or our bulldozers) to disappear them. Yet they will return, resisting our efforts almost as if conscious, unless we see them as organic and dynamic, and come to understand how a slum dies. – Ed.]
As we continue our tour of the ecology of a Victorian slum, using as our text Steven Johnson’s excellent story of defeating cholera, The Ghost Map, we’ve hit the problem of recycling, and professions that seem universal in cities: ragpickers and night-soil men.
4. Work and low-skilled labor: ragpickers
Ragpicking is a profession both modern and ancient.
Manet, The Ragpicker, circa 1869
It requires meticulous and patient labor:
[From an 1854 article] “It usually takes the bone-picker from seven to nine hours to go over his rounds, during which time he travels from 20 to 30 miles with a quarter to a half hundredweight on his back. In the summer he usually reaches home about eleven of the day, and in the winter about one or two. On his return home he proceeds to sort the contents of his bag. He separates the rags from the bones, and these again from the old metal (if he be lucky enough to have found any).”
As I write this, a lyric has popped into my child from my childhood almost half a century ago: “Any rags, any bottles, any bones?” I never knew what it meant until just now, when I Googled and found a 1931 Irving Berlin song:
“You know the man who once used to say
Any rags, any bones, any bottles today?”
Ragpickers’ Row,
Halfway through the month, I had a chance to exposit and expound on these ideas at Harvard Business School’s India Conference, where my topic was The challenge and opportunity of slums: Part 1, the challenges and Part 2, the opportunities:
In mid-March, I had the scintillating experience of participating on a panel in Infrastructure and Real Estate at
“Who knew slums could be funny?”
My fellow panelists were:
Abha Joshi-Ghani, Urban Sector Manager for the Finance, Economics, and Urban Department (FEU) in the Sustainable Development, World Bank.
Songsu Choi, Lead Urban Economist, South Asia Region vice presidency of the World Bank,
Kenneth Munkacy, Senior Managing Director, GID International Group
Dennis Pieprz, president of Sasaki Associates, who’s worked on Dharavi.
During March we also announced the AHI Exchange Seminar Series with a terrific inaugural event, pairing
Sign up sign up for the AHI exchange series
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