Comments on: No Green Shoots in CA’s Banking Compost Heap

By: eggroll

eggroll — Thu, 13 Aug 2009 15:13:51 +0000

Orange County was ground-zero for financial hanky-panky. In 2005, I believe, 17% of economic output in the county consisted of people selling their houses to each other. That’s not counting the banking services such as mortgages, or the physical activities like infrastructure and building construction. We built this massive construct that exported dollars to low-cost producers such as the Chinese, who then exported their dollars back to the US in exchange for Americans filling their houses and garages with cheap goods. So people had this sense that assets such as housing suddenly doubled in value. Of course, we have a good picture of housing price development that extends back as far as 300-400 years in Denmark and the Netherlands, and what we know is that in the long run housing is an inflation-neutral investment. Economists know this, so who turned off the alarm in Orange County’s case?

By: PJEvans

PJEvans — Thu, 13 Aug 2009 03:14:59 +0000

I have friends who are telling me that at least half the houses on their two-block section of street are underwater - I think all the houses have lost at least 25 percent of their peak value over the last three years.

I’m wondering how much better off the banks would be if they hadn’t killed mortgage cramdowns in Congress.

By: PJEvans

PJEvans — Thu, 13 Aug 2009 03:12:44 +0000

Not.
We have initiatives for bonds to pay for stuff, because the lege is gridlocked to the point where it can barely pass the budget three months late. That’s in a good year, mind. (This year was much worse.)
To give you an idea of how gridlocked things are: When Tom McClintock ran for governor in the recall election, his biggest boast was that he hadn’t voted for a budget since Deukmejian was governor. And he was able to carpet-bag his way into a Congressional seat in Northern California, while still (theoretically) representing a state lege district in Southern California. (The legality of that is questionable: he was living outside of at least one of those while he was doing it.)

By: rusty houndog

rusty houndog — Thu, 13 Aug 2009 03:03:27 +0000

From Larue @ 44; What does the FDIC job surge indicate?
The title of the job, “Resolution and Receivership Specialist”, means they search for the true book values of a bank in receivership, and try to find another bank which will buy the good assets, all the while trying to reduce the drain on FDIC funds going toward customer payout. 24 mid to upper level Resolution and Receivership Specialist means expect more bank failures, probably at least one of the larger sized local institutions. Low level specialists are contract hired locally; FDIC knows thousands of local qualified folk for those “low level” accountancy jobs.

By: dosido

dosido — Thu, 13 Aug 2009 00:17:20 +0000

I’m glad you caught this part of the story. Isn’t it interesting that the FDIC is setting up shop in IRVINE where most of the loan mod fraud is occuring…it’s shameful.

Some lawyers are disgusted that it has taken the State Bar so long to take any sort of action against even the most egregious breaches of ethics and outright fraud. I don’t know why the footdragging, but it seems they are slowing, glacially coming around.

By: dosido

dosido — Thu, 13 Aug 2009 00:14:49 +0000

Amen.

By: Hugh

Hugh — Wed, 12 Aug 2009 22:43:48 +0000

Hi Peterr, I saw the post at Calculated Risk. I am very skeptical of the greenshoots, end of recession talk. Both employment and housing, as you point out, are nightmares. This has concerned me for a while. The math for recovery doesn’t add up. Unfortunately, the math for depression does.

By: Elliott

Elliott — Wed, 12 Aug 2009 22:22:08 +0000

Hoorah! It bugs me that these crooks get off with measly fines -if that. The guy swiping cigs at the quikee mart pays a heavier price than the waymore insidious white collar crooks that thoroughly destroy trust. Good on Jerry Brown, may he inspire many other AG’s

By: Peterr

Peterr — Wed, 12 Aug 2009 22:11:50 +0000

That’s what makes the FDIC angle to the post so intriguing.

If this blows up on the banks, as appears more and more likely, the FDIC takes them over. That’s why — I’m guessing — they are ramping up their staff in Irvine CA.

When that happens, the FDIC sells off the good loans to other banks and ends up eating the bad ones, spreading the costs around to the healthy institutions through their contributions to the deposit insurance fund. (It’s the price the banks pay for having a backstop to the industry. They’ll squeal about it, but they know this is the only way to do it.) If need be, the FDIC can hold property longer than a bank, waiting for the market to stabilize.

The FDIC has done this before, in the 1980s S&L mess — but by the time this is over, it will probably been worse than that. They ran into problems at times back in the 80s, but seemed to have learned from their mistakes as it went along. We’ll see what happens this time around.

By: Peterr

Peterr — Wed, 12 Aug 2009 22:05:50 +0000

Seems like CA AG (and candidate for CA Gov next year) Jerry Brown is coming down more heavily on the “they’re crooks!” rather than “they’re idiots!” side of the discussion.

From CalculatedRisk: California AG Cracks Down on Loan Modifiers

Brown is demanding that more than 300 of these “advisers” post bonds with his office, he’s asking very tough questions about clearly questionable ads and marketing tactics, and the state bar is going after several lawyers for improper activities.