• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • How Smart Growth Policies Helped Paulson and Goldman Sachs Short Housing

    Everybody now knows that the hedge fund at the center of the Goldman Sachs SEC complaint, Paulson & Co., made a fortune by selecting credit default obligations made up of high risk mortgages. What is less well known is how Paulson picked mortgages. The Wall Street Journal reports: “According to the SEC complaint, [Paulson and Company head John] Paulson especially wanted to find risky subprime adjustable rate mortgages that had been given to borrowers in California, Arizona, Florida, and Nevada—states with big spikes in home prices that he reckoned would crash.”

    What do these states have in common? Heritage fellow Ron Utt notes:

    Not surprisingly, one key reason for escalating home prices in these four states was their tight regulation of land use, which created artificial shortages of developable land at a time when sales were soaring and credit plentiful. … According to RealtyTrac, by 2008 nine of the 10 areas with the highest foreclosure rates were in California, Nevada, Arizona, and Florida, while 18 of the top 20 were in urban areas that Brookings includes in its most restrictive category, including California, Nevada, Arizona, and Florida.

    By early 2010, foreclosure and delinquency rates compiled and reported by Lender Processing Services revealed that mortgages in Florida, Nevada, and Arizona were the worst three performers in the country and that California was the fifth worst. Nearly a quarter of the residential mortgages in Florida and Nevada were “non-current”as of early 2010.

    But don’t worry, President Barack Obama has decided to re inflate the bubble in these five states with $1.5 billion in bailouts for delinquent borrowers. Worse Obama administration Transportation Secretary Roy LaHood wants to create new bubble zones:

    Other pending legislation and policies—notably the draft of the transportation reauthorization bill and the many statements by Transportation Secretary Ray LaHood on the need for greater housing and population densities—will make things worse by pursuing counterproductive policies endorsed by the President’s environmental supporters. As recent Heritage Foundation reports have revealed, both the legislation and the proposed policies have as one of their chief purposes the encouragement of the type of land use regulations that led to the house price inflation in the four states whose mortgages Paulson targeted for opportunity based on potential failure.

    Posted in Economics [slideshow_deploy]

    4 Responses to How Smart Growth Policies Helped Paulson and Goldman Sachs Short Housing

    1. Billie says:

      From the very beginning, it is contemptuous to suggest "everybody has a RIGHT to a house?" In The America teachings, everyone has a right to BUY a house at their own expense! But the social conditioning grew with government backing to where there are people who received loans they couldn't pay back, whose homes are modern and large compared to the ones who are responsible to their mortgages. While they live in homes they can't afford, well, who has enough money for food and children? It goes on and on. It's another overreaching stab of fed government in the back of America and those the government holds as inferior.

    2. Robert, New York says:

      Smart growth is compact, mixed-use, walkable development, preferably near transit. There’s not much of that in Arizona, Nevada, Florida, and California. Most of what can be called smart growth in the four states was built prior to World War II, when there were few regulations. Most of the built environment in these states is unmitigated sprawl, which is a perfect reflection of what the zoning and regulations have required. In other words, the regulations have created sprawl.

      That’s no surprise. Most zoning restricts density and separates use. The author confuses land use regulations with smart growth. Nothing could be further from the truth. Land use regulations can enable smart growth, but only recently have planners and officials figured out how to do this.

      Moreover, if you look at the pattern of foreclosures in every state, they are concentrated where the regulations have required sprawl. The closer one gets to the center of metro areas, the fewer foreclosures are found. These are the areas, even in the four states mentioned, that come closest to smart growth. The patterns show the exact opposite of what the author is claiming.

      The author is strong on ideology — weak on observation and understanding of the land use regulations.

    3. southernsue says:

      my sister works in foreclosures in south carolina and she says myrtle beach has been the hardest hit.

    4. Pingback: The Foundry: Conservative Policy News Blog | The Ruthless Truth blog

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×