physical-geography-of-global-financialization-and-collapse – mammoth the herculez gomez of architecture blogs Fri, 14 Oct 2016 19:16:27 +0000 en-US hourly 1 spanish bubble landscapes Tue, 14 Feb 2012 01:00:15 +0000
[Suburban abandonia on the outskirts of Madrid, via google maps.]

During the presentations at Visualizar last summer, one of the presenters (I think it was José Luis Muñoz Muñoz, but I haven’t re-watched his presentation, so I’m not totally sure) mentioned a photography project that sought to document the post-bubble abandonment of parts of the suburban fringe of Madrid. I’m not certain what project that was (clearly, I took very bad notes), but I’ve since run across two that document roughly that same landscape, one from the always-stimulating blog deconcrete and the other in Quaderns. Given my interest in tracing the landscapes of financialization (and, of course, the role of financialization in fueling rampant development), I thought it’d be worth linking to those two projects.

[Photographs from Julia Schulz-Dornberg’s “Modern ruins, a profitable topography; visit the gallery at Quaderns for additional images.]

The first, Julia Schulz-Dornberg’s “Modern ruins, a profitable topography”, is described as “a photographic inventory of abandoned speculative construction in Spain”. Schulz-Dornberg’s argument that these developments constitute a “profitscape”, or a constructed landscape whose primary intended characteristic was its capacity to transform land into a standardized commodity, reminds me of mammoth‘s own ruminations on the American suburban home as a machine for generating wealth — in both cases, the apparently aberrant physical characteristics of the designed object in question are made readily understandable by reading the object as a financial instrument first and a shelter/neighborhood second.

[Photographs from Daniel Fernández Pascual and Luis Galán García’s “A Road Trip through Madrid’s Bubble Challenge”.]

The second is “A Road Trip through Madrid’s Bubble Challenge”, from deconcrete‘s Daniel Fernández Pascual and Luis Galán García. It is concerned with the immediate environs of Madrid, where some forty-seven thousand apartments wait for buyers (or, were waiting in 2009) while “hundreds of kilometres of perfectly paved streets run between eerie blocks, waiting for… construction”. Intriguingly, they speculate that these abandoned bubble landscapes might, at least for some time, function as de facto wilderness parks — perhaps a bit like Sterling’s involuntary parks, but with collapsed credit systems in the place of razor wire and mines.

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schafran on race and foreclosure Thu, 02 Feb 2012 01:00:28 +0000 Speaking of the geography of financialization, Alex Schafran had a fantastic post at Polis last December on race, foreclosure, and rhetoric surrounding the “death of the fringe suburb”.

In forthcoming work done with my colleague Jake Wegmann, analyzing real-estate data in the region since 1988, we can show that the zip codes to which African Americans migrated were doing well in terms of median home value until 2005, long after the migration had begun. Not just well overall, but well against San Francisco’s Cole Valley, one of the most gentrifying places around. Their presence in the fast growing portions of deep suburbia did not cause the crisis, and their decision to move made sense. If you were black and middle class, moving to places like Antioch and Patterson seemed like a good deal — a chance at a piece of the American pie and a rational economic decision. Nobody realized how shaky the terms of the deal would turn out to be.

This is one of the many reasons that Chris Leinberger needs to change his tune. I agree that sprawl was a bad idea, that growth on the fringe helped bring the economy down and that urban centers are the heart of our global future. We’ve known this since suburbanization began in earnest two generations ago. But we failed to stop it.

Now the “fringe” in Northern California alone is home to millions. And in the 24 Bay Area cities [analyzed by Schafran], almost half a million of the 850,000 residents are not white. These are generally hard-working families who followed the same suburban path the white masses went down a generation or two ago — except much farther from city centers and with worse debt, less job security and no real mass transit. This is a generational raw deal hatched at every scale of our urban development.

The foreclosure crisis is a national tragedy that hand-wringing about the failures of sprawl will not undo. Predicting the “death of the fringe suburb” is reminiscent of the harmful language used to describe cities in the days before urban renewal, when we labeled the neighborhoods of the working classes and communities of color as “slums” and “ghettos,” bulldozing what we could and redlining the rest. This massive and exceptionally racist failure of urban policy in the post-war era laid the groundwork for this crisis more than a half century ago. While we were busy destroying inner cities and building nice suburbs, we denied African Americans the right to move out as well.

Schafran’s post is well-worth reading in full, particularly for the compelling maps he has produced.

Why is this a landscape whose origins can be traced at least in part to financialization? There are a number of reasons, including the disproportionate impact of public-sector austerity (and accompanying job losses) on the African-American middle class that Schafran refers to, the general hunger for exurban expansion produced by the reliance of the various invented products at the heart of the financial crisis — collaterialized debt obligations, credit default swaps, and so on –on a steady supply of new homes and fresh mortgages, the role of the financial sector in foreclosure fraud, and the ties between the mortgage market and the shadow banking system.

[Friend-of-the-blog Peter Nunns also wrote about Leinberger and Schafran’s posts. Also, earlier posts on mammoth in defense of understanding suburbia and on the American home as a (now-busted) machine for making money.]

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metro international trade services Mon, 30 Jan 2012 11:00:43 +0000

[Warehouse at 1200 E McNichols Road, Highland Park, Michigan. The small red sign at the bottom right corner of the second image says “Metro”.]

The warehouse above — and a network of others like it, scattered around the industrial abandonia of Detroit — is a crucial bottleneck in the global aluminium trade.

Before I explain how this is, though, a bit of background.

1 Kevin Slavin’s fantastic talk “How algorithms shape our world”, which I’m hoping to write something a bit longer about soon, would be a classic of that genre.

2 One of the things that makes that corporeality important is that, while much of the systemic perversity of financialization — like, say, the creation of synthetic CDOs — is intentionally obscure, the perversity of the landscapes that arise from financialization is often obvious, as the case of Metro International Trade Services will, I think, make clear.

3 Alexis Madrigal (author of the linked “flash crash” articles) also wrote about a similar case of “bizarre robot traders”:

“Mysterious and possibly nefarious trading algorithms are operating every minute of every day in the nation’s stock exchanges.

What they do doesn’t show up in Google Finance, let alone in the pages of the Wall Street Journal. No one really knows how they operate or why. But over the past few weeks, Nanex, a data services firm has dragged some of the odder algorithm specimens into the light.

The trading bots visualized in the stock charts in this story aren’t doing anything that could be construed to help the market. Unknown entities for unknown reasons are sending thousands of orders a second through the electronic stock exchanges with no intent to actually trade. Often, the buy or sell prices that they are offering are so far from the market price that there’s no way they’d ever be part of a trade. The bots sketch out odd patterns with their orders, leaving patterns in the data that are largely invisible to market participants.”

Something that I’ve become increasingly interested in the past year — and consequently am collecting a series of related items I hope to post — is the physical geography of global financialization1. I think my interest comes from roughly the same place that my interest in the material infrastructure of the internet (and other hertzian spaces) does — recognizing that, like the internet, global financialization is obviously non-corporeal and, at the same time, less obviously but quite importantly corporeal2. (By corporeal in these cases, I mean both sustained by a complex network of physical infrastructures and generating various indirect physical products through influence within economic, social, and political systems). Financialization is also, like the internet, a thing that exists only in aggregate, its behavior governed by the interaction of a myriad of smaller parts which are directed by a multiplicity of potentially conflicting desires. As a consequence, both things — financialization and the internet — have extremely jagged edges, weird dark spots where aggregated lower-level behaviors manifest as bizarre meta-behaviors. As an example, the intersection of those two sets of dark spots is particularly weird: like last May’s “flash crash”, where “a single large sell order executed by a rather crude software program sent the already-stressed market into a downward spiral”, causing the Dow to drop “10 percent in just minutes”3.

But given that my interest is particularly in the moments where those weird behaviors are spatialized, finding form in buildings and landscapes, this post exists, as I suggested earlier, to highlight a specific point in the physical geography of global financialization: the Detroit warehouses of “Metro International Trade Services”.

[4815 Cabot Street, Detroit, Michigan.]

I was reminded of this peculiar company by the recent news that big banks — the global players from the financial crisis that are household names, like Goldman Sachs, J.P. Morgan, and Barclay’s — have been threatening to block the sale of a much less widely known organization, the London Metal Exchange. To explain why those banks, which own large shares in the LME, would want to prevent the sale of the London Metal Exchange, you have to understand what Metro International Trade Services is, and something of its materially bizarre business model:

“In a rundown patch of Detroit, enclosed by a cyclone fence and barbed wire, stands an unremarkable warehouse that investment bank Goldman Sachs has transformed into a money-making machine.

The derelict neighborhood off Michigan Avenue is a sharp contrast to Goldman’s bustling skyscraper headquarters near Wall Street, but the two operations share one important element: management by the bank’s savvy financial professionals.

A string of warehouses in Detroit, most of them operated by Goldman, has stockpiled more than a million tonnes of the industrial metal aluminum, about a quarter of global reported inventories.

Simply storing all that metal generates tens of millions of dollars in rental revenues for Goldman every year.”

3 The London Metal Exchange has a simple and legitimate reason for warehousing:

“The LME certifies and regulates the Detroit sheds as part of a global network of more than 640 warehouses. The network is meant to even out swings in volatile metals markets. During recessions, surplus metal can be stored until economies recover and demand picks up, when the metal can be released.”

But — rather problematically — “that function is now being undermined by the backlog in Detroit” — as Goldman Sachs drives up prices by releasing as little metal as it legally can.

So the way that the business model works is essentially this: through its subsidiary Metro International Trade Services, Goldman owns these Detroit warehouses which are stuffed with this vast quantity of aluminum — as the article at Reuters says, more than a million tonnes, a quarter of global inventories. The stuffing, though, is done by the London Metal Exchange3, which owns the metals in the warehouses, and consequently Goldman Sachs ends up making a great deal of money off the rent that the London Metal Exchange pays to Metro International Trade Services — even though Sachs is one of the major owners of the London Metal Exchange. (Goldman bought the warehousing company in 2010, in a wave of purchases of metal warehousing companies by global financial institutions seeking to use the rising price of physical commodities as a hedge against their poor performance in commodity trading.)

[13542 Helen Street, Detroit, Michigan.]

Meanwhile, as Goldman is collecting huge rents from the London Metal Exchange off its stockpile of aluminum, American aluminum buyers are starved of the metal they want to purchase:

The long delays in metal delivery have buyers fuming. Some consumers are waiting up to a year to receive the aluminum they need and that has resulted in the perverse situation of higher prices at a time when the world is awash in the metal.

“It’s driving up costs for the consumers in North America and it’s not being driven up because there is a true shortage in the market. It’s because of an issue of accessing metal … in Detroit warehouses,” said Nick Madden, chief procurement officer for Atlanta-based Novelis, which is owned by India’s Hindalco Industries Ltd and is the world’s biggest maker of rolled aluminum products. Novelis buys aluminum directly from producers but is still hit by the higher prices.

Madden estimates that the U.S. benchmark physical aluminum price is $20 to $40 a tonne higher because of the backlog at the Detroit warehouses. The physical price is currently around $2,800 per tonne. That premium is forcing U.S. businesses to fork out millions of dollars more for the 6 million tonnes of aluminum they use annually.

4 When producers fear a slowdown, they go to banks — like Goldman — to finance metals: “in a typical financing deal, a bank buys metal from a producer, agrees to sell it at some future point at a profit, and strikes a warehouse deal to store it cheaply for an extended time period.”

But, because of an archaic rule system under which the London Metal Exchange specifics minimum daily metal release requirements by the city rather than by the warehouse (“at the moment, a warehouse operator needs to deliver just 1,500 tonnes a day per city, whether it owns one warehouse there or dozens”), Goldman has every incentive to concentrate the physical position of the aluminum it is storing in a single city — Detroit. This is because the less metal is released, the more money Goldman makes, primarily off the rent on its warehouses, but also potentially on the commodities exchange4. On the other end, the London Metal Exchange gets a one percent take of all rents in all the warehouses it approves, which hardly incentivizes the Exchange to adjust its release rules, even failing to account for the fact that Goldman owns a large portion of the Exchange.

And that’s why a quarter of the world’s supply of “available aluminum” is sitting in warehouses in Detroit, warehouses which are “a whirl of activity in the early hours of the morning when metal is usually delivered for storage”, but deserted throughout the rest of the day — because the aluminum goes in, but it only very slowly comes back out.

[I originally came across the story of Metro International Trade Services in this post by Umair Haque.]

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