No. of Recommendations: 15
Recent stories in The New Yorker magazine online include links to some older stories covering similar topics, including a 2009 story by George Packer entitled The Ponzi State:

https://www.newyorker.com/magazine/2009/02/09/the-ponzi-stat...

Some key quotes from the story:

“Florida, in some ways, resembles a modern Ponzi scheme. Everything is fine for me if a thousand newcomers come tomorrow. The problem is, except for a few road bumps—’73, ’90, and they were really minor—no one knew what would happen if they stopped coming.”

------

In exurban counties like Pasco, property taxes were kept low to attract homebuyers, and the schools and fire stations that new arrivals expected were often paid for with bond issues floated on the projection of future growth—a system that Ben Eason, who owns Creative Loafing, an alternative weekly in Tampa, also likened to a Ponzi scheme. DeHaven-Smith called Florida’s policies “the most disingenuous system of government.”

This pattern has gone way beyond the idea of a classic moral hazard discussed in economic textbooks. The situations in which these MASSIVE losses occur are no longer interesting statistical corner cases. Instead, they are near mathematical certainties because EVERY POSSIBLE SHORTCUT -- in zoning, construction codes, construction quality, taxes, insurance regulation and spending on public infrastructure -- is being taken simultaneously, reducing margins for error to zero.

It seems likely the average citizen building in these vulnerable areas doesn't fully understand:

* the contrast between happy-path cash outlays and reconstruction
costs from a dirt lot
* likely insurance reimbursement rates, which will NOT be 100% of damage
* the likely delays in payouts to rebuild and how they could live in the mean time

In short, as a typical resident contemplates buying a home in that type of market, as they sit around the proverbial table with the builder, the real estate agent, the insurance agent and local authorities, all of the other players have aligned their behavior to incent the buyer in the short term to signing the deal. None of those other players are on the hook LATER if a disaster strikes and leaves the buyer without a home, potentially without a job due to short term economic contraction in the area, and waiting on payments from an insurance company delaying payment as long as possible or outright denying payment.

It's beyond moral hazard. It's a new form of organized crime.


WTH
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement