The giant Ponzi scheme that is Florida

[Darth Wong]

http://www.cbc.ca/world/story/2009/03/1 ... onald.html

The giant Ponzi scheme that is Florida
Last Updated: Thursday, March 12, 2009 | 3:40 PM ET
By Neil Macdonald CBC News

A few years ago, the St. Petersburg Times sent reporters out to investigate grouper, the succulent, meaty fish drawn from the Gulf of Mexico. They bought the fish at restaurants around the Tampa Bay area and had it tested at a DNA laboratory. Most of it was something else.

Some of it was hake, some of it was pollock. Some, as the newspaper put it, was "Asian catfish masquerading as grouper." The contents of one meal were unidentifiable, even to the DNA technicians.

The stories provoked an uproar and Florida state authorities were forced to step in. Inspectors did another round of tests and found that just about everybody was passing off cheap fish as the more expensive grouper. Eventually, fines were paid and the state stopped investigating.

Last year, an identical scam was uncovered further south, in Fort Myers. Still, just about every restaurant I visited along the Gulf Coast last week was cheerfully offering bargain grouper.

Fried, crusted in pecans, sautéed, baked. Whatever. It tasted all right and, anyway, the actual DNA of whatever is on the plate is the least of anybody's worries nowadays.

Swindled and beaten bloodier than most states by the economic crisis, Florida is lying awake at night like a terrified cardiac patient, praying the angina will pass. The confidence games here were ruinous. The housing fraud was industrial-scale. The economic shortsightedness bordered on lunacy.

End of the dream

Lehigh Acres, a sprawling bundle of communities without any kind of municipal government, is the worst. You enter it along Gunnery Road, running east of Fort Myers, and pretty soon the dilapidation flows everywhere.

Particularly striking is the newness of it all. Some of these homes — pastel orange, blue or green — have never been occupied, yet the windows are smashed, the appliances have been ripped out and the yards are a tangle of garbage-strewn brambles.

Many of the residents now are renters, attracted from even tougher areas, living alongside despairing homeowners who thought they'd bought a piece of what some still insist on calling the American Dream.

Four years ago, Lehigh Acres homes were selling as fast as they were built and speculators and developers threw them up cheap and quickly. Back then, anybody who could fog a mirror could get a mortgage. Housing prices swelled every week.

Many of the mortgages were predatory, even fraudulent; buyers were encouraged to lie about their incomes, and many did.

By December 2005, when the housing market began to collapse, the median sales price of a home in the Fort Myers area was $322,000. Today it is $99,000.

In Lehigh Acres, it is more like $50,000. Marc Joseph will gladly sell you one.

Foreclosures are us

"The beauty of these prices is that people are here taking advantage of the glass being half full," says Joseph, with the relentless optimism of a realtor. "Some people lost. For other people, they gain."

Trim and energetic, Joseph is prospering. He runs Foreclosure Tours R Us, a company that does just what its name implies. His green bus, blaring the company's logo, hauls around groups of bargain-hunters responsible for the sudden upsurge in real estate sales.

In upscale neighbourhoods, people just glare at the bus and retreat inside their homes. On more distressed streets, he's just ignored.

"This is the time to pull the trigger," he tells his clients. "If the market has not reached bottom, it is very close to bottom. Things are turning around."

Perhaps. That remains to be seen. South Florida's recent sales surge is more likely due to the sudden willingness of federally-supported banks to accept half, or even a third, of what a property was once worth.

These same banks account for nearly two-thirds of the sellers here. In other words, the market is still deeply diseased, just shedding its more gangrenous flesh.

Up and left

Floridians, meanwhile, still have to live here, striving for normalcy as their society shrivels around them.

Cape Coral, more upscale than Lehigh Acres, lies on the other side of Fort Myers, surrounded by the clear water of the Gulf. It's the second biggest city in Florida by size, with more canals and water access than any city in America.

A vast, rambling place with no core and ghost towns on its edges.

I met a woman named Connie there, living in a bungalow. She allowed herself to be coaxed out into the flat March sunlight on the promise that her family name wouldn't be used. She's embarrassed by the state of her neighbourhood and probably embarrassed by her own impending eviction.

The house next door is empty. Foreclosed. The one two doors down is empty, never occupied.

The family across the street abandoned their home a year ago. Just packed up and left.

Connie thought they were going on vacation. They even left their car, a late-model white Dodge Intrepid. A notice on the driver's window threatens it will be towed, at the owner's expense, if it isn't moved in three days.

"The city put that notice on nine months ago," says Connie. "I wish they'd tow it. I hate looking at it. I hate it."

She hates the overgrown yards, too. They're a fire hazard and they attract snakes.

The Ponzi state

Cape Coral can't afford to tow the car, though, or clear the brush from yards. The loss of taxes from foreclosed properties is strangling its municipal government. It's the same story all over the state.

Not that there was ever much government to strangle. Florida is light on government in general. Governments cost money and Floridians don't like paying taxes. There is no state income tax here.

Gary Mormino, a professor at the University of South Florida, has compared the economy here to a giant Ponzi scheme, the confidence game in which investors are paid with the money of new investors.

The Ponzi State. The phrase is catching on and it's making Mormino famous.

He says Florida's economic setup has always depended on ever more people, often retirees on fixed incomes, arriving from out of state with money to spend.

Since 1970, the state has grown by an average of 350,000 new residents a year — or a thousand a day.

To accommodate them, politicians in Tallahassee basically let developers build whatever they wanted just about anywhere they wanted. Usually, that has meant apartment towers and minimally inspected cinder-block homes on concrete slabs.

The construction barely paused and neither did the waves of tourists — as many as 80 million vacationers a year, all ready to pay hotel taxes and rental taxes and restaurant taxes and sales taxes.

Now, everything's flat. In fact, more residents might be leaving than arriving. And the tourists are staying away.

For Mormino, Florida is just a palm tree fantasy with a tax structure "that was insane." And now, he says, "we're paralyzed."

Unemployment is nightmarish and rising. Tax-hating Floridians, turning to their government for help, are finding a stunted, business-driven entity with nothing to offer.

"When people began looking behind the palm trees and into the account books," says Mormino, all they discovered was "massive fraud and lack of oversight."

The 'rocket docket'

The disposal pipe for this dismal mess is the Lee County Courthouse in downtown Fort Myers.

Here, judges brought back from retirement preside over something called a "rocket docket," expressly designed to push through thousands of foreclosures a month.

The homeowners who actually show up for this last hearing have no fight left. Many are working-class minorities who were talked into believing you can own a house on minimum wage. They seem to shrink when they stand to face the bench.

Judge Jack Schoonover is gentle with them. If there are kids in the house he'll usually allow 60 days. But they will have to leave.

Schoonover won't tolerate poor paperwork by bank lawyers. If they make a mistake, he kicks the case to the back of the line and tells the homeowner to go home for awhile longer. But a hardship plea goes nowhere with him. He tells one woman he can't find her a job. "The president has to do that for you."

By midday, he's dealt with 190 cases, creating more product for the bottom-feeding investors who come in and buy in bulk.

At the Anna Maria oyster bar in Bradenton, waitress Carolyn Walker is keeping up a stream of cheery patter for the tables of retirees in plastic bibs. Lobster is on special tonight.

"I'm an optimist," she stresses, setting down my fried grouper.

But she does allow that tips are stingier these days. Her life is getting tough.

She has a 12-year-old daughter she hopes someday to send to college. Lately, though, she's been "literally living day to day."

In middle age, she's taken a second job cleaning people's homes and that helps. "My daddy," she says, "raised me to be happy."

I didn't know Florida had no income tax. Sounds like somebody tried a real-world test of libertarian principles after all. Let the free market make the decisions, free businesses from government interference, let people keep what they earn instead of taxing it. Genius!

[Setzer]

Florida had no income tax because the state had sufficient money for its purposes with all the Tourism dollars from the beaches and places like Disneyworld. When I joined the military, I made certain I was legally registered as a Florida resident for tax purposes. Things were bad enough post 9-11, but now even fewer people are going to be travelling.

[Patrick Degan]

Florida is the GOP model for America. Let us all learn by it's example.

[Zixinus]

The houses are deserted? That's interesting. You'd expect someone to take advantage of that kind of opportunity.

[Ziggy Stardust]

I find it almost unbelievable that any state legislature could be short-sighted enough to base their entire economic model off of a continuous influx of tourists/retirees. Was Florida this fucked in previous recessions, or back then was the model slightly more functional?

On another note, has CBC always been so good? I had never seen any stories by them, or heard any mention of them, until the past month or two, during which time I've read a number of really fantastic investigative pieces by them, like this one. Was I unaware of them just because its Canadian, or is it only recently that they have gotten so good? Or am I just very wrong, and they aren't that good, it just so happens the only stories I've read were their good ones?

[phongn]

I find it almost unbelievable that any state legislature could be short-sighted enough to base their entire economic model off of a continuous influx of tourists/retirees. Was Florida this fucked in previous recessions, or back then was the model slightly more functional?

Florida also gets money from sales, business and property taxes and in the past has weathered recessions somewhat well - even if tourism was down, retirees still came. That growth is pretty much gone, now, but even before the recession, skyrocketing property values were putting a real damper on growth.

I didn't know Florida had no income tax. Sounds like somebody tried a real-world test of libertarian principles after all. Let the free market make the decisions, free businesses from government interference, let people keep what they earn instead of taxing it. Genius!

There are several states that do not have a personal income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.

[Darth Wong]

I find it almost unbelievable that any state legislature could be short-sighted enough to base their entire economic model off of a continuous influx of tourists/retirees. Was Florida this fucked in previous recessions, or back then was the model slightly more functional?

The influx of retirees and their money to Florida has been fairly steady for the past 40 years, right through several recessions. In essence, the state lived off retirement spending that should have been spent where these retirees grew up and worked all their lives, so the state parasitically benefited off other states' loss.

On another note, has CBC always been so good? I had never seen any stories by them, or heard any mention of them, until the past month or two, during which time I've read a number of really fantastic investigative pieces by them, like this one. Was I unaware of them just because its Canadian, or is it only recently that they have gotten so good? Or am I just very wrong, and they aren't that good, it just so happens the only stories I've read were their good ones?

The CBC doesn't get much exposure in the US, but a lot of Americans in border states get in the habit of watching CBC coverage. It's the little brother of the BBC back in Britain, and its mandate is similar. "State-owned media" sounds evil to Americans because they've been indoctrinated to think that way, but the people who actually run the CBC take their responsibility to the public very seriously (far more so than the corporate-run media networks do).

Having said that, the CBC does have its problems. It's just that the American news media is simply awful lately.

[Alferd Packer]

That sounds about right. My in-laws live in the Keys and my sister-in-law in a little Pigfuck town outside of Gainesville. While the house in the Keys exploded in value, they bought it long enough ago that they never lost money on it. The Pigfuck house was built in early 2004, though, right in the heyday of all this fuckery. I shudder to think how much value it's lost. At least there's no mortgage on either place.

[TrailerParkJawa]

The houses are deserted? That's interesting. You'd expect someone to take advantage of that kind of opportunity.

Criminals are taking advantage by stealing stuff right out of the houses. If you are a person looking to own a home long term that last thing you want to do is buy in a neighborhood in decline.

[Darth Wong]

The houses are deserted? That's interesting. You'd expect someone to take advantage of that kind of opportunity.

Criminals are taking advantage by stealing stuff right out of the houses. If you are a person looking to own a home long term that last thing you want to do is buy in a neighborhood in decline.

Drug dealers and addicts are also moving into abandoned homes to use them as crash pads and meth labs.

[Illuminatus Primus]

Welcome to Florida. At a lot of the shit you're reading is the cosmopolitan formerly "productive" part of Florida, the real-estate zone along the coasts. Here in Gainesville its just a bleeding ulcer. And the atomized and indoctrinated masses are being pushed by their churches into voting for this travesty called Charter Amendment 1, which I will be early-voting against later today. It repeals our county's ban on sexual orientation and identity discrimination - pushed on the claim that it will keep male predators out of women's bathrooms (I'm not kidding) -, and of course, kills the already dollar starved university of its hiring ability by scaring away sexual minority professors and workers and researchers (already on the rise thanks to the gay marriage ban passed by over 10% margins on Election Day in Nov). So even at the end you still have the rural reactionaries hurting themselves by killing the real economy here, which, as much as they don't want to admit it, is completely based on attracting carpetbaggers. The "good ol' boys" here have nothing to offer.

[Darth Wong]

Well, that's the downside of democracy: it puts power into the hands of the biggest and angriest mob. Unfortunately, in a lot of areas that also happens to be the dumbest mob.

[Count Chocula]

The state of Florida does have taxes of various sorts, and numerous fees, as well as aforementioned tourism dollars to finance operations. What we don't have is a state income tax. Lee County, and the Fort Myers area in particular, went from being a nice Gulf alternative to Miami to the new "go-go" boom town in the past 6-8 years. For reasons that I frankly don't understand, the area grew so quickly (without a significant manufacturing base) that there were people from all over the US cashing out their homes and buying a brand new one in the Naples area. Lee County's spastic growth coincided with the real estate boom, and like elsewhere people who should not have had houses bought them. I'll give you an example: I bought my house in Tampa Bay in 2004. The man who sold it to me moved his family to Naples, and bought a $275,000 home. This was considered an affordable home in Naples ca. 2004. He was an assistant manager at AutoZone in Naples, and from what I heard used the profits from selling his Tampa home to put money down on his Naples home. Guess what? He didn't make enough to carry a $250k note and 18 months later, he was back in his old Tampa neighborhood, in a house that his family helped him buy that is smaller and in worse condition than the home he sold me.

Characterizing Florida as a Ponzi scheme is pretty disingenuous, especially compared to cities like Las Vegas (similar boom-bust housing market) or the entire state of California. Florida has its budget problems, like many other states, and the tax base has been hit by the real estate crash. That's why the Legislature is implementing tuition increases, possible sales and "sin" tax increases, and other revenue-raising measures while seeking to cut the state's budget. However, Florida is in little danger of default or serious degradation of services at this time.

EDIT: I've been here for ten years, and IP's right about "cracker Florida." The rural populations' education, attitudes, and frankly lack of motivation have not changed at all.

[Darth Wong]

Characterizing Florida as a Ponzi scheme is pretty disingenuous, especially compared to cities like Las Vegas (similar boom-bust housing market) or the entire state of California. Florida has its budget problems, like many other states, and the tax base has been hit by the real estate crash. That's why the Legislature is implementing tuition increases, possible sales and "sin" tax increases, and other revenue-raising measures while seeking to cut the state's budget. However, Florida is in little danger of default or serious degradation of services at this time.

How is it "disingenuous?" The state's economy has been kept afloat only by a constant influx of new people and their money; that is EXACTLY what characterizes a Ponzi scheme. Saying that other states have budget problems is a complete evasion of the point.

This is why it's annoying to debate with knee-jerk conservatives. They think they can demolish points by throwing up red-herrings and accusing people of being dishonest for not discussing them beforehand. You didn't even read the fucking article enough to realize WHY he was calling it a Ponzi scheme.

[Illuminatus Primus]

Well, that's the downside of democracy: it puts power into the hands of the biggest and angriest mob. Unfortunately, in a lot of areas that also happens to be the dumbest mob.

We've systematically mocked, COINTELPROed, and just generally culturally and public policy-wise uprooted any forms of local public, ground-up organization of any form other than...the churches. Who is surprised? And where else were they going to go to organize and articulate their rage at their obvious abandonment by mainstream political elites. Other than one's church group, what form of day-to-day political discussion goes on anymore in any organization where any personal participation is possible? The Internet is helping for a relatively tiny group of progressive activist and technically-minded adults, but what else? Joining local political groups is American cultural anathema. Only filthy hippies and fucking socialists have ever done anything like that. And of course, unlike may other possible local organizations which have historically existed or exist in foreign nations, the church is extremely and fundamentally anti-democratic. So the local church leaders lockstep with their well-ordered national organization and lobbying organizations to increase their power - squash public education and pay us to educate the masses, allow direct participation in the political sphere, and while working on those appeal to old-fashioned prejudice and slap the queers to remind people you're here and have power.

[Illuminatus Primus]

EDIT: I've been here for ten years, and IP's right about "cracker Florida." The rural populations' education, attitudes, and frankly lack of motivation have not changed at all.

Preach, brother! Preach!

It bares repeating. I happen to also work part-time for one, and I am shocked by the public admission by "ACRs" (Alachua County Resident, the misnomer used by the student population to refer to the permanent and indigenous population of Alachua County) of listening to Michael Savage, a radio lunatic which makes Hannity and Limbaugh sound moderate - and this is a very broad and public out-in-the-open kind of thing (there are two all-day FM radio syndications of right-wing talk radio, versus zero in Tampa Bay). My boss bought every last insane conspiracy theory about Obama, and he and others publicly and explicitly bemoan for a "simpler" romantic myth of an America gone by, and talk about how revolution might be the only way to go. They are explicitly separatist/anti-Establishment reactionaries, for whom God's Own Party is too moderate and not radical and revolutionary enough. Living here is like a first-hand experience in the origin demographic of the National Socialists.

[Ziggy Stardust]

Characterizing Florida as a Ponzi scheme is pretty disingenuous, especially compared to cities like Las Vegas (similar boom-bust housing market) or the entire state of California.

Vegas, though, in all fairness, does have rather steady growth outside of the gambling market. It makes up a frighteningly large part of its economy, of course, but the city has been fairly good about not being a one-trick pony like Florida has been.

[Mr Bean]

How is it "disingenuous?" The state's economy has been kept afloat only by a constant influx of new people and their money; that is EXACTLY what characterizes a Ponzi scheme. Saying that other states have budget problems is a complete evasion of the point.

This is why it's annoying to debate with knee-jerk conservatives. They think they can demolish points by throwing up red-herrings and accusing people of being dishonest for not discussing them beforehand. You didn't even read the fucking article enough to realize WHY he was calling it a Ponzi scheme.

I'm going to have to disagree with you here. A Ponzi scheme is built on the fact you are creating nothing of value. Florida has over the past sixty years built up massive numbers of self-sustained retirement communities, tourist attractions and various items that make people want to move, or at least vacation in Florida.

Their economy is built on attracting people to the state, then hitting them up for as much money as possible while they are there. It's not a Ponzi scheme unless you want to say said tourists get nothing for visiting the state. Likewise the vast numbers of retirement communities are things of value. They are designed to keep large groups of old people in what equates to walled small self contained towns where the old and infirm can live in confront with medical assistance on hand until such time as they die.

Florida is true a model of what happens when you remove regulation and restrictions but to call it a Ponzi scheme is to slap a buzz happy label on a state that's built on essentially taking people in, showing them a good time until they die or leave. They are getting something of value with their money. Unlike a Ponzi scheme, as noted a Ponzi scheme can be best defined simply, as a process that creates nothing of value, or creates things that have no value. Florida does not turn out tons of pig iron or high tech products true, but then it's a service based state not a production state.

[The Duchess of Zeon]

The funny thing is that we have no income tax in Washington State and yet, though our outlook certainly isn't pretty, we're holding our own. Twenty percent cuts in some areas, but the budget was sufficiently prodiguous that we'll still have social services, transportation, etc, that states with income taxes have simply never had. I think it's in part due to the very high property taxes, which are, even with considerable losses in value, simply big enough to drag in more revenue, and the fact that our business taxes will keep on sluggishly producing since we have a lot of business in this state--agricultural and heavy industry--which is genuine rather than fictitious like Florida. Even so the State Sales Tax will probably have to be increased by a percentage point to deal with the fact that though we can trim about three billion in fat each year (there's a projected deficit of 8 billion over the next two years, Washington releases budget projects for two years at a time, so some people here have been freaking unnecessarily), we have to make up the other billion through new taxes. So, you can run a state government without income taxes.. But you probably can't run Florida's state government without income taxes. There isn't any real economy there to provide any impetous for continued economic activity, after all.

Though right now what the whole nation needs is for income tax to be dialed up to about twice the rate it currently is for incomes over about 60k a year (remember children, that tax would only be applied to the part of the income above 60k a year, so there wouldn't be any huge gap discouraging people from working), and then institute a 2 - 3% nationwide VAT on top of it to encourage savings. But our lunatic economists are still locked in SpendSpendSpend mode, so that's not going to happen.

[Broomstick]

I didn't know Florida had no income tax. Sounds like somebody tried a real-world test of libertarian principles after all. Let the free market make the decisions, free businesses from government interference, let people keep what they earn instead of taxing it. Genius!

Neither does Alaska, Nevada, South Dakota, Texas, Washington, and Wyoming have a state income tax, so Florida is hardly unique in that manner. I know Alaska funds the state in part through oil revenues, and Nevada is heavily dependent on gambling taxes. I don't know what the other states on the list do to get by.

Tennessee and New Hampshire tax only interest and dividend income. Sometimes they are erroneously stated to have "no state income tax", probably because a lot of folks don't earn enough interest or dividend to have to pay tax on them.

[The Duchess of Zeon]

Tennessee and New Hampshire tax only interest and dividend income. Sometimes they are erroneously stated to have "no state income tax", probably because a lot of folks don't earn enough interest or dividend to have to pay tax on them.

Implementing such a tax in Washington State would be a lot simpler and more politically feasable than a full income tax and I wonder if it isn't being considered.

[Master of Ossus]

Implementing an income tax in FLA would really dick over the small portion of their population that's actually working there. Keep in mind, FLA is the retirement home of the US and a far greater portion of its population has no income to tax (or, at least, none from wages and salaries) than your average US state. Mind you, it's not like the US is against taxing its workers to save retirees any and every hardship, but income taxes in FLA would harm workers far more than it would in most other states because the rate would have to be a lot higher to raise the same amount of revenue on the same worker income.

[Master of Ossus]

Implementing such a tax in Washington State would be a lot simpler and more politically feasable than a full income tax and I wonder if it isn't being considered.

Even the federal income tax laws disproportionately harm people who save and invest their money, and compounding that by hitting ONLY people who save and invest doesn't strike me as being great policy when virtually every politician has agreed that we should encourage saving and discourage consumption. I can actually see a lot of problems with something like that that might make responsible legislatures really leery of implementing such a scheme.

[MKSheppard]

Florida needs low or (zero) various taxes -- their entire state industrial model is based around attracting retirees from all around the US to florida where the weathers nice, the beaches are cool, and taxes low.

They then make the money off various taxes on the people who support the old retirees.

There's also the big behemoth in Orlando; Disney!Universal!Parks; which has a lot of political power and uses that power to keep bills from being passed which would restrict it's access to a huge glut of low paying jobs to be funneled into DisneyWorld!Epcot!MGM!Universal!SeaWorld!etc; and prevent florida from developing an industry not so prevalent on tourism.

Of course, the physical statistics of Florida don't lend themselves well to exploitation -- low lying land wracked by hurricanes regularly; even though some parts are largely not hit, like Tampa; they still deal with the fallout from other parts of the state being hit, and they have to evacuate a lot anyway; intense heat and humidity -- it was the invention of air conditioning which made florida so attractive -- and the fact that 95% of the place is essentially a swamp....limits options.

[Ekiqa]

There's also the problem that Florida is going to almost entirely disappear into the sea, within our lifetimes. All those new, abandoned houses, soon to be swallowed up.