One of the hazards of the "clean sheet of paper" approach is that historical models often have armor against rare-but-critical events that are difficult to anticipate.
For example, I once participated in the introduction of a new model of automobile that used the "clean sheet of paper" approach. One deliverable involved several systems so it was not clear which department was responsible for validating it.
When the vehicle was tested (for being compatible with the three most common forms of tow-trucks), the referee determined that it has sustained $2400 worth of damage. Imagine gentle sliding your vehicle into a ditch only to have the tow-truck inflict over $2k of damage! In retrospect, many of the seemingly non-functional features on the vehicle's predecessor armored it against damage from towing.
Social Democrats
The Communists who rebranded themselves as Social Democrats are remaking America using a "clean sheet of paper" approach.
In their zeal to protect "the working class", the Communists made property owners the "bad guy" and are punishing them with increased property taxes and by freezing rents.
For the young kids who were not paying attention in school, Communists hate private property and the people who own any.
One high-profile investor, Sergey Brin, dumped the stock he owned in a Real Estate Investment Trust that owned and managed apartments in New York City. It was reported that he decided it was better to sell at seven-cents-on-the-dollar of his original investment that to stay invested and get whacked for assessments that would put him underwater.
Let that sink in for a moment. In the opinion of a guy having a net worth of about 1/4 Trillion dollars, having your name on a deed to a piece of income property in New York City is not an asset. It is a liability.
Since property tax revenues are the product of multiplying the assessed value of the property by a fixed (but rising) tax rate, any changes to the assessed value of the property will impact the revenue collected by NYC.
In the baldest possible way, Sergey Brin just told Mamdani and the other Communists that the market value of vast swaths of NYC commercial real estate is now only worth 7% of what it was circa 2019.
All of the other holders of real estate are watching. Wanna bet that there is a line of property owners at the assessor's office demanding that there assessments be adjusted to the new reality?
A secondary effect is that it will lock up credit. The book-value of the property serves as collateral for loans. Those loans are used to finance upgrades like more efficient heating and cooling, WIFI and communication infrastructure, mitigating environmental hazards like lead and asbestos and cockroach dander. The wholesale destruction of the book-value of NYC's (and Seattle and Chicago...) property will paralyze the access to the credit needed to maintain the desirability of the individual properties and ultimately the desirability of the city.
But wait, there is more...
Brin bailed out of a sinking ship. The REIT he bailed out of owns thousands of rental units. When the REIT reorganizes or liquidates, it appears likely that nobody will step-up to assume the responsibility of managing the multi-family buildings. That is, collecting the rent and to paying the taxes and utility bills and executing the basic blocking-and-tackling of doing what needs to be done. Nobody wants to take a bite out of that poisoned apple.
The REIT Brin abandoned is just first of many.
So how is that going to work when the boiler in the cellar craps-out in January? The REIT was vaporized. Will the city suddenly open a department filled with property managers? Where will they come from? Who will pay their wages or will Mamdani expect them to work for free? Where will the budget for replacing the boiler(s) come from? Who will evict the dead-beats and the drug dealers?
How are the Communists running NYC going to handle the evisceration of their property tax revenues? Albany cannot print money. Trump is unlikely to rescue them. There was a system with checks-and-balances in place. The Communists took a wrecking ball to it. That wrecking ball also destroyed the trust investors had in institution of NYC. A glib "My bad. Come back" isn't going to cut it.
It's not just the REIT, it's the people across the country that have their pensions invested in the REIT through a 401k... There's going to be ripple effects downstream. What happens in a couple of years when people with limited equity in their home or condo decide that it's not worth it and mail the keys? It'll affect the suburbs too. What happens when the contagion radiates up the Hudson Valley to all the commuter communities? When IBM and GE pulled out, it destroyed communities in upstate NY. I saw it! I saw what it did to families and their finances. It affected me personally because I worked in the area. It hurt my wallet and I was just a worker in an automotive shop. People suddenly didn't have money to spend on the basic necessities.
ReplyDeleteThe largest employer in New York is New York State... There's not much of a market driven economy there anymore. A tax revenue crunch now is going to be the death spiral for the state. The middle class will flee to other states. And that will affect wages negatively. Second and third order effects are a real thing. And FedGov will bail the state out as best they can, because the politicians in DC ain't spending their own money. There's no upside to this that I can see. Except maybe destroying the current debt based currency, thereby forcing America to go back to a sound currency. We'll see how it goes...
Rochester N.Y. took it on the chin when Kodak's main market went digital. I wonder how much help they got from Albany and D.C.
DeleteInstitutions that the locals thought were eternal were hollowed out and some disappeared.
The natural reaction of banks won't just be to stop offering loans that facilitate repair or renewal. They will want the balance paid down. Or not offer renewal terms at all. Foreclosure after foreclosure is bound to ripple outside of those three big cities. I saw somewhere that Trump had about $800,000,000 in property in NY. So Trump has an even greater incentive than his inclination to do what is good for America. The problem is the commies need a crises to take power so their incentive is to screw everyone involved.
ReplyDeleteRoger
DeleteSeems like Trump's 800 million has suddenly become 56 million.
DeletePerhaps crisis and chaos is the goal?
ReplyDeleteMany moving parts (factions), but if destruction of America was your goal and crippling the stock market and all that was the crisis you wanted to "Prove Capitalism" is evil and force a coup de main to Socialism how better a plan can you ponder?
911 allowed the "Patriot act" that created a ever powerful police state.
Will collapse of the current debt based currency create a powerful police state tool of CBC's (Central Bank Currencies) where every dime you spend is monitored and controlled by the AI bank?
Sorry comrade, your social score is too low, no gasoline for you. May I suggest a "struggle session" to improve your score?
History shows the truth of
"Give me control of a nation's money and I care not who makes it's laws" — Mayer Amschel Bauer Rothschild
The Rothschilds funded both sides of the Napoleonic Wars.
There are plenty of DSA backers that will buy up the property at pennies
ReplyDeleteon the dollar and cut back room deals with their comrades in office. Greed and power are as rife in the communists as they are in the democrat and republican parties.
LOL the human nature of greed prevents "True Communism" (SPIT) from becoming a reality, err Glorious Future.
DeleteGeorge Bernard Shaw — ‘If at age 20 you are not a Communist then you have no heart. If at age 30 you are not a Capitalist then you have no brains.’
There are currently a lot of people with "no brains".
DeleteBanks seldom carry their own loans but sell them in packages of their own and other banks loans on the investor market. When NYC goes down the whole market will follow for lack of mortgage buyers. . No more money for banks making loans in Kansas City or anywhere else. If you have anything to sell or to get out of do it now. ---ken
ReplyDelete"*Since property tax revenues are the product of multiplying the assessed value of the property by a fixed (but rising) tax rate, any changes to the assessed value of the property will impact the revenue collected by NYC*"
ReplyDeleteInteresting -- NH calculates the tax bill in the other direction -- town residents vote a town budget, the town submits their budget to the state, and the state sets the tax rate such that each town can collect only the exact amount of revenue needed to cover the budget the voters approved.
This works well, the tax rate is floating and as long as your property (or class of property) doesn't diverge in appreciation/depreciation massively from the rest of the property in town, the percentage of the town budget you cover relative to your neighbors stays about the same.
The NH approach does go wonky when commercial property takes a huge hit in valuation while residential skyockets...
To take the communist approach to its historical end, the city will take over the buildings and operate them. They will offer the nicer properties to loyalists. The less desirable properties will be rented to city and union workers. Anything a renter says or writes will cause them to be evicted. The more properties the city owns, the more control they have of the polpulace.
ReplyDelete