Dark Days For Dynasty Built On Debt

I'm starting to think that General Growth Properties, the source of Mrs. Tom Friedman's family fortune, might be an appropriate metaphor for everything.

Two board members of General Growth Properties Inc. marched into CEO John Bucksbaum's office to deliver a blunt message. It was time for him to resign.

An internal investigation showed that the Bucksbaum family trust had violated company policy by making private loans to two company officers and failing to inform the board....

...The stock of General Growth, which is redeveloping the demolished Cottonwood Mall in Holladay and operates five other Utah malls, has plunged more than 97 percent in the past year, dragging down the Bucksbaum family fortunes with it. The Bucksbaums' 25 percent ownership stake, worth $3.2 billion just six months ago, is now worth $116 million.

...Rather than apply for bank loans, General Growth began taking out short-term mortgages on its malls. As the mortgages came due, the company would replace them with even larger mortgages to provide cash for additional acquisitions.

The strategy picked up steam with the emergence of new debt-trading markets. In the mid-1990s, lenders started slicing up commercial mortgages and selling them to multiple investors as bonds. The boom in trading made mortgage-backed debt much cheaper and more plentiful -- as long as investors were willing to buy.

General Growth was soon at the forefront of this market. And because the company was borrowing mostly against its individual properties, lenders didn't place restrictions on its overall debt load, allowing it to accumulate more and more debt.