Month in Review: March, 2013

May 17, 2013 | Bankruptcy, Banks, Cities, Crime, Cyprus, Detroit, Euro, Land use, Month in review, New York City, Post office, Rating agencies, Slums, Urbanization

By:David A. Smith


[Previous Months in Review available here: Feb 13, Jan 13, Dec 12, Nov 12, Oct 12, Sep 12, Aug 12, Jul 12, Jun 12, May 12]


During March, the Department of Justice sued Standard & Poor’s, an action that was five billion dollars’ worth of overdue, and included legislation with intentionally juicy details designed to stir populist ire, as reported in Structured by cows: Part 1, Fastest animal on earth?, and Part 2, As a cat laps milk:


A CDO could be structured by cows and we would rate it.

– Unnamed S&P employee cited in Department of Justice Lawsuit



Too chicken to rate my securities?


Motown greeted the news of a state receiver as if those were grim tidings, though from my perspective the reality is just the opposite, as profiled in The least surprising takeover of the century:



Probably the last laugh I’ll have for a while


In fulfillment of the least clairvoyant prediction I’ve made or am likely to make, Detroit’s governor Rick Snyder has announced that he will appoint an ‘emergency financial manager’ to take out executive responsibility in Detroit, and when that happens, it will in effect place the Motor City into receivership. As reported in the Wall Street Journal (March 1, 2013):


Detroit—The state of Michigan is taking on one of the most difficult turnaround projects ever attempted: a rescue of a sprawling city with $14 billion in debt, a depleted tax base, a legacy of government corruption—and very little time left to avert financial collapse.


Remember that phrase, ‘legacy of government corruption,’ when you hear calls from a few groups to ‘trust democracy.’ The people of Detroit have been trusting democracy for decades, and their elected officials have repeatedly and consistently betrayed that trust.



Former Detroit mayor Kwame Kilpatrick being sentenced after his corruption conviction; he’s currently being tried on more charges.


[Update: the governor’s choice, Kevyn Orr, seems brilliantly chosen: apolitical, black, capable, and dedicated.]



“This is the Olympics of restructuring,” he said at his inaugural news conference


Late in March, the European troika decided that to teach the Cypriots a lesson, they would violate the few remaining principles they had previously left untouched, as if the observant global herd of capital would not notice, as I lambasted in Are you TRYING to create a bank panic? Part 1, “theft, pure and simple”, Part 2, “this deal broke all the rules”, Part 3, “to be convincing, they probably need to be true”, and Part 4, “two weeks later the bank collapses anyway”:


As we’ve seen up to now, by last weekend the first Cypriot deposit-theft bank recapitalization plan had blown up in the public markets, and so Europe’s fiscal leaders were aggressively pursuing a second Cypriot deposit theft bank recapitalization plan, one which avoided screwing the small depositors in favor of screwing the large depositors worse.



Yes, Anastasiades is a dead man walking, I’ve given the orders


The large depositors are mainly Russian, and those who defy Vladimir Putin have the unfortunate habitof dying mysteriously (Financial Times, March 24, 2013) (teal font):



Poisoned with polonium, which you don’t pick up on street corners


Though that was a moose of a post, a week later, in April, I chased it with an even bigger five-part post, A wholly owned subsidiary of the ECB, which included this teaser:



Do I look like I didn’t understand that I was saying?


Although he hastily retracted the comments as markets took fright—European bank shares fell sharply—Mr Dijsselbloem had merely revealed in public what northern European creditor nations say in private. They are fed up with funneling cash to peripheral countries (see chart 1); they would like the idea of recapitalising banks directly through the euro area’s rescue fund to remain just that, an idea.



It’s getting to be a habit


As the chart makes clear, providing central-bank liquidity is getting to be an addiction, one the Eurozone’s finance ministers have created for themselves. Having betrayed the private markets, they’ve lost access to the private bond markets, and having already rammed through discounts on non-governmental bank creditors, they are stuck with no solution other than busting their own banks, or printing more Euros. This they hate doing, yet they must.


And they’re going to have to do it again, if not in Italy or Spain, then once more in Cyprus.



In what language will I next hear “we can’t pay”?


Whatever its ecological or climatological value, all land has an economic value whether anyone knows that value or not, and the markets have a way of sniffing out land that has appreciated, a natural market action that triggers an anti-market reaction, often via the embrace of what we had heretofore overlooked such as the unassuming post office, which I explored in Privileging the frank: Part 1, A penny saved is a penny earned, Part 2, Rather go to bed supperless than rise in debt, Part 3, Beware of little expenses; a small leak will sink a great ship, and Part 4, If you would know the value of money, go and try to borrow some:


The city joined in Representative Henry A. Waxman’s appeal of the Postal Service’s decision to close the post office.



What difference does one post office make?


“I think they got it wrong,” Mr. Waxman said in an interview. “It’s a Depression-era structure, it’s an historic structure, one of the few Art Deco buildings in Santa Monica.”


Then buy it, City of Santa Monica, and you can preserve it all you like.


[Editorial note: After having done this ultra-close reading, a theory occurs to me: the New York Times was played. Perhaps the Santa Monica Conservancy and its allies in California decided their issue was getting insufficient attention, and in conversation with Mr. Waxman’s office, the question was asked, “How can we put pressure on the Administration?” “Why not make it into a national issue by having the New York Times run a credulous feature?” “Well, I know a culture reporter …”]


People value what they pay for; and given this, then its contrapositive is equally true:


What people do not pay for, they do not value.



“Buy what thou hath no need of, and ere long thou shall sell thy necessities.”


Instead of relying on its tax-exempt status to make other people pay for the building’s conservation, I’m sure the Santa Monica Conservancy is willing to step up, as Mr. Malkin and Mr. Silver did (in Part 2), and make a dramatic gesture to preserve such an iconic building by voluntarily agreeing to pay local real estate taxes,




As cities urbanize, it isn’t just land area that rises in value – the volume of cubic space rises in worth, so when a vasty hall designed for public use becomes empty by declining public involvement, that space becomes a target for subdivision, applying not only to post offices but to spaces more spiritual, like churches (whose conversion viability I explored in February), that people will defend much more fervently, leading to extended standoffs, as explored in Cannot we consecrate? Part 1, “We are not their ATM”, and Part 2, “I expect we will sell it”:


What began as a question about a parish closing became first an unacknowledged tussle over ownership of real estate, and is now a direct rejection of Vatican authority, which is intolerable in Catholicism, and was a substantial contributor to the founding of Presbyterianism, or even more egalitarian, the Congregationalists, who do own their own churches.


Along the way, the question of best real estate use has been lost, and it should be brought back. Land value is the economic expression of housing demand, and to secular observers, it is self-evident that using those thirty acres as solely a church and its grounds is a massive under-utilization of the land. Thus, by seeking to stop the church from selling off its excess land, these parishioners are blocking affordable housing, whether or not they realize this, and that has always been one of charitable purposes connected with every great religion of the world.


In this, I speculate, they are going against the wishes of Frances Xavier Cabrini, the patron saint of American immigrants.



An immigrant herself; she is the patroness of immigrants


She founded the Missionary Sisters of the Sacred Heart, which helped Italian immigrants; the Columbus Hospital and the Italian Hospital (eventually they merged into the Cabrini Hospital); and orphanages. She died in 1917, was beatified in 1938, and in 1942 was honored by having a large Chicago public housing property named after her. It also shifted from being a community of Italian-Americans to predominantly black. Later it was merged with another, and became Cabrini-Green, which eventually became home to 15,000 poor Chicagoans.


Under the Chicago Housing Authority, after the 1974 demolition of Pruitt-Igoe, Cabrini-Green became the most notorious public housing failure in America.  Over the last fifteen years, Cabrini-Green, like other public housing high-rises, has been systematically torn down:



The final high-rises at Cabrini-Green being torn down


The archdiocese would prefer redevelopment plans that support the church’s mission, such as converting … to affordable housing.


If so, my friend Lisa Alberghini of its Planning Office for Urban Affairs will have the opportunity to pitch it as a Chapter 40B affordable housing development, delivering much-needed affordable housing into Scituate, a town that’s so far been doing a pathetic job of meeting that responsibility.


At the risk of venturing into faith-based territory, what would the saint herself counsel her parishioners?



What would the saint want done?


Sanctuary is a benefit and even an ownership right of private property, but what of public?  Or of rented property that includes both residential apartments and their common areas?  Because my rights clash with yours, the issues are more complicated than they first appear, as we saw in examining New York City’s successful (and controversial) stop-and-frisk policy in Searching for sanctuary: Part 1, Private property?, and Part 2, Public interest:


In the relations between landlords and residents, security and privacy conflict, and when to that mix is added the third participant, that of law enforcement, the mutuality of boundaries becomes very complicated indeed, as demonstrated by the legal disputes surrounding New York City’s apartment patrol program, known by its proponents as Operation Clean Halls and by its opponents and Stop-and-Frisk, and now we have a new development, reported in the New York Post (January 8, 2013) and New York Times (January 8, 2013) (blue font):


Judge orders ‘immediate cease’ to NYPD’s stop-and-frisk policy in Bronx ‘Clean Halls’ building



A stop-and-frisk training exercise at NYCHA’s Mitchell Houses


When I posted two months ago about this subject, I cited one of Larry Niven’s Laws of the Universe:


F x S = k. The product of freedom and security is a constant.

While Niven was careful to observe that k changes from society to society, he forgot to mention that it is also being constantly readjusted in the urban environment. As I wrote in December:

Would you rather be free or be safe? That question lies at the policy heart, if not the legal head, of a class-action lawsuit, reported in the New York Post (October 19, 2012) (black Arial), putting those issues in play via a challenge to the New York Police Department’s twenty-year-old Operation Clean Halls program:


A pending suit, spearheaded by the New York Civil Liberties Union, alleges that “overzealous” cops have been making life miserable for minority residents of “Clean Halls” buildings by subjecting them to stops — and even arrests — when they run errands or visit neighbors.

Now we have a ruling (of sorts), though it raises more questions than it answers:


Rising prices for land, property, and housing change the economics for both expatriate workers and local citizens, and politicians’ desire to help the latter at the expense of the former leads every now and then to strange laws, such as Singapore’s ‘I don’t like you’ tax:



Yes, do take it personally


For the most full-on Monet of reasons (“from far away, it’s okay, but up close it’s a big old mess”), Signapore has imposed a hefty surtax on foreigners buying residential property in their thriving city state. As reported in the Wall Street Journal (January 29, 2013):


Singapore’s Housing Tax Hits Home


Singapore — An increased surcharge the Singaporean government has assessed on most foreign buyers to try to tamp down soaring property prices threatens to rattle Singapore’s uneasy relationship with many of its rich foreigners while giving Americans an edge in one of Asia’s hottest property markets.



15% surcharge?


This policy is simply bizarre. To begin with, it’s inherently hard to understand why you’d want to cut foreigners out of the property market: each time a foreigner buys a flat, he or she takes the infinitely portable commodity of money and fixes it in place — your city-state. That strengthens your local economy, and gives foreigners a stake in your nation’s viability. You should be for it.



Keep your eye open, woodland home about


Though we Americans are used to homes that are finished products, for much of the world a home is a process of self-built improvement and evolution, one that we ought to encourage via innovations in legal rights, structural configuration, and building technology, as covered in The improvable house as a self-baked fruitcake: Part 1, the recipe, and Part 2, the ingredients:




“We need to encourage the informal settlers, the slum dwellers, to invest into this infrastructure themselves,” says Keller.


They will do so if they can see benefit to themselves, and if they can protect benefits for themselves. For that they need not so much the gadgetry, but the improvable fruitcake house in which to embed it.


Keller says that as the project grows, community members trained in maintaining and repairing the solar power systems will be able to sell affordable energy to other residents. This will help them earn a living and also pay for new batteries for the iShacks.


That’s optimistic, but when have pessimists ever accomplished great things?



Victor Mthelo, another proud iShack home owner



Comment from Jeb
Date: May 21, 2013, 5:24 pm

As always provocative… but you should attribute “What people do not pay for, they do not value” to Pearl de Vere.
Have you written about the proposals put forth by de Soto Polar?

Comment from David Smith
Date: May 23, 2013, 1:44 pm

Somewhere in Rex Stout, Nero Wolfe tosses off an aphorism and his guest asks, “Who said that?”, to which Wolfe replies, “I did.” I didn’t know Pearl de Vere, but great minds run in the same gutters.

As for Hernando de Soto, I’ve never written directly about his approach to land entitlement, though I’ve referenced it. One day I’ll write “de Soto 2.0” where land entitlement is combined with Home Asset Loanf Financing (HALF) because an informal house on formally titled land is not financeable via mortgages.