March 5, 2009--Snowbirding: The Great Recession

South Florida has experienced many booms and busts. All associated with real estate.

Back in the 1920s, especially during the frenzied year of 1925, thousands of real estate agents and hundreds of thousands of delirious speculators fanned out over the region, some buying and selling the same properties many times over during the course of just one day.

And then the bubble burst. Houses fell into disrepair, the swamps reasserted themselves over the recently drained land, and people were thrown out of work. It looked like Armageddon. Hope about the future was extinguished. Seemingly for all time.

But recovery came in the 1950s and then again things collapsed, but not with the same fury. And even today, though old-timers here evoke memories of past times, things are not nearly as bad as they were years ago.

Real estate is still at the heart of the problem, but this time compounded by how inventive speculators commodified real estate—taking inflated mortgages and inflating them further by turning them into derivatives, financial instruments that were bundled together and then cut up into a version of shares which they then sold around the world to the greedy and gullible.

While so-called “values” of properties soared, there was no apparent problem. No one was calling in any debts. It appeared that there was no limit to how high things could go. But then, as we know, the reckoning came and these puffed-up instruments began to implode upon themselves. So here we are.

And where I am is at the epicenter of the Great Recession. Bernie Madoff ran his ponzi scheme from just up the road in Palm Beach, but his more-than-willing “investors” range up and down the Treasure Coast and reach right down here into Delray.

Bernie is the poster boy for the Great Bubble that was our economy, but his 50 billion dollar scam is just a blip on the economic seismograph. Sure we should beat up on him and direct outrage in his direction. We do need to have an emotional outlet to express our rage. But let’s not lose sight of how this actually happened—how our government, regulators, bankers, brokers, and our own intoxication with the possibility of riches are responsible. And be sure to talk to people here so as not to avoid encountering some of the human costs of this national binge. A toll that twice-daily beach walks cannot erase.

Take Rita, for example. Though not her real name, we encounter her frequently at one of our favorite restaurants where she is a waitress. She is a coil of energy and optimism though to keep things going for herself and her son—to be able to make her mortgage payments, put gas in the car, and food on the table—she has to work three jobs, seven days a week.

I have never heard her complain, but she understands what’s going on and knows it isn’t her fault. She never refinanced, though tempted, to take any equity out of her house to spend on an easier or more fun-filled lifestyle. Rita has always been one to keep her head down, make sure her kid goes to college (he is in his second year at Palm Beach Community College and himself works two jobs), and try to save a few dollars for her, as she puts it, “old age.”

Barry had an interesting life. Originally from Pennsylvania he ran off to the army while still a boy and served for a decade mainly in Asia. After his discharge, under the cover of working for an American business with an office in Hong Kong, he was in fact a spy. He claims nothing James Bond-like ever happened to him, but he was and is a good guy who believes devoutly in his country and did everything they asked of him. Maybe one day he’ll tell me more of the details since I suspect he hasn’t told me the full truth about his exploits.

After leaving the service, he did a bunch of things, ranging from a stint in telecommunications to another selling insurance. He never married and was always a good saver. Now in his early 70s, with a mild heart condition, he has seen, like so many, about half of those savings evaporate. He never did anything wrong when it came to money. In fact, he did all the right, conservative, diversified things his accountant and lawyer advised.

So now he worries about his future. As he put it the other day, “To tell you the truth, I probably don’t have all that much of a future. My doctor tells me my condition could worsen tomorrow and I’d need a big operation and then most likely have to move into assisted living. I have a nice apartment but who could sell it at this time. I’m alone. My wife died years ago and I don’t have any kids. So I’m on my own. If I need it, how will I pay for my care? I did a lot of crazy things in my day—especially overseas—and never was sacred. Now, I’m terrified.”

Then there’s Kathryn. Also native to the area, she worked for the same furniture company for 26 years. Never missed a day and was highly thought of by the owners. About a month ago she and three other long-term employees were called to a meeting with their boss. To say the least, they were nervous. But they were relieved to learn that though times were bad—of course they knew that—their jobs were not in jeopardy. They were relieved to hear that and to relieve their tension went out together for a drink.

That was on a Wednesday. Two days later, Kathryn and her colleagues were called back into the supervisor’s office and told that that this would be their last day. In fact, it would be necessary to leave immediately. Someone would help them pack their things. And, oh yes, in addition to unemployment the firm hired a job counseling service to help them, at no cost to them, find another job.

That was it. Nothing more was said. Not a word about what had happened between Wednesday and Friday.

Kathryn is not only worried about herself but about her mother who recently had a series of strokes and now requires regular medical attention and in-home nursing. She does have long-term care insurance but its lifetime limit is about to be reached. Kathryn knows that as her only child she will be on the front line until . . .

Murray’s also got problems, but of a very different sort. He’s in the scrap iron business. He divides his time between Chicago and Delray. He’s done well. He’s the first to admit that. And he’s also the first to admit that he’s a big spender. Too big. . He’s a car guy. Murray has four very expensive, vintage cars. He has a compulsion about them. Two up there and two down here.

The problem is that he has big loans on all of them and is having trouble making the payments. His business is still good but has fallen off some. And as you might imagine from his thing about cars, he’s a high roller and speculator. The bottom has fallen out on that part of his little empire and thus he is cash poor and in danger of losing one or more of his cars. He’s thinking about selling one or two them, to consolidate, and maybe that way manage to hold onto the other two. But the market for cars of this kind is also soft. With a smirk he calls it “trickle down.” How when the larger economy gets into trouble it trickles down on almost everything, including his old cars. He tells me that if he could vote again, this time he’d vote for Obama.

Finally, there’s Tommy. He owns a tow truck and up until recently was doing pretty well. He’s a great guy, honest as the day is long, which is not always the case in his line of work, and thus has a loyal clientele. But some of his regular customers—for example, a taxi feet with which he has a contract—are hurting and cutting back on taking care of their cars. Thus, when one breaks down, they just let it go since business for taxis is way off. Or if a family that has two cars has one that needs a new transmission, they figure out how to make do with their other car since they don’t have the money for the repairs. And thus don’t call Tommy to tow them to the shop.

So now at breakfast, where Tommy usually has bacon and eggs and potatoes and toast, I notice he’s been cutting back on his order. Yesterday I noticed he didn’t have any bacon or a side of hash browns.

But like with Rita and Barry and Kathryn and Murray, I don’t sense any anger from him—though that would be understandable—or any feeling of despair or entitlement. He and they know this area’s history and are patriotic to the core and thus believe that America’s best days are still ahead.

Even if they’re wrong about the country’s future, they know something else--how to work hard and survive no matter what comes their way. They’ve seen it; they’ve done it.