Month in Review, November, 2012: Part 1, Around the world
I promise to stop using my blackberry!
Housing is both global and local; both abstract and intensely human – and in November, our posts covered all four corners of housing’s world.
During November, several European countries whose economies are being thumbscrewed by the austerity measures now imposed on them as conditions of remaining in the Euro moved closer to widespread domestic violence, as shown by a two-part post on the possibility that Spain will reform its anachronistic, cruel, and counterproductive mortgage-recourse laws, in Desperadoes: Part 1, your pain and your hunger, drivin’ you home, and Part 2, why don’t you come to your senses?
I will not renegotiate this mortgage
Allowing current mortgage holders greater power to renegotiate or ditch their debts across the board would force banks to re-evaluate the risk related to all such housing assets, said Miguel Hernandez, a real-estate expert at the Institut de Empresa Business School in Madrid.
Of course the Spanish banks will have to re-evaluate risk – and that, paradoxically, may be why they’re holding off – like Chinese development companies and provincial officials, they’re terrified of finding reality, especially if corruption was rampant in the price bubble that created this crisis.
In that case, banks might have to further weaken their balance sheets by provisioning more money for potential losses.
The Spanish banks already have a €59 billion capital shortfall, and as we’ve seen, there’s something on the order of €180 billion of RMBS floating about the Spanish markets.
“Spanish law is unjust” for the mortgage holder, Mr. Hernandez said. But Spanish banks, “with the problems they have now, will make sure these measures don’t affect their already weakened balance sheets.”
I think that’s impossible. Spain must choose.
It may be rainin’ but there’s a rainbow above you
You better let somebody love you
(Let somebody love you)
You better let somebody love you before it’s too late
– Desperado, by the Eagles (Glenn Frey, Don Henley)
Spanish anti-austerity riots; September, 2012
In another hemisphere, Spain’s offspring Argentina was providing an object lesson in the consequences of crude and clumsy attempt to repudiate its debts, in Epic CAC:
Indeed, the hold-outs’ victory may well wind up causing more problems for other countries that do still borrow abroad and want to restructure.
And the downside of this is … what?
Today’s struggling sovereigns are in Europe, not developing countries selling debt in New York.
Is it really in the interests of creditors to make it even easier for the European Central Bank to change the rules whenever it feels the urge?
You can trust me, I used to be at Goldman Sachs
“It’s a watershed moment,” says Vladimir Werning of J.P. Morgan. “It shifts the balance of power.”
As it should.
Firing a Werning shot?
In fact, only a few days later, the story got better, as a New York judge slapped down Argentina’s CAC-handed attempt:
You look good for an old lady who used to play a president
A few entities, most notably an American hedge fund, rejected the coerced settlement and have stuck to their guns.
How could I be a dictator, when I smile so broadly?
The holdouts can do so because the bonds lack a ‘collective action clause’ (CAC) under which a supermajority of bondholders can bind all bondholders. In the abstract, CACs make sense – if there is a restructuring that is overwhelmingly in the bondholders’ interest, one wants to nullify the ‘holdout problem’ where those who don’t consent exploit those who do. Of course, CACs complicate life for a bond buyer, because that bond buyer must now evaluate whether its rights can be compromised by others (like public-government buyers or major local employers) who are subject to non-economic coercion.
For that reason, CACs are much more dangerous when the issuer is a sovereign government, because when it cheats, its word is lawat least on its home turf – so the creditors are thrown back on extra-national courts, like those in the US, to compel the sovereign to pay attention.
Do I look sympathetic to deadbeat nations?
“No one in his right mind” would accept a restructuring deal if with time, money and a good attorney they can collect 100%, added Mr. Lorenzino, the economy minister.
Senor, you should have thought of that before you started stealing the bondholders’ money.
Just stop posting, okay?
Though obviously nowhere near as dire, things are not all well in China either, to judge by that nation’s whistling tea-kettle of capital:
In this case, China has put itself in the odd position of attracting massive capital inflows (via exports) and then not importing anything to send that money back into the world economy; as a result, capital starving for yield has been pushing up Chinese property prices, building empty cities and isolated suburbs, and running an overheated patronage money machine.
With all that economic engineering, if you were a Chinese plutocrat watching up close as your leaders pulled the levers of power, you’d very much want to move money into other economies, both for simple diversification and to buy a global luxury lifestyle:
Zheng Nan recently spent €300,000 ($390,000) on a beachfront condo in Cyprus. At 50 years old, he says he is retired from selling telecommunications gear in China for foreign manufacturers. “My plan is to spend winter there because of the pollution in Beijing,” he says. “And we will be back for summer.”
Of all the world’s places, why Cyprus?
The Greek half, that is
The answer is revealing:
Cyprus has become a popular investment destination for wealthy Chinese. The island nation in the Eastern Mediterranean gives permanent European Union residency to anyone who spends €300,000 on a property.
In other words, you can buy political risk insurance – a place to flee with your world if things get dodgy in the Middle Kingdom.
Tell me again Chairman Mao’s vision for prosperity?
The Great Leap Forward, 1958
As I’ve often pointed out, housing is a society’s or a household’s longest-lived physical asset, and therefore a society has to work with great foresight to design a housing policy that produces a housing inventory which can adapt to its changing economic and societal requirements … but there is one longer-lived asset, and that is a country’s population, so when a nation starts meddling in demographics, and adopts an ideologically driven strategy, such as China’s one-child policy, which it then dictatorially sustains over decades, the results can be an inescapable decadal catastrophe, of the kind that appears now certain to make China’s future cities Not nice places to live: Part 1, babies to boys, and Part 2, boys to men:
“Historically, societies in which men substantially outnumber women are not nice places to live,” writes Hvistendahl, “Often they are unstable. Sometimes they are violent.”
Often unstable, sometimes violent? Hvistendahl’s description of overly male societies
She points to examples in history, such as fourth century B.C. Athens and China’s Taiping Rebellion in mid-19th century — both of which were the result of wide scale female infanticide. These eras were characterized by wide scale crime and violence.
We’ve got plenty of men for this rebellion
Such a future – men massively more numerous than women – is about to confront China.
Needless to say this has resulted in a society in which men greatly outnumber women — by a factor of 32 million. In 2005 alone there were more than 1.1 million excess births of boys — and this despite the fact that sex selective abortions are illegal in China.
Just as the society does not exist where all births are equal, the society does not exist where everyone is successful, and so every society has its pockets of Tolerated invisibility, as explored, sadly, in Paris’s modern-day version of Les Miserables, those homeless immigrants who congregate along the Canal Saint-Martin:
The Canal St. Martin that tourists see
With the slow extinction of rooming houses came the era of empathic aid (“It’s a fair cop, but society is to blame”; “Agreed, we’ll be charging them too”) of helping my sympathizing, and that has been barely more successful despite progressively increasing real expenditures, even as the homeless population changes:
Sunday nights in Paris are busy on the northern tip of the Canal Saint-Martin. On either side of the water, two groups form long ordered queues, albeit for different reasons. One queue is for those hoping to buy something to eat from a new gourmet hamburger truck (hour-long waits are normal). The other queue, almost all young North African men, is for those hoping to find a seat on a bus to a homeless shelter on the outskirts of the city.
Homeless men socializing, Canal Saint-Martin
When it comes to the urban homeless, three philosophical positions are plausibly logical:
1.Help them all. They are human beings, and we must relieve their suffering and help them toward self-sufficiency.
2.Help only the ‘deserving’, whose condition is not their fault or who have a claim on our entitlements (say, because they are our citizens, or our veterans, or fleeing domestic violence).
3.Help no one at all. Urban homelessness is their own fault and if we coddle them, we’ll be rewarding behaviors we want to discourage.
Each position is defensible in the abstract, but each can easily be confounded by an individual circumstance: the unwed mother beaten, the serial addict and petty thief who finds his way to Paris because that’s where his presence is tolerated.
The eyes of a survivor: Jean Valjean
Saint Martin, the patron of France, divided his cloak to warm a beggar. No society that I know of matches Saint Martin’s example.
It’s easy when you know how, and mean it
Nor do many philanthropies match Saint Martin, especially celebrity philanthropies. In previous posts I’ve chastised Madonna’s Raising Malawi scam or Greg Mortenson’s Central Asia Institute, and yet even I was surprised by the ineptitude and self-absorption displayed by Wyclef Jean’s egocentric charity Yele, whose utility and claim to good works I dismantled in No business for amateur philanthropists: Part 1, waste, Part 2, fraud, and Part 3, abuse:
What, they’re coming for me?
Charity is easy; work is hard; so ‘charitable work’ may be an oxymoron, and this most recent celebrity flameout demonstrates that of all the people with whom one might entrust one’s philanthropy, celebrities are surely the worst, for their fame deludes both them and us into thinking they are competent at more than one thing, as revealed in this brutally sad article from the New York Times (October 11, 2012):
The charity Yele allotted $230,000 for the revitalization of this Port-au-Prince plaza in the Cite Soleil slum, with no lasting results.
In Haiti, Little Can Be Found of a Hip-Hop Artist’s Charity
Port-au-Prince, Haiti —
For the last few months, AHI has been working in Haiti with the Urban Matters arm of Cordaid, the Dutch Catholic relief agency, on a plan to create economically redevelopment in Haiti. We have done so, despite my considerable reservations about Haiti, because we think the time may be right for genuine positive-deviance pilots that can serve as a model for replication.
— In a new memoir, Wyclef Jean, the Haitian-born hip-hop celebrity, claims he endured a “crucifixion” after the Jan. 12, 2010, earthquake when he faced questions about his charity’s financial record and ability to handle what eventually amounted to $16 million in donations.
Waste makes me angry. Self-righteousness makes me angry. Flashy boasting makes me angry. Needless failure makes me angry. All of them are fully on display in Mr. Jean’s charity.
I’m sorry we got caught
[Continued tomorrow in Part 2.]