Florida real estate: Life among the toxic assets

Florida is not the only state in trouble over real estate going sour. Many other US states and sovereign countries around the world will suffer debilitating losses that will significantly impact the financing for government operations. The following ten to fifteen years will see the advent of hundreds of ghost towns in places like Dubai, Spain, Cyprus and, indeed, Florida and California.

What most people do not realize is that dealing with ghost towns costs money. A ghost town is a huge drain on state resources because they either have to be torn down and cleared or they have to be patrolled and secured. If they are not torn down and cleared and they are not secured, they will become hot beds of criminality and drug peddling thereby costing even more materially, socially and medically. Where disputes arise, legal costs will be horrendous for the state and/or former owners.

Whichever way you slice it, this can be nothing but deflationary. Ghost towns will require local and state governments to divert significant resources to deal with the problem and these are all resources that will not be spend on other things like education, public transport, health….  Too, each property that is abandoned and each community that becomes a ghost town takes a chunk out of someone’s balance sheet. When a house that sold for six figures five years ago is now sold for just over three figures as is the case in Detroit, the “value” that is being taken out of balance sheets of builders, contractors or banks is astronomical. When balance sheets are devalued, the pyramid of financial instruments that was built on those balance sheets (derivatives) is debased. The problem is that derivatives operate at multiples of the value of the balance sheet they were built on. Thus, when you take out a value of 100 from a balance sheet, you are destroying 20, 30 or as was the case for Lehman, 70 times that amount in derivatives… and we have a very long way to go before the dust settles on this boondoggle….

http://www.dailyfinance.com/2009/04/22/florida-real-estate-life-among-the-toxic-assets/

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