Tuesday, September 29, 2009
It's Not the Money, Folks
Apparently CalPERS invested in another ill-fated real estate venture to gentrify East Palo Alto.
The weak link in their analysis is similar to the misperception which underlies regulators' concern that banks should retain more capital as a proportion of loans on their books. But the real cause of the financial crisis was bad collateral, overvalued houses funded with abusive mortgages. So what banks must do is insist on quality collateral for their loans, and exercise due diligence on mortgage terms.
Similarly, for CalPERS, the quality of an investment cannot be completely evaluated by looking at the expected monetary return on investment. One also has to look at how an investment will directly help meet people's needs for clean air and water, healthy food, and snug shelter. A project that substitutes rich people's needs for poor people's needs just creates for social chaos.