Posted by Karl Denninger
The owners of Stuyvesant Town and Peter Cooper Village, the iconic middle-class housing complexes overlooking the East River in Manhattan, have decided to turn over the properties to creditors, officials said Monday morning.
Let’s not forget what this place is. It was originally a rent-controlled apartment complex designed to provide a place for middle-income people to live in Manhatten – one of the most notoriously-expensive places to live in the world.
To be specific, this complex houses 11,227 apartments – a huge concentration of affordable housing kept affordable by New York City’s rent control ordinances.
Met life built the complex in the 1940s after WWII and received a monstrous set of tax breaks and other incentives in return for submitting them to rent control – that is, a means to guarantee that middle income Americans could live there.
Tishman-Speyer, along with a number of other funds (including both Florida’s state pension system and California’s!) “invested” in an attempted sale that was designed to destroy the affordable nature of rent by releasing these apartments, as the current tenants moved to “market priced” rents (that is, dramatically higher rents.)
What caused the demise? This:
The rents collected did not cover the mortgage payments, as the new owners failed in their efforts to increase net income by steadily renovating and deregulating vacant apartments while raising rents substantially.
Let’s not forget the underlying reality of a city like New York: Not everyone is an investment banker and makes $1 million or more a year. Those “pinstriped banksters” like to be able to step outside their gleaming towers and find a place where they can buy a deli sandwich, get some breakfast in the morning, or have a drink after work.
All of those places are staffed and operated by people who don’t make $1 million a year and they need somewhere to live.
In our zeal to “welcome” Ponzi finance we seem to conveniently forget that for every bankster there are 1,000 policemen, firemen, teachers, hair stylists, deli operators, taxicab drivers, bank tellers and subway operators. All of these people have to be able to live in these cities too, lest the banksters find that they have a very nice tower on Broad Street but there are no taxis waiting outside, there is no deli at which to get a sandwich and when Joe Q. Mugger shows up there will be no cop on the beat either!
At its core this “project” was just another example of Ponzi finance. It was never economic at the current going rate in the complex for apartments that were under rent control, and could only succeed if the new owners could effectively throw out all the current tenants and replace them with the “upper crust” folks who had much more.
But by displacing those working-class folks the jobs that they represent would go away as well, and without those, well, who drives the Taxicab?
Nobody bothered thinking about that part of the equation before structuring the deal. To the banksters it simply wasn’t important.
Frenzy overtook common sense, and it wasn’t limited to New York. State pension funds “invested” in the Ponzi that was Stuyvesant and lost their shirts – Florida has written off in its entirety the coin they threw into this mess – a big chunk. In the days and weeks ahead I’m sure we’ll hear that the loss to California was 100% as well.
It would be nice to see people wake up, but so far I see precious little evidence of it. Everyone wants to talk about “politicizing The Fed” and other BS, when the real issue is far simpler – we have built a Ponzi finance system that relies on ever-increasing levels of debt in the system, and we hit the wall in terms of being able to pay. Instead of doing the right thing we decided to paper it over because it was “easier”, but all that has done is make the problem worse, and the “leakage” in areas such as this will continue to show up until finally, at long last, the bright light of recognition shines through.
When that day comes, and it eventually must, it will not be market friendly, but that day, irrespective of whether it comes with a market “correction” or a “crash”, will mark the time when our economy will begin to move back toward balance and a sustainable road forward.