A quick post on the meltdown
October 1st, 2008 | 
Author: I’d like to call ReinventTrenton readers attention to an excellent Harvard University Panel discussion on the causes of our financial crisis. These are some of the best economic minds in the country including a Nobel laureate and the Dean of the Havard Business School.
Harvard Panel on the Financial Meltdown 9-25-2008
Basically, there are two drivers to the current problem, one of which affects Trenton and the other one, not so much.
First, the one that doesn’t. In the early part of the decade, home prices were bid up due to the ripple effect of the tech bubble. That momentum induced the mortgage industry to relax lending criteria in the face of a rising market. The more lending, the more demand and the higher the prices went. That ponzi scheme eventually collapsed.
At roughly the same time, and especially in 2003, Fannie Mae and Freddie Mac loosened their lending criteria for affordable housing programs. They, along with NJHMFA, poured money into places like Trenton at sub-prime rates, 100% financing and balloon loans. They were bottom fishing, but again, as long as housing prices went up, no problem.
In a very sick and cautionary way, the two root causes are related. Congress put pressure on Freddie and Fannie to subsidize affordable housing partially in response to higher housing prices. It’s quite possible that if these lower income buyers had not received subsidization then two things would have happened: 1) Freddie and Fannie wouldn’t have failed, and 2) those same buyers would be waiting on the sidelines to buy up homes when prices fell, thus allowing the financial system to unclog itself and work like it’s supposed to.
According to the S&P/Case Schiller national house price index, home prices peaked in 2006 and since then have dropped an average of 21% nationally. In some markets, like Las Vegas, they are down more than 30%. Oddly, Charlotte NC has seen a small rise in the same time.
Not all markets have been hurt the same. Perhaps Trenton could have been among the more mildly affected. Who knows?
The only thing Mayor Palmer could have done to save Trenton people from themselves would have been to revitalize the city so housing prices continued to go up in the face of a national decline. Of course, he could have discouraged sub-prime and 100% financing for low income residents. Instead, along with the state government, he encouraged it. Ooops!
Revitalization remains the only thing Mayor Palmer can do to help going forward.
Posted in National Issues, Real Estate Development | 
Tags: Harvard, meltdown, NJ, real estate, Trenton
Thanks for the link to the panel discussion.
I fear the the impact this crisis will have on Trenton’s residents and our city’s ability to administer government. So much of what Trenton does involves taking on debt and depending on NJ. Trenton’s borrowed quite a bit which will work against it if it attempts to float bonds. The state of NJ is suffering, too, so will it be able to even meet its current responsibility or will it cut more municipal aid?
I am spooked. How about you?
I’ve only lived in Trenton for two years, so I’m more of a question-asker at this point than a contributor. That being said, what is the Mayor’s track record of completed projects to proposals? If revitalization is the only feasible option, what are the chances that the current plans (lamberton, train station, etc) will be completed within the framework of the original vision?
Walt,
There are people who track the Mayor far better than I do.
There have been some large scale projects in Trenton in Mayor Palmer’s tenure. Mostly of the “other people’s money and don’t generate revenue variety”. The ballpark, the arena and the train station come to mind. The hotel doesn’t turn a profit but theoretically is a commercial enterprise.
There was a new office building built on W. Front St. that now houses a regional office for Wachovia. There have been a few subsidized housing projects in North Trenton.
Other than that most of the big things haven’t worked out: Performa, Manex, Leewood Village, Trenton Town Center.
The Broad St. Bank project happened in spite of him.
I think we’ve got to keep in mind that Mayor’s aren’t developers. However, they do need to create a good environment for developers to do business. The Mayor thinks he’s doing a lot to help but he’s leaving quite a few easy things on the table.
You can read some of my other posts on that subject.
Dan