California
Wall Street’s California problem
Wachovia reports a $23.7 billion quarterly loss. "Westward ho!" now looks like a pretty bad rallying cry for the North Carolina bank.
There is historical synchronicity to be mined from Wachovia’s stunning announcement on Tuesday of an incredible $23.7 billion loss for the third quarter of 2008. The figure matches almost exactly what Wachovia paid for the Oakland, Calif.-based mortgage lender Golden West in 2006. And if any single financial institution can be said to reside at ground zero of the housing bust, it was Golden West.
Golden West pioneered the “Option ARM” mortgage — that now infamous lending product that allowed homeowners to pay pretty much whatever they felt like paying in the initial years of the loan. Of course, if you make minimum payments that don’t even cover the interest accruing on your loan, you end up with bigger unpaid balances than you started with — negative amortization territory — which puts you at tremendous risk if home values should happen to fall, instead of relentlessly appreciate. Golden West built its empire by almost exclusively selling option ARM mortgages, mostly to Californians. It was an empire built on quicksand.
Thanks to a nifty new interactive map from the New York Federal Reserve Bank, we can trace the trail of wreckage left by Golden West county-by-county through California. Click on any county and you can learn both the current rate of mortgage and credit card delinquency in that county.
The primary lesson to be learned from the map is that credit card delinquencies are rising fastest in exactly those counties that have suffered the worst from the housing bust. In California that would be the counties that make up the Central Valley and the “Inland Empire” of Riverside and San Bernardino counties. This was Golden West’s playground, but no one is having any fun there anymore. The story is simple: A resident of Fresno or Merced county took out an option ARM loan (or refinanced into one) for a house at an inflated price, got burned by the housing bust, started paying for life’s necessities with credit cards, and now can’t make the credit card payments. Consumer spending falls across the board: Voilà, recession.
There is some good news: According to an excellent Wall Street Journal story published on Wednesday by Michael Corkery and Jonathan Karp, “California Home Sales Revive, But Not Without Intense Pain,” home sales are up all over California by 65 percent as measured against a year ago. But the pain here is no gain: Home prices fell 34 percent over the same time period.
Corkery and Karp observe:
Those woes weigh on the financial system. Though California represents about 12 percent of the nation’s population, its homes account for 34 percent 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.
One more interesting side note. Herb and Marion Sandler, the married couple who built Golden West from a two-branch S&L in Oakland into an option-ARM colossus, are pouring the $2.4 billion that they cleared from the sale of their company into liberal philanthropy. The New York Times’ Joe Nocera wrote a long piece on their laudable efforts in March, about a month before the credit crunch really started getting serious with the bailout of Bear Stearns.
Option ARMs don’t get a single mention in Nocera’s story. But in the course of discussing how the Sandlers funded the creation of the nonprofit center for investigative journalism, ProPublica, we come to the following passage:
Even among the philanthrocapitalists, though, the Sandlers stand out. Herb, in particular, can sound nearly contemptuous about how other philanthropies go about their business. Mainly, it seems, they don’t do it the way he and Marion do.
But what makes them so sure their way is better?
“It starts with outrage,” Herb Sandler said. “You go a little crazy when power takes advantage of those without power. It could be political corruption — “
“Or subprime lending,” Marion interrupted.
“The story of subprime is worse than anyone has written so far,” Herb said, shaking his head in dismay.
“It is,” Marion said, nodding in agreement.
An option ARM loan is not by definition a “subprime” loan, although in many cases the categories overlapped. So when the full “story of subprime” does get written, Herb and Marion Sandler might deserve a whole chapter for themselves.
Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.
California’s college mess
How not to compete in the global economy: The richest state in the U.S. can't afford to educate its students
Jerry Brown (Credit: Reuters/Lucy Nicholson) If increasing access to quality higher education is as crucial to U.S. economic growth as everybody seems to think it is, then two news item from California this week deliver a simple, straightforward message: We’re screwed.
1) Ace education reporter Nanette Asimov reported on Tuesday in the San Francisco Chronicle that the California State University system is withholding around $90 million in cash grants previously allocated to graduate students in the CSU system.
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Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.
California’s unregulated fracking problem
Drilling has long gone unregulated in this earthquake-prone state. And now Gov. Brown may be trying to hush it up
A gas flare burns at a fracking site in rural Bradford County, Pennsylvania January 9, 2012 (Credit: Reuters/Les Stone) Thanks to the smoking gun of Josh Fox’s sobering documentary “Gasland,” hydraulic fracturing has finally entered our renewable news cycle. Yet despite poisoning groundwater, freeing methane and literally creating earthquakes back east, fracking has a visibility problem in California.
The situation became less clear after a recent investigative report from D.C.-based nonprofit Environmental Working Group explained that California has experienced 60 unregulated years of widespread fracking, whose technical methods and geographical locations in the seismically active state exist outside of the public purview. It got darker after Gov. Jerry Brown’s administration wiped the state government’s Division of Oil, Gas and Geothermal Resources (DOGGR) website of fracking fact-sheets and documents. Good luck finding anything about fracking on the governor’s official site either.
Scott Thill is the editor of Morphizm.com. He has written on media, politics and music for Wired, the Huffington Post, LA Weekly and other publications. More Scott Thill.
Swimming with the stars
A new photography exhibition examines the cultural significance of the Southern California swimming pool SLIDE SHOW
Lawrence Schiller, "Marilyn Monroe," 1962.(Credit: Courtesy of Judith and Lawrence Schiller; Lawrence Schiller © Polaris Communications, Inc.) By turns playful, suggestive and bewitching, the photographs in a new show at the Palm Springs Art Museum propel us back through the decades, to a time when the glamour of choreographed capitalist displays had a singular hold over the American imagination.
These images, though diverse in many respects, all have one thing in common: the swimming pool. That, and their mid-to-late 20th-century Southern California backdrop.
The exhibition is part of “Pacific Standard Time,” a multi-institutional project devoted telling the story “of the birth of the Los Angeles art scene and how it became a major new force in the art world,” sponsored by the Getty Research Institute. Over the phone, curator Daniell Cornell explained the place of the swimming pool in Southern California’s cultural history, and discussed the show’s principal themes — from architecture and suburban idealism to the cult of the Hollywood celebrity. Click through the following slide show for a sun-soaked trip back in time.
Continue Reading CloseEmma Mustich is a Salon contributor. Follow her on Twitter: @emustich. More Emma Mustich.
Occupy Southern California
At least a half-dozen separate protest movements have sprung up between L.A. and San Diego
San Diego Police clash with demonstrators at the Civic Center Plaza Friday, Oct. 14, 2011 in San Diego. (Credit: AP/Lenny Ignelzi) California has long been a hotbed of political activism, so it’s no real surprise that residents across the state are expressing their solidarity with the Occupy Wall Street movement. In fact, in the relatively small tract of land between Los Angeles and San Diego, a number of groups have staged protests of their own. Here’s a roundup:
Occupy Los Angeles: A group of 10,000 to 15,000 protesters — not just Angelenos, but Californians from near and far — marched in dowtown L.A. on Saturday. According to the Los Angeles Times:
Continue Reading CloseObama’s crackdown on medical marijuana
The Justice Department shifts course and goes after California's lucrative pot industry
Right: DEA agents remove marijuana plants from a dispensary in San Francisco (Credit: AP/Salon) Back in July, I interviewed a drug policy expert about an apparent change in Justice Department policy that suggested a crackdown on medical marijuana — which is legal in many states but illegal under federal law — might be coming.
Now, with the announcement last week by California’s four U.S. attorneys that pot dispensaries will be targeted with harsh criminal sanctions, the shift feared by drug policy reform advocates appears to have come to pass. The rhetoric from candidate Barack Obama about not prioritizing medical marijuana cases now seems a distant memory.
Continue Reading CloseJustin Elliott is a reporter for ProPublica. You can follow him on Twitter @ElliottJustin More Justin Elliott.
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