Root of the Problem

Statement by Treasury Secretary Henry M. Paulson, Jr. on Financial Rescue Package and Economic Update, Wednesday, November 12, 2008, (Full Text Here).

While Treasury's plans to roll up the Troubled Asset Relief Plan (TARP) for troubled mortgage-related assets - its original mission - and unfurl it over a different section of the mess, namely additional capital support for banks and non-banks and to shore up faltering consumer-credit securitization markets, received the headlines of the 24-hour news cycle, almost overlooked was Secretary Paulson's identification of the root of our extant problems (hat tip CK Michaelson at Some Assembly Required):

"But let us not forget one fundamental issue which lies at the heart of our problems. Over a period of years, persistent and growing global imbalances fueled a dramatic increase in capital flows, low interest rates, excessive risk taking and a global search for return. Those excesses cannot be attributed to any single nation. There is no doubt that low U.S. savings are a significant factor, but the lack of consumption and accumulation of reserves in Asia and oil-exporting countries and structural issues in Europe have also fed the imbalances." (Emphasis Ours.)

This paragraph is toward the end, before his concluding remarks. It implies if not for the thriftiness of Asians and Middle-Easterners (mostly Asians) and the accumulation of reserves in those countries, which were lent back to the United States in the form of Treasury and Agency debt purchases to offset the complete lack of savings in America, our low interest rates and consumption binge of the last decade (two?) could not have been enabled.

Ah, so it's their fault. Their propensity to save, instead of consume, enabled our low-interest consumption blow-off. Unfortunately, if Asia and the Middle East decide to begin consuming in earnest (less likely short term), or choose not to recycle their savings into U.S. government debt (increasingly likely), an immense funding demand by the Treasury to support the unprecedented bailout and deficit spending programs of this country is destined to result in higher interest rates in the future - perhaps much higher - as the government crowds out other borrowers in its insatiable quest for fresh funds.

What a relief: It's all their fault. Oh, and those pesky structural issues in Europe. Of course our abysmal, nearly non-existent savings rate is a factor, but at least it's not OUR fault. Check please.

Revisiting the Beginning of the End

With the crystal clear clarity of hindsight, we bring you highlights (lowlights?) from the week that was in late June 2007, the week which, in our minds, officially kicked off the "sub-prime" mortgage loan crisis.

Unofficially, anecdotally, the beginning of the end most likely occurred in mid-February 2007, when Blackstone co-founder, CEO and Master of the Universe Stephen Schwarzman gave himself a "let-them-eat-cake" 60th birthday party in New York, featuring performances by Rod Stewart and Patti LaBelle for the 500 or so guests and rumored to have cost anywhere from $3million to $10+ million. (More on that, below...)

In early 2007, we didn't know it at the time (well some of us did: Paul Volcker, Nouriel Roubini, Bill Bonner, Mike Shedlock, Eric Janzsen, Doug Nolan, Yves Smith, Peter Schiff, Calculated Risk and Tanta, and Barry Ritholtz to name but a few), but the mid-year implosion of two Bear Stearns RMBS hedge funds the the lit fuse which since has detonated a global liquidity/credit/deleveraging/solvency crisis of biblical proportion now measured in trillions of dollars.

But back to late June 2007, "the week that was" to revisit the official beginning of the end.

On Wednesday, June 20, 2007, Merrill Lynch seized about $800 million of assets from the two funds and sold a sufficient amount to cover its loan exposure, prompting Bear Stearns to buy back assets and set up a $1.6 billion loan to the two hedge funds to avoid further public sales - and pricing - of the troubled assets.

In the same week, on Friday June 22, 2007, Masters of the Universe Stephen Schwarzman, Peter Peterson, et al, of Blackstone Group took advantage of the greater fool theory and brought their private equity group public at $31/share, offering 133 million shares and raising more than $4 billion plus another $3 billion from a Chinese Sovereign Wealth Fund, and briefly valuing the firm close to $8 billion.

At Friday's (11/07/08) closing price of $7.51/share, Blackstone Group's (Symbol: BX)market capitalization hovers around a quarter of its IPO valuation at under $2 billion.

From CNNMoney.com on June 20 2007:

Merrill Lynch has seized about $800 million of assets from troubled hedge funds managed by Bear Stearns, throwing in doubt the chances that the funds will survive.

By late Wednesday, Merrill Lynch had sold enough of the assets, which were used as collateral for loans made to the two funds, to cover its exposure to the ailing funds, the news agency Reuters reported.

Efforts by Bear Stearns to rescue two hedge funds hit by bad bets on subprime loans appear to be faltering.

The assets were were mainly bonds backed by other securities. More asset sales are expected Thursday.

And from the New York Times on July 18, 2007:

The drama surrounding the two funds began in May when investors in the more leveraged hedge fund were told losses through the end of April totaled 23 percent, not 10 percent as they had been told earlier. As securities markets declined, even the more conservative fund registered losses starting in March.

Investors tried to get out of the funds, but in May, Bear Stearns halted redemptions. Shortly after that, several banks and brokerage firms that had provided loans began demanding more cash as collateral. On June 26, Bear Stearns said it would offer a $1.6 billion loan to shore up the more conservative fund and unwind its positions.

In yesterday’s letter to clients, Bear Stearns said that some $1.4 billion of the loan remains untapped.

While risky mortgages are thought to have been central to the funds’ misfortunes, Bear’s letter said that “unprecedented declines in the valuations of a number of highly rated (AA and AAA) securities” contributed to June’s woeful performance.

The more conservative of the two Bear Stearns funds was the older; established three years ago, it generated monthly gains of roughly 1 percent to 1.5 percent until March. Bear Stearns started the more leveraged fund last summer, just as the mania for mortgage securities was topping out. At their peak, the funds were valued at $16 billion, including the leverage that they used.

The announcement that the funds are now almost worthless came as a surprise to many on Wall Street. “How did you go from reporting very high returns to suddenly now saying the collateral is worth nothing?” asked Janet Tavakoli, president of Tavakoli Structured Finance, a research firm in Chicago.

And Blackstone's Mr. Schwarzman, whose declining net worth now makes him eligible only for "Master of the Solar System" status? He now "regrets" the February 2007 birthday bacchanalia (or, perhaps, regrets more the publicity surrounding his birthday largesse).

From the October 31, 2008 New York Post:

Wall Street master of the universe solar system Stephen Schwarzman might be a man with few regrets, but even he has now admitted what everyone else on Wall Street already knew: His lavish 60th birthday party in 2007 was a bit over the top.

"Obviously, I wouldn't have wanted to do that and become, you know, some kind of symbol of sorts of that period of time," Schwarzman lamented yesterday at a conference in New York. "Who would ever wish that on themselves? No one."

Though well known in financial circles, Schwarzman, CEO of buyout titan Blackstone Group, came to symbolize Wall Street's excess after he spent $3 million hosting a swanky 60th birthday party for himself at the Park Avenue Armory in February 2007.

The soirée attracted lots of bold-face names among the 500 attendees, including finance's heavy hitters and entertainers like Patti LaBelle and Rod Stewart, who provided live entertainment.

It also eventually garnered Schwarzman considerable grief as many began to view the party as the beginning of the end of Wall Street's gilded age.

Indeed, the birthday celebration, followed a few months later by his $8 billion jackpot from Blackstone's initial public offering, and stories about a posh lifestyle that included costly crustaceans, transformed Schwarzman from a Wall Street king into what one magazine called a "poster child for greed." (All emphasis ours.)

What a week that was in late June 2007, the official beginning of the end, and a mid-February birthday bash which marks the unofficial beginning of the end.

All we need to know now is: If the first six months of 2007 were the beginning of the end, are we now at the "end of the beginning" of the global liquidity/credit/deleveraging/solvency crisis of biblical proportion now measured in trillions of dollars? Time will tell.

What Now?

The longest presidential election campaign ever now is history, as voters made their choices in the midst of an economic storm the brunt of which made its presence known in an almost unprecedented two months prior to election day earlier this month.

Americans voted for change, yet it will be the deteriorating economic environment here and abroad which will dictate many of the policies and much of the course of the new administration.

Democrat Barack Obama made history as the first African-American president-elect. The President-elect's choices for key cabinet positions will be telling, and, in the case of Secretaries of Treasury and Defense, the announcements will come preferably sooner rather than later.

More importantly, from an economic perspective, Democrats built a bigger majority in the House of Representatives and took a solid, though not filibuster-proof, majority in the Senate, so gone, at least for two years, will be the opportunity for legislative gridlock. A redeeming feature of our democratic republic, however, lies in our frequent ability to “correct” an imbalance of political power if it is found to have created the capacity for too much fiscal mischief.

But we mistakenly skip ahead to things unknown. We, and the new Administration and Congress, have more pressing issues requiring our collective immediate attention.

Namely, a rapidly deteriorating global economy currently connected to the life-support system of government and central bank interventions now surpassing $3 trillion and a growing number of developing countries in line for International Monetary Fund extensions of credit, including Iceland, Pakistan, Argentina, Ukraine and Hungary.

And the very likely expansion of our federal budget deficit to more than $1 trillion, possibly $1.5 trillion, in FY 2009 which ends next September. For grim perspective, the cumulative federal budget deficits under the entire eight years of the Reagan administration totalled slightly more than $2 trillion.

The president-elect inherits an economy which has shed more than a million jobs in a year, almost half of which occurred in August - October, and a 14-year high unemployment rate of 6.5% (11.8% according to a broader measure including the under-employed, those part-time employees wanting but unable to find full-time work).

America's consumer economy is beginning to shut down in self-reinforcing, circular phenomena of slowing business, job losses, credit contraction, declining tax receipts at all levels of government, pension and investment losses, real estate losses, foreclosures, repossessions and bankruptcies.

Never mind no “official” declaration of recession has been forthcoming. That will come later, perhaps early next year, when it is announced that the current downturn likely began in November 2007.

In the meantime, it certainly feels like a recession, and when consumers both voluntarily and involuntarily curb discretionary spending, it becomes - fait acompli - a recession.

Retail sales have been deteriorating, with many chains seeing October same-store sales falling by double digits ahead of what may be the leanest holiday shopping season in two decades, despite falling gasoline prices, now under $2/gallon in Texas and Oklahoma, taking some pressure off consumer spending.

Shoppers are trimming wish-lists, looking for bargains and "branding-down," to stretch dwindling holiday budgets, and retailers, for their part, are offering huge discounts well-before the traditional post-Thanksgiving start to the shopping season.

Year-to-date U.S. automobile/light truck sales have fallen more than 14 percent, but October auto sales were grim, plunging 38 percent across the board and registering annualized levels not seen in 25 years as buyers avoided showrooms in droves. Prospective buyers now sense better deals ahead and wait.

Auto dealers wait in hope of better-qualified customers as lending standards are tightened (GMAC recently cut off new loans to buyers whose credit scores fall below 700, which effectively excludes more than 25 percent of potential customers.)

GM and Ford shares trade at 50-year lows after reporting massive third quarter losses which, though alarming, are of less concern than the rapid rate at which the automakers are churning through their cash and credit facilities, the so-called cash flow "burn rate."

In 3Q Ford posted negative cash flow of $7.7 billion and General Motors burned through $6.9 billion of cash. At this pace neither company has sufficient cash and credit reserves to survive through 2Q 2009 at best, possibly earlier.

Outgoing Treasury Secretary Paulson's TARP, the $700 billion troubled asset relief plan approved after acrimonious Congressional debate in October, now may be stretched to cover the ailing auto industry as well.

Automaker troubles are not limited to North America. In Europe, heavy truck maker Volvo saw new orders fall by 55% in the 3rd Quarter, but combined with existing order cancellations, the continent's second-largest manufacturer registered net sales of only 115 vehicles, a 99.4 percent decline from the 42,000 units sold a year ago.

State and local governments also are coming to grips with declining income, sales and real estate tax revenues. California governor Arnold Schwarzenegger is proposing a sales tax increase and employee layoffs to patch a $12 billion deficit and Los Angeles is facing a $400 million shortfall.

New York City must now “borrow” a billion dollars from its health-care trust to shore up its battered pension fund as its Wall-Street dominated tax base evaporates in the wake of tens of billions of dollars of losses the last year posted by the city's financial sector, and New York state now projects a 2009-2010 deficit of more than $10 billion largely for the same reason.

Financial losses in stocks and real estate now are estimated to exceed $10 trillion from a year ago, and one of the principal engines of consumer spending, mortgage equity withdrawals, have nearly ground to a halt after ramping up significantly beginning in 1998.

From 2004 -2006, homeowners tapped $700 billion a year of unrealized home price appreciation via home equity loans, refinances and lines of credit, and not quite $500 billion last year. Through 2Q 2008, mortgage equity withdrawals hardly register at $50 billion and could end the year closer to zero.

In 2004 alone, mortgage equity withdrawals of $720 billion equalled six percent of GDP and since 1998, on average, equity extractions easily added four percentage points or more per year to overall GDP, a staggering amount of purchasing power which now has all but disappeared.

Consumer spending likely has peaked at nearly 71 percent of GDP, and a return to its long-term average of two-thirds of GDP, prior to the last decade, signals shrinking economic activity in the absence of more government spending, business investment and an increase in exports. That's the economic model which now makes us all Keynesians - that declining consumption and business investment can be offset by increased, deficit government spending.

The difference, however, in 2008 compared with the Great Depression, is our dependence on investors both foreign and domestic to finance the twin deficits - budget and merchandise trade - of the world's largest debtor nation.

One disturbing similarity between then and now: U.S. non-financial debt as a percentage of GDP now exceeds 350 percent and the only other time in our history when that percentage has been so high was on the eve of the market crash of 1929 when debt/GPD exceeded 260 percent.

Then, as perhaps now, a tipping point was reached. After 1929 the unwinding of debt, the deleveraging, lasted a decade as non-financial debt/GDP retreated to about 130% until the beginning of our participation in World War II.

Once again, what appears now to be emerging is a “balance sheet recession,” in which people and businesses are quickly trying to liquefy themselves by selling assets and paying down debt. This is pattern of the protracted, "L-shaped" recessionary environment which has dominated Japan's economic landscape for nearly two decades.

In Japan, its government reduced interest rates to zero to little avail for years as business and individual borrowers not only eschewed additional credit but strived to repay existing debt. America could follow suit as Baby Boomers, already concerned with declining retirement account values, get some of that old-time savings religion in light of their realization time no longer is on their side and early retirement may be a fading dream.

Ultimately that would be a good thing - a national savings rate more than one percent - but not in the short run as the nation attempts to transform itself away from a consumer-dominated economy. Which is where government spending becomes key.

The 2008 tax rebate, $150 billion fiscal stimulus, had a negligible impact as many recipients paid down debt or saved the rebate. In 2009 we will see government spending directed toward an infrastructure improvement program designed to create jobs and a $500 billion, or more, fiscal stimulus plan may begin to take shape before the end of this year.

There is some good news, some encouraging developments now materializing after a tumultuous September and October. The Federal Reserve's newest lending programs appear to be calming credit markets, unlocking vital short-term credit for companies otherwise shut out of commercial paper markets.

The Fed's $540 billion Commercial Paper Funding Facility, introduced in late October, already has extended more than $260 billion in short-term financing to General Electric and other S&P 500 companies. It's $120 billion of loans to insurer AIG International, one of the largest derivatives players, have eased fears of a domino-effect systemic meltdown of cascading defaults.

And the Fed's Money Market Fund Investing Facility, which quickly peaked in October at $152 billion as funds delivered troubled commercial paper to the Fed to avoid "breaking the buck," now has receded to about $85 billion.

The Federal Reserve's balance sheet has more than doubled in six weeks, ballooning to $2.1 trillion in it's role as lender of "only" resort, and Dallas Fed President Richard Fischer foresees $3 trillion - roughly 20 percent of GDP - by early 2009 as the Fed takes unprecedented efforts to counter the collapse of credit markets.

Yet the deleveraging process will continue until it has run its course, handmaiden of a great, global reassessment of asset valuations across every investment class. As Federal Reserve Board Governor Kevin Warsh recently observed: "We are witnessing a fundamental reassessment of the value of virtually every asset everywhere in the world."

Race to the Bottom

Credit rating companies like Moody's Investors Service, Standard & Poor's and Fitch are coming clean about the mess they have helped create.

Soon, perhaps in a year or so, the Consumer Credit Reporting Agencies, such as Experian, Equifax and TransUnion, will admit they, too, have used outdated and unrealistic models for personal credit "scoring" upon which banks, mortgage companies and consumer lenders of all stripes solely have relied for loan approval decisions for decades.

Ah, the finger-pointing continues apace...

But for now, we focus on the credit-ratings companies. From Bloomberg, former debt-ratings company executives testifying before a Congressional committee said "credit raters relied on outdated models in a 'race to the bottom' to maximize profits." Full Story Here.

Jerome Fons, a former managing director of credit policy at New York-based Moody's, told the House Oversight and Government Reform Committee today that originators of structured securities ``typically chose the agency with the lowest standards, engendering a race to the bottom in terms of rating quality.''

Representative Henry Waxman, the committee chairman, said that the recent history of the credit rating companies ``is a story of colossal failure.'' ``The result is that our entire financial system is now at risk,'' Waxman said.

The House panel is reviewing the role played by S&P, Moody's, and Fitch Ratings in the global credit freeze. The Securities and Exchange Commission in a July report found the firms improperly managed conflicts of interest and violated internal procedures in granting top rankings to mortgage bonds.

It gets better, as one would expect.

Stephen W. Joynt, president and chief executive officer of Fitch Inc. in New York, said it ``is clear that many of our structured finance rating opinions have not performed well and have been too volatile.''

``We did not foresee the magnitude or velocity of the decline in the U.S. housing market, nor the dramatic shift in borrower behavior brought on by the changing practices in the market,'' Joynt said in a written statement to the committee. ``Nor did we appreciate the extent of shoddy mortgage origination practices and fraud'' between 2005 and 2007.

And better.

Waxman said (Moody's) company documents and e-mails obtained by the committee show that officials at the ratings companies recognized the system they were involved in could lead to disaster.

Waxman cited a transcript of a September 2007 meeting in which (Moody's Chairman and CEO Raymond) McDaniel described ``a slippery slope'' of events.

``What happened in '04 and '05 with respect to subordinated tranches is that our competition, Fitch and S&P, went nuts. Everything was investment grade,'' McDaniel said in the meeting. ``We tried to alert the market. We said we're not rating it. This stuff isn't investment grade. No one cared because the machine just kept going.''

Documents from S&P paint a similar picture, Waxman said.

In one document, an S&P employee in the structured finance division wrote: ``It could be structured by cows and we would rate it.'' In another, an employee said ratings companies are creating a ``monster.''

``Let's hope we are all wealthy and retired by the time this house of cards falters,'' from another document. (All emphasis ours.)

Oops. Perhaps neither wealthy nor retired, but about to become the focus of much more intense scrutiny. And, typically, each blaming competitors, consumers and debt originators.

These hearings and the revelations from testimony are instructive, and foreshadow, in about a year or so, the testimony we will be hearing from former and current executives of the Consumer Credit Reporting Agencies.

If Moody's, Standard & Poor's and Fitch all were relying on "old models" of credit-rating in a race to the bottom for profits, we will not be surprised when we learn the Consumer Credit Reporting Agencies (Experian, Equifax and TransUnion) were doing the same, and have been for decades.

Credit scoring models were first developed by Messrs. Fair and Isaac in the late 1950s and later, in 1981, the "credit score" itself, also invented by Fair Isaac Corporation, hence "FICO," and sold to lenders as statistically reliable loan decision-making tools.

In our insatiable quest for instant gratification, the ubiquitous credit score became the sole determinant for most lending decisions, from car loans to credit cards, from mortgages to home equity loans, as lenders - yet today, as referenced in DiTech mortgage commericals - approved or denied loans "in a matter of minutes," without all that time-consuming paper to review.

You know, like tax returns, financial statements and wage stubs. Reviewing all that paper would take an actual person too much time, and thus lenders would have required many more employees known as credit analysts to keep up with loan demand in the last 30 years. The convenience, and "statistical reliability," of the credit score made loan decisions quick and easy, and, therefor, profits quick and big.

We may soon see a more critical examination of the credit-scoring models which have led to more than $2.5 trillion of consumer debt, about $1 trillion of which is represented by unsecured credit cards. It will be interesting to hear the Congressional tesimony defending those practices.

Golden Era of Financial Services is Over

'The golden era of financial services is over, in my opinion," said Ken Lewis, Chairman and CEO of Bank of America, in an interview with Leslie Stahl of 60 Minutes broadcast October 19th (at the 4:05 min. mark, below).

He also thinks executives on Wall Street have made too much money. "I think they were overpaid. It's more egregious in financial services than any other industry I know," Lewis told Stahl with a straight face, but adding, "We need to cut back compensation in this industry."

Lewis, who has received salary, benefit and stock option and other compensation of more than $20 million a year since 2003, including $27.9 million in 2006 and (only) $24.8 million in 2007 due to Bank of America's significant write-offs, apparently doesn't think executives on N. Tryon Street (where B of A is headquartered in Charlotte, NC) "have made too much money," but only on Wall Street. (Source: Bank of America proxy statements.)

Lewis, 60, also will receive retirement benefits of at least $3.5 million a year at such time he decides, since "the golden era of financial services is over," to retire. Future Bank of America CEOs may have to "make do" with, say, $5million - $10 million a year.



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Social Mood Indicator - FL Man Jailed for Brown Lawn

Social Mood Indicator:

He should have painted it green, as they are doing in California...

From the St. Petersburg Times, Joseph Prudente, a Florida retiree struggling to stay in his home can't afford to fix his lawn sprinkler system, but inexplicably doesn't water the lawn the old fashioned way, so a year ago portions of the yard turned brown and died.

His homeowners association complains to no avail, requests mediation at which he fails to show, then gets a court order to compel him to maintain his yard in accordance with deed restrictions (all yards and lawns shall be maintained in a neat and attractive condition and shouldn't have more than 10 percent bare patches) which he ignores until the judge orders him to jail for contempt.

Neighbors belatedly came to his aid and re-sod the lawn (but did they fix the sprinkler system?) and he's released from jail. But not before a national media firestorm and public outcry, despite a homeowners association interest-group spokesman observing, "What's more important than maintaining the appearance of a community?"

What is more important, indeed, in these times of universal prosperity, peace and happiness?

One would think for the amount of money collectively expended by the homeowners association, the attorney, the mediator, the court, the sheriff, and the jail in this fiasco, the homeowners association could have sprung for the offender's sprinkler system to be fixed or the lawn to be re-sodded, or both, many times over due to Mr. Prudente's hardship. Or the HOA just could have paid to have the lawn painted green.

The social mood aspects of this scenario are revealing: Instead of asking for help to solve his problem, the homeowner ignored requests to comply with deed restrictions. Instead of the resident's immediate neighbors volunteering to help a year ago, they complained to the HOA. Instead of trying to help, the HOA immediately reached for its lawyer. Instead of the judge berating all parties involved the first time so weighty a matter came to his attention, he merely signed an order.

We obviously have not yet embraced the possibility of a deep, painful, protracted economic recession. It has been so long since the last significant downturns (1973-1975 and, of course, 1929-1942) most adults, and certainly those under 50, have no memory of really difficult times.

We may, in fact, soon begin to learn firsthand exactly what an economic depression entails, during which the conditions of our lawns may be the least of our concerns.

BAYONET POINT, FL — Joseph Prudente's homeowners association told him to resod his shabby lawn. He didn't do it. Then a judge told him. He still didn't do it. So the 66-year-old went to jail for a couple of days.

The first article about this ran in Saturday's St. Petersburg Times. Another one ran Monday. But at least as interesting as the stories themselves was the response they spawned. Neighbors helped make his lawn green again. The media interest was wide. And the outrage? It was unabashed.

The judge's assistant got calls Monday she called "ugly."

Beacon Woods Civic Association president Bob Ryan was expecting feedback. He was even expecting negative feedback. What he was not expecting, he said, were the e-mails "wishing me AIDS and cancer."

This story seemed to throw open a window into the national feelings of hopelessness and anger in these times of economic uncertainty.

"Everyone's having a hard time now," said Andy Law, one of the neighbors who led the resodding effort. "There's a lot worse things going on right now than brown lawns.

"What are we coming to," he asked, "when we're putting our senior citizens in jail for having a brown lawn?"

For Prudente, a retired registered nurse from Long Island, his choice was this: keeping his house or keeping his lawn nice.

He bought his one-story, four-bedroom home in 1998 for $127,500. He and his wife live off Social Security and his pension, and he's three months behind on his mortgage, which recently went up $600 a month, he said. His daughter and her two children recently moved in with them because they were having hard times. More mouths to feed.

"Right now," he said Monday, "my lawn is not my priority."

It's important to note here that Prudente did not go to jail for having a brown lawn. He went to jail because he didn't obey a judge's order.

"If the gentleman finds himself in a difficult situation, obviously that's a shame," said Frank Rathbun, a spokesman for the Community Associations Institute, an organization that represents homeowners associations around the country. "But the associations have an obligation to enforce the rules that are in place to protect property values. What issue is bigger than property values today?

"What's more important than maintaining the appearance of a community?"

"The court isn't offended that his lawn is brown," said Paul Milberg, an attorney in Fort Lauderdale who represents the Community Advocacy Network, a group that works for homeowners associations. "The court is offended that it told him to do something and he didn't do it.

"Court orders do need to be enforced," Milberg added. "You want the court to be the bastion where disputes are resolved so that people don't take to the streets."(All emphasis ours.)

Full Story Here: Sod patches over lengthy Pasco lawn spat