Exurban disasters

The blight of almost new residential areas located outside of the immediate Tampa/St. Petersburg area, notably somewhere around Fort Myers, was detailed earlier last week in the latest New Yorker by the insightful George Packer(Ponzi State) and today a piggyback front page story in the New York Times. Packer's article details the unavoidable as these exurban communities were laid down in vast tracts, just residential areas without supporting services of any magnitude. Built in the first half of the 21st century the houses were priced for perfection. It's unclear what percent of these homes were unavoidable financial disasters at the outset due to overinflated prices, poor mortgage practices, and misplaced optimism about the future. It's likely a large number. Now with the radical negative shift in the economy and financial markets, these communities are failing.

The Times today does say that foreclosure priced sales are now being bought, clearing the market at around 25% of their initial value when built. If that's a reason for hope let's grab on to it. The individual stories in both articles make clear that hope is in short supply, and the effort to avoid despair is tough to internalize from afar.

What's more troubling about these scenarios of wrecked futures is that in situations this dire, this ubiquitous across a community, there has to be the thought of pervasive collusion or fraud at work. Maybe I've been in New York too long and my perspective is warped, but could human nature really run amok so completely, without regard to consequences. Some houses in these communities were described as flipping as many as four times in four years at ever increasing prices. That's four mortgages before the music stopped. The developers may still be on the hook, or they could well be long gone. The mortgage brokers certainly made out. The probable phantom buyers, speculators, and flippers could have cashed out before the fall or some could still be around, having shifted most of the risk to the buyers of mortgage backed securities. We don't read about the speculators and fraudsters very often, as it's the displaced families and devastated retired that get the media attention. And of course so do the beleagured banks, as this crisis has trickled down from the worst underwriters like Washington Mutual, Countrywide, and Wachovia to even conservative regional and community banks. When entire communities collapse even prime mortgages with a 25% downpayment are vulnerable, as are the banks that made them.