We normally say that a company “went bankrupt,” implying that it had no choice. But when, recently, American Airlines filed for bankruptcy, it did so deliberately. The airline had four billion dollars in the bank and could have kept paying its bills. But it has been losing money for a while, and its board decided that it was foolish to keep throwing good money after bad. Declaring bankruptcy will trim American’s debt load and allow it to break its union contracts, so that it can slim down and cut costs.

American wasn’t stigmatized for the move. Instead, analysts hailed it as “very smart.” It is now generally accepted that when it’s economically irrational for a company to keep paying its debts it will try to renegotiate them or, failing that, default. For creditors, that’s just the price of business. But when it comes to another set of borrowers the norms are very different. The bursting of the housing bubble has left millions of homeowners across the country owing more than their homes are worth. In some areas, well over half of mortgages are underwater, many so deeply that people owe forty or fifty per cent more than the value of their homes. In other words, a good percentage of Americans are in much the same position as American Airlines: they can still pay their debts, but doing so is like setting a pile of money on fire every month.…

Paying your debts is, as a rule, a good thing. But the double standard here is obvious and offensive. Homeowners are getting lambasted for doing what companies do on a regular basis. Walking away from real-estate obligations in particular is common in the corporate world, and real-estate developers are notorious for abandoning properties that no longer make economic sense. Sometimes the hypocrisy is staggering: last winter, the Mortgage Bankers Association—the very body whose president attacked defaulters for betraying their families and their communities—got its creditors to let it do a short sale of its headquarters, dumping it for thirty-four million dollars less than the value of the building’s mortgage.

When it comes to debt, then, the corporate attitude is do as I say, not as I do.

Surowiecki says this double standard isn’t just wrong, it’s also bad economics.

Of course, many borrowers made bad decisions and acted irresponsibly. But so did lenders—by handing out too much money and not requiring sensible down payments. So far, banks have been partially insulated from the consequences of those bad decisions, because Americans have been so obliging about paying off overinflated mortgages. Strategic defaults would help distribute the pain more evenly and, if they became more common, would force lenders to be more responsible in the future. It’s also possible that a wave of strategic defaults—a De-Occupy Your House movement—would get banks to take mortgage modification more seriously, which would be all for the better.

Hmmm, where have we heard that idea before?

Take Stephen Roach, the Morgan Stanley analyst who made headlines this summer when he floated the idea:

“Some form of debt forgiveness would be a clear positive,” Roach told me. “Debt forgiveness is a big deal when so many Americans are underwater and unable to keep up with their payments. Writing off debts would help them build up their savings. The saving rate is up, but not nearly enough. With debt reduction, people would feel less reluctant to spend money on new things. If you can do that, then companies will feel more confident about future demand, less reluctant about hiring more workers.”

Roach thinks the executive branch can engineer dramatic debt reduction with or without the approval of Congress. Fannie and Freddie together hold something like $1.5 trillion in housing loans or mortgage-backed securities. The Federal Reserve has nearly another trillion on its balance sheet. As owners, they could unilaterally grant new, more realistic terms to stressed borrowers. “Government can do this by simply telling Fannie Mae and Freddie Mac to take a write-down on their outstanding loans,” Roach explains. “Then the government can put pressure on the banks to do the same thing. The banks will resist, but they have to go along if the government is forceful enough.”

The Fed can likewise become a major influence for debt reduction, Roach says. Conservative traditionalists would naturally be appalled if the Fed directly aided the real economy of consumers and producers, but that objection was nullified by the financial crisis, when the central bank pumped hundreds of billions into nonbank corporations like AIG and General Electric.

If the Federal Reserve is reluctant to modify mortgages, says Roach, it can easily fund the process indirectly by creating new money and buying bonds issued by Fannie and Freddie, just as the Fed purchases Treasury bonds. “The Fed can assist by buying Fannie and Freddie bonds with the emphasis on reducing principal for the borrowers,” Roach explains. “It would be like ‘quantitative easing’ aimed at debt reduction,” a reference to the Fed’s purchases of mortgage-backed securities, Treasury notes and other assets to stimulate recovery.

Another mainstream financial analyst makes a similar case:

Laurie Goodman, the Amherst Securities housing-finance expert, assured the Senate Banking Committee in September that debt reduction is readily doable in the financial and real estate industries. “We actually know exactly what it takes to create a successful modification: reduce principal, give the borrower substantial payment relief and modify the borrower in the early stages of delinquency,” she said.

To illustrate, Goodman suggests that a bank or mortgage servicer could reduce an underwater mortgage from $150,000 to $115,000 with a “shared appreciation” agreement. The homeowner would no longer be underwater and would gain some positive equity. If the property is sold in the future, any appreciation in its market value must be shared with the lender. She pointed out that a major mortgage servicer, Ocwen Financial, is already doing such deals. The creditor will get
25 percent of any future market gain. In many cases, that sounds like a better deal for the lender than holding on to the bad mortgage and eventually getting nothing.

“I would like to think principal reduction would be a mandatory part of the government’s modification program,” Goodman said. “The Treasury has not let it happen.”

And as Felix Salmon notes, even some seriously “red-in-tooth-and-claw capitalists” are starting to argue it’s inevitable:

Now comes word that Greg Lippmann, of all people — one of the big winners of the subprime bust, and a man who became extraordinarily wealthy playing in the mortgage CDS market — is thinking along similar lines himself.

“Principal reductions are necessary to help ameliorate the housing crisis,” Lippmann, chief investment officer for New York-based hedge fund LibreMax Capital LLC, said in an Oct. 31 letter to investors obtained by Bloomberg News. The step will also lower losses on loans underlying mortgage bonds, he said.

In other words, Lippmann sees what’s pretty obvious — principal reductions are not only helpful but necessary if the housing mess is going to clear. The question isn’t whether they’re going to happen, it’s how they’re going to happen.

Politically, of course making this happen would be very difficult. But then again, back during the summer nobody was predicting a populist grassroots explosion either.

A few years ago I had a memorable ride on the Ventura Blvd Metro Rapid from Warner Center to Sherman Oaks. The service flowed smoothly through Tarzana and Encino but then got stuck in two miles of gridlock leading up to I-405, as it often does, and the crowded bus spent 20 minutes going almost nowhere. It made no sense. Cars can only fit onto 405 at a certain rate, especially if they’re going over Sepulveda Pass. So in the current arrangement, the surplus traffic is stored blocking Ventura Blvd. Why do you give over the entire width of Ventura Blvd, and effectively shut down the street, just for the purpose of storing waiting cars? Why don’t you set aside a through lane for transit (and perhaps also for taxis, HOVs, and certainly for emergency vehicles) so that efficient use of the street can continue even as the cars pile up? What would be the effect on traffic? Simple: the pile of stored cars would be narrower and longer. But meanwhile, people could get where they were going, and emergency vehicles could get through to save lives and property.

Chokepoints in a network are huge opportunities for transit, but only if transit can get past them. This bit of Ventura Blvd is one example. Another is the Sepulveda Pass itself. Caltrans is widening the freeway to add HOV lanes, which will finally give buses a clear path around gridlock, so that from the Valley to Westwood they can start offering the only truly reliable means of getting through the Pass. If it works reliably you may see a range of services extended through the Pass to broaden the reach of that advantage.

But Los Angeles is almost done widening roadways. It’s time to make hard choices about how to apportion the space that you have. The great boulevards of Los Angeles can be, in their own way, as magnificent as the boulevards of Paris. In the last decade Paris has added bus lanes on virtually every one of its boulevards, mostly at the expense of traffic lanes. Traffic isn’t any worse than it was, because once people see that transit is getting through reliably, some of them choose to use it.

Great little video by Streetfilms about the transformation of New York City’s streets so they become both more bike and pedestrian friendly — and create some great new urban spaces in the process.

No factor has a bigger impact than going from conventional suburban to transit-oriented design. Making that change alone results in a 50 percent reduction in energy use in multifamily buildings and 42 percent and 39 percent reductions in single family attached and detached dwellings. In fact, the most inefficient TOD beats the most efficient Conventional suburban development (CSD) in this study. (emphasis added)

How could that be? And what is “transit-oriented design” anyways? The EPA explains:

Housing that is located in a walkable neighborhood near public transit, employment centers, schools, and other amenities allows residents to drive less and thereby reduces transportation costs. Development in such locations is deemed to be “location efficient,” given a more compact design, higher-density construction, and/ or inclusion of a diverse mix of uses. If American families can reduce their necessity to drive through better housing and transportation options, then commute times and household energy costs will drop.

The CDC asked people how “street-scale urban design policies” (read: sidewalks, lighting) affect their level of physical activity. Overall, about 57 percent of adults said these neighborhood features were “moderately” or “very” important – but people of color placed far greater importance on those factors in the built environment than the white people surveyed.

In fact, 50.5 percent of black respondents and 40.6 percent of Hispanic respondents said neighborhood features were “very important” in determining their level of physical activity. Only 26.9 percent of the white people surveyed gave that answer….

people of color are also more willing than white people to take civic action on neighborhood issues. It found that 58.8 percent of blacks said they were willing to write letters to elected officials about neighborhood livability issues, as well as 47.8 percent of Hispanics. Only 36.7 percent of whites were willing to write letters, though more of them were willing to pay more property taxes for better neighborhood design. Blacks were less willing to do that – but 6.3 percent of them (and 5.8 percent of Hispanics) were interested in running for office to support neighborhood improvements. Only 3.2 percent of whites were willing to go that far.

So if folks in the Livability movement want to reach out to a more diverse audience, what do they need to do? They could follow in the footsteps of Adolfo Hernandez, director of outreach and advocacy for Chicago’s Active Transportation Alliance:

“We targeted five communities along Chicago’s west side,” Hernandez says. “And when we started this work, they were all pretty hesitant. At the time, we were the Chicagoland Bicycle Federation, so it sounded like some cycling club.”

But it wasn’t just the name change that helped build trust and partnership with these groups. Active Trans went to community members where they were – at PTA meetings and block parties – and engaged them on the issues that were important to them. They realized that violence, or the perception of violence, was at least as significant a barrier as traffic in encouraging community members to use parks and go outside. They partnered with them on issues like housing access and jobs. And they linked all of these issues back to changes in the built environment that would improve their quality of life. “Now we have African-American and Latino community-based organizations going to their councilmen and alderman and asking for bicycle and pedestrian improvements,” says Hernandez.

In short, if Livability advocates want to create a more diverse movement, they need to go to where folks are and get to know their world – not bad advice, in general, for reaching out to other communities (e.g., folks in rural areas).

The result was streets and sidewalks that were often smelly and disgusting – and plenty of freedom for other actors, like Mr. Cholera, to breed to their hearts content and kill tens of thousands of people.

Eventually, city governments began to put limits on people’s freedom to do whatever they wanted. Cities became less smelly and more safe.

Over the years, these restrictions got tighter and tighter — sometimes for good reasons that benefited everyone, and sometimes because of games played by powerful interests.

In 2005, a design studio called Rebar decided it was time to test these restrictions. They temporarily turned one metered parking space into a public park — a quick and dirty guerrilla art project to raise questions about how we use our city space. The project was a success, partly because they did in San Francisco and not, say, Dallas, partly because they showed respect for other uses of the street by cleaning up after they were done — no pig remains or horse poop were left behind — and partly because they did it with style.

Over the next few years, citizens, artists, and activists around the globe joined in for what became an annual PARK(ing) Day event. Their mission:

to call attention to the need for more urban open space, to generate critical debate around how public space is created and allocated, and to improve the quality of urban human habitat … at least until the meter runs out!

Eventually this innovation inspired officials in cities around the globe to act. For example, New York City closed parts of Broadway and created “pedestrian plazas in Times Square and Herald Square.” The result was a smashing success. Tourists and New Yorkers loved it, and it had other benefits as well:

Advocates for the project said it had vastly improved safety in the area, pointing to a 35 percent decline in pedestrian injuries and a 63 percent reduction in injuries to drivers and passengers, according to city data. Foot traffic grew by 11 percent in Times Square and by 6 percent in Herald Square, and a survey of local businesses found that more than two-thirds of the area’s retailers wanted the project to become permanent…. The Times Square Alliance, a business group, surveyed residents and office workers and found that about 75 percent were “satisfied with their experience” in the area, up from less than half in 2007….

“It’s shifted the paradigm for what a street and sidewalk experience is supposed to be like in New York City,” said Tim Tompkins, the president of the alliance.

The city of San Francisco also finally got in the game, creating official “parklets” last year:

The first pedestrian plaza opened in May at 17th and Market streets in the Castro and has become so popular that four more plazas as well as five “parklets” – two or three successive parking spaces turned into teeny parks – are slated to open by this summer. More are expected to be built this fall and next year.

The idea is to replicate the European tradition of outdoor plazas for sunning and socializing on the cheap as the city faces a grim $522 million budget deficit for the coming fiscal year.

The city’s official website called Pavement to Parts describes the project is way:

San Francisco’s streets and public rights-of-way make up fully 25% of the city’s land area, more space even than is found in all of the city’s parks. Many of our streets are excessively wide and contain large zones of wasted space, especially at intersections. San Francisco’s new “Pavement to Parks” projects seek to temporarily reclaim these unused swathes and quickly and inexpensively turn them into new public plazas and parks. During the temporary closure, the success of these plazas will be evaluated to understand what adjustments need to be made in the short term, and ultimately, whether the temporary closure should be a long term community investment….

Each Pavement to Parks project is intended to be a public laboratory where the City can work with the community to test the potential of the selected location to be permanently reclaimed as public open space.

The city liked parklets in part because at a time when the city was struggling financially parklets didn’t cost a lot of money:

The parklets – which will consist of raised platforms to make them level with sidewalks for seating, planters and bicycle parking – cost $7,000 apiece. The larger plazas with tables, chairs, planters and art installations can cost up to $35,000.

“It’s pennies compared to a brand new park,” said Astrid Haryati, the mayor’s greening director.

Sponsored by neighborhood businesses and corporate donations, they’ll cost the city nothing but labor from the Department of Public Works to set them up and maintain them.…The [Department of Public Works] also is scrounging up unused city property like Dumpsters to serve as large planters for fruit trees and the trunks of dead trees for use as planter borders.

According to Andres Power of San Francisco’s Planning Department, what’s interesting about San Francisco is that it’s more decentralized than New York City’s

Our plaza program is not exactly like New York’s. Their Department of Transportation designs their plazas in-house, with their engineers and landscape designers. Which has its advantages. Their plazas are incredibly replicable, efficient, and easy. But in having different local designers work on ours, we have something more organic and site-specific. And there’s more room for whimsical projects.

What’s up next for San Francisco? Making every day PARK(ing) day.

The plazas will always likely require some input from the various city agencies, including DPW and the municipal transportation agency. But we’re working with these same agencies on developing a permit system that will allow anyone willing to hold a permit for a space – a business, a nonprofit, a group of people – to apply to put in a parklet.

In the meantime, outside groups keep innovating. Rebar has created what they call a walklet that they have been experimenting with and eventually hope to be able to offer for sale:

The sixty foot linear parklet (Rebar uses the term “Walklet”) is composed of pre-fabricated modular sections, each three feet wide by 6 1/2 feet deep. The module foundations are welded steel frames with bamboo decking, each affixed to the curb edge. The modules have different components, some simple flat sidewalk extensions, others with seating. One variation has seating with a planter built into it; another is a high bar 40 inches above the platform. Two modules have two bike racks each and several modules will be deep benches that allow reclining.

“The idea was to have a magic carpet of bamboo,” said Merker, describing the aesthetic. “It creates a sense of prospect and refuge for people who want to inhabit the street.”

Up next: parklets as a different way of thinking about government and innovation.

it’s basically a mini mobile home that rents for about $2,000 a month. You park one in the backyard, hook it up to your water and electricity, and it becomes a free-standing spare room for Grandma and Grandpa….

The MEDCottage is homey on the outside, with taupe vinyl siding and white trim around French doors. Inside, it looks like a nice hotel suite, complete with kitchen and bathroom.

According to its creator, it’s designed to take care of the unique needs of older seniors.

The 12-by-24-foot MedCottage is loaded with technology and amenities for the health, comfort and safety of the elderly or those recovering from illness or injury…. The comfortable interior is equipped with the latest technology to monitor vital signs, filter the air for contaminants and communicate with the outside world via high-tech video and cell phone text technology. Sensors alert caregivers to an occupant’s fall, and a computer can remind the occupant to take medications. The technology also provides entertainment, offering a selection of music, reading material and movies. It also contains a family communication center that provides telemetry, environmental control and dynamic interaction to off-site caregivers through smart and robotic technology throughout the charming, comfortable modular home.

Right now, putting a MedCottage in your backyard is illegal in most states — it violates zoning laws. Virginia’s spearheaded the way, with an exemption that started a month ago. Should be interesting to see if the idea lives up to its potential.

Many suburbanites take free parking for granted, whether it’s in the lot of a big-box store or at home in the driveway. Yet the presence of so many parking spaces is an artifact of regulation and serves as a powerful subsidy to cars and car trips. Legally mandated parking lowers the market price of parking spaces, often to zero. Zoning and development restrictions often require a large number of parking spaces attached to a store or a smaller number of spaces attached to a house or apartment block.

If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation rather than a matter of satisfying a legal requirement. Parking would be scarcer, and more likely to have a price — or a higher one than it does now — and people would be more careful about when and where they drove.

The subsidies are largely invisible to drivers who park their cars — and thus free or cheap parking spaces feel like natural outcomes of the market, or perhaps even an entitlement….

if we’re going to wean ourselves away from excess use of fossil fuels, we need to remove current subsidies to energy-unfriendly ways of life.

The Economist’s Ryan Avent comments on the entertaining response to the piece by US libertarians, who like most Americans believe free/cheap parking is a God-given Right:

One of the results of the piece was a barrage of perplexing responses from people who normally agree with Tyler…

One thing that surprises me is that libertarian economists wouldn’t immediately adopt the default assumption that mandated parking minimums are bad. What does it mean to be a libertarian if that’s not your default position? Ditto for below-market pricing of scarce resources. You’d expect progressive writers to make a strong case that goods a, b, and c should be affordable to everyone and government subsidized as a matter of basic decency. It’s bizarre that libertarians leap to this position when driving-oriented policies are up for discussion.

The best part of the dustup is where libertarians try to argue that inexpensive parking is one of those rare places where the government needs to step in to provide a “public good.” There’s only one tiny problem:

You’d think that libertarians making the public good argument would have no problem defending government provision of and subsidy for [mass] transit, but of course they don’t. They get around this by arguing that people want to drive and they don’t want to ride transit. This is strange in that in few other cases would a libertarian claim to know what markets want.

Some of the strongest backing for the bill has come from AARP, which sent a letter to committee members on Monday pointing out that the country’s aging population will be poorly served if development patterns don’t evolve to make driving less necessary. “Nine out of ten of our members tell us they want to stay in their own homes as they age — most are living in suburban or rural areas and don’t have access to public transportation,” said Debra Alvarez, senior legislative representative for AARP. “There’s a lot of things that can be done in small towns: co-locating things like post offices, grocery stores, pharmacies, and putting housing there too.”

A few Smart Growth advocates have been making the connection between our aging population and the need for Smart Growth for a while now. It’s great to see that the ideas have gone from theory to senior boots on the ground.