Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Friday, July 19, 2019

Private capital is amoral and can generate negative outcomes as frequently as positive outcomes

Just a brief point.

Besides the problems of financialization of the economy, rentier behavior, and the agenda of capital, neoliberalism, etc. is the problem of lots of money out there, seeking some kind of positive marginal return, preferably extranormally positive returns.

I saw this title of a book review in the Guardian, "Evicted by Matthew Desmond review – what if the problem of poverty is that it’s profitable to other people?," and it reminded me of this issue.

One of the problems with so much capital sloshing around in private equity is that it will fund anything.

For example, one of the reasons that Robert Mugabe stayed in power so long in Zimbabwe was because even as traditional sources of funding to governments dried up, vulture capital was willing to step in ("The investor who saved Mugabe," Mail & Guardian).

Similarly, how private equity buys up bonds issued by bankrupt government agencies in Puerto Rico, making it harder to come up with socially optimal outcomes ("'Bottom-feeding' hedge funds are big winners on Puerto Rico bonds," Financial Times).
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Or Warren Buffett, who benefits from vulture financial loan products sold to people who buy mobile homes ("Buffett's mobile-home empire makes record profits while foreclosing on homes," Seattle Times). Even though he's pledging to give away most of his wealth on philanthropic purposes.

Etc.

As long as money is to be made, some firm is out there willing to put out the money to make it, whether its for good or ill.

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9 Comments:

At 9:29 AM, Anonymous charlie said...

Well this is why I agree with AOC that monetary policy is the heart of today's policy.

Zero cost to borrow money means entity that can borrow money can do enormous re-distribution of wealth.

(doubly so since it isn't cost free -- just passed on to the future)

Now the AOCs of the world want to take that zero cost money and use it to fund their projects. I'd say the major problem is why is money at zero cost - 10 years after the bust.

(and that goes to the value of the dollar and the international trading system etc, much larger argument).


We were talking about policy. Schumpeter believed in the power of recessions -- eventually you have to burn everything down. there isn't an analogy in policy (usually) were we say, for instance, the US senate is useless and should be sidelines, or that we need to make the President a ceremonial figure and have the speaker of the house run things.

(or admitting that the federal gas tax served it purpose and needs to be abolished -- let the status pay for their highways maintenance).


What we have with zero-cost money is the same problem is financial terms -- Uber, Netflix, Tesla --or what we should call the zombie economy. Firms that only stay in business because they can borrow money.

(and yes that is much of the PE business)



 
At 12:43 PM, Blogger Mari said...

So it would be a good thing if nobody lent PR another red cent? So when a natural disaster hits the territory should depend on charity and whatever the Federal government feels like giving? Will the source of funding insure the officials on the ground won't siphon some funds for themselves.

As you know in DC there is money to be made off the poor by "providing" services paid by the city via a contract. Even at the federal level you have those who take EBT, landlords who specialize in Section 8, and doctors who have figured out how to pay the Medicare game. And the quality of these government paid services to the poor vary.

 
At 4:09 PM, Anonymous Richard Layman said...

lending money to PR is different from buying up already issued bonds that were marked down in value because of bankruptcy.

But complicated sure.

2. wrt your other points, it reminds me of the reality that while Ross Perot touted how independent and business oriented he was, the reality was that Electronic Data Systems made tons of money doing big IT for state governments, to support the kinds of programs you mention (HHS etc.)

which leads into my realization from my sojourn on grand jury duty in 2013 -- we spend billions of dollars a year on the city budget for EotR -- policy, EMS, fire, schools, human services, health care, judiciary, etc. -- just to keep things in stasis. Not to improve things, just to keep them in stasis.

 
At 4:14 PM, Anonymous Richard Layman said...

so just on one thing. For years you've said at least two things I disagree with. Devolve road tax responsibilities to the states (relatedly, the feds shouldn't really be funding local transit projects). That Metrorail and Metrobus should be separated.

I was meaning to tell you wrt the latter, that I don't necessarily disagree anymore. If the overarching agency isn't equally committed to all the modes, then they should be split off, with a German VV model I guess, to ensure integration and coordination.

When Fiat got control of Chrysler, the leader (SM) realized that by having the Dodge division run both trucks and cars, often truck matters were given second best in the way of priority and resources. So he split it off into the RAM division and it does well.

Similarly, some counties or cities keep transit in with DPW and they do a great job. Some separate it and either do a great job or they don't. Ultimately it being separate from DPW doesn't guarantee excellence. Not a counter example, just that you have to do the right thing for the mode, however it is, but a particular one size fit all approach may not be right.

... but I still think there should be a federal gas tax.

 
At 4:16 PM, Anonymous Richard Layman said...

and yes, big macroeconomic stuff is beyond my pea brain capacity.

Is the reason that we have interest rates at the zero bound is because of massive Marxian overcapacity within the economy, along with extranormal control and capture of capital by certain narrow segments of capital, corporate dominance, etc.?

 
At 4:17 PM, Anonymous Richard Layman said...

in #3 -- policy = police

 
At 10:35 AM, Anonymous charlie said...

@Mari; yes in economics I'm re-hashing the economic argument, which is more about zombie firms that statelets like PR, I'lll just say about PR there is some good literature on attaching yourself to a currency zone when you're not good fit and permanent poverty. Southern Italy starting in 1861 is a good case study. So is PR. no need for them to use the USD.

In terms of pea-brains and macro, I'm up there, I'm not saying WHY (I have my very rough amateur theory). Big brians say the savings glut or that we are so rich that we can't expect any more growth until the robots take over (Secular stagnation). My own crazy-ass theory is we've lost control of the dollar and we are back in a pre-central bank time.


But the larger point is monetary policy is fare game for policies and has been since Hamilton, Jackson and Teddy. Fun read:


https://www.npr.org/templates/story/story.php?storyId=129127924

Just showing this debate is not new. Neither is urban politics.

Again big-brain stuff, but some people at BIS think that the business cycle is very seperating from the financial cycle which is where we are right now.

The business cycle is 75% housing in the US, and the move towards lower ownership is making the tools that worked from 1945-2006 less effective:

http://jwmason.org/slackwire/the-return-of-the-renter/

(again, given prices of SFH for sale, which doesn't the market produce more for sale? They are over-producing rental housing but not what the market wants)

Very low levels of global money in DC is compassion to SF, NYC, LA, Toronto, Miami. But still..

https://www.icis.com/chemicals-and-the-economy/2019/07/london-house-prices-edge-closer-to-a-tumble/


Again, if you go back to the debt book (Reinhoff) a few years ago basically Canada never had a banking crisis - because of the rules in place to prevent speculative booms. Will that collapse now? Vancouver is almost there. On the other hand, it was 65 out in the northwest and Toronto wasn't that pleasant.

https://buffalonews.com/2019/07/19/toronto-keeps-growing-whats-that-mean-for-buffalo/



https://buffalonews.com/2019/07/19/toronto-keeps-growing-whats-that-mean-for-buffalo/

 
At 10:36 AM, Anonymous charlie said...

and not to link-bomb you:


https://thereformedbroker.com/2019/07/21/elizabeth-warrens-banking-sector-napalm/


https://logicmag.io/scale/the-new-octopus/

 
At 7:31 AM, Blogger Richard Layman said...

https://www.theguardian.com/news/2017/aug/18/neoliberalism-the-idea-that-changed-the-world

 

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