Explaining Southern California's economy

Student loan relief: Obama tries to keep good debt from going bad

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Brittany Knotts/KPCC

Many students who graduate from 4-year universities have student loan debt

President Obama, to his credit, is doing what he can to address problems in two of the three big debt markets in the U.S. He's rolled out a plan to enable borrowers who are underwater on their mortgages to refinance, taking advantage of historically low interest rates. And now he's turned his attention to student loan debt, which has ballooned in recent years as the cost of higher education has risen beyond the rate of inflation.

That leaves credit card debt and to a lesser extent auto loan debt. We're unlikely to see anything on that front, however, because the government doesn't backstop that kind of lending.

The student loan initiative is being driven by the crappy economy. Students have borrowed very large sums to fund their educations, but in many cases they can't get jobs in the face of 9 percent national unemployment. If they can find work, the pay isn't enough to service the debt. And overall student loan debt is now massive, at more than a trillion bucks.

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The Housing Crisis: Can prices fall even farther?

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Justin Sullivan/Getty Images

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

Another month, another Case-Shiller index on housing prices — and more bad news for the housing economy. This is from the Wall Street Journal:

The Case-Shiller data come on the heels of the White House's revamp of a mortgage-refinance program for "underwater" borrowers—those who owe more than their homes are worth. But economists say there are few quick fixes for the housing crisis, and easier refinancing rules will do little to address weak demand for homes.

"It was a very bad spring-to-summer-market season," said Nancy Wallace, a finance professor at the University of California at Berkeley. She said a turnaround in the housing market remains largely dependent on loosening credit and a surge in hiring. "People are almost afraid to apply for mortgages and lots of people have little scratches and dents on their credit right now."

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PHOTOS: A Visit to Idealab in Pasadena

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Matthew DeBord

Welcome to Idealab, a new business incubator founded in 1996 and located in Pasadena, Calif.

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Matthew DeBord

Entrepreneurs in an innovation tank need aquatic life in an aquarium, for metaphorical reasons and to relieve startup stress.

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Matthew DeBord

Idealab is currently working with a number of companies in its innovative, open-space environment.

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Matthew DeBord

Idealab provides the services that startups require, including legal and HR.

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Matthew DeBord

If you're an entrepreneur, you're going to need financial advice, at some point. Maybe at every point.

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Matthew DeBord

It isn't just social media startups and tech companies. Idealab maintains a workshop for entrepreneurs who need to build stuff out of something other than bytes.

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Matthew DeBord

It never hurts to have an accessible rooftop, where you can prototype solar projects.

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Matthew DeBord

I'm Matt DeBord, your DeBord Report business and economics blogger from KPCC 89.3, and I approve of this visit to Idealab. More to come...


Today, I dropped by Idealab, the business incubator in Pasadena, to learn a bit more about the startup scene in Southern California. They were kind enough to show me around their unique space and briefly chat about what they do, why they do it, and how they do it. 

Here's a timeline of the operation, which was founded in 1996 by Bill Gross and has moved through a number of iterations. They are to a certain extent building the future here, and that's always a good energy to be around. Idealab is also fostering new businessers and new technologies right here in SoCal, establishing an interesting alternative to the Bay Area (although certainly not acting as if NoCal doesn't exist). They're even beginning to explore so-called "angel" investing, with a new in-house ventures group.

Have a look around! And, if you want to get a sense of how entrepeneurship is affecting working life in Los Angeles during an economic downturn, check out KPCC's Shereen Marisol Meraji and her visit to NextSpace, a co-working business in Culver City.

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Euro Crisis: The French, they are a funny race (the Germans, too)

Reuters finance blogger Felix Salmon and Marketplace New York bureau chief Heidi Moore went on "The Madeleine Brand Show" this morning to discuss the ongoing (Neverending?) European debt crisis. It was a lively discussion, moving beyond the probability of a Greek default in its debt and raising the specter of Italy defaulting on its debt — or more accurately, being unable to "roll it over," or pay off maturing bonds with new bonds, at the same interest rate. Unfortunately for Italy, its borrowing costs are going up, making it difficult to execute this maneuver.

At one point, Heidi made reference to a video of French President Nicolas Sarkozy and German Chancellor Angela Merkel, the odd couple of the European Union, who together have been lurchingly trying to cobble together a rescue package for the Eurozone's common currency. 

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Rick Perry's Bizarro World tax plan

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Win McNamee/Getty Images

GOP Presidential Candidate Rick Perry

I honestly didn't think anyone could — or would — come up with a worse plan for U.S. tax reform than Herman Cain did with his 999 proposal. But Texas Gov. Rick Perry just released his "Cut, Balance and Grow" plan, which is also being referred to as the "20-20" plan, echoing Cain's 999. The difference is that Perry replaces Cain's 9 percent flat income and corporate taxes with a 20 percent flat tax for both. But there's more! And just in time for Halloween, it's...terrifying!

I'd like to call it stupid, but ridiculously stupid would be better.

The plan has four key pieces:

  1. Americans will be able to choose between the current tax system and the 20-percent flat tax. 
  2. Corporations will see their tax rate cut from an average of 35 percent under the current system to a flat 20 percent with Perry's plan.
  3. Federal spending would be capped at 18 percent of GDP, which Perry argues is the average since 1960. This will, he insists, balance the budget by 2020.
  4. Workers would be able to opt out of Social Security.

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