Illusion of Mall Prosperity

Is the American mall dying?

The doomsday scenario has crushed the share prices of some developers. Shares of the country's second-biggest mall operator, General Growth Properties (GGP, news, msgs), have plummeted below $1 as investors have become increasingly concerned about debt load.

I'm a believer in doomsday scenarios. Keep in mind that I have been consistently too optimistic though. Sigh.

The pain of a dying mall is far-reaching. For many of the suburban municipalities involved, problems at the mall portend problems with the municipal budget.

I have no great desire to own municipal bonds.

"Malls generate so much tax revenue for the township, homeowners hardly have to pay any property tax. A dead mall means there's no choice for the town except to raise property taxes," retail expert Jim Quinn said.

Something tells me raising property taxes isn't going to work in this environment.

"America is in survival mode. The American consumer is trading down; they're going to Dunkin' Donuts and McDonald's (MCD, news, msgs). They're not going to pay for designer coffees at Starbucks," Davidowitz said.

I strongly believe that this is a permanent change and if so there is absolutely nothing the government can do to reverse it.

"Ultimately, the American consumer loves to shop. I don't think that's going to change that much," Moore said. "As employment returns, which it always does, then the shoppers will return again as well."

The American consumer loving to shop is one reason why we are in big trouble. Another reason is that some things that "always" happen, didn't. Stocks "always" went up over the long-term. Real estate "always" went up over the long-term. Our country "always" grew more prosperous. We were "always" able to borrow against that prosperity.

Our last recovery was called a jobless recovery for a reason. I'm really not looking forward to what history will call our next one. I suspect that we'll be breaking another "always" rule of thumb. Way too much of our economy was built on debt, automated, and/or outsourced away.

Here's another quirk about employment that makes me wonder. How many people thought they had enough money to retire early? How many of these people spent money assuming 10% annual returns or more on their nest egg? How many of these people are praying for a second half of year recovery? How many of these people will be in serious trouble if it doesn't come?

Lotto Lessons for Homeowner Bailouts

The authors focused on two groups of winners: those who won a big jackpot (between $50,000 and $150,000) and those who won a small jackpot (less than $10,000). In all cases, the winners received their entire prizes in one upfront, lump sum (rather than in yearly payments, as in some other state lotteries). In theory, the people who won the big jackpots should be less likely to file for bankruptcy than the winners of more piddling amounts. Right?

Wrong. The study found that in the first two years after winning a lottery, people who won a big jackpot were, as expected, 50 percent less likely to file for bankruptcy than their counterparts who won smaller jackpots. But during the three to five years after winning, big-jackpot recipients showed a statistically significant increase in bankruptcy rates of similar magnitude. In other words, winning a large amount in the lottery seemed to postpone, rather than reduce, bankruptcy — even if the jackpot amount was more than enough to fully pay off the winner’s unsecured debts.