Posts Tagged ‘demolition’

What’s Going Down?

April 30, 2009

A bank is paying demolition crews to tear down brand new McMansions in Victorville, California, a far-flung San Bernardino suburb about 80 miles outside Los Angeles.  According to Vision Victory Channel, which has posted a series of YouTube clips with footage of the demolitions, the developer couldn’t sell the properties and defaulted on the loans. Once the bank foreclosed, it started getting slapped with fines for code violations, since it now owned these properties.

The bank must have done an analysis and determined that the houses were more of a liability than an asset, so it made sense for their bottom line to simply tear down the houses and avoid the fines. Instead of trying to unload the development on another builder who could at least bring the houses up to code, the bank realized they would take less of a hit if they tore everything down.

You can’t extrapolate the state of the nation’s housing market just by what’s happening in a desert suburb of Southern California, but it would seem to be a troublesome indicator of how confident banks are about property values bouncing back any time soon.

…And speaking of confidence, remember a few months back when Obama and Treasury Secretary Tim Geithner laid out a pretty vague roadmap for how they were going to handle the economic crisis? A big part of that plan involved performing “stress tests” on major banks to figure out which ones are solvent and likely to avoid bankruptcy if the economy doesn’t somehow recover in the next two years.

Well, according to a new article from Reuters, the stress-testers are now trying really hard to figure out how to break the bad news to the rest of us. Here’s a preview:

“U.S. officials have still not yet decided how to disclose the results of the bank “stress tests,” but a lack of detail in the release could disappoint markets, a top bank regulator said on Wednesday.

John Bowman, acting director of the Office of Thrift Supervision, said officials are working around the clock to figure out how to provide transparency about the results without causing a large disruption in the markets.”

Unfortunately, there’s no good solution for how to release the stress test results. If they open up the books, we’ll all see how screwed the banks are and the market will drop faster than Elliot Spitzer’s pants at The Emperor’s Club. If they try to muddy the waters by releasing the results un-transparently, the market will see right through the charade and have a similar reaction.

Since Geithner first announced this plan, the number of economists skeptical that it would sufficiently address the systemic rot in the banking and finance industries has grown and grown. These economists’ consensus is that the U.S. government will have to make much more painful decisions to rescue the banks from the ocean of toxic assets that they seem to be drowning in. If the results come out next week, as the article indicates, Monday might be the first day of real reckoning on that front…

The videos below illustrate a shocking waste of resources. They represent a paradox that capitalism somehow makes logical. But they also might capture something else: a preview of the very near future.