[Previous Months In Review here: Aug 09, Jul 09, Jun 09, May 09, Apl 09, Mar 09, Feb 09, Jan 09]

By: David A. Smith

Continuing our review of September’s posts, technology changes interpersonal dynamics and in so doing reveals aspects of human nature, in particular that what matters in crime prevention is not the phenomenon of seeing but that of knowing one is being seen, in The robocop on the beat: Part 1, seen being seen:

Are you clicking on images you shouldn’t?

Some years back I formulated a more general version of this as the law of the observant herd:

The herd observes how sinners are dealt with.  In this case, sinners are noticed.  Not arrested, mind you; curiously, not even threatened.  Just noticed.

Crime doesn’t like being noticed.  So crime relocates.

Hopefully, with as little swag as possible

The occupants moved out soon thereafter.

The armadillo does what the residents can’t: it observes, it witnesses.  And in a metallic Christian way, it turns the other cheek and it takes punishment.

and Part 2, seen as one seeing:

In yesterday’s post, innovative police chief Steven Settingsgaard parked a retired police car conspicuously in front of a suspected drug dealer’s house.  Overnight it was demolished, but then something striking happened:

The dealer left the neighborhood soon after the incident –

Flush a predator from cover and the animal becomes unsettled and nervous; easier to capture.

– he was later arrested and convicted on a gun charge.

Evidently the emotional disruption played a powerful role in the physical disruption.

Find me worrisome?

With the disoriented giddiness of one who has staggered off the rollercoaster without losing wallet, lunch, or life –

That’s a lovely bridge to jump off, isn’t it?

– I examined, with more sympathy than its authors did, our retrospective on how we got through the financial precipice of last, 2008, in The mad experimenters: Part 1, being still breathing is winning and Part 2, I must have known it all along:

Despite Chairman Bernanke’s brave words a while back – in this selfsame Wall Street Journal – we may talk about exit strategy all we want, but there will be no substantial exit any time soon.

President Barack Obama goes to Wall Street Monday [September 14, 2009 – Ed.], the anniversary of Lehman Brothers’ collapse, to deliver a cautious victory speech. 

With Wall Street executives, as well as government officials, in attendance, the president also will admonish “to avoid a return to the practices on Wall Street that led us to the financial crisis and to recognize their obligation to help produce a wider recovery on behalf of the American people.”

Sounds good, I suppose.

If you don’t like “admonish,” how about “chastise”?

With a modicum of hindsight now available, do governments and central banks deserve credit for preventing catastrophe? The early verdict from most scholars, executives and government insiders is yes.  [What are bloggers, chopped liver? – Ed.]

How about bloggers?  I said yes at each stage:

March 24, 2008, the shotgun marriage of Bear Stearns to JP Morgan Chase: Banking on value.

April 22, 2008, explanation: Banking on value: the explanation.

April 28, 2008, how the Bear Stearns transaction went down: Anatomy of a coup

September 22, 2008, explaining the Paulson Doctrine(s): Part 1, prevent the second great depression

September 29, 2008, explaining TARP: Bailout or bonanza?

October 20, 2008, converting TARP into preferred-stock injections: Paying your rescuer: Part 1, you *will* do it

January 21, 2009: The GSE’s future: Part 1, we need the eggs

March 23, 2009: The AIG Hearings: Part 1, “Now that we’ve killed all the bomb-makers …”

What, you think that counts as evidence?

On the question of which of dozens of extraordinary interventions — rock-bottom interest rates, surging government spending, billions of taxpayer dollars injected into banks, sweeping government guarantees — made the biggest difference, there’s less agreement.

Sometimes the answer is, All of them.

An impromptu discussion at AHI led me to write down Three key questions to give your ecosystem a physical: Part 1, follow the critters, Part 2, follow the ownership, and Part 3, follow the money:

In the same way, when we consider a housing finance ecosystem, the blood plasma is money, and its tracing is a time-honored investigative technique.

“Follow the money”

When it comes to housing, the money moves in three dimensions: homes, people, and money:

1. Homes.  Providers and consumers finding each other.

2. People.  Sellers and buyers exchanging money for consumption and use rights.

3. Money.  Capital providers and capital consumers financing a home purchase.

Understand these three dimensions and you go a great ways toward placing an ecosystem in its space.

Thus, if you come new to a housing finance ecosystem, either because you’re visiting a country and want to buy or rent a home, or as a student, researcher, or consultant tasked with designing a new program intervention, you can learn a lot about the ecosystem if you follow the money through each of its three dimensions.

These questions are valuable for two reasons:

They are worth inspecting

1. They are discoverable.  Since everyone who might be an investigator can imagine the sequence of finding an apartment, buying a house, or finding a loan, they create a natural and surprisingly comprehensive line of inquiry for investigators.  More particularly, the questions are non-judgmental – they just ask about what is, rather than what should be or what might be or isn’t.

Question 1: Owner-consumer value chain

If you have housing (to rent or sell) and I need housing (to occupy or buy), how do we find each other and what kind of tenure relationships could we establish?

You’re new in town, and you need a place to live.  Think of all the sub-questions you’ll have.

1.       Can I find plenty of places, or are they scarce?

2.       How much space can I afford?

3.       Can I buy or do I have to rent?

4.       If I want to buy, how far out of downtown do I have to be?

5.       Is there enough good-quality rental?

6.       Is the government in the business of providing housing?

7.       Is the government in the business of subsidizing the supply side (helping create more homes)?

Now I’m going to ask you a simple question – do you feel … lucky?

2. They are measurable.  The results can be quantified – search costs, occupancy costs, closing costs.  Those costs make comparisons possible across ecosystems, and also make possible measuring the ecosystem’s evolution over time.

Question 3: Financing a home purchase

If I need to get a lot of money to buy a home, where do I get the money, and what does it cost (up front and over time)?

In every society, owning urban housing costs many multiples of a normal persona’s disposable housing income; indeed, among my rules of thumb for gauging a housing ecosystem (yes, that’s a blog post to come) is the better the housing ecosystem, the longer the period of time over which a buyer must obligate himself or herself to acquire property ownership. 

How long do I have to keep paying for this house?

Seldom is a month complete without some tale from the cradle of US apartment living, and our second-most-formal city, New York, which despite its reputation puts up with a shocking degree of informal settlements in Temporary permanence?:

You elected me temporarily, but maybe I could be permanent?

In New York City, formalization of sheds is literally just around the corner:

But others have higher ambitions: They want an all-new sidewalk shed — airy and elegant. The talk among architects, in fact, is that the city is about to launch a competition to design one.

Given time, New York’s sheds may become formal arcades – if not rivaling Bologna’s, then maybe New Orleans‘ French Quarter.

Formalizing the pedestrian shed: New Orleans arcades

In this post, I came bury sheds, not to praise them – but when you think about it, making sheds permanent by arcading them solves everyone’s problem.  It claims more city space for pedestrians, and more air space for additional structures.  The city becomes more dense, yet more livable.  The informal leads the formal, and in that lead, it changes the city.

The future of New York City’s sheds?  Torino’s arcades

If you leave them there for fifty years, they’ll be historic and then you can’t tear them down.

They claimed this was historic and had to be preserved

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By: David A. Smith

During September, I published a two-part post so depressing and sober it had taken me a year to take it out of inventory, about Winston Smith’s nightmare: The ultimate future city: 1984, Part 1, the poverty of slums and Part 2, the slums of poverty:

Perhaps the most famous year in fiction begins in the most tactile not-present:

It was a bright cold day in April, and the clocks were striking thirteen.  Winston Smith, his chin nuzzled into his breast in an effort to escape the vile wind, slipped quickly through the glass doors of Victory Mansions, though not quickly enough to prevent a swirl of gritty dust from entering along with him.

In previous posts, I’ve profiled visions of ultimate future cities.  Some of these visions are nightmares – and yet, nightmares that can see around us if we know where to look, in the slums inside.

Victory mansions? Soviet flats

The hallway smelt of boiled cabbage and old rag mats.  At one end of it a colored poster, too large for indoor display, had been tacked to the wall.  It depicted simply an enormous face, more than a meter wide: the face of a man of about forty-five, with a heavy black mustache and ruggedly handsome features. 

Big Brother is checking your mouse clicks

Only slightly more cheerful, albeit substantially closer at hand, was this grim multi-part story of Los Angeles public housing, in Distrust me just this once? Part 1, the need for trust, Part 2, the enemies of trust, and Part 3, how to build trust:

Slums persist in part because they have defenders.  Among those defenders are many slum residents themselves, for whom a lifetime’s experience has taught them, Trust no one, especially any well-dressed or well-spoken newcomer who claims, “I’m from the government and I’m here to help you.”  That makes any slum upgrading program a hard sell, as illustrated by this Los Angeles Times article about the obsolescent and miserable public housing property Jordan Downs:

Fred Smith, left, 37, has lived in the Jordan Downs public housing project in Watts most of his life.

Ronald Perkins and his neighbors were nearly outnumbered by the consultants and architects who showed up at the Jordan Downs community center.

Planning session for Jordan Downs

Resident participation is a cornerstone of HOPE VI, as slumdweller control is a cornerstone of Slum Dwellers International’s Urban Poor Fund.  But as Yogi Berra said, if people don’t wanna come to the ballpark, nobody’s gonna stop ‘em.

“Which is worse, apathy or ignorance?”

“I don’t know and I don’t care.”

– High school joke

The public housing system is structured around dependency.  Just as public housing’s financial schema makes housing authorities dependent on an autocratic HUD and behind that a fickle Congress, its residency policies – in particular, totally mean-tested rents and an allergy to evicting miscreants – promote resident dependency.  It is poverty trap and also an initiative trap, and it engenders passivity:

As mental palate-cleaners after such tough pieces were two bits of fluff.  I had a little fun with a Massachusetts state senator who assured us that in no way was he being at all hypocritical by buying his liquor in no-state New Hampshire rather than in new-tax Massachusetts, even though he had by purest coincidence traveled across the entire state, in Borderline behavior:

The absurdity of this is brought home when those who make the laws they expect others to observe flout their own handiwork, as did unlucky Massachusetts state representative Michael J. Rodrigues, who discovered the damning evidentiary power of a cell phone camera, and didn’t like it.  As gleefully reported by the populist Boston Herald:

State Rep. Michael Rodrigues, inset, a Westport pol, was spotted over the [September 1, 2009 – Ed.] weekend piling booze into his car – emblazoned with his ‘House 29’ Mass. license plate – at a tax-free N.H. liquor store.

A Westport lawmaker who voted to hike the state sales and alcohol taxes was spotted brazenly piling booze in his car – adorned with his State House license plate – in the parking lot of a tax-free New Hampshire liquor store, the Herald has learned.

This is not Michael Rodrigues’ car, and any inference to the contrary is unjustified

Savor the scene: a guardian of the public trust smuggling booze into his home state, caught red-handed violating a law he personally helped make more onerous:

Rodrigues, who was loading booze into his car, snapped “mind your own business,” the witness said.

“Rich, you’re giving smugglers like me a bad name.”

The witness’ account was also posted yesterday on Citizens for Limited Taxation’s Web site.

And it’s a doozy:

As my family and I were driving back from York Beach my wife asked me to pull off at the NH liquor store on 95 south at the Mass border. When I pulled around to get a parking space you can imagine my surprise to see what I could only assume to be a Mass state rep’s car. He also had a Deval Patrick/Tim Murray sticker on his back window – so I assume he’s a Democrat who voted in favor of the recent sales tax hike.

Our citizen journalist is right on both counts.  Mr. Rodrigues is a Democrat, and he voted yes on the tax hike.

The increase pushed the sales tax to 6.25% and slapped that same levy on booze – the first time alcohol has been subject to retail sales tax.

So the guy comes out with a couple of cases of booze in his carriage and loads them into his car. I asked him if this was “official” business or personal. He was surprised by my questioning and asked what business is it of mine as to what he’s doing. I told him I was a Mass citizen. He said it was personal – I pointed out the state car with official plates and he said it was “his”.

“That car is mine, not the state’s”

A far cry from Harry Truman, who smacked a stamp onto any personal correspondence he wrote when he was President.

I didn’t ask him why he was in NH purchasing alcohol instead of supporting Mass businesses and the 6.25% tax they just levied on us common folk…

Observe that Mr. Rodrigues’s district is about as far from New Hampshire as it’s possible to be in Massachusetts.

Place-based taxation is predicated on the assumption that consumers cannot flee the law’s grasping hand.

“Thank you, Thing!”

Later I floated some unmoored speculations in All at sea: waterworlds of the future:

We all live in a yellow submarine
Yellow submarine, yellow submarine

– Richard Starkey

Every one of us has all we need?

Perhaps it’s because, as city dwellers, we seek green space and crave privacy, but few destinations capture our imagination more than the idyllic deserted island.

Societal conventions optional

Yet we’re rational enough to realize that a tiny island will lack creature comforts – unless, that is, we build them, which seems the premise behind The Seasteading Institute, whose press release explains that a few months back:

The Seasteading Instiitute crowned the winners in its first Seasteading Architectural Design Contest to design the floating city of their dreams.

‘Floating city’ inevitably reminds me of Gulliver’s Island of Laputa, which Swift envisioned so he could satirize royal and aristocratic disengagement.

Wobbling along the cost of Balnibarbi

Seasteads are permanent, stationary structures specifically designed for long-term ocean living.

Which sounds good, until you realize that very few if any of these structures exist.

Maximizing our use of space!

Still, they make interesting speculations, so let’s take a look:

Serious sums can swing on metaphysical questions only a lawyer can love, as uncovered in You can check out any time you like:

At one end of the money-store continuum is physical property, which as I’ve often observed, is immovable, and as earth, it abides.  At another is financial property, which is just as ethereal.  Money is paper (or worse, just electronic bits) which have value only if we all believe it does.  Because we cannot physically relocate property, we are forced to use intellectual forms – title deeds, mortgages, loans, P&S’s – to convey ownership, which is a pure intangible.  Beyond the immutable of physical property and the intangible of ownership, we further slice ownership by adding new dimensions:

Two dimensions = land and real property.

Three dimensions (add verticality) = condominium, co-operative

Four dimensions (add time) = rental, time share

Each added dimension slices the occupancy/ use rights into a more discrete bundle, which on the one hand tends to add value (because you buy only as much as you need) and on the other complicates the contractual and financial relationships.  Indeed, by multiply slicing the ownership, an unscrupulous developer could tunnel through zoning regulations via a portable hole:

Nobody can pull a comb over my eyes!

In more serious news, we explored whether the third government housing pipeline, the FHA, will need substantial taxpayer equity like its two siblings, Fannie Mae and Freddie Mac, in Liberally prudent or imprudently liberal? Part 1, how we got here, and Part 2, how we’ll get out of it:

Will these folks …

… follow these folks?

An additional 2.4% delinquency on a $627 billion portfolio represents $15 billion more in delinquencies. 

The [FHA capital] ratio last year was around 3%, down from 6.4% in 2007.

An additional 2.4% delinquency is not the same as losses.  Loss = Default Rates x Principal-Writedown Given Default.

Let’s do some simple arithmetic.  How much of a writedown can FHA afford on those delinquencies?  40% losses on 2.4% delinquency represents 0.96% lost portfolio value.  In short, FHA had better recover 60 cents on the dollar.  Or else what?

If its reserves fall short, the agency is obliged to notify Congress, which could spark a commotion over the extent to which the government is funding losses in the housing market.

The Journal is mightily pumping its bellows; ’spark commotion’ is a far cry from ‘go bankrupt.’ 

Keep reading, we’re sure you’ll get fired up

A senior official at HUD, which oversees the FHA, said there is “no risk” that the FHA would require money from Congress if the ratio falls below 2%.

The Journal knows full well that FHA is the Treasury – it will keep going indefinitely, losses be damned, as long as Congress keeps giving its authority.

[Continued tomorrow in Part 2.]

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[Continued from yesterday's Part 1.]

By: David A. Smith

Continuing our review of August’s posts, we saw in yesterday’s Part 1 that housing is local, because the property cannot move.  But housing finance and policy are far from local – usually national – even if the impact of their work once again is felt solely at the local level. 

I’m from the government and I’m influencing your local markets

Cities manage their property uses through zoning, by that zoning, they also influence who lives in their town.  For over forty years national and even state or local policy has been predicated on the belief that economic class, as expressed by house price or lot size, is a stand-in for race, a finding made judicially in Westchester County, as profiled in Anti-black or anti-green? Part 1, we won … didn’t we?, and Part 2, what did we win?:

It was at about this point in the Times article that I realized New York must lack an essential tool that Massachusetts has:

Not another failure?

New York needs a powerful inclusionary-zoning law like Massachusetts’ Chapter 40B. 

As I’ve posted before, Chapter 40B enables states to compel injection of affordable housing into recalcitrant localities, because it uses the override power of a higher unit of government (the state) to nullify the exclusionary restrictions promulgated by a lower unit (the town or village).

Making the Westchester case remarkable was the use of a circuitous yet successful private legal claim – a tort under the False Claims Act that Westchester was fibbing when it told the Federal government it was taking steps to desegregate.  That’s novel – one might say either ingenious or unscrupulous – and yet it worked.

It has only just dawned on me that Chapter 40B works for the same reason the False Claims Act does – it privatizes enforcement by giving private actors a financial motivation to enforce.  Chapter 40B does for affordable housing development what the False Claims Act does for desegregation.  As shown by this map, 40B works – it builds properties in suburban cities and towns:

Notice now many suburbs have 40B properties

I have no doubt that in any group of us – whoever us is – we’d like not to have to live with ‘those’ people, but who are ‘those’ people?  Are we so sure that ‘those people’ means race?  It’s not what I’ve seen in South Africa, not what we saw in Jordan Downs in Watts.  ‘Those’ people means ‘not my tribe,’ and human beings have an infinite capacity to create, divide, and subdivide tribes.

With us we have a tribe of people who need more than shelter, those unfortunates who by accident or choice have found their lives wrecked.  Out of charity and self-interest, we put them into permanent supportive housing, where some have their lives restored, as explored in Pushing PSH, Permanent Supportive Housing: Part 1, housing is critical, and Part 2, assistance is critical:

[Moving in to permanent supportive housing] also means a big boost in income:

This is big movement too

The result?  Lives change:

“My parents and I get along very well. Since I have had my apartment, it has made it easier to get into treatment, which strengthens my relationships” (Tenant quote from Quality of Life Survey)

Not just adults’ lives, their children’s too.

“Before we ate poorly, especially myself as I would give most of the food to my children. I usually ate once a day. Now we eat a relatively good diet and we all have enough to eat 3 meals a day plus.” (Tenant quote from Quality of Life Survey)

Previously we’ve seen that childhood poverty damages your mind and perpetuates an intergenerational cycle of poverty.  Permanent Supportive Housing is one of the very few paths out.

I’ll find my way out somehow

During August, while most federal elected officials fled Washington for the expected sanctuary of their districts, the financial policy makers were hard at work not reaching consensus on any form of regulatory overhaul, despite the urgent need to do so, thus reducing Treasury Secretary Geithner to profanity, at least as reported in the Wall Street Journal and snarked upon in Cutting turf: Part 1, the driver, and Part 2, the sand traps:

You won’t like the Treasury Secretary when I get mad

In many ways our current banking regulation operates like the Articles of Confederation, where each regulator is akin to a sovereign state that can safely ignore what the others are doing, and may certainly ignore the dictates of any purported central regulator.  Now what Mr. Geithner wants is to force through a new federal financial Constitution that makes the Federal Reserve the truly national supra-regulator:

The administration’s proposal would give the Fed broad discretion to supervise any major U.S. financial company and would also create a “financial services oversight council” to coordinate policy and help resolve disputes among regulators.

One ring to rule them all, one ring to bind them. 

One conference table to seat them all …

That may sound ominous, but it’s the right approach to multi-jurisdictional regulation, otherwise boundary effects and borderline behaviors proliferate and swamp desirable and capital-enabling behaviors.

My territory!  No, mine!

The effort to create a rational national banking regulatory structure comes against the backdrop of our successful investments in several TARP-related institutions, who have been buying their way out of administrative servitude by repaying their TARP and repurchasing their warrants, as presented in Who says the price is unfair? Part 1, there’s what we think …, and Part 2, there’s what we did:

A month ago, Treasury first cleared ten banks to repay their TARP funding, creating rules to sell its glass financial menagerie:

Submitted for your consideration, as discussed in this Wall Street Journal article, is a gargantuan Federal government that, for one good reason or another, now finds itself holding warrants in a series of financial institutions that it has forcibly recapitalized.

At the time, I speculated:

Knowing this, I expect Treasury’s advisors to be shrewd and to drive fairly tough bargains.

And not a groat more!

Did we drive tough bargains?  It depends who you ask, and let’s start with some shrill Monday-morning warrant buyers over at the Huffington Post, whose title leaves no doubt where they stand: Ignoring Watchdog Report, Treasury Gives Three Major Banks Sweetheart Deals:

Less than two weeks after a congressional watchdog called attention to backroom deals in which the Treasury Department repurchased stock warrants from bailed-out banks at well below market value, three more such transactions have now been reported. The big loser: The U.S. taxpayer.

It was easier in the old days of smoke-filled rooms

Before we can call the taxpayers ‘losers,’ it’s as well to remember that any bank that has repaid its TARP has cost taxpayers nothing, and in fact we made money on the interim TARP dividends. 

[Also, don't forget that many banks, Goldman Sachs among them, took the TARP under extreme duress, and were not happy about having to do so. – Ed.]

The warrants are additional consideration, so here’s the equation:

What we put in                                     What we got out

            + Capital advanced                             + Capital repaid

                + Risk of losing capital                       + Dividends (at 5% annually)

                                                                                + Value of the warrants

In lighter news, I explicated the obvious – the reappointment of Ben Bernanke – in the virtues of not changing horses, and we tuned in on Planet Malcolm in Great Blog Posts by Others (GBPO) 03: I think, therefore I win:

Nothing either good or bad, but thinking makes it so,” says melancholy Hamlet, counting himself a king of infinite space and that, in a nutshell, is the trap of overconfidence. 

Unzip your mind, and the rest will follow

1. I think, therefore I win

Or so says the logorrheic Malcolm Gladwell, in yet another of his probably-unsound-but-vibrantly-intriguing monologs, as captured in The New Yorker:

The hair has a purpose, doesn’t it?

Who’s the top dog around here?

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By: David A. Smith

With the capital markets stunned into lassitude through repeated bludgeoning with new legislative acronyms, and Washington consumed with an infinite-regressive loop in which the words ‘health care’ are added to every conversation, I spent most of August focusing on the level of governments and markets that cannot escape housing-affordability challenges – namely, state, local, and even site-specific.  I started with that noble and financially wracked institution, the Boston Globe:

So much for your business model …

The Globe faces not just a business-model threat but a real estate threat – the paper’s value today is almost entirely represented by the redevelopment potential of its wonderfully well-located site, and so as a business, the Globe is Better dead than read, Part Deux:

From one of the best-loved genres of our time

Nor does such a move preclude further layoffs.  Private equity does not like to throw good money after bad.

Now we have to go in to get the men who went in to get the men who went in to get the men.

“What’s important here is that the Globe be maintained as a viable business entity, whether it’s sold or we continue to operate it, and make sure that it has the financial stability to ensure its continuity,’’ said [Times Co. publisher and chairman Arthur O. Sulzberger]. “We’re committed to that.’’

You may be, Mr. Sulzberger, but neither what you say nor what you believe will bind any buyer.  That’s just a lullaby for the employees.  Meanwhile, the Globe may be applying a neck tourniquet to itself: the newspaper may start charging for its online content.

Loved you in Wall Street!

Even if the Globe somehow were to stave off shutdown, there is no earthly reason why it should continue to occupy such prime real estate; as an ultimate information business, it should relocate elsewhere to lower-cost land, never mind the longer commutes for editors and reporters.  Such relocation thinking also underscores two human-tragedy stories, the first about a seemingly heartless city in Reviving transportation?:

A moral-philosophy question rattling through cyberspace asks, If you were offered $1,000,000 to make someone disappear, would you?

Happy to make the stain of homelessness vanish?

Actually, as documented in this New York Times article, the cost is much less than that:

They are flown to Paris ($6,332), Orlando ($858), Johannesburg ($2,550), or most frequently, San Juan ($484).

Outward bound: from NYC to somewhere else

The second about a seemingly noble and independent autonomous Anarcho-Syndicalist collective in Romanticizing the poor:

Leave it to snarky Gawker to explode another of those urban-homesteading myths so favored by a certain kind of press, and a certain type of author:

Today’s New York Times Page One recession-porn dispatch is so unrelentingly hackneyed that William Shatner ought to read it aloud to bongos. 

And it neglects to mention that the hero – a gruff homeless-encampment leader – is a convicted child rapist.

The mug shot of camp leader John Freitas

We’re pretty sure Dan Barry’s story about a community of homeless folks living under an overpass in Providence, R.I., originally began with “It was a dark and stormy night…” because it is littered with high-school cliches of the first order and reads like the work of a 17-year-old who just put down his first Raymond Carver story.

If we are to build sound public policy, we must see challenges for what they are, not what we wish them to be, and not what moralistic tales we may be told.  Heartless though this sounds, we cannot afford to romanticize the poor out of their reality.  If we swallow the fables, we simply enable the tellers – and often we should not.

“Help! Help! I’m bein’ repressed!”

“Now we see the violence inherent in the system!”

Although there are some uses that should move, and some people who should relocate, most communities have other people – chiefly the elderly – whom they like to see continuing to live within their town.  Elderly homeowners are a particular challenge because their lives represent two crossing lines: a rising line for their home’s equity value and a falling line representing the amount of housing they need to consume.

Time moves left to right (doesn’t it always?)

Think of ’supply’ as how much house an elderly person owns

Think of ‘demand’ as how much the elderly person needs

Elderly homeowners are generally taxed on their income, which is usually fixed in nominal terms (hence declining in real terms), not on their assets, which being expressed as a large single-family home are typically rising in value.  So it’s politically natural to sympathize with cash-poor granny who’s getting socked with an ever-rising real estate tax bill.  But is it equitable to give granny a break while she trundles amiably about her capacious home?  Is it equitable when to make up for what granny saves, we have to tax new families more?  That’s the question I posed in Subsidy or surcharge? Part 1, how much? , and Part 2, should we?:

In other words, by granting cash-flow relief at no cost, we will be subsidizing the asset-rich cash-poor elderly in the manner to which they have become accustomed – at the expense of families who probably have higher household expenses (such as raising children).

However, other groups vulnerable to overrides—say, non-elderly low-income households with severe property tax burdens—may be motivated to vote against such proposals.

[We could also detour into an exploration of 'who benefits from municipal services'.  Families with school-age children obviously benefit more than do the childless; conversely, since they have more to protect, the rich benefit more than the poor from services such as police and fire.  That would take us far afield, so we won't. – Ed.]

Don’t go there so late in a blog post

I don’t mind subsidies.  I mind invisible subsidies, and I mind surcharges concealing themselves in the absence of subsidy.

You can look at it two ways, can’t you?

Across the Atlantic, an entirely different approach to large residential properties has been adopted in London, as we discovered when toward month-end I posted what may be the ultimate August-holiday property story – about vacancies in the upper-crust’s urban palaces, in Nobody home? :

In the city of Westminster, where Mayfair is located, homes can cost up to £50 million ($81 million). Yet Westminster is fifth among London’s 33 boroughs in the number of unoccupied properties. In 2008, 1,737 homes had been vacant six months or more, the third highest number among all London boroughs, according to the Empty Homes Agency, a nonprofit group that seeks to put empty homes back into use.

Not confined to the bad neighborhoods: red means vacant

Unlike our recently-profiled case of no landlord at all, the problem isn’t loss of equity leading to economic abandonment:

Unlike people facing foreclosures in other neighborhoods around the world, Mayfair’s homeowners aren’t down on their luck. Rather, the properties serve as investments for owners who pay the bills to keep them empty — something the neighbors and city object to when the homes fall into disrepair.

Real estate, particularly well-located and well-built real estate, has long been a ‘brick safety deposit box’ for the world’s rich people.  [More]

A bank of bricks, not a Bank of Glass

Most of us see home ownership as a slow accumulator to retirement savings and a life of ease, but there is one group who seldom experience home ownership appreciation – owners of mobile homes in rented mobile home parks.  The incongruous combination of being able neither to move a home called ‘mobile’ nor to have security of land tenure the rest of us take for granted drains out virtually all of the property’s appreciation potential.  Even worse, the park operator/ land owner can simply dial up the land rent and suck out the appreciation at any time. 

That’s why many of us favor reuniting land and structure in mobile home communities, which leads to the substantial challenge of Condo-ing mobile home parks: Part 1, unofficial affordable housing, Part 2, at what price?, and Part 3, who decides?:

Two days ago, we looked at Santa Rosa’s Country Mobile Home Park, whose owner wants to condo the land (at least as reported in the San Francisco Chronicle; the owner wouldn’t talk to the newspaper), and yesterday we saw that in a forced condo conversion, land value would be a tussle.  Yet why the choice of condo rather than co-op? 

It has to do with optionality.  Who can force or block what?

I’m blocking your conversion attempt

[Continued tomorrow in Part 2.]

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“The solution is its salesware”

The month’s most important post came halfway through, a mantra I’ve been chanting for years now: The solution is its salesware:

Alice laughed. ‘There’s no use trying,’ she said: ‘one can’t believe impossible things.’

‘I daresay you haven’t had much practice,’ said the Queen. ‘When I was your age, I always did it for half-an-hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast.’

Through the Looking-Glass, Lewis Carroll

The Wright Brothers couldn’t get venture-capital funding for the airplane.

Turned down again …

IBM thought the personal computer a toy.

For serious computing, you boys will need big iron

Facebook emerged out of a college dorm.

Want billions, kid?  Put on some shoes

In each case, until the thing existed, nobody could buy it, and thus you virtually couldn’t sell it.  To sell it, you need salesware, and the only good salesware in such cases is the thing itself.

The solution is its salesware.

Housing touches the richest and the poorest, so everyone in the world will have a connection to “Housing the Future,” a BBC World Debate in which I featured, and which you can view online here.  Highly recommended, and not just for my gesticulating self.

Not for my looks, either

During July, I inaugurated a new feature, Great Posts By Others (GPBO), designed to highlight provocative pieces worth your attention: Great posts by others (GPBO) 01: Introducing a new series, and GPBO 02: Pyramids, promises, and public transportation:

Rummaging about in Chapter 1 (available as a .pdf for free download), I found this useful listing of ‘business-school’ fallacies:

Prahalad and Hart (2002: 57) explicate six of such, often false, assumptions:

C. K. Prahalad is the doyen of BoP thinking, based on this book

1. The poor are not our target consumers because with our current cost structures, we cannot profitably compete for that market.

2. The poor cannot afford and have no use for the products and services sold in developed markets.

3. Only developed markets appreciate and will pay for new technology. The poor can use the previous generation of technology.

4. The bottom of the pyramid is not important to the long-term viability of our business. We can leave Tier 4 to governments and nonprofits.

5. Managers are not excited by business challenges that have a humanitarian dimension.

6. Intellectual excitement is in developed markets. It is hard to find talented managers who want to work at the bottom of the pyramid.

All this is incredibly thematic with AHI’s work, so we’ve ordered a copy.

Even as the market ecosystem reinvents itself after the shakeout, whining arises from many quarters, such as the appraisers in Value chain growing pains?:

As I posted previously, contact between an interested and a disinterested party isn’t necessarily improper; it may be the lifeblood of accuracy.

At my for-profit company, we do valuations of complex structured interests. After making our initial data request, which includes a comprehensive checklist of information we think relevant, we also invite our customers to provide any information they think worthwhile for us to know. Unless the circumstances are unusual, we also give our customers a chance to look at and comment upon our draft, and to provide additional evidence. This creates an intellectual argumentation, where the client is advocate for its view of the right value, and we are judge and jury of what we think is the right value.

Such contact also allows influence to be brought to bear:

Make up your own mind

Previously, brokers order the appraisal before submitting the loan application to the lender – and often, critics say, those brokers would pressure appraisers to come back with higher valuations.

Naturally that pressure will be applied, and the expert has to be intellectually and morally tough:

For this tension to yield improved (more accurate, more thoughtful) results, we as valuation experts have to be strong enough to repel improper suggestions and to resist flimsy or unsubstantiated argumentation.

Evidently, many appraisers were suspected of being weaklings.

And proud of it!

Also complaining were residents and local officials –

“Mine! Mine! Mine! Mine!”

– seeking to force a lender to become a de facto landlord in No landlord at all: Part 1, the vanished landlord, and Part 2, the present lender:

That’s not enough for Senator Schumer:

“Fannie helped create this problem, and they have an obligation to solve it,” said Senator Charles E. Schumer, Democrat of New York.

Someone’s at fault, and Senator Schumer wants to know who

Just how is Fannie Mae responsible for this problem?

Fannie Mae does not own the building.

Fannie Mae has never owned the building.

Fannie Mae has started foreclosure proceedings [in March, 2009 – Ed.].

As such, Fannie Mae has no legal authority to operate or improve the property.

In fact, Fannie Mae did not originate the loan – it bought the loan from the original lender.

We’re clean!

What then is the basis for the Senator’s complaint?

Unhappy too were elected officials seeking mortgage-restructuring relief for their constituents in Won’t or can’t? Part 1, who should be relieved?, and Part 2, how fast a fix?:

Won’t, can’t … or shouldn’t?

Mr. Meola says complaints spiked after Saxon took over a portfolio of 80,000 loans from a troubled rival in 2007.

No good deed goes unpunished. 

We’ll make your loan conform

The prolific Lucian Bebchuck fired off another salvo in his continuing besiegement of executive compensation, this one of interest because it highlighted a potential reason why the PPIP program never got off the ground in the cost of calling off the dogs?:

In any case, whether it’s logical or not, waiving the necessity to write down long-term debts – still performing, don’t forget, otherwise they’d have to recognize an impairment now because of the non-performing or default status – calls off the dogs.

Together, the policies adopted by accounting and banking authorities strongly discourage banks from selling any toxic assets maturing after 2010 at prices that fairly reflect their lowered value.  As long as banks don’t sell, the policies enable them to pretend, and operate as if, their toxic assets maturing after 2010 haven’t fallen in value at all.

Let’s pretend our assets are all grown up

While the market for banks’ toxic assets will remain largely shut down, we are going to get a sense of their value when the FDIC auctions off later this summer the toxic assets held by failed banks taken over by the FDIC.

An excellent point – there will be some data.  How comparable will it be depends on whether the assets sold are similar to those still held.  But I’ll be watching with interest.

If these auctions produce substantial discounts to face value, they should ring the alarm bells.

Yes.

Are they about to ring?

Although as far as I know Professor Bebchuk hasn’t yet commented on Treasury’s approach to selling the glass financial menagerie, I’m sure he’s interested in it:

One approach to valuing anything odd is to auction your headaches, but as in divorce, when the current holder(s) both know the asset well, a pre-auction negotiation is effective – and that, has been structured in to the TARP repayments that will be forthcoming shortly:

WASHINGTON — Now that large banks have started paying back government aid, the U.S. Treasury Department is shedding light on its process for negotiating warrant repurchases with banks, saying Friday that it has developed “a robust set of procedures” to protect taxpayers.

Strong enough to protect taxpayers

Treasury Friday released a packet of documents that explain the warrant repurchase process.

As an exercise in procedural negotiation, the TARP warrant repayment is an illuminating case study:

We’ll admit you, but then we’ll have to kill you

Reality is the raw material of theory and innovation, isn’t it?  At least it’s the raw material of blog posts, such as Employer-assisted housing: Part 1, the how, and Part 2, the why:

Employer-assisted housing encompasses both rental (as in Vicarage of the church of football) and ownership; it touches hard debt, hard equity, soft debt, soft equity and subsidy; and because it involves people in two parallel enduring economic bonds, employment and housing, it raises touchy questions about dependency and exploitation. 

But it was the $7,500 from her employer, the University of Chicago, that put the deal over the top.

Just the edge I needed!

What stake does the employer have in its employee owning this condo?  One can quickly think of three reasons:

1. To reward employee loyalty.

2. As golden velvet handcuffs to discourage job-hopping.

3. To protect the neighborhood around its campus.

“Without the loan, it would have impacted how fast we could renovate,” says Morin, 25, of the foreclosed property she shares with Hillstrom, her 27-year-old fiancé, who is studying for his doctorate.

Moving a property out of foreclosure emptiness and into employee occupancy has to be good for the value of all other U Chicago property.

We take our own environment for granted, unremarked and unexamined, until we’re forced to explain it to others, as I did in US property taxes: Part 1, local tax = local autonomy, and Part 2, local autonomy = local initiatives:

In light of all that, how do the US and Ireland compare?

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Through the looking-glass: two ways of taxing

Ireland’s taxation is predicated on building and reselling of housing.  When times are good for the property market, government is awash in cash.  When times are bad, the cash dries up completely.  That’s probably contra-indicated because it’s in bad times that government is called upon to do more, and in good times it probably should do less. 

In short, I told my hosts, from what I could see of the US, and what little I understood about Ireland, a move to a recurring real estate tax on residential property would be wise – and the only way to do it without committing political suicide would be to connect it directly to increased local autonomy over visible local services. 

Local autonomy is desirable only when the local economy is viable, and when it is contracting, a town like Salisbury, MA undergoes a downward spiral.  Or the lure of easy money will move people to board strange craft and travel thousands of miles to an alien destination, where they are all too easy to exploit, on the dark side of the moon:

As the world globalizes information – which also implies globalizing capital – we observe a mobility of labor unprecedented in global history.  With that labor mobility comes the ebb and flow of people and money – people moving to cities to earn money, then sending that money ‘back home’ (wherever that may be), via capital’s underground river of remittances.  Although remittances are unquestionably a good thing, and among the largest forces driving slum upgrading in the global south, for every bright new invention there is a dark side.  One dark side that I’ve already profiled is human smuggling and extorted remittances.  Another is demonstrated by this Jenara Nerenberg article/ post from The Next Billion:

To serve Nepalis?  Nepalis returning to Qatar

In Development and Base of the Pyramid (BOP) circles, we often discuss remittance economies and innovative ways to send remittances home; what we don’t always think or talk about is what forces people to leave their home countries in the first place and what they experience when they go abroad.

To someone from a rural area, the job might as well be on the far side of the Moon – a completely alien, hostile environment, and one embarks on the journey in a state of excitement, hope, and trust.

Off to a great new adventure, honey!

The lure of earning money abroad is among the most powerful of vaporwares. 

To serve man book

Handbook of a multi-planetary conglomerate?

One needn’t journey to the moon to find occluded and invisible universes, such as Tthe slums inside the big bad blocks: Part 1, blame the architects:

If we design the buildings, ran the architects’ grandiose reasoning, why not design the whole city?

Here the group discussed concentrated on principles of “The Functional City”, which broadened CIAM’s scope from architecture into urban planning. Based on an analysis of thirty-three cities, CIAM proposed that the social problems faced by cities could be resolved by [1] strict functional segregation, and [2] the distribution of the population into tall apartment blocks at widely spaced intervals.

Although arrogant nonsense, it helped (grotesque thought) that the world was then distracted, first by a global depression that led to an infatuation with the ‘efficiency’ of Fascism (the Lewis Mumford vision) –

[Le Corbusier] drifted into a fascist-like philosophy and his and similar authoritarian architecture is often seen as the backdrop for fascist political thinking.

– and then by its bastard offspring a global war, leaving the intellectual field empty for Le Corbusier, who sat out the war from the comfortable perch of Switzerland:

Have we got our relative importance clear, common man?

Always remember, dear reader, the solution is its salesware:

At AHI, we invent new financial program, products, and participating Mission entrepreneurial entities (MEEs) that do not exist in the country where they’re needed.  That’s our niche, our unique value.  We observe a country’s housing finance ecosystem, describe it typologically and taxonomically, compare it with all the other countries and times and programs in our experience (of which the US is a rich source of experiences, since we’ve done more, for longer, with more variations – fifty states, baby! – than anybody else), and propose a sui generis new solution. 

We constantly face the challenge of disbelief; in fact, we face the challenge that our listeners believe what we envision is impossible.

Croquet with hedgehogs and flamingos?  Impossible!

Seeing is believing

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