{"id":2432,"date":"2012-04-11T19:29:00","date_gmt":"2012-04-11T19:29:00","guid":{"rendered":"http:\/\/rf.podcastfixit.com\/index.php\/2012\/04\/11\/too-frail-to-fai\/"},"modified":"2015-06-01T19:42:06","modified_gmt":"2015-06-01T19:42:06","slug":"too-frail-to-fai","status":"publish","type":"post","link":"https:\/\/newscoverage.org\/index.php\/2012\/04\/11\/too-frail-to-fai\/","title":{"rendered":"Too frail to fail"},"content":{"rendered":"
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\nA small string of seniors residence failures highlights the danger of securitizing old age facilities <\/div>\n<\/div>\n<\/div>\n
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By Robert Frank
\nwww.thesuburban.com<\/a><\/p>\n

<\/p>\n

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\nBusinesses fail all the time. It\u2019s called creative destruction, and it\u2019s one of the things that North America responds to exceedingly well. That makes our economy more dynamic than Europe, where bankruptcy is still thought of as a moral failure, the way that adultery is thought of here. <\/p>\n

\nIn contrast, North American insolvency is usually a stigma-free way to liberate capital. It lets those who have gone bankrupt quickly pick up the pieces and move on. <\/p>\n

\nIt\u2019s a straightforward process usually left to commerce and the courts. So it\u2019s rare to see government get involved, as it did four years ago when the world\u2019s financial system teetered on the brink of the abyss. \u201cToo big to fail\u201d became the watchword for state intervention unprecedented in the history of the planet. <\/p>\n

\nThe justification, of course, was that it would have cost far more not to intervene. It\u2019s too soon to judge whether that was brilliant, though, or simply apocalypse later, since the financial aftershocks reverberate to this day.<\/div>\n

\n

So it\u2019s worth taking a look, closer to home, at what might be the tip of another big iceberg, meandering its way toward the good ship SS Old Age. <\/i><\/p>\n

\nThe failures of two suburban Montreal seniors residences at first seemed just a local story, as unpaid bills mounted, bailiffs showed up and owners petitioned for the protection of the courts. <\/p>\n

\nScratch the surface, though, and you find a string of similar reports elsewhere in Canada: Troubled seniors residences that seem only of local concern\u2014that is, until you discover that many share the same cast of owners and operators. <\/p>\n

\nFrom there, it\u2019s easy to discover that the ownership web of many seniors residences is, in turn, securitized by large investment firms in Toronto and elsewhere. Collectively, they are worth hundreds of millions of dollars. Investors buy thousand-dollar shares in real estate funds, hoping to achieve a much higher return than what they can earn on today\u2019s pathetic interest rates on bonds. <\/div>\n

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So far, so good. Private investment makes capital available to build the seniors residences that today\u2019s baby boomers will soon need\u2014and it allocates resources more efficiently than any government could. <\/p>\n

\nThe risk is capitalism\u2019s natural cycle of boom and bust. Dollard des Ormeaux mayor Ed Janiszewski astutely attributed the seniors residence failures in his town to excessively exuberant investors who, several years ago, built more facilities than are currently needed, leading to a vacancy rate that is commercially unsustainable. <\/p>\n

\nMeanwhile, the financial firms that securitize investments in what they term \u201cassisted living facilities\u201d market them as \u201cresidential investments\u201d. <\/p>\n

\nNot so fast. As Liberty Assisted Living\u2019s string of insolvencies has illustrated, eldercare facilities are much more that a roof over seniors\u2019 heads. <\/p>\n

\nWhen our apartment building owner goes bankrupt, most of us can still buy groceries and feed, clean and dress ourselves, as well as see to our own medical needs. The same can\u2019t be said of seniors who depend\u2014sometimes 24-hours-a-day\u2014on the care of others.<\/div>\n

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Ch\u00e2teau Dollard and Ch\u00e2teau Royal are the proverbial canaries in the coal mine. To be sure, court appointed receivers \u00c9ric St. Amour and Beno\u00eet Clou\u00e2tre have, commendably, spared no effort to ensure that the needs of vulnerable residents are seen to. <\/p>\n

\nHowever, a series of massive failures of securitized seniors residences, along the lines of the 2008 mortgage-backed securities crisis, would instantly outstrip private industry\u2019s ability to cope. Too frail to fail, seniors\u2019 needs would suddenly be thrust onto the state. <\/div>\n<\/div>\n

Government policymakers ought therefore to cast a wary eye on the increasing securitization of old age facilities. They need to carefully assess the possible unplanned liability that taxpayers could face from a large-scale set of failures and encourage the investment community to make provisions to cushion such a collapse. The potential human cost to a rapidly growing proportion of the voting population would otherwise be too great a risk to bear. <\/p><\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

A small string of seniors residence failures highlights the danger of securitizing old age facilities By Robert Frank www.thesuburban.com Businesses fail all the time. It\u2019s called creative destruction, and it\u2019s one of the things that North America responds to exceedingly well. That makes our economy more dynamic than Europe, where bankruptcy is still thought of<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2432","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"yoast_head":"\nToo frail to fail - Newscoverage<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/newscoverage.org\/index.php\/2012\/04\/11\/too-frail-to-fai\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Too frail to fail - Newscoverage\" \/>\n<meta property=\"og:description\" content=\"A small string of seniors residence failures highlights the danger of securitizing old age facilities By Robert Frank www.thesuburban.com Businesses fail all the time. 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