Economist: ‘Wall Street has a California problem’
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Excellent piece in today’s Wall Street Journal exploring the housing slump in California, why it is so important to the rest of the country and why it defies an obvious government solution.
The Journal focuses on the boom-and-bust Central Valley town of Los Banos, where roughly 2,000 of the 10,000 houses in town are in some stage of the foreclosure process. A typical story: Claudia Pedroza, whose husband was making about $3,200 a month -- that’s $38,000 a year -- as a house painter two years ago. With no money down, the Pedrozas bought a $375,000 home -- brand new, four bedrooms, three baths. Their initial monthly payment was $2,000. Here’s what happened after that:
Ms. Pedroza lost her home to foreclosure when her husband’s painting jobs vanished and the couple fell six months behind on their payments. The Pedrozas are now paying $750 a month to rent a two-bedroom apartment in downtown Los Banos.
The Journal points out something we all know but sometimes forget: California is different. The bubble was bigger here, the loans were dumber here, the foreclosures are piling up faster here, prices are falling more rapidly here. In short, folks, we are the problem:
Though California represents about 12% of the nation’s population, its homes account for 34% of the loans in a typical mortgage-backed security, according to Fitch Ratings. ‘California doesn’t have a Wall Street problem. Wall Street has a California problem,’ says Christopher Thornberg, principal at Los-Angeles based Beacon Economics and member of the California Controller’s Council of Economic Advisors.
Two cents: California occupies a weird place in the American economy, and American politics, right now. It is the center of the housing crisis that helped cause the financial crisis that will probably tip the presidential election. More than any other state, it gave America subprime lending, no-money-down buying and the booming foreclosure market. Yet the state’s economy and specific problems go undiscussed in presidential politics because its votes are already counted for the Democratic Party. If Americans really knew about the details of our wacky housing market -- median home prices above $500,000, house painters buying brand-new $375,000 homes with no money down, etc. -- they would probably be shocked. But there’s no need to discuss these issues at presidential debates -- California is politically irrelevant. Weird.
-- Peter Viles
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