Explaining Southern California's economy

Why California saw fewer foreclosures than other states in 2012

Foreclosure

Kevork Djansezian/Getty Images

For sale signs are posted on a foreclosed house in Glendale. In 2012, foreclosures fell off in many California cities, but seven still finished in the top 20.

The housing crisis was also a foreclosure crisis, and many homeowners in California lost their homes. But the situation in the state improved in 2012.

One reason for this is that California is a so-called non-judicial state; i.e., it does not require that foreclosures be overseen by the courts. That allows foreclosures to be completed more quickly. And that is why  judicial states -- those that require court oversight of foreclosures, such as Florida -- surpassed California and other non-judicial states in the number of foreclosures.

That prompted Irvine-based real estate analysis firm RealtyTrac to report on Wednesday that 2012 was the “year of the judicial foreclosure.”

I wrote about this last year:

The process is streamlined [in California], to avoid a lawsuit. 

Ironically, this is supposed to make things easier on the homeowner, but the robosigning scandal that put the brakes on foreclosures by banks was largely confined to states where the foreclosure process is judicial. Borrowers who could seek legal recourse were a bigger problem than borrowers who couldn't, at least not as easily.

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PHOTOS: Top 10 California business and economics stories of 2012

Apple Introduces iPhone 5

Justin Sullivan/Getty Images

Apple introduces the iPhone 5 in San Francisco. It was the first time that the technology juggernaut, the most valuable California company by far, introduced a new device since Steve Jobs' death. Will it be enough to make Apple the world's first $1 trillion company in 2013?

Rupert Murdoch

Justin Sullivan/Getty Images

The Tribune Co., owner of the Los Angeles Times along with dozens of other media properties, finally exited bankruptcy on New Year's Eve. Now the real fun can begin in the City of Angels: Who will buy the hometown paper? Could it be...Rupert Murdoch?

elon musk

Photo Credit: SpaceX

SpaceX CEO and Chief Designer Elon Musk watches Dragon's progress inside of SpaceX Mission Control in Hawthorne in May. The former PayPal founder whose other company in electric carmaker Tesla Motors put California's space business back on the map — and ushered in a new era of private voyages to the stars. But will he really be able to retire on Mars?

George Lucas Poses With A Group Of "Star Wars" Inspired Disney Characters At Disney's Hollywood Studios

Handout/Getty Images

Disney CEO Bob Iger completes a trip of high-profile acquisitions, beginning with Pixar, then moving on to Marvel, culminating with a purchase of Lucasfilm from George Lucas. "Star Wars" now belongs to the Mighty Mouse — and Episode 7 is on the way! But will Disney be able to inject new life into one of pop cultures iconic entertainment franchises?

Reed Saxon

California was crushed by the housing downturn. But fours years after the bottom fell out, the state's real estate market at last began to show signs of life, as the foreclosure crisis fades and a price bubble even began to form in Southern California. Will the market return to normal in 2013?

FORTUNE Most Powerful Women Dinner New York City

Jemal Countess/Getty Images for Time Inc.

Former Google superstar Marissa Mayer took the helm at troubled Yahoo, after a ugly battle between the board of directors and activist shareholder Dan Loeb. Mayer began to make immediate management changes, brought back free food, became one of the most powerful female CEOs on the U.S. — and had a baby! Can she live up to the hype in 2013?

CinemaCon 2011 - Day 2

Ethan Miller/Getty Images

The battle for the future of online content heated up. In early 2012, Silicon Valley and Hollywood dueled in Washington, D.C., over anti-piracy legislation. Hollywood had the lobbying power, embodied by former senator Chris Dodd and the MPAA. But Silicon Valley won a critical skirmish in the eleventh hour by blacking out Wikipedia for a day. Will the combatants be able to strike a truce in 2013?

Job Seekers  Meet With Recruiters At Job Fair

Justin Sullivan/Getty Images

At the tail end of 2013, California's unemployment rate dropped into single digits for the first time since 2009. And compared with the rest of the U.S., the state spent 2012 adding jobs at a brisk clip. But will the recovery be able to sustain its momentum in 2013?

 bankrupt pensions

Steven Cuevas / KPCC

San Bernardino fell off its own fiscal cliff in 2012 — and fell fast, declaring bankruptcy quicker than anyone expected. The broke Inland Empire city joined Stockton and Mammoth Lakes in a minor bankruptcy boom in California and set the stage for the municipal bond market's worst nightmare: a long-anticipated wave of defaults in the Golden State. Could that scary event come to pass in 2013?

A sign announcing Facebook IPO is flashe

EMMANUEL DUNAND/AFP/Getty Images

It was supposed to be the initial public offering of the century, enriching Facebook employees and investors and reviving a moribund IPO market for high-tech startups. But Facebook flopped in first-day trading and kept on falling in subsequent days. Facebook's lead banker, Morgan Stanley, was blamed for botching the offering. Facebook CEO Mark Zuckerberg went on the defensive. And by year end, Facebook still hadn't recovered it $100 billion valuation. But it topped 1 billion active users before the ball dropped in Times Square to ring on 2013. Will 2013 be the year it bounces back?


This is one in a series of year-end stories that look back at the most memorable pieces KPCC reporters worked on in 2012 and look ahead at a key issue that will be the focus of coverage in the coming year.

How much happened in the Golden State in 2012 when it comes to business? Lots. Lots and lots. The DeBord Report covered most of it. 

The slide show above serves up the business year in pictures for the state with the largest economy and two of America's most storied industries: Hollywood and high-tech.

And if you want to review the business year in links to the original posts...well, I've got that covered, too.

10. Apple introduces the iPhone 5 and the iPad Mini — the first all-new gadgets rolled out by Cupertino since the death of Steve Jobs

9. The long, long, LONG Tribune Co. bankruptcy comes to and end. So who will buy the Los Angeles Times?

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San Bernardino v. CalPERS — and now maybe the bankruptcy court

 bankrupt pensions

Steven Cuevas / KPCC

The Inland Empire city filed for bankruptcy protection last summer.

The Economist provides a crisp assessment of the simmering battle between bankrupt San Bernardino and and CalPERS, the biggest public pension fund in the U.S. I've written a lot about San Bernardino's troubles and the Very Big Question of how hard the broke city will fight CalPERS. But The Economist article is well-worth reading as a summary of the risks of tangling with the money managers in Sacramento. 

Here's a taste:

As part of their bankruptcy arrangements, Vallejo, an old port town near San Francisco, and Stockton, in the Central Valley, slashed workers’ pay and stiffed bondholders but made good on their CalPERS payments. In September Compton, a struggling city south of Los Angeles, did fall behind on its obligations; it was quickly brought into line by a lawsuit.

San Bernardino has proved less of a pushover. An unlovely, crime-ridden city at the heart of the Inland Empire, the suburban sprawl east of Los Angeles, it followed Stockton into bankruptcy this summer. The city’s particular troubles go back decades, but much of its story followed familiar contours: overbearing unions, political dysfunction and financial commitments made during good times that could not be met in bad. In one respect, though, its behaviour has been strikingly original. Since its declaration in August, San Bernardino has not paid CalPERS its full dues.

[...]

The problem is simply that CalPERS is, by some distance, San Bernardino’s biggest creditor, and the city cannot cut services any further without jeopardising basic safety. The fund, like all creditors, will eventually receive what it is owed, the mayor adds, but the city needs breathing space. (It wants to resume payments in 2013-14.) On November 30th it filed a proposed emergency budget with a bankruptcy court. Among the cuts and deferrals were $13m-worth of payments to CalPERS.

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The investors' view on the Federal Reserve's interest rate decision

Ben Bernanke

Alex Wong/Getty Images

Federal Reserve Chairman Ben Bernanke. Will continued low interest rates lead to inflation? Some money managers don't think so.

The Federal Reserve's Open Market Committee announcement Wednesday wasn't a big surprise on the interest-rate front. The Fed has stated it intends to keep short-term rates low for the foreseeable future, in an effort to stimulate the economy and push investors into riskier assets, like stocks. A continued low-interest rate environment will also continue to bolster the housing market, where mortgage rates are at historic lows.

Fed Chairman Ben Bernanke and the rest of the FOMC annouced that they will keep rates low until unemployment falls to 6.5 percent. It will also continue to buy up mortgage-backed securities, at roughly the same rate it has been (so-called "Quantitive Easing," installment 3, or "QE3").

[UPDATE: I slightly misinterpreted what the Fed is doing on the bond-buying side. It's also worth noting that the Fed is now saying that it will keep interest rates low until unemployment hits a specified level. This is a policy departure from saying that rates will stay low until the economy improves. But anyway, bond-buying: the Fed is going to double what it's doing in the QE front and change "Operation Twist" into an extension of QE3. The older aspect of QE will still involve buying MBS. But the additions to QE3 will entail buying long-term U.S. Treasuries without selling short-term bonds. This is important as it means the Fed will be adding $85 billion per month to its balance sheet — under Operation Twist, it hadn't grown much, which was viewed as an way to "sterilize" against inflation. Former Dallas Fed President Bob McTeer has a good post about the FOMC decision at Forbes.]

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San Bernardino bankruptcy: How hard will CalPERS fight for its money?

Max Whittaker/Getty Images

A sign stands in front of California Public Employees' Retirement System building. CalPERS is trying to prevent bankrupt cities from evading pension obligations.

Last week, Moody's, the rating agency, released a note about the ongoing San Bernardino bankruptcy and the city's pension obligations to CalPERS. According to Moody's, San Bernardino's total unfunded pension liability far outstrips it other municipal debt. 

San Bernardino declared bankruptcy in July, after the city council revealed that it barely had enough money to keep the lights on. A big question in the bankruptcy has been whether the city will attempt to reduce or discharge its CalPERS liabilities. As Moody's pointed out, neither Vallejo, which went into Chapter 9 in 2008 and emerged in 2011, nor Stockton, which declared bankruptcy earlier this year, sought concessions from CalPERS. In Vallejo's case, other creditors took a substantial haircut. 

CalPERS maintains that pension obligations can't legally be reduced in bankruptcy. That hasn't stopped San Bernardino from ceasing payments, to the tune of $6 million. CalPERS is now disputing San Bernardino's Chapter 9 eligibility, according to Moody's, and is threatening to do away with the city's pension plan. This would expose San Bernardino to a bigger pension payment, due immediately. 

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