Explaining Southern California's economy

Bad investors v. good investors in the California housing market

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Justin Sullivan/Getty Images

A foreclosure sign sits in front of a home for sale.

This is from AP (via the Washington Post):

A new federal report shows that speculative real estate investors played a larger role than originally thought in driving the housing bubble that led to record foreclosures and sent economies plummeting in Nevada, California, Arizona, Florida and other states.

Researchers with the Federal Reserve Bank of New York found that investors who used low-down-payment, subprime credit to purchase multiple residential properties helped inflate home prices and are largely to blame for the recession. The researchers said their findings focused on an “undocumented” dimension of the housing market crisis that had been previously overlooked as officials focused on how to contain the financial crisis, not what caused it.

The story goes on to point out that less swashbuckling investors in Nevada are now buying foreclosed, abandoned homes, "fixing them up" and selling them.

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California and Nevada team up to make the housing crisis last forever

The Attorneys General of California and Nevada, Kamala Harris and Catherine Masto, have joined forces to pursue the banks that were involved in the foreclosure crisis to the ends of the earth. This is crusading stuff. But will it actually help? The LA Times sums it up:

The new alliance between Harris and Masto comes as the largest banks are working to strike a deal with a coalition of attorneys general and federal agencies that is led by Iowa Atty. Gen. Thomas Miller, who has forced the mortgage industry to accept large settlements in the past.

Masto has said the state would evaluate any proposed deal but would push ahead with her own work. New York, Delaware, Kentucky and Minnesota have signaled they are unhappy with the direction of the talks with the banks. New York and Delaware have struck their own agreement to pursue a wider probe of Wall Street's role in the mortgage meltdown.

The negotiations were expected to have produced a settlement of as much as $25 billion for the states, including a provision that would write down principal for troubled borrowers, a move long pushed for by housing advocates. But despite pressure from the Obama administration for a quick settlement that might give the beleaguered housing market a boost, those talks have dragged on for more than a year.

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Can the Federal Reserve end the foreclosure crisis?

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AP Photo / J. Scott Applewhite

The Federal Reserve Building in Washington, DC.

The economist Peter Morici, who has been extremely critical of the Obama adminstration's economic policies of late, has taken a look at the housing crisis and doesn't see much hope. He does see one way out, however. But it's an exceptionally unlikely way out:

Currently, the rate on five-year adjustable rate mortgages is about 3.2 percent. If the Fed could get the investors who buy Fannie and Freddie bonds to accept interest rates of minus 3 percent, then young folks could be offered mortgages with appropriately negative interest rates. To accomplish that feat, the Fed would have to buy all those bonds itself-that's right the Fed would finance all federally guaranteed mortgages and write off 3 percent a year. I can just hear Ron Paul now.

Morici makes this argument in the context of discussing why it makes little sense for young people to buy houses right now (unfortunately, I can't link to his piece, as it isn't on his website yet). He refers to Ron Paul, a Texas congressman and noted libertarian, because Paul is no fan of the Fed

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Why entrepreneurs can't save the U.S. economy

Spencer Platt/Getty Images

Sheila Collins protests with others outside of U.S. Senator Charles Schumer`s office to demand more jobs on April 1, 2011 in New York City.

America loves entrepreneurs. And in the current dreadful economy, we're looking to the risk-takers and idea-guys more than ever to get us out of our unemployment rut. In some respects, you could call the entire Republican economic platform a formula for spurring entrepreneurship, with its combination of tax cuts and reduced regulation. Then again, you could say the same thing of the Democrats, who want the government to spend more money to stimulate demand for the products that entrepreneurs would create.

KPCC's Shereen Marisol Meraji reported from Los Angeles' entrepreneurship central today on the Madeleine Brand Show. She visited a co-working space and investigated the process of business-building at its most grassroots level. I'm energized by stuff like this, but I also have to throw a small amount of cold water in the face of the idea. The fact is that as important as entrepreneurs are to the economy, it's unlikely that they'll be able to create enough jobs to hammer down a 9.1 percent unemployment rate nationally and a 12-plus-percent unemployment rate in LA County.

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Reportings: Chairman Ben; the 99%; iPhone 5 pix; saved from foreclosure

Federal Reserve Chairman Ben Bernanke testifies before Congress this morning. No QE3 (yet) but…sympathy for the Occupy Wall Street protesters? Well, he does have that beard…: "'Like everyone else, I'm dissatisfied with what the economy's doing right now.' He says that protesters have merit in being angry over the economy and Washington." (Business Insider)

Ezra Klein on the humble goals of the 99% Occupy Wall Street protesters (and the Occupy LA protesters, too, by association): "There’s not a lot of evidence that these people want a class war, or even particularly punitive measures on the rich. The only thing that’s clear from their missives is that they want the economy to start working for them, too." (WonkBlog) 

The battle between buyers and sellers of Bank of America stock: "Investors fear that Bank of America might run short of capital because of large mortgage-related settlements it has struck with angry investors who bought securities backed by those problem loans." (AP)

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