The critical factor in reclaiming urban areas

While doing some poking around to learn more about the disintegration of Detroit, I came across a blog post by Aaron Renn that characterizes Detroit as the new American frontier. At first that sounds exaggerated—after all, lots of American cities are decaying but in none of them do we see even the glimmer of reclamation efforts that take a post-industrial approach. But the writer shrewdly observes that Detroit has one quality that is not to be found in any other large city—namely a feeble, incompetent city government.

This piece also highlights one the absolutely crucial advantage of Detroit. It’s possible to do things there. In Detroit, the incapacity of the government is actually an advantage in many cases. There’s not much chance a strong city government could really turn the place around, but it could stop the grass roots revival in its tracks.

Can you imagine a two-story beehive in Chicago? In many cities where strong city government still functions effectively, citizens are tied down by an array of regulations and permits that are actually enforced in most cases. Much of the South Side of Chicago has Detroit like characteristics, but the techniques of renewal in Detroit won’t work because they are likely against code and would be shut down the minute someone complained. Just as one quick example, my corner ice cream stand dared to put out a few chairs for patrons to sit on while enjoying a frozen treat on a hot day. The city cited them for not having a license. So they took them away and put up a “bring your own chair” sign. The city then cited them for that too. You can’t do anything in Chicago without a Byzantine array of licenses, permits, and inspections.

In central Indianapolis, which is in desperate need of investment, where the city can’t fill the potholes in the street, etc., the minute a few yuppies buy houses in an area and fix them up, they immediately petition for a historic district, a request that has never been refused, ensuring that anyone who ever wants to do anything will be forced to run a costly and grueling gauntlet of variances, permits, hearings, etc. Only the most determined are willing to put up with that.

In most cities, municipal government can’t stop drug dealing and violence, but it can keep people with creative ideas out. Not in Detroit. In Detroit, if you want to do something, you just go do it. Maybe someone will eventually get around to shutting you down, or maybe not. It’s a sort of anarchy in a good way as well as a bad one. Perhaps that overstates the case. You can’t do anything, but it is certainly easier to make things happen there than in most places because of the hand of government weighs less heavily.

What’s more, the fact that government is so weak has provoked some amazing reactions from the people who live there. In Chicago, every day there is some protest at City Hall by a group from some area of the city demanding something. Not in Detroit. The people in Detroit know that they are on their own and if they want something done they have to do it themselves. Nobody from the city is coming to help them.

This is what I thought was Franklin Sanders’s most stunning and encouraging prediction in Heiland—that the growing inability of government to enforce its edicts would lead to large geographical areas where men were free of government interference, probably the key prerequisite to derailing the industrial juggernaut and cleaning up the mess it made.

Please take a moment to look at the original post; it includes some pictures showing how land in Detroit is opening up as the people leave.

Looking for farmland? Try Detroit.

Mark Dowie’s article is creative thinking at its best.

Were I an aspiring farmer in search of fertile land to buy and plow, I would seriously consider moving to Detroit. There is open land, fertile soil, ample water, willing labor, and a desperate demand for decent food. And there is plenty of community will behind the idea of turning the capital of American industry into an agrarian paradise. In fact, of all the cities in the world, Detroit may be best positioned to become the world’s first one hundred percent food self-sufficient city.

The picture he paints of Detroit is bleak. But Dowie deserves high praise for seeking out new ways to deal with the situation as it actually exists, rather than the usual deluded proposals for turning back the clock.

It occurs to me that, assuming that the crisis is an extended (or permanent) one and various urban areas continue to spiral downward, reclaiming the ruins in this way may be something that Christians are called to do in the years ahead, much as the early Christians made such a dramatic impact on Roman society simply by standing by urban dwellers and serving them in times of need—plagues, famine, and so on.

U.S. health care is exorbitantly priced

Ezra Klein encounters a packet of charts that bluntly illustrate a key problem with U.S. health care:

There is a simple explanation for why American health care costs so much more than health care in any other country: because we pay so much more for each unit of care. As Halvorson explained, and academics and consultancies have repeatedly confirmed, if you leave everything else the same — the volume of procedures, the days we spend in the hospital, the number of surgeries we need — but plug in the prices Canadians pay, our health-care spending falls by about 50 percent.

Here are three of the charts; you’ll find the rest in this PDF file.



Crisis in commercial real estate (CRE)

A warning from one of the Atlantic business bloggers:

The Fed is keeping a very close eye on commercial real estate (CRE). And it’s worried. CRE is a big market to watch. Greenlee notes that at the end of the second quarter, commercial real estate debt was approximately $3.5 trillion.

And here comes the bad news:

Also at the end of the second quarter, about 9 percent of CRE loans in bank portfolios were considered delinquent, almost double the level of a year earlier. Loan performance problems were the most striking for construction and development loans, especially for those that financed residential development. More than 16 percent of all construction and development loans were considered delinquent at the end of the second quarter.

It should be a really, really worrying statistic that 9% of all CRE loans are delinquent — because it isn’t that hard for most of these loans to make monthly payments. Commercial mortgages are generally structured differently from fixed-rate residential mortgages. Many require relatively low monthly payments for the term of the loan, with a larger balloon payment due upon the loans’ maturity. So if a large portion of commercial borrowers can’t even make those relatively easier monthly payments, then we’ll see some far more serious problems once those balloons come due.

And that storm is coming. Greenlee also says:

Of particular concern, almost $500 billion of CRE loans will mature during each of the next few years.

$500 billion isn’t a small number by anyone’s standards. Don’t expect these loans to be rolled over very easily either. Banks are still keeping clenching their wallets tightly, and the commercial mortgage-backed securities market remains largely closed. Speaking of CMBS, banks have a lot of it, and those delinquencies are increasing as well, says Greenlee.

I’m surprised that the havoc wreaked by the current crisis in everyday life hasn’t been far greater. But I’m not at all convinced it’s because the crisis was less severe that I first thought. We will only know in hindsight, and maybe not even then, how much systemic trouble has been papered over by government spending, cost cutting, clever accounting, and delaying the inevitable.

Danny Barnes vs. New York City

Danny Barnes is always worth reading, particularly if you are trying to find an honorable path through the music business. He has his own approach to music and has managed to make a living pursuing it without having to compromise much. And he often writes down his thoughts about the whole thing, which run pretty deep.

And sometimes the thoughts are just funny. Occasionally he will write what he calls a “gig box score,” a detailed rundown of a particular gig or short tour, from leaving home to returning home. Nothing I’ve read has taught me more about what it is like to be a performing musician. The rundowns are broken down into categories—culinary highlight/lowlight, unexpected backstage perk, total mileage, luggage contents—with some being standard and some impromptu.

Recently he wrote about a June 2008 gig in New York City, a place he likes very much but not unreservedly. My favorite entry:

notable odor:

it was a warm night, with a slight rain shower right before i split the venue, new york smells like the bottom of a dumpster at that moment. that’s what i mean, it’s such an odd contrast, on the walk back to the subway stop, there’s all these very well dressed folk coming out of limos and stuff going into a fancy club with a velvet rope and door man in a tux and at that same moment there’s a prevailing odor akin to the floor of a dumpster behind a seafood restaurant permeating the atmosphere. not like a hint, or a slight degree. but like you are inside the dumpster with your face on the floor and the doors are all shut. and someone is peeing into the dumpster. kind of like that. the smell-o-meter pegged out to 11. none of the beautiful people notice. the guy walking by with the banjo is on the lookout for a rotting corpse under a tree or something. or is thinking someone snuck an old catfish head into my bag.

Walking away from a mortgage

From the beginning of the mortgage crisis Mish Shedlock has been writing clear-eyed posts on the matter of walking away from a mortgage. He has repeatedly emphasized that the ethical issues involved in walking away do not extend beyond the terms of the contract—and all such contracts recognize the possibility of default and spell out the procedures for dealing with it. Meaning that default is not an ethical lapse, no matter how much the lender might try to persuade you otherwise.

Yesterday Mish added two more posts on the topic. The first discusses how shame and fear have been explicitly adopted by the government and by lenders as tools to manage the crisis:

Government, lenders, and various lender-sponsored "help" agencies have acted in unison, using fear mongering tactics and shame to manage the housing crisis for the sole benefit of lenders.

Thanks to Brent T. White at the James E. Rogers College of Law and the Sacramento Bee and for a fascinating called Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.

Note: The PDF is 54 pages long and worth reading in entirety but I have condensed the discussion down to a very readable 3-4 pages of so.

Mish’s summary of the report is long and detailed, but worth reading.

In response to this post, Mish received an email from a mortgage consultant that not only confirms the truth of the above-mentioned report, but it explains how reality contrasts with most people’s baseless fears.

I wanted to let you know that I deeply appreciate your post on strategic defaults. I get people calling me all of the time looking to refinance and when I find out how underwater they are I tell them it might be wise to walk away from the property.

I also tell them the consequences of walking away. Like the article said, a foreclosure will stay on your credit report for 10 years. However, if you walk away it will only be 3 years before you can buy a home again. (It used to be 2 years but Fannie, Freddie, and the FHA made it longer to discourage people from walking away.)

I tell them if they choose to walk away they need to make sure they have a decent car, and at least one credit card. The reason for the car is that it may be hard to get a decent rate on a car loan for a while if they have a recent foreclosure, and the credit card is needed to help you re-establish your credit after the foreclosure. One of the biggest mistakes people make after a bankruptcy or foreclosure is not re-establishing their credit.

I do believe that in the future the guidelines will be changed to allow people who have re-established their credit to purchase a home 2 years after a foreclosure. This because there will be thousands such potential borrowers and it would be stupid to prevent them from re-entering the market.

The other night I meet some friends for dinner. When a got there a lady I used to work with came up to me and told me her situation. In 2007 she bought a condo in Arlington, Va. for $300,000 and its value had dropped to $200,000. She still owed $295,000 on it. She told me she could afford the payment, but was considering walking away. I asked her what was her mortgage payment and condo fees were. It came to $2,300/month. Then I asked how much would it cost to rent a similar apartment. Her answer was $1,200-1,300.

I said the answer was easy, walk away. In fact, I told her I would stop paying the mortgage and see how long it took them to foreclose. She might be able to live there 6 months or more rent free.

Her fiancé was there and he didn’t agree with my answer. He said that her credit would be ruined for ten years and that the value would come back. I responded that a foreclosure would stay on a credit report for 10 years, but if you work hard at re-establishing your credit, the score can come back in a year or two.

I have seen people plenty of people with credit scores over 700 within one year of a bankruptcy or foreclosure. As far as the value coming back, I told him that it would take 10 years or more before that value comes back.

More people need to know that foreclosure is not the end of the world and that their credit can come back in a couple of years or sooner, especially if they take the right steps prior to the foreclosure.

The mortgage crisis does raise many ethical issues, but I think they involve our ability and willingness to enter into such contracts in the first place, not in how they are executed.