The federal government would pay 45% of the interest, leaving the city with only a little over half of the debt obligation. Still, it means the city would take on more debt. The latest bond offer from the Treasury isn’t as good a deal as federal grants given outright to the city through the federal stimulus program.

Reinforcing the point in yesterday’s post, Glendale officials are maneuvering within the system, evaluating which federal government carrots they want to pursue.

According to the Wall Street Journal, that filing represents “one of the largest real-estate failures in U.S. history, capping a precarious, months-long effort to juggle the crushing $27 billion debt load it shouldered in past acquisition sprees.”

General Growth is just one of many large property owners that loaded up on debt to finance acquisitions in the past few years, the article continues. They “now face mountains of that debt coming due.”

Why the Galleria, the Burbank Town Center, and more than 50 other properties are outside the filing isn’t clear. A restructuring statement on General Growth’s website says: “Certain subsidiaries, including GGP’s third party management business conducted by General Growth Management, Inc. and GGP’s joint ventures have not filed for protection.”

All malls will remain open for business, and the Glendale Galleria’s hours and operations have not been affected.

In his Traffic Court blog, David Bodamer transcribed General Growth’s media conference call this morning, during which Chief Operating Officer Tim Nolan said in response to a question on selling assets, “Our top 25 properties–some of the best in the country–could we sell 1 of those or 2 of those? Certainly that’s possible. But we think … relative to business plan we’re putting forward that’s not going to be integral part of the restructuring…. We believe we can maintain those.”

Nolan also said, “At the end of the day, our retailers want to be in shopping centers where they can get sales. We have some of the highest production shopping centers in the United States. … We take comfort from the fact that they are prioritizing our malls.”

Isn’t our collective debt load bad enough? Why compound the problem with gambling? This is pathological, not beneficial.

Those promoting “paradox of thrift,” the macroeconomic idea that spending is the only way to revive a deflating economy, are ignoring the economic interests of average citizens. As one commenter below notes, they are elevating the interests of the political system above individual citizens.

From an archived post on Redfin’s Los Angeles real estate blog, October 1, 2008, just as Redfin laid off its entire marketing department and the first $700 billion of the (continuing) bailouts was proposed:

If we break out the strategic reserves, $700 billion may keep the engine running…but for how long? Where will the fuel for debt come from after that?

I understand that businesses rely on banks from time to time for short-term funds to keep operations going and people employed. But why are American consumers (with “consumer” a synonym for “citizen”) constantly encouraged to go into debt?

Whether it is a new pickup truck, a home entertainment system, or a major appliance, your retailer has a financing plan for it. The product of this strategy is debt. The engine of our economy is debt.

The strategy is a failure and the engine is sputtering as home equity plummets and and easy credit dries up.

Why, if people are losing overpriced homes to foreclosure, should the government try to game the system? Shouldn’t home prices fall to affordable levels, allowing buyers to assume less debt? Why is our government’s solution a plan to rescue debt holders and provide more debt?

That was five months ago. Hundreds of billions more have been pumped in to keep the engine running, but it keeps stalling nonetheless. Most people won’t drive to auto dealerships and buy a new cars these days if they don’t have to, as a related Wall Street Journal Wednesday feature also noted.

Most main stream news reports and media endorse “paradox of thrift” policy arguments. Here are a few dissenters:

Positive Liberty:

Earlier in the week, the Evangelical Outpost discussed President Obama’s mortgage plan and reminded readers of an ancient Roman senator’s skeptical outlook on the redistribution of income. Quoting from Cicero:

“When politicians, enthusiastic to pose as the people’s friends, bring forward bills providing for the distribution of property, they intend that the existing owners shall be driven from their homes. Or they propose to excuse borrowers from paying back their debts.
“Men with those views undermine the very foundations on which our commonwealth depends. In the first place, they are shattering the harmony between one element in the State and another, a relationship which cannot possibly survive if debtors are excused from paying their creditor back the sums of money he is entitled to. Furthermore, all politicians who harbour such intentions are aiming a fatal blow at the whole principle of justice; for once rights of property are infringed, this principle is totally undermined.”

In Chicago there is quite a bit of skepticism and frustration over the stimulus package and the mortgage modification plan. CNBC correspondent Rick Santelli issued the infamous televised rant last week that elicited a direct White House response. Sunroom Desk filed Dennis Byrne’s Chicago Tribute column, The Slow Drip of Financial Ruin, in its links. Byrne says:

Reason is the facility of the mind used to intelligently form judgments, make decisions and solve problems. Emotions are feelings, desires, fears, hates and passionate drives–all of which are the tools that Obama deployed to sell the stimulus package to a gullible public. Endeavor to go through all 1,100 pages of this stuffed piggy and you’ll find little rational connection between the nation’s problems and its solutions–other than if we throw enough money out there, some of it will stick to the wall.
The lightning-like passage of this colossal spending package (amounting to more than the Iraq war) took just three weeks. Congress is supposed to be a deliberative body, making decisions judiciously, openly and unhurriedly. This was steamrolled.
Worse than the insult to the democratic process, however, is the substance of this lunacy. Our national debt will nudge close to 100 percent of gross domestic product, something that hasn’t happened since World War II when the threat to our country was external, mortal and real, and not of our own making.

What are they basing this on? The government stimulus package won’t create that many jobs in a few months and in the meantime the economy continues to contract as consumers have stopped spending.

An economy and financial system constructed with debt is only as good as its building materials – the assets. If the assets are massively devalued, the debt is worth a lot less. Pumping more money into financial institutions is a waste of time, as two articles in the Paperweight section point out, and Arts and Palaver notes as well.

some of the country’s biggest property developers have become the latest to go hat-in-hand to the government for assistance.

They’re warning policymakers that thousands of office complexes, hotels, shopping centers and other commercial buildings are headed into defaults, foreclosures and bankruptcies.

…the industry is asking to be included in a new $200 billion loan program initially created by the government to salvage the market for car loans, student loans and credit-card debt.

The article doesn’t even mention General Growth Properties, owner of the Glendale Galleria, and currently in desperate negotiations with its lenders to avoid declaration of default. General Growth’s financial troubles have been followed regularly by the national financial press, but this article names several other large real estate developers in trouble and lobbying for assistance.

Jack Kelly’s commentary today in Real Clear Politics says it clearly once again:

We’ve been living beyond our means on money borrowed mostly from the Chinese. Like Bernie Madoff’s Ponzi scheme, this had to end at some point, and could only end badly.

The stock market crash has sobered many of us up. We’re saving as much as we can to guard against the rainy days that appear likely in our future.

But tens of thousands of Americans make their living selling us things we don’t need and can’t afford. If we live within our means, their jobs are in jeopardy, and the recession could deepen.

The theory behind the stimulus package is that we can spend our way out of the recession. As former Sen. Fred Thompson put it, this is like telling a fat guy the way to lose weight is to eat more.

If the government bails out the property developers, will Americans buy enough of the stuff sold in their commercially leased spaces to keep their tenants? Who will bail out the leases?

That is what those companies were supposed to be doing all along. Instead, American taxpayers are now rescuing them from huge investment losses and unmanageable debt.

The big three automakers are requesting a relatively modest $34 billion from American taxpayers to build new engines and keep one in ten U.S. workers employed. They have been building and continue to manufacture physical products. Many critics have questioned the quality of their products and the wisdom of continuing to design large, gas-guzzling vehicles while waiting for the next oil crisis to hit.

Help them out!

The auto makers haven’t failed this country to nearly the extent that our financial companies have. If everyone from politicians to CEOs to mortgage brokers to consumers bears some responsibility for the irrational financial bubble and subsequent bust, the same argument can be made in defense of automakers. They’ve made what the market will buy. Unfortunately, they have to tool large factories and employ thousands of workers to do it, and they can’t change their production plans in a week or two.

All along, financial companies were taking unreasonable risks that led to a cliff dive in October. All along, automakers have been building cars – solid physical products that didn’t disappear in a few weeks like $4 trillion dollars in retirement wealth did.

Why are auto company CEOs grilled by Congress while AIG, Fannie Mae, Freddie Mac, and Citigroup executives continue to hold their jobs and receive bonuses or “cash awards”?