New Geography

Author: Peter Smirniotopoulos

  • Whatever Happened to ‘The Vision Thing’? Part II

    More than two years ago (March 2009, to be precise), New Geography published an article I wrote, entitled Whatever Happened to ‘The Vision Thing’?. It began:

    When I was in elementary school, I remember reading about the remarkable transformations that the future would bring: Flying cars, manned colonies on the moon, humanoid robotic servants. Almost half a century later, none of these promises of the future – and many, many more – have come to pass. Yet, in many respects, these visions from the future served their purpose in allowing us to imagine a world far more wondrous than the one we were in at the time, to aspire to something greater.

    I am reminded of these early childhood memories not because I lament the loss of my flying car (although it would come in handy every now-and-again in fighting the Washington, D.C. rush hour gridlock) but because, with all of the rhetoric about change and hope, the Obama Administration has failed to articulate a strong, singular vision for what the future of America and the world can and should be. While some would argue that now is not the time for grand visions for the future but, rather, for hunkering down and muddling through these desperate economic travails, the fact of the matter is that at least part of the cause of continuing economic decline in this country, and in many other developed nations as well, is a lack of confidence in the future.

    I am now deeply troubled, as I always am when I have had such an epiphany, to report that clearly no one listened to me. As of August 2011, fourteen months away from what promises to be perhaps the most polarizing Presidential election in our Nation’s history, we are farther away than we have ever been from having a shared national vision for the future of our country.

    The current crises impacting the United States — record-high, persistent unemployment; a potentially ruinous national debt as a percentage of our Gross Domestic Product; extreme volatility in the equity markets; a growing gulf between the “haves” and the “have-nots”; etc.; etc; etc.— are as much reflective of a crisis of confidence as they are of structural problems with our economy. And the increasingly toxic discourse between opposing factions within Congress, fueled by pundits and talking heads on cable news programs, talk radio, and the blogosphere, is in part a reflection of the axiom that nature abhors a vacuum. However, everyone is talking about treating the symptomology rather than making the patient better. No one wants to acknowledge the elephant in the room: That we are wandering aimlessly through an increasingly competitive world economy.

    So, what do we want to be when we grow up, America? We are, hopefully, coming out of the downside of an unsustainable economic model, premised on unrelenting, annual growth in the value of all asset classes, which fueled unfettered consumer behavior (“consumer confidence on steroids,” one could argue), and the misguided belief that we are and will always be the greatest nation on earth no matter what. Consequently, we need to decide what kind of America we envision for our future.

    We used to be builders of things, and did that better than any other industrialized democracy. Now we have to compete with the manufacturing juggernaut that is China, unfettered by our democratic and human rights principles and the inherent limitations of a free, capitalistic society. We want to maintain what is still (at least arguably) the highest standard of living in the world, but we don’t want to pay for it through the price of goods produced on our own shores. We are clinging for dear life to the outdated notion that we can enjoy inexpensive goods made by people who live on one-tenth or less what the average American earns, and still continue to have job and income growth. So we need to make the transition from being the largest consumer of goods in the world to once again being a country that does things; big things. The question is: What things? I guess if I could answer that question, I’d appear in an incredibly unflattering picture on the cover of Time magazine right now. But I can at least pose it.

    The political arguments that were brought into sharp focus in the debates over the federal budget and raising the debt ceiling might have perhaps brought more light than heat to bear on our economic problems had they been conducted within the framework of how our future as a nation should be shaped. The appropriate size of the federal government, for example, can only be reasonably determined once we’ve agreed as a nation about what role we want government to play in shaping our future.

    Runaway capitalism — which conferred benefits very selectively, albeit very handsomely, on a small percentage of our population—has proven to be both a very destructive force (e.g. the mortgage meltdown; the Deepwater Horizon environmental disaster; etc.), as well as one that requires governmental intervention when it goes awry (e.g. the TARP program; the Federal Reserve Bank’s interventions in the marketplace; various federal foreclosure prevention programs; the takeover of Fannie Mae and Freddie Mac; etc.; etc.; etc. ad nauseum). Absent such a framework for the future, the national debate has been the victim of an increasingly acute form of intellectual paralysis: The short-term mindsets of our elected officials and the voters — tied to the two-year election cycle — force debate on inherently inadequate, short-term solutions to substantial, long-term problems. Because we have no shared vision of the country’s future, against which short-term solutions might be measured, there are no metrics for productive discourse. Hence, our so-called “leaders” argue in reliance on their “principles,” rather than with a broader view toward implementing the future we want to see.

    Things will only continue to grow worse, and much more polarized (although that’s truly frightening to imagine), unless and until we agree, as a nation, that there are some fundamental issues about our future that need to be addressed… and resolved. Creating jobs in a vacuum is a fool’s errand; so is cutting spending on existing programs when we should be deciding what kind of programs we want and need. The appropriate size of the federal government, how much money needs to be raised in terms of revenue (and from whom), and how those revenues should be efficiently spent, can only be determined with certitude in the context of where we want to go — and how we want to grow — from here.

    I no longer harbor any quixotic notions, as I did two-and-a-half years ago, about the President stepping forward to articulate a bold vision for America’s future: But somebody sure needs to … and soon.

    Photo by Severin St. Martin(Sev!): “Kes has a Vision”; North Shore, Lake Superior

    Peter Smirniotopoulos is a national expert in urban redevelopment, housing policy, and project and public finance. He is the founder and principal of petersgroup consulting, a real estate development and finance consulting practice based in the Washington, D.C. area, which serves the public, private, and non-profit sectors throughout the U.S. He is a former Faculty Member in the Masters of Science in Real Estate program at Johns Hopkins University.

  • Fixing the Mortgage Mess: Why Treasury’s Efforts at both Ends of the Spectrum Are Failing

    To get a better idea why the Obama Administration’s efforts to stem the home foreclosure crisis have failed at both ends of the problem, you need only go back to that great scene in Frank Capra’s classic, “It’s A Wonderful Life,” where protagonist George Bailey (Jimmy Stewart) is on his way out of Bedford Falls with his new bride and high school crush, the former Meg Hatch (Donna Reed). The newlyweds are heading toward the train station to leave on their honeymoon when Meg notices a commotion outside the Bailey Bros. Building & Loan Association, founded by George’s revered but now deceased father, Henry, and Henry’s bumbling brother, Billie.

    The “commotion” is actually a run on the bank. George – bless his heart, and with the full encouragement of the new Mrs. Bailey – hops out of Ernie’s cab to see if he can quell the growing crowd assembling outside the locked doors of the Building & Loan. With his usual calm George assesses the situation, asks Uncle Billie to unlock the doors to let the gathering mob into the Building & Loan, and then proceeds to talk (most of) them out of closing their accounts and being refunded the value of their shares.

    George patiently explains to his anxious Association members that he can’t give each of them 100% of the value of their Bailey Brothers Building & Loan Association shares because the funds from those shares have already been loaned out to worthy borrowers so they can afford to build or buy houses in the community. States George from behind the teller counter:

    “…you’re thinking of this place all wrong. As if I had the money back in a safe. The, the moneys not here. Well, your money’s in Joe’s house…that’s right next to yours. And in the Kennedy’s House, and Mrs. Macklin’s house, and a hundred others. Why, you’re lending them the money to build, and then, they’re going to pay you back as best they can. Now what are you going do? Foreclose on them?”

    Just as George appears to be making progress, however, a now former Association member comes running into the Building & Loan pronouncing that Old Man Potter (Lionel Barrymore), who owns the bank and every other business in Bedford Falls, is offering to buy Bailey Brothers Building & Loan shares at 50 cents on the dollar (in an obvious effort to take advantage of the situation by running George Bailey out of business). Saving the day, and confirming that George has indeed made a life-changing decision in his choice of mates, the new Mrs. Bailey, with $2,000 in cash in her purse for their honeymoon, offers the money to the anxious Association members filling the building lobby. George then adroitly parses out their honeymoon money in the smallest increments he can persuade folks to accept under the circumstances.

    The scene tells us much about what went wrong with the residential real estate market nationwide. It is more than merely nostalgic to long for such elegant simplicity in the manner in which deposited funds were invested in things such as home mortgages. However, the only thing quainter than that scene in “It’s a Wonderful Life” is the idea of a bank or other financial institution originating, owning, and servicing the same mortgage. And therein lies the rub for efforts by the Treasury Department to help right the residential mortgage ship of state through the Making Home Affordable mortgage modification program and the Legacy Asset Recovery program.

    The root the problem lies with the complete disconnect between those who actually own the notes secured by the vast majority of residential mortgages in this country and those who “service ” those mortgages. Right now there is little if any incentive for those servicers to participate in the Treasury Department’s mortgage modification initiative (the Making Home Affordable mortgage modification program or “MHAP”), originally projected to foster the modification of 2.5 million mortgages but having resulted in only a fraction of that number in modified mortgages. This is at least in part because the fee structure under the existing servicing agreements does not adequately compensate the servicer for the amount of effort required to accomplish a mortgage modification. Further, there’s no clearly and easily identifiable “owner” of the notes that are secured by the underlying mortgages putting pressure on the servicers to modify these mortgage

    The national mega-banks that have received the lion’s share of Treasury’s multi-trillion bail-out of the banking industry have been, by far, the worst offenders in not embracing and implementing this program. And the problem can’t easily be fixed because it is structural in nature, the by-product of a system ironically intended to keep credit flowing into the residential sales market. For example, in Treasury’s recently released Servicer Performance Report through September 2009, Bank of America had modified under the MHAP only 11% of its approximately 876,000 home mortgages delinquent by 60 days or more (thereby making them eligible for modification under MHAP).

    The structural problems prevail at the investor-end of this morass as well. After much Congressional rhetoric and even more Wall Street teeth-gnashing over mark-to-market legislation late in 2008 that would have forced the holders of mortgage-backed securities (“MBS”) to mark down the value of their mortgage loan portfolios based on reductions in the underlying collateral value, Congress declined to take such action. The Legacy Asset Recovery program (so-called by Treasury because, quite honestly, who wants to invest in “toxic” assets), the investment component of Treasury’s Public-Private Investment Program or “PPIP,” pairs private capital with Treasury capital and then makes up the difference with federal low-cost debt. This program is intended to mitigate potential risks and rewards for these new equity participants by halving the amount of private equity that must be raised (since half of the total equity is provided by the government) and providing all of the required debt. As with any program whose purpose is to encourage private investments in bad debts – recalling the RTC program from the early 90s – potential profit is directly correlated to discounting the Legacy Asset purchasing entity can achieve in negotiations with the MBS holders.

    Regrettably, the assumptions underpinning the theory quickly prove not to be reasonable. At its core, the problem is that, in order for this initiative to work, the MBS holders need to do that one thing they’ve absolutely refused to do thus far: Take any losses.

    MBS holders are betting on their ability to hold onto their mortgage pools for as long as it takes for the excess housing inventory in the marketplace to get absorbed. They are also waiting for the end of the recession (perhaps around the corner but perhaps not) to turn into a full-fledged economic recovery, so that underlying real estate values start to catch up to portfolio values.

    Will this strategy work? Likely not if there’s a slow, largely jobless recovery that doesn’t support the housing market. As of now, the most recent projections for economic recovery in the real estate sector are looking to 2013. In the meantime, Treasury’s programs at both ends of the mortgage crisis will have done very little to stem foreclosures or stabilize capital flows to the housing market.

    Compounding the structural infirmities of these two “recovery” programs is that job growth is most likely to come first in states that have relatively few problems (Washington, D.C.-Metro Area; Great Plains; Texas) and will be far slower in many of the most troubled states, notably California, Michigan and Ohio, and parts of the Northeast. Hindsight being 20/20, rather than focusing so much attention and so many resources on helping the financial industry, which has been by far the largest recipient of Washington’s largess, the focus should have been on job preservation and job creation. The links, after all, between mortgage performance, housing values, and employment are undeniable.

    Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

  • One Step for Short-term Economic Stimulus, and One Giant Leap (backward) for U.S. Energy Sustainability

    The “cash for clunkers” (or CARS) program that was widely predicted to be extended by the Congress has been, if nothing else, a clear public relations win for the Obama Administration. It may also be, at least for the short-term, a shot in the arm for the beleaguered American auto industry (including domestic dealerships of foreign car companies, like Honda and Toyota). But the program’s extension may also be bad news for anyone who was hoping that candidate Obama’s campaign promises to fix our domestic energy policy would translate into something resembling a robust make-over.

    Don’t get me wrong; I am a huge fan of President Obama. And I am generally very supportive about what the Administration is trying to do. The President’s agenda is nothing if not ambitious, or may be better described as audacious. In no particular order, President Obama is seeking to fix the environment, reform the healthcare system, overhaul banking and financial services regulations, reverse a downwardly spiraling national and global economy, repair race relations in America, and get drivers to cease texting and talking on their cell phones while driving.

    And yet, one of President Obama’s greatest strengths may also be his greatest weakness: The willingness and ability to compromise, as it is the fundamental nature of compromise that the outcome will inevitably be less than ideal. This consequence of compromise can be seen clearly in the President’s efforts to secure Congressional approval of an additional $2 billion in funding for the CARS program.

    The initial concept behind CARS was elegant in its simplicity: give owners of “gas-guzzlers” (i.e. automobiles with highly inefficient internal combustion engines) a monetary incentive to trade their fuel inefficient vehicles for highly fuel-efficient replacements. The auto industry – albeit more centered in Tokyo than Detroit on this point – clearly is producing numerous passenger vehicles capable of achieving a combined city/highway rating of 30 miles-per-gallon (mpg) or more. Yet there remain a number of registered motor vehicles in the U.S. with substantially less than 18 mpg ratings under the program (any vehicle with a mpg rating above that is not worthy of the “clunker” moniker).

    If this was the Administration’s original goal for the CARS program, the $1 billion authorization could have had a considerable impact on fuel consumption. Assuming the maximum rebate of $4,500 on every trade-in, almost a quarter of a million (222,222 to be exact) fuel-inefficient vehicles would have been voluntarily taken off America’s roads. Great idea! Triple that program funding amount to $3 billion, coupled with the same lofty goal, and two-thirds of a million fuel inefficient cars would have been swapped out for highly fuel efficient cars. If the average driver puts 12,000 miles per year on a car, and the average improvement in fuel efficiency is 12 mpg (i.e. from 18 mpg to 30 mpg) the program would save 1,000 gallons of gas per car, per year, or 666,666,000 gallons of gas annually.

    If only this purpose – to incentivize drivers to purchase only the most fuel efficient vehicles – had remained the thrust of the CARS program. However, it seems that the elegant simplicity behind the CARS concept became intertwined in the “since the government now owns GM and Chrysler don’t you think we should do something to spur domestic car sales” debate. All of a sudden, light trucks (the product type on which the Big Three hung their hats and, subsequently, on which they were hung by their collective petard) became eligible provided they are more fuel-efficient than the millions of light trucks already registered and on domestic highways. So, instead of a rising fleet of truly efficient cars we now see sales of new SUVs of all sizes and dimensions, and not just the recently introduced hybrid versions, being allowed a “cash-for-clunkers” rebate. All that is necessary is for the trade-in vehicle to qualify under CARS and the newly purchased SUV achieve a paltry 18 combined mpg.

    In other words, the concept behind the initial legislation appears to have quickly devolved from “let’s incentivize the best consumer behavior possible when it comes to fuel efficiency” to “let’s get people to buy passenger cars, SUVs, and light trucks.” The Hummer H3, for example, with an MSRP of less than $45,000 (the maximum MSRP allowed under CARS), and a combined city/highway mpg of 18, could qualify for the rebate program (hoping the irony is not lost on anyone that a vehicle, the Humvee, that was the exclusive product of a publicly owned entity, the Defense Department, ended up being the product of another publicly owned entity, GM).

    There’s no doubt that CARS was wildly successful in its public debut, so much so that the $1 billion in federal rebate funds were projected to run out within the first 30 days of the program’s roll-out. Car dealerships and automakers were as ecstatic in their praise for the program as they were vociferous in their clamor to seek the additional $2 billion in Congressional funding. However, the pace at which the CARS rebates were utilized strongly suggests that the cash-for-clunkers program would have been equally successful even if Congress had stuck to the original premise of the program: To get car owners to trade in the worst mpg offenders for the exemplars of fuel efficiency. Instead, Congress and the Administration have botched the chance to make a real, lasting difference, while spending $3 billion in the process.

    So here are the “outcomes” of CARS thus far: According to cars.com, the top ten fuel-efficient cars sold in the U.S. range from the Honda Fit (32 combined mpg) to the Toyota Prius (46 combined mpg). However, based on statistics tracked by jalopnik.com, of the top ten new vehicles purchased using CARS rebates only two, the Toyota Prius (#1 in fuel efficiency and #4 in most-purchased) and the Honda Fit (#10 in fuel efficiency and #9 in most-purchased), are on both lists (see the table below). In fact the list of the most-purchased vehicles using CARS rebates appears to be comprised of more lower-priced cars (e.g. the Chevy Cobalt and Hyundai Elantra) and cars that were already very high-volume sellers before the economic downturn (e.g. Toyota Camry and Corolla).

    Ten Most-Purchased Vehicles Using CARS Rebate*

    Ten Most Fuel-Efficient Vehicles Sold in the U.S.**

    1

    Toyota Corolla

    1

    Toyota Prius 48/45/46 mpg

    2

    Ford Focus FWD

    2

    Honda Civic Hybrid 40/45/42 mpg

    3

    Honda Civic

    3

    Smart Fortwo 33/42/36 mpg

    4

    Toyota Prius

    4

    Nissan Altima Hybrid 35/33/34 mpg

    5

    Toyota Camry

    5

    Toyota Camry Hybrid 33/34/34 mpg

    6

    Hyundai Elantra

    6

    Volkswagen Jetta TDI 30/41/34 mpg

    7

    Ford Escape FWD

    7

    Ford Escape Hybrid*** 34/31/32 mpg         

    8

    Dodge Caliber

    8

    Toyota Yaris 29/36/32 mpg

    9

    Honda Fit

    9

    MINI Cooper/Clubman 28/37/32 mpg

    10

    Chevrolet Cobalt

    10

    Honda Fit 28/35/31 mpg

    *as posted on jalopnik.com Aug. 7th

    **as posted on cars.com Aug. 7th, city/hwy/combined mpg                             

    *** also includes Mercury Mariner/Mazda Tribute Hybrid

    Inasmuch as Congress has already approved the additional $2 billion for the CARS program – without improving the fuel efficiency goals the program incentivizes – then why don’t we at least be honest about it and just add the $3 billion CARS price tag to the federal auto industry bailout. Sadly, as it stacks up now, claiming that this program is all about fuel efficiency or domestic energy policy is a sham.

    Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

  • Whatever Happened to “The Vision Thing?”

    When I was in elementary school, I remember reading about the remarkable transformations that the future would bring: Flying cars, manned colonies on the moon, humanoid robotic servants. Almost half a century later, none of these promises of the future – and many, many more – have come to pass. Yet, in many respects, these visions from the future served their purpose in allowing us to imagine a world far more wondrous than the one we were in at the time, to aspire to something greater.

    I am reminded of these early childhood memories not because I lament the loss of my flying car (although it would come in handy every now-and-again in fighting the Washington, D.C. rush hour gridlock) but because, with all of the rhetoric about change and hope, the Obama Administration has failed to articulate a strong, singular vision for what the future of America and the world can and should be. While some would argue that now is not the time for grand visions for the future but, rather, for hunkering down and muddling through these desperate economic travails, the fact of the matter is that at least part of the cause of continuing economic decline in this country, and in many other developed nations as well, is a lack of confidence in the future.

    I was somewhat hopeful during his address to the joint session of Congress in early February – shortly after the passage of the economic stimulus bill – that President Obama was indeed starting down the path of articulating a new vision for America. He recalled in that speech great innovations that had been spurred by prior economic and other exigencies. In that speech he stated:

    “The weight of this crisis will not determine the destiny of this nation. The answers to our problems don’t lie beyond our reach. They exist in our laboratories and universities; in our fields and our factories; in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth. Those qualities that have made America the greatest force of progress and prosperity in human history we still possess in ample measure. What is required now is for this country to pull together, confront boldly the challenges we face, and take responsibility for our future once more.”

    And again, later in his address:

    “History reminds us that at every moment of economic upheaval and transformation, this nation has responded with bold action and big ideas. In the midst of civil war, we laid railroad tracks from one coast to another that spurred commerce and industry. From the turmoil of the Industrial Revolution came a system of public high schools that prepared our citizens for a new age. In the wake of war and depression, the GI Bill sent a generation to college and created the largest middle-class in history. And a twilight struggle for freedom led to a nation of highways, an American on the moon, and an explosion of technology that still shapes our world.”

    Bold action and big ideas: Yet the focus of all of the Administration’s efforts have been on specific “solutions” to the problem set with which our economy is now faced. Some are well-intentioned but arguably poorly executed by Congress while are others rolled out for public consumption with less than full baking time—without any suggestion about what our “brighter future” might look like and how these various solutions might be woven together to help realize a brighter and different future.

    We may indeed be on the cusp of something big: It may be tragic or triumphant depending upon how and how quickly we find our way out of the country’s current predicament.

    After Hurricane Katrina ravaged New Orleans and the Gulf Coast, some urban planners, architects, emergency management experts, and others were bold enough to suggest that maybe the Ninth Ward shouldn’t be rebuilt; perhaps nature never intended us to put so many homes and so many people below sea level, in harm’s way. Regrettably, that conversation was preempted as soon as it was started by the hundreds of displaced residents who, having been treated with what appeared to be utter disregard by their local, state, and federal government in the face of that tragedy as it unfolded, insisted that at least they deserved to be returned to their homes. Politics and pragmatics trumped bold and broad thinking that could have conjured a different outcome.

    There is so is so little new and dynamic mainstream discourse about where and how we live as individuals and in communities. There is no modern proxy for flying cars and colonies on the moon. And funding billions of dollars in support of “shovel-ready projects” will certainly do nothing to advance the cause of innovative thought about how we would like to see our current communities – urban, suburban, and exurban, and rural – evolve over the next twenty-five or fifty years. What could life be like in America in 2034 or 2059? We should not have to rely upon science fiction writers, futurists, and block-buster sci-fi movie producers to craft all of our visions of the future.

    So here’s an idea for our new President. Now that everyone is relatively comfortable with the notion of spending billions (and even trillions) of dollars, let’s spend a very small portion of that on our future, rather than focusing exclusively on our near-term economic salvation. Make $10 billion available to fund five pilot projects with $2 billion each. Think of is as the “X Prize” for Innovations in Livability. Invite communities throughout the country, without restriction as to size or location, without constraints on the marketplace of ideas, to bring together their best and brightest to craft implementable proposals for how they plan to evolve their community into an exemplar for the future: Then fund the five best proposals. Take the funding decisions out of the hands of elected officials and policy makers, and place it unfettered in the hands of a blue-ribbon panel of experts from a broad range of disciplines.

    Let all Americans and the world marvel at what will replace the flying cars of the 60s.

    Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

  • Musings on Urban Form: Is Brooklyn the Ultimate City?

    It’s clear we need a new lexicon for emerging urban forms that are neither urban nor suburban in character. Yet when you raise that issue, you elicit some strongly held views — most of them negative — about whether anything other than a “real city” with its bad sections, panhandlers, and industrial areas can qualify as urban.

    I feel it is increasingly difficult to make such distinctions. This is particularly true as we observe the rapidly changing character of inner-ring suburbs in particular, as well as the innumerable “new towns” that have sprouted up in what would otherwise clearly be suburban or even exurban locales.

    One commenter suggested, thusly, that places like my home town, the City of Falls Church, Virginia, lacks the “authenticity” to be a real city:

    Planned and tightly controlled cities are not “real”.

    Real cities have panhandlers.
    Real cities have plenty of Class-D space.
    Real cities have ethnically diverse populations.

    Call me in 30 years and by then the City of Falls Church may be a real city

    Ironically, based on the foregoing litmus test, Falls Church is two-thirds of the way toward being a “real” city. It has both panhandlers and at least some “Class-D” space; however, it admittedly lacks an ethnically diverse population. As to the assertion that “real” cities are neither “planned” nor “tightly controlled,” with the exception of perhaps Houston, Texas, I cannot identify a single city in America that was not planned, and the extent to which growth is “tightly controlled” in these real cities is certainly subject to debate.

    So what makes a real city? On a recent visit to Brooklyn, once largely considered a suburban appendage to New York, I found what is perhaps the standard-bearer of what it means to be a “real” city. And, if anything, Manhattan is arguably becoming an “appendage” to Brooklyn.

    I suspect that the average person knows that the City of New York – comprised of five boroughs including Manhattan and Brooklyn – is the most populous city in the United States (although there are some who mistakenly believe it is the City and County of Los Angeles, confusing Los Angeles County’s population with that of the city by the same name). In fact, if Brooklyn were an independent jurisdiction – which it was until 1898 when it was consolidated with New York City – it would be the country’s fourth largest after New York, L.A. and Chicago, with a residential population exceeding 2.5 million. Interestingly, that number represents an increase of over 275,000 people since 1980 (277,884 to be exact, which is more than the entire population of St. Paul, MN), although it represents an overall decrease in population since Brooklyn reached it residential apex in 1950 at over 2.7 million.

    Moreover, based on population density, with over 35,600 residents per square mile (2,528,050 residents as of 2006, in a 71 square mile area), Brooklyn would be the densest city in America.

    By contrast, the population density of the rest of New York City (which includes somewhat less dense Queens and positively suburban Staten Island), San Francisco (at over 16,000 residents/sq. mi.), Chicago, Boston, Philadelphia, and Washington, D.C. – in that order – are all denser than L.A., which has a population density of less than 8,000 residents/sq. mi. or approximately 22% of the density of Brooklyn. Consider Brooklyn’s Brown-Wood Cemetery: If its “residents” were alive today, it would be the 24th largest city in the U.S., just ahead of Seattle but slightly behind Milwaukee.

    But neither total population nor population density makes the case for my suggestion that Brooklyn is America’s quintessential city, ahead of even Manhattan. First, Brooklyn reflects a much more holistic melding of complimentary land uses, with residential, commercial, institutional, recreational, and retail and entertainment in close proximity of each other in many of its neighborhoods.

    Manhattan, on the other hand, is much more Balkanized, with its various land uses much more clustered together, to the point of edging out other, potentially complimentary uses. That is not to say that there are no residential neighborhoods in Manhattan per se: However, Manhattan, like many of San Francisco’s nicer neighborhoods, is a great place to live only if money is not an obstacle. Finally, Manhattan has a much-more transitory culture, whereas Brooklyn has become a preferred place for “New Yorkers” of modest to moderate means to settle down and raise a family.

    Like a model city, Brooklyn manages to accommodate its density extremely well. First of all, like San Francisco, Brooklyn is a city of neighborhoods. Bedford Stuyvesant, Bensonhurst, Coney Island, Flatbush, Park Slope and Williamsburg are some of the more notable among Brooklyn’s 32 neighborhoods. It is remarkable, given Brooklyn’s density, that much of its housing stock is comprised of three and four-story brownstones, along with mid-rise apartment and coop buildings. For example, Park Slope and Carroll Gardens, with a combined neighborhood population of almost 105,000 (slightly more residents than South Bend, Indiana and just under the population of Clearwater, Florida), have a wonderful scale both to their residential streets and their main commercial thoroughfare, 5th Avenue. They achieve a very walkable and synergistic mix of homes and businesses, as well as public and institutional uses.

    However, it is arguably the incredible diversity of Brooklyn’s residents that define it as a “real” city. Less than 35% of the population of Brooklyn is white/non-Hispanic, over 36% is Black or African-American, and almost 20% is Latino or Hispanic. Almost 38% of Brooklyn’s population was born somewhere other than the U.S., almost 47% speak a language other than English at home, and a total of 110 ethnic origins are represented among its population.

    The median income in Brooklyn is just under $30,000 per year. However, the median price of a home (all types) is $490,000. The median price for co ops is $267,500, representing approximately 25% of the housing market. The median-priced condo is $514,216, representing approximately 28% of the market. Just under half of the Brooklyn for-sale market is comprised of one- to three-family dwellings, with a median sales price of $584,250. Not surprisingly, however, most of Brooklyn’s housing stock is rental housing.

    Without a doubt, Brooklyn is the melting pot of the world, with a tremendous amount of social, ethnic, and economic diversity, all coexisting in a 71 square mile area. So while there may be disagreement about how to best characterize the City of Falls Church in the suburban-to-urban spectrum, Brooklyn establishes the benchmark for a “real city,” even if it is not, in fact, a city in the legal sense of the word.

    Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

  • Is the U.S. Capitalist, Socialist or Something In-between?

    During the Presidential campaign, then-Democratic candidate Barack Obama inartfully described his proposed federal income tax cuts for the middle class as “sharing the wealth.” His more strident right-wing opponents – including Vice Presidential candidate Sarah Palin – almost immediately labeled Obama “a socialist,” adding to a litany of alleged infirmities as a presidential candidate that included lacking executive experience; being a closet Muslim; and “someone who pals around with terrorists.”

    Yet in reality Obama’s middle class tax proposal may have been the least “socialist” concept that has been floated and acted upon by a broad array of elected officials and senior-level appointees since four weeks before and four weeks after the Presidential election. This includes not only the huge federal financial bailout and taking of ownership of major investment and commercial banks – something embraced by the establishments of both political parties and the putative ‘capitalist’ business elites – but a series of other proposals, including the bailout of the Big Three American automakers, that are far more socialistic than a tax cut.

    Of course, effective campaigning, like good television advertising, tends to have at least two fundamental characteristics in common – oversimplification and hyperbole – so one might forgive or ignore the campaigns for taking liberties with such terms. Yet the ready and frequent use of the term “socialist” by a variety of sources does raise serious questions as to whether anyone out there really understands either capitalism or socialism as concepts or political constructs. This might help us know how much we should apply either label to the U.S. given the prevailing economic malady and the series of palliatives being offered up by the current and future Administrations, respectively.

    Socialism, of course, places primary ownership of the means of production in the hands of the state, or in some cases, corporate entities controlled by the state. In its extreme cases, such as in North Korea, this reality is absolute; in many other countries, state control is predominant and preeminent but pockets of private enterprise, usually small-scale and concentrated in agriculture or business services, still exist.

    Capitalism is a much more vague idea but essentially reverses priorities, putting the predominant role in the hands of private interests such as investors and corporations. State power in a capitalist country usually focuses on the creation of standards, public health, safety, and welfare, such things as regulating the currency, protecting the environment, and assuring the health of the populace.

    In contrast to the 19th Century, the US already operates on a much-diluted form of capitalism. Our markets are not free; they are highly regulated (and yet many would today argue they are not highly regulated enough). The exchange rates and values of our currency do not float freely but are heavily manipulated through federal government rate-setting activities. Investment decisions are not driven purely by return expectations or classic risk/reward analyses; rather they are incentivized or discouraged by a byzantine system of rewards and penalties affectionately known as the Internal Revenue Code. In other words, the federal government – under both Democrat and Republican Administrations and supported by both Houses of Congress – intervenes routinely in how markets operate and how capital is deployed. In this sense the federal tax code is fundamentally a mechanism for wealth redistribution, so candidate Obama’s statement about his proposed middle-class tax cut simply represented a shift to one set of priorities, much as the Bush Administration’s tax cuts represented another.

    If you accept the premise above that the U.S. already had one foot out the doorway between a more pure form of capitalism and socialism as it is widely practiced in other Westernized countries, it now appears that the U.S. is being pulled at warp speed through that doorway, as a consequence of the myriad plans (schemes would be a more accurate description, given how little thought appears to be devoted to them before rolling them out at press conference after press conference) for bailing out various classically capitalistic institutions.

    Bailing out a completely broken mortgage finance system that rewarded handsomely (some would say shamelessly) myriad private-sector entities and the mortgage industry represents a shift towards socialism. Providing over $100 billion in taxpayer support for AIG is socialism, not capitalism. Providing $200 billion of taxpayer support to prop up consumer credit, so that Americans can return to a false economy predicated upon unbridled, conspicuous consumption, is socialism not capitalism.

    The fact that these and other extraordinary moves by the federal government are undertaken in the name of saving our capitalistic economy and staving off a severe economic depression does not change the fact that we are experiencing – first under Bush and soon under Obama – a powerful drift towards extended state control of the economy. Free-wheeling and unfettered profit-making and corporate greed on the way up, backstopped by enormous government bailouts on the way down, represents in some ways the worst of both worlds .

    We now add to this series of attempts to solve our economic crisis the so-called “New, New Deal” proposed by President-elect Obama the week before Thanksgiving. Focused on fixing America’s infrastructure improvements, technological innovation, and education – as well as the creation of 2.5 million new jobs in the process – the New, New Deal basically supplants a failed, quasi-capitalistic economy with one that is driven primarily by government spending on government projects, in part for the purpose of creating new government jobs.

    There will be two silver linings if all of these government bail-out strategies and the implementation of Obama’s New, New Deal succeed: The U.S. could emerge from this economic abyss in which we find ourselves; and pass, at last, a comprehensive, universal healthcare reform that will not look nearly as socialistic as it may have appeared only six months ago.

    Yet there are some real dangers as well. A massive government program that extends more and more into every aspect of the economy could bring enormous inefficiencies as political decisions overtake market-based decision-making. It is not beyond the pale, for example, that banks may make loans to customers not based on their fundamental ability to pay but their ability to shift their risks to the government. Land use and other decisions once left to markets and localities could be placed in the hands of federal regulators, where the influence of well-connected developers and special interests (including such laudable causes as environmental protection) could be profound.

    Of course, this is a situation that could also change our national geography in profound ways. Parts of the country well-plugged into the new ruling party – the Northeast, coastal California, and most of all Chicago – could be huge beneficiaries. But the real winner, as I have argued before, may be the Nation’s Capital and its environs, whose power over the private economy would be greater than at any time since the Second World War.

    Of course, it may perhaps be both overly simplistic and somewhat hyperbolic to suggest that Washington, D.C. is morphing into “Pyongyang on the Potomac.” However, unless the federal rescue of our fundamentally capitalistic economy and society is not very carefully orchestrated, we may see greater similarities with another centrally planned economy – the one run from Paris. In that case, similarities between Paris and Washington, D.C. may extend well beyond the boulevarded street network and classical scale bestowed upon us by Pierre L’Enfant; we could also end up with something more akin to France’s centrally controlled dirigiste system than anyone could have expected.

    Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

  • Washington Wins…Everyone Else (except maybe Chicago) Loses

    What could prove to be the worst economic decline since 1929 may also have the unintended consequence of creating a booming real estate market for the Washington, D.C. metropolitan area over the next few years. Ironically this has been brought on not, as one might expect, by Democrats – traditionally the party of Washington – but by the often fervently anti-DC Republicans.

    This process was set in motion by the Bush Administration’s $700 billion financial bailout. This has caused a potential geographic shift in power from Wall Street to Pennsylvania Avenue. By concentrating decision-making power and institutional ownership in the Nation’s Capital, the Administration has essentially drained power away from financial institutions historically headquartered in New York City. The local real estate market impacts of this shift in the locus of private-sector financial power will only be accelerated by the impact in that real estate market by the changing of the guard in Washington following the November 4th election.

    To start with, the $700 billion federal bail-out of Wall Street being spearheaded by the Treasury Secretary is certain to involve a spate of new Treasury Department hirings, bringing in the employees needed to manage this herculean task. And, while that in and of itself does not a real estate boom make, there is a remarkable confluence of other factors to be considered as well.

    For example, the November 4th election results are projected to generate 40,000 real estate transactions in the metro Washington marketplace over the next nine weeks, as those currently in power leave the Nation’s Capital and those elected to power move in. That is 40,000 transactions that otherwise would not be occurring in the prevailing economic climate. Any time you introduce a large number of buyers into the marketplace competing for product that might not be entirely fungible in terms of geography (in-town versus out of town; D.C. vs. suburban Maryland vs. Northern Virginia) or housing typologies (pied-a-tier versus exurban McMansion, for example), you drive prices up. Add to the equation that not everyone voted out of power actually ever leaves the D.C. area – this is after all the center of the universe for many law firms and lobbyists, as well as both major political parties – and there is the potential for increased demand for and a constrained supply of houses.

    Add to this residential real estate boom a coincident commercial development boom. Consider that the federal government will become a major owner of some of the country’s most important financial institutions with, at the very least, monitoring and oversight responsibilities (if not also investment policy input). Under this scenario it is easy to imagine a whole new industry being born almost overnight in the District of Columbia, with private interests seeking debt and equity financing not by meeting with Wall Street investment bankers but by meeting with their investment bankers’ new regulator at 1500 Pennsylvania Avenue in Washington, D.C. (the headquarters for the U.S. Treasury Department).

    This is not nearly as far-fetched a notion as it may first appear. Forty years ago most Washington, D.C. law firms and lobbyists were focused primarily on what today are viewed as pretty stodgy federal agencies: The Interstate Commerce Commission; the Federal Trade Commission; the Food and Drug Administration; the Interstate Highway Commission. Lobbying became more sophisticated, impacting to a much greater degree federal policies related to taxation, banking, and capital markets, as well as emerging policy areas like healthcare, energy, and the environment, causing the private-sector workforce feeding off of the federal presence in Washington, D.C. to grow exponentially.

    The District of Columbia has the third-largest downtown in the U.S., ranking only behind New York and Chicago. More than 10 million square feet of commercial office space was added to the District between 1996 and 2005, with another 10 million having been brought on-line or underway since then. Additionally, geographic areas that in the 1960s were entirely rural farmland – such as Tysons Corner, VA, and Gaithersburg, Maryland – have grown so fast that they are today unrecognizable. For example, Tysons Corner has over 46 million square feet of office and retail space, and a daytime population of over 100,000. The Washington metropolitan area is the eight largest market in the country – and comprises the fifth largest market when combined with the Baltimore metro area – with a 2007 population of over 5.3 million people, yet almost nothing is manufactured here. It makes one wonder exactly how many people are required to properly rearrange the deck chairs on the Titanic.

    Finally, add to the foregoing scenarios the very real prospect for a major expansion of our federal government under the incoming Obama Administration and an energized and slightly larger Democratic majority in the House and Senate. There is the distinct possibility (if not, in reality, the promise) of a New Deal Era federal program to re-build the nation’s infrastructure both to meet long overlooked needs but, more-importantly, to also create a vast number of new public sector-financed jobs . The stage is set for what could be the greatest Washington, D.C. real estate boom since the New Deal (the residential population exceeding 500,000 for the first time in the 1930s) or the Second World War (in 1950 Washington, D.C. reached its peak population of over 800,000 residents, although today that number is just under 600,000). The last boom transformed a sleepy southern town into a major northern metropolis; the next could turn greater Washington into first-rank conurbation on the scale of New York, Los Angeles, and Chicago.

    Under less ominous circumstances this might all be considered the natural order of things. And from a purely personal perspective, I guess it wouldn’t be so bad to see my home appreciation return to the double-digit annual escalations to which Washingtonians have become accustomed.

    But then there are questions of whether this is good for the country. Most metropolitan areas are suffering (some, like Miami, Las Vegas, and Phoenix are hemorrhaging) while only perhaps Chicago – the geographic power base of President-Elect Obama – seems well-positioned to gather in the spoils of the new political order. Meanwhile DHL’s recently announced layoffs in Wilmington, Ohio, may impact an estimated one-third of the employable residents in that community. By way of this stark contrast, there’s something truly unseemly in the notion that the very place fundamentally responsible for many of our current economic woes should benefit from being both the cause and the cure of the economic maladies plaguing the country.

    Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

  • Neither fish nor fowl: Emerging urban enclaves in inner-ring suburbia

    By Peter Smirniotopoulos

    As I was walking my dog the other morning I was struck by the fact that the City of Falls Church, Virginia, the quaintly bucolic suburban “village” to which our family moved in mid-2001, was no longer suburban. It isn’t a city in the proper sense, like Washington, DC or even Alexandria, Virginia, but it is reflective of the trend towards quasi-urban places in the close-in rings – the original turn-of-the-century and pre-Levittown suburbs – enveloping our city cores.

    The City of Falls Church was formed around the middle of the last century by a group of secessionists residing in what was then a sliver of Fairfax County along the Arlington County border. The candy coated version of the city’s history holds that these secessionists were seeking to create a better school system for their children; the more cynical view is that they were creating a segregated, white school system. Whichever version of the truth you prefer, the Falls Church City Public Schools subsequently became the first public school system in the Commonwealth of Virginia to adopt the International Baccalaureate (I.B.) curriculum. In 2001, the city’s George Mason High School ranked #5 among the country’s most-challenging high schools, eventually reaching #2.

    Like many other metro areas, the geographic pattern of regional growth in the Washington metro area has been driven in by the successes of its suburban public school systems, with the Fairfax County and Montgomery County, Maryland, school districts being the most notable. A metro Atlanta county executive explained this phenomenon thusly: “People don’t want to live where they can’t educate their kids,” rationalizing why his county, with a well-respected public school system, was growing and thriving while the neighboring county, with a somewhat derided public school system, was not.

    So homebuyers have flocked to the City of Falls Church and its nationally ranked high school, putting sufficient pressure on home prices (primarily single-family detached homes on modest-sized yet verdant lots) to raise the median price precipitously. The high school certainly was a primary motivation for our move from Del Ray.

    Yet when we left our Del Ray neighborhood in Alexandria we also wanted to replicate – to the greatest extent possible – our community’s walkability and mixed-use character. Yet these fundamental attributes were not as pronounced in the City of Falls Church, in part because it is bisected by two major arterials: Va. Route 7 (cleverly named “Broad Street,” being four lanes wide), an east-west connector; and Washington Street, also known as Lee Highway or Rte 29, a north-south connector (also four-lanes wide but the name “Broad Street” had apparently already been taken).

    When we arrived in the city the stretch of Route 7 that extends west from this major intersection was characterized primarily by low-scale (i.e. one and two-story) retail and commercial buildings. The predominant commercial building typology along one stretch of Route 7 was one-and-a-half story single-family residential structures fronted by surface parking adapted for commercial uses (palm reading, anyone?), reflecting neither good urban nor suburban values.

    And yet since 2001 things began to change for the better. Local elected leaders had an epiphany that a city of two-square miles is not sustainable. Relying almost exclusively on property tax revenues from single-family detached homes simply does not generate enough money to cover the expenses they generate. The success of similar suburban-to-urban transformations in nearby Arlington County along the Metro line – like Clarendon and Ballston – was both instructive and politically comforting. City leaders and staff began to embrace the concept of denser mixed-use development, although not without taking some political heat from those insisting that their suburban village be protected and preserved.

    Today, Route 7 benefits from four, very urban mixed-use buildings – ranging in height from four to eight stories – adding dramatically to the diversity of the city’s housing stock, helping to diversify the city’s tax base, and putting boots (or at least pumps and loafers) on the street. These new buildings also provide a much better focus for the city’s “Main Street” than the single-story structures they replaced, with the new building heights and strong street walls better modulating the width and traffic flow on Route 7. A fifth new building is currently under construction and a hotel has also been approved.

    In addition, two new, mid-rise, mixed-use projects now anchor either end of Lee Highway, and an ambitious City Center project may finally become a reality, potentially trumping the visual cacophony of the nearby Route 7/Lee Highway intersection (an excellent example of bad urban forms meet typical low-rise, suburban development). Moreover, the attendant broadening of the tax base will eventually insulate the city’s fortunes from the ebbs-and-flows of either the commercial or the residential real estate markets.

    As a result, in terms of physical form and character the City of Falls Church is now much closer to “urban” than “suburban.” As ground floor retail spaces fill in and mid-rise residential units become fully occupied, that evolution from suburban to urban will become more pronounced. Residents in the single-family detached homes and newly minted McMansions lining the neighborhood streets on both sides of Route 7 also will benefit from having many more things to see and do within walking distance of their homes.

    The small-town origins of the city can still play out in somewhat nostalgic events like the Annual Memorial Day Parade (and who doesn’t love to see Shriners in their fezzes and tiny race cars). Neighbors will continue their weekly chats at the Saturday morning Farmers’ Market at City Hall. However, the train has clearly left the station on the question of whether the City of Falls Church is still a classic suburb: The only question remaining may be “What the heck do we call this thing?”

    Do any of you have a good idea?

    Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

  • Mortgage Credit Crisis: Homeowners Also Need to Look in the Mirror

    There is more than enough blame to go around for the sub-prime mortgage crisis, and the unraveling financial disaster. But I believe the fundamental blame lies in two places: A purely American NIMBY myth about homeowners being the only genuine contributors to their communities and a capitalistic axiom, presumably started and perpetuated by a troika among realtors, homebuilders, and mortgage lenders, that the only way for middle-income Americans to truly create wealth is through homeownership.

    The main mechanism for translating these two, fundamentally flawed “principles” into an action plan was hatched not under the rightly derided George Bush but the widely considered economic stalwart, Bill Clinton. It was Clinton who in his second term decided that what the United States really needed was to become the greatest nation of homeowners ever. The goal: Move the country from roughly 64% homeowners to over 67%.

    It was the role of the two Government Sponsored Entities, Fannie Mae and Freddie Mac, to oblige this national imperative by creating very aggressive mortgage products that, for all intents and purposes, diluted the true nature of homeownership by drastically reducing the level of investment and commitment on the part of the homeowner. Loan-to-value ratios (LTVs) rose, in some cases above 100% of the home’s value so that closing costs and other expenses could be financed as well. At the same time the amount of a homebuyer’s “skin in the game” dropped precipitously, sometimes below zero, with some homebuyers walking away from closing tables with their front door keys and cash.

    Some of us in the development community were alarmed by these aggressive first-time homebuyer mortgage products. Homebuyers would be shoe-horned into homeownership, putting little to nothing in to initiate the transaction. However, as soon as interest rates climbed or home value fell, these first-time buyers were left hopelessly overextended. This disaster-in-the making was compounded by the commodification of what was once a personal asset.

    The bundling of mortgage loans into mortgage-backed-securities (MRBs) completed the separation of borrowers from their lenders. At the same time, the home itself was transmuted from fundamental shelter to an investment instrument (as the realtors association likes to refer to it, the main wealth creator for middle-income Americans).

    As soon as there was any cushion at all between the principal amount of the mortgage and a home’s fair market value, it was often immediately monetized through a second mortgage or equity line of credit. At the same time, owners of MRBs had to rely on mortgage servicers to manage and monitor timely mortgage payments and overall collateral values for huge mortgage pools and parsed segments thereof, often secured by a wide array of homes in disparate markets and sub-markets across the country.

    And yet, policy makers, the housing and mortgage industries, and capital markets all touted this great new system for wealth creation. Why?

    Because, after all, housing prices will just continue to go up, right?

    That was the fundamentally flawed foundation on which this house of cards was built, with everyone along the way—homeowners included—pocketing the cash from what were double-digit, annual increases in value in some markets. The positive consumer sentiments from the good economic times of the Clinton years, that not even the 9-11 tragedy could quash for too long, dovetailed with a blatant disregard from Main Street to Wall Street to our Nation’s Capitol for the incomprehensible national debt that was accumulating, mirrored by record consumer debt. Spend, spend, spend became the national mantra and motto. We had been transformed from a producer nation to a consumer nation.

    Whether it was houses, cars, electronics, apparel, home furnishings, appliances, entertainment, dinners out, whatever you can think of: If it was for sale, Americans were buying it and in record numbers. Much of these manifestations of perceived wealth were financed by the seemingly never-ending appreciation in home values and the astronomical mortgage-related debt that was being amassed in reliance on unrealistic expectations regarding those values.

    To be sure, there are a lot of lower and moderate-income households — many of whom are immigrant families targeted specifically as potential first-time homebuyers — who were sold a bad bill-of-goods in the form of subprime mortgage products. If anyone deserves a bailout, it is probably them. But most Americans knew what they were doing and now should pay the price.

    This includes a large number of people who could afford a home but couldn’t purchase the McMansion of their dreams with a conventional mortgage. So they went with something a little more exotic and much, much riskier that allowed them to stretch just a little farther, to continue their conspicuous consumption and help the domestic economy keep rolling along.

    So in the end, it’s neither fair nor accurate to blame just the big guys on Wall Street: This crisis was also made by ordinary Americans as well, egged on by flawed policies about homeownership and wealth-creation, allowing obsession to overtake reason.

    If, as Gordon Gecko said in the movie Wall Street, “Greed is good,” then as a nation, we’re about as good as it gets. There is plenty of blame to go around indeed.

    Peter Smirniotopoulos, Vice President – Development of UniDev, LLC, is based in the company’s headquarters in Bethesda, Maryland, and works throughout the U.S. He is on the faculty of the Masters in Science in Real Estate program at Johns Hopkins University. The views expressed herein are solely his own.

  • Peter Smirniotopoulos