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The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity

By Richard Florida

Random House Canada

$32

Welcome to Hamilton, forever a city of the future.

The keynote speaker at last week’s economic summit made the crack and got a laugh from the convention centre crowd.  But the joke’s on us if we don’t get our act together in a real hurry on a handful of billion-dollar community-building initiatives.

The 2015 Pan Am Games aren’t just a super-sized construction project. It’s a chance to change a well-worn conversation that’s long past its expiration date. At long last, we can quit talking about how Hamilton is poised for greatness. How Hamilton’s renaissance, rebirth and renewal is on the horizon and around the corner. How the city’s a diamond in the rough, Canada’s best kept secret and the next best place to set up shop and put down roots.

With the infrastructure investments and economic spinoffs of the Pan Am Games, we can stop talking, start doing and finally deliver on some of that potential we’ve been promising for far too long. While we’ve had a false start with the stadium, here’s hoping we learn from the experience, get our act together and start singing from the same song sheet.

We’ll get a second chance to get it right with rapid transit, another gift-wrapped community-building project for Hamilton. Rapid transit will make it easier and faster to get around the city and bring people and jobs closer together. Rapid transit will also trigger more commercial and residential development, higher property values and increased tax revenues up and down the transit lines.

Best of all, rapid transit will strengthen Hamilton’s economic ties to Greater Toronto. And that will be a very good thing for our community. This is our best shot at making Hamilton the shipping and receiving department for one of the world’s leading megaregions.

We’re lucky to be part of a region that stretches from Montreal and Ottawa, through Greater Toronto and over to Kitchener-Waterloo. Taken together, this region is home to more than 22 million people and one of the largest in the world.

Megaregions are the new suburbs, says author Richard Florida. And in the aftermath of the Great Recession and in the resetting of life as we know it, Florida says these regions are turbocharged job-creating and wealth-generating hotbeds for innovation and entrepreneurship.

 “These megaregions, not nations, really power the global economy,” says Florida, best-selling author of The Rise of the Creative Class and director of the Martin Prosperity Institute at the University of Toronto’s Rotman School of Management.

The world’s 40 largest megaregions already account for two-thirds of all global economic activity and 85 per cent of the world’s technological innovation. Megaregions house 85 per cent of all corporate headquarters in Canada and the United States.  These megaregions are also talent magnets, attracting the best and brightest who want great jobs, strong social networks and a great gridlock-free life outside of work.

And it’s rapid transit that will be the glue that binds megaregions together.  “High speed rail holds the promise of connecting declining places to thriving ones, greatly expanding the economic options and opportunities available to residents,” says Florida. “Instead of stumbling along inefficiently as functionally distinct centres, they can become part of a much larger area of interconnected supply and demand, production and consumption.

 “Think of it as shrinking distance, borrowing proximity and building scale. It may be the single best way the federal government can help rebuild once-great industrial corridors of the Great Lakes, which have lost much of their previous economic function and where distances are currently too great to commute from one city to the next.”

Along with major investments in rapid transit, Florida predicts a host of changes in how we’ll work and live following the Great Recession, the Great Reset and the emergence of “the new normal”. We’ll be driving a whole lot less. More of us will choose to be renters rather than homeowners. The suburbs will get redeveloped into denser, mixed-use communities.  And the majority of us will either be part of the creative class or working in the service economy, which already accounts for the majority of jobs.

Making those jobs more innovative, productive and higher paying will be one of our biggest challenges and greatest opportunities.   

“The service economy offers a tremendous potential for tapping the creative contributions of frontline workers and turning them into improved productivity,” says Florida. “Once we recognize service work as a source of innovation and productivity improvement, we can begin to raise wages in sync with the productivity gains these workers generate.”

Time to stop talking and start doing Hamilton. The future is now and it’s not about to wait for us to get our act together.

Poverty to prosperity solutions for Hamilton’s lower city

The following op-ed "Breaking down economic segregation: Is moving poor people out of the lower city an acceptable anti-poverty strategy?" ran in The Hamilton Spectator May 15th. The op-ed was in response to The Spectator's Code Red series that highlighted concentrated poverty and 3rd world health outcomes in some of Hamilton's lower city neighbourhoods. Hamilton needs some gamechanging solutions and could those solutions include getting folks out of poverty by getting them out of the lower city? Borrowed some of the solutions from a great book — Hope and Despair in the American City: Why There Are No Bad Schools in Raleigh.

Breaking down economic segregation: Is moving poor people out of the lower city an acceptable anti-poverty strategy?

We all agree the poverty in our lower city is unacceptable and unsustainable.

We all agree something must be done and done now with an urgency, a single-mindedness and an unreasonableness that's equal to the crisis at hand

We all agree we need to ramp up and double down on game changing poverty-to-prosperity solutions.

We agree that we need to adopt and scale up the most effective and efficient solutions we can find, whether those solutions are Hamilton-made or imported from other communities.

There's a lot we agree on.

But are we going to agree on the solutions?

What if we discover some of the best solutions for getting people out of poverty are to get them out of the lower city?

What if those solutions include giving lower-city families the option to send their kids to any school in Hamilton? Or requiring developers to earmark a percentage of all new housing built anywhere in Hamilton for low-income families from the lower city?

Getting families out of poverty by getting them out of the lower city will put our values to the test. And odds are good that there will be pushback from more than just the NIMBYs.

Suggest these solutions and you may be told that you're being disrespectful and insensitive. That what you're proposing is a slap in the face of hardworking community builders who are proud and passionate to call the lower city their home.

Yet for every resident who's proud, passionate and about to write a letter to the editor, there's a family who's planning to get out. There's a family who's desperate to get out but doesn't know how and needs help. And there's a family who's all but abandoned any hope of getting out.

Not helping these families is disrespectful. Choosing not to listen to these families is disrespectful. Telling these families to hold tight and wait it out is disrespectful.

And promising an influx of the middle class, upper class and creative class may be wishful thinking. The Hamilton Spectator's Code Red series exposed third-world health outcomes and living conditions in some lower-city neighbourhoods.

We're not seeing an exodus of Canadians who are packing up and moving their families to third world countries. The migration is all one way. People leave for the promise of new opportunities and a better life. So why would migration be any different within our city? Creating magnet schools in the lower city with unique programs and great teachers may encourage an influx of families. But will it be enough, will it happen soon enough and should that be our only solution?

While our postal codes are different, we all share the same aspirations. We want good jobs that pay living wages. We want to live in safe neighbourhoods. We want to send our kids to great schools where they will flourish. Above all, we want a better life for our family.

If families can get that in the lower city, that's great. If families want to get that and can get it now by moving out of the lower city, we absolutely need to make it happen as fast as we can.

Moving people out isn't an abandonment of our lower city. It may well prove to our best hope of saving the lower city and my father is proof of that.

My dad grew up in poverty. He was born and raised in a Code Red neighbourhood in the industrial east end of London, Ont. Getting out motivated my dad to stay out of trouble and be the first in his family to get a post-secondary education. With a degree in hand, he got a good job and he moved our family from the east end to South London. We lived in a safe neighbourhood. We went to great schools. And we had a better quality of life. He broke the cycle of poverty for his kids and grandkids.

Yet my dad didn't abandon his neighbourhood or forget his roots. For most of his career, he was a teacher and principal at high-need elementary schools in low-income neighbourhoods. Those schools were full of kids who'd been dealt the same lousy hand as my father. And my dad knew from experience and believed to his core that for many of those kids, school was their sanctuary, their safe harbour and their single best hope for getting out.

My dad set high expectations for teachers, parents and the kids. And he did everything he could to help those kids realize their potential. He set up breakfast programs. Ran a popcorn machine in his office so no one went hungry. Shot hoops with the kids during lunch. Always kept an open door. Lent out his dress clothes at graduation. Got rid of the bad teachers and stood up for the good teachers who somehow persevered in the face of the challenges that poverty inflicts on inner-city schools.

My dad made a real difference. He was a poverty to prosperity solution for hundreds of families. The proof came in the weeks after my dad died suddenly and unexpectedly. Parents and former students sent my mom cards of condolences and letters of thanks. They talked about how my dad had believed in them. Looked out for them. Advocated on their behalf. Challenged them to do their best, to aim higher and to dream bigger.

At times when no else seemed to care, to understand their challenges or to even notice them, my dad gave a damn and he never wrote them off. And that made all the difference. These former students wrote about how they too had stayed on the straight and narrow. Went on to college and university. Got good jobs. Raised a great family. Had a better life. And broke the poverty cycle.

If we want the rest of Hamilton to care about what's happening in the lower city, if we want to get rid of the income inequality that has divided Hamilton and created a poverty that's concentrated, corrosive and uncontainable, then we may well need to get families out of the lower city and into the rest of Hamilton.

Lower city families deserve the best poverty-to-prosperity solutions and they need them now. Limiting what strategies get put on the table is not an option.

That's disrespectful, it's an abandonment of our lower city and it's an abdication of our moral obligation to our fellow citizens.

Book review: The Big Short

The Big Short: Inside the Doomsday Machine

By Michael Lewis

W.W. Norton & Company

$35

It finally happened last week. I came home from work and found it waiting in the mailbox.

The good folks at Capital One want to lend me up to $30,000. Seems I’m one of the lucky Canadians with excellent credit who’s been approved for Capital One’s SmartLine Platinum MasterCard. For three years, I’ll get a low fixed interest rate, perfect for consolidating all of my higher interest debt.

Not so long ago, I was getting one or two of these offers every day. And Joe and Karen from The Bank I’ve Never Heard Of would cold-call and pitch six-month interest free loans.

But the letters and calls stopped around the same time as the subprime mortgage mess set off the meltdown of the world financial system, brought on the Great Recession and triggered raid-the-cupboard government bailouts that my grandkids will be paying off.

Now you and I would never lend $100 to a deadbeat coworker or the black sheep of our family. Yet banks happily lent hundreds of billions of dollars to folks who, in the words of Bruce Springsteen, had debts that no honest man could pay.  

Best-selling author Michael Lewis explains how it all went wrong. Only he tells the tale from the perspective of the handful of outsiders and misfits who saw the future and doubled down on disaster.

People like Michael Burry, a 32-year-old, one-eyed reclusive investor and hedge fund manager suffering from undiagnosed Asperger’s.  Burry was one of the first to spot the huge bubble in the subprime-mortgage bond market and figure out how to profit from it.

Burry figured out that a lot of subprime-mortgage bonds were loaded with truly lousy loans made to poor, debt-burdened Americans who were living way beyond their means. Exhibit A was the Mexican strawberry worker who, with an annual salary of $14,000, got approved for a $724,000 subprime mortgage loan.

These loans typically carried introductory interest rates that were artificially low. The teaser rates then reset to much higher floating interest rates. Burry believed that the higher rates would set off a wave of defaults and hundreds of thousands of loans would go bad all at once.

“As early as 2004, if you looked at the numbers, you could clearly see the decline in lending standards,” says Lewis.

“In Burry’s view, standards had not just fallen but hit rock bottom.” Burry believed that borrowers had lost restraint by 2003. Lenders lost it by early 2005.  And Burry estimated that all those loans made in 2005 would go bust sometime around 2007.

So Burry came up with a way to bet against the subprime-mortgage bond market, which pretty much resembled a giant Ponzi scheme. He convinced a Wall Street firm to sell him credit-default swaps on subprime-mortgage bonds. 

As Lewis explains it, a credit-default swap is basically an insurance policy on a bond, where you make periodic premium payments for a fixed term.  For example, you could pay $200,000 a year to buy a 10-year credit-default swap on $100 million worth of bonds. The most you stood to lose was $2 million ($200,000 a year for 10 years). But you could gain $100 million if the bond went into default any time over that 10 years.

The price of the insurance premium was driven by ratings placed on bonds. And the rating agencies appeared pretty much clueless when it came to assessing the true risk of subprime-mortgage bonds. So premiums were low and credit-default swaps were a relative bargain. “It was as if you could buy flood insurance in the valley for the same price as flood insurance on the house on the mountaintop,” says Lewis.

In short order, Burry cherry-picked the worst subprime-mortgage bonds and owned credit-default swaps on a billion dollars worth of bonds. As the market started unravelling, Wall Street firms began offering to buy back Burry’s swaps at a profit. And when the subprime-mortgage bond market went bust, Burry pocketed $100 million for himself and $725 million for his investors who were smart enough to bet against the house.

But the recklessness on Wall Street hurt a whole lot of people on Main Street. Folks lost their life savings, their homes and their jobs in the Great Recession.  So why did Wall Street firms and big banks lend so much money to people who’d never repay their debts?

In the final chapter of his book, Lewis says the seeds were sown when Wall Street firms went from conservative private partnerships to risk-taking public corporations.

“From that moment, the Wall Street firm became a black box. The shareholders who financed the risk taking had no real understanding of what the risk takers were doing, and, as the risk taking grew ever more complex, their understanding diminished. The psychological foundations of Wall Street firms shifted, from trust to blind faith.”

The Big Short is a must read and it just may convince you that the underside of your mattress is the safest and smartest investment vehicle if you can’t find a one-eyed, reclusive money manager with the foresight to spot the next bond market bubble.