Don’t get me wrong, we’re capitalists here. Myself, unabashedly so.
Without a doubt, we are enjoying a vitalizing economic upswing unique to San Antonio’s history. We are also, without a doubt, at the peak of that upswing, with many upstanding citizens reaping substantial benefits, not the least those toiling at the trigger end of the real estate business, namely agents and brokers.
These are the best of times, or so some say. But peaks are defined as much by their rise as by their drop. And some folks just don’t learn.
For anyone who lived through the great Texas oil bust of the 1980’s, there should be reason aplenty to be cautious about the apparent headiness of the oft-touted economic growth in the region, especially in San Antonio.
Many are quick to buy into the notion that Texas -more specifically San Antonio- is immune to the risky vagaries of national or global economic trends. The local punditry point to our solid economic base as an example of how the ups and downs currently affecting financially sophisticated environments will not be an issue here.
The wishful thinking runs to rising residential real estate prices, a growing base of commercial development, a steady influx of people from other parts of the country attracted to our quality of life, and the relatively inexpensive lifestyle we seem to enjoy. And then there’s Toyota, the general catch-all for any example provided as a reason for our economic health.
Let’s take a closer look at some of these touted truisms.
The solid economic base everyone talks about, the backbone of our stability, comes from interpreting the regional economic growth curve posted by the local office of the Federal Reserve. The growth curve (if it can be called a curve) has been, for several decades, a relatively continuous flat line, unfettered by pronounced upward or downward movements. As statistical data goes, this graph can be interpreted to suit any agenda, and of course, the cheering section construes the flat line to be a reflection of our economic stability. But that same flat line can also be used to indicate that there is no real net economic growth, and furthermore, that inflationary upswings or reduced consumer spending would have a less than salutary effect on the region’s way of life.
But hold on… Inflation, you ask? Is not everyone involved in a national discussion about recession? Well yes, but that discussion takes place in relatively sophisticated environments (regions that are either ahead of the economic curve, or bell-weathers of that curve) where there is a more pronounced and immediate effect from the dropping value of real estate, and how this drop impacts purchasing power and production.
Lower interest rates are more likely to stir up inflation in an environment of economic risk than higher rates are to cause a recession. Especially in a relatively passive economy like San Antonio’s.
For all the talk about enjoying the benefits of a New Economy surge and the said increase in information technology jobs, a vast majority of San Antonio’s workforce is employed in the low-wage service sector. As a result of the escalation of consumer prices in the last year (an indirect result of the real estate crisis in other parts of the country, and the direct result of oil prices and a grocery goods monopoly in South Texas), these service-sector folks are having a harder time making ends meet.
To this last point, much has been made of the Residential Subprime Mess, and it still is the buzzword du jour, even if it yet has to make its fallout felt in South Texas. But there are newer buzzwords on the horizon, and their correlated effects have not crept into the general zeitgeist because the downside has not been publicized or factored into the economy as a whole. This new wave of bogeymen are the Credit Card Debt, the Business Credit Crunch, the Insurance Credit Swap, and the Commercial Subprime Mess. These puppies are down the highway, just around the bend, heading home.
We all know about the subprime problem in residential development, yet most of us are not fully aware of the subprime prevarications endemic to the development of commercial property. Just as the sages in charge of lending out easy money for new unqualified homeowners were about to eat their cake, the elves in commercial development were striking their own sweet tricky deals as well.
Inappropriate commercial subprime deals have been much less a part of public discussion because the number of “victims” is smaller, the deals are more collusively private, and the borrowers tend to be much richer (not as easily victimized). But the dollar amounts involved in bad commercial loans are huge, much bigger than the 100 billion-plus write-off in residential loans.
These subprime, commercial development loans have triggered a commercial construction boom unseen for decades (hence my reference at the top of this essay about the Texas Oil Bust, which also took down commercial real estate values and investments, the effects of which lasted at least 15 years), and it is my opinion that a good percentage of the current commercial and multi-residence development in our area is the result of subprime speculation as well. These particular subprime borrowers are wealthy individuals and companies, leveraged to the max, speculating that the market will find them and catch up nicely before their loans come due. Sounds to me like betting the house (or in this case the condo development) on the back of wishful thinking.
These investors and their lenders will take the hit in relative stride; their fortunes mildly impacted by the woes of substandard financing and a reduced demand for their speculative developments. Workers in the low-wage sector however, and many in the middle-income sector are hocked to the hilt (for that matter, many high-end wage earners are also in deep hock, but they do not a majority make) and are almost completely dependent on their credit cards, barely making their minimum payments every month; and could be devastated by an impending interest rate increase, which ironically does not reflect the actual interest rate decreases implemented by the Federal Reserve.
Credit card rates are arbitrarily -and unwarrantedly- set by card-issuer banks and are a truer reflection of the economic situation as a whole. After all, gyrations in the Federal Funds Rate and the Federal Interest Rate apply mostly to people and entities for whom an economic downturn is just par for the course. For you and me, the actions of the Federal Reserve do have a long-term impact but hold little immediate, day-to-day relevance.
Speculative commercial developers are a major source of employment for the credit-to-the-max, low-wage earners mentioned above. If speculative commercial construction slows down (remember, there’s an ongoing, nationwide moratorium on housing starts, which in the last few years, as we now know, was highly speculative as well), credit card minimum payments will not be met.
With the residential real estate downturn soon to arrive (San Antonio, contrary to our self-delusional real estate agents, is not immune to anything, it just enjoys -or suffers- a lag to the rest of the national economy); the credit card default being a potential problem, and the commercial subprime problem looming, we’re left only with the steady influx of newcomers searching for cheaper homes and warmer winters as our ace card; which historically has not been the best bet either.
Aside from the mid- and upper-level managers moving here to staff new companies -which are relatively few; many of the recent transplants are retired, living on fixed incomes which are currently in the process of diminishing as interest rates go further south, and who do not contribute much to the growth of the local economy even if they do shoulder their share of an outsize property tax.
Just keep this in mind: The really wealthy Californians stayed at home. Those who became wealthy by the luck-of-the-real-estate-draw, sold their properties and moved here in search of cheaper living arrangements. The truly wealthy, about whom one could make a good case for economic development, are not here. Instead, we have a whole new crop of retirees who yes, will shop for clothes and groceries, but will not be economically productive or proactive, and who will fight every property tax increase as soon as they figure out they’ve been had.
To this effect let’s make one thing clear: Property taxes are a source of public revenue, not an indicator of economic growth.
There is an outsized perception that the county’s property tax surplus is a steady, ongoing, yearly bonus; a fiscal entitlement for being diligent and succesful in the upwardly purchase of homes. Many in our community are under the mistaken impression that this tax bonus is a reflection of economic growth and that several years of budget surpluses are coming our way. City and county officials are pushing this notion hard, using the timeliness of the current surplus to forward political agendas, issuing municipal bonds, creating public debt like there won’t be a day of reckoning.
Like I said at the top: I am unabashedly a free-market capitalist, a globalist, and by extension an optimist. There is no doom-and gloom scenario that I subscribe to, and I happen to believe that the national and global economies are, in spite of the current correction, very much on-track; with new sources of jobs and wealth constantly in the making, created incrementally -not exponentially as our civic leaders would like to believe- by regular folks in ways that are initially difficult to understand and measure.
But as I look around I see many liars at work in our city, mediocre managers of public trust and of other people’s moolah. I see them lying to promulgate unsustainable pet projects and me-too initiatives. I see lines of minions pathetically waiting for the public trough largesse to spill over. I see self-delusion and self-aggrandizement. I see small minds and shallow ambitions. I see business as usual in an unusual business climate.Â I see a whole lotta lyin’ goin’ on.
I do dislike lies. And bad liars even more.
It is all in the making and it is what we make it to be.