2009-03-12 / Community
CLU economic forecast isn't pretty
In contrast to similar events that were usually sugarcoated, this one painted a bleak picture
Hundreds of financial, mortgage and real estate professionals gathered with city officials, professors and students to hear experts talk about what's going to happen next with the economy.
The three-hour conference late last month inside the Lundring Events Center at California Lutheran University began with a 7 a.m. breakfast. Then attendees heard from syndicated columnist Dan Walters, UC Santa Barbara economists Bill Watkins and Kirk Lesh, and banking analyst Gary Findley.
Speakers didn't try to sugarcoat the news to make it go down more easily with bacon and eggs.
As California worked to pass a budget, Walters lamented, "The bad news is probably this plan won't work."
He said California is in one of the worst recessions in history.
Not only that, the state is suffering from chronic water problems. It also has education failures, with low reading scores and high drop-out rates. Then there's traffic congestion, freeways that are falling apart, and a gas tax geared to mileage, not miles driven.
Lesh said that median home prices have fallen back to the 2003 level. That means many of those who bought houses between 2003 and now are underwater, i.e., they owe more than their homes are worth, and that's a huge problem.
In 2008 home sales were up, but that was because of foreclosures being sold—not new or full-priced homes, he said.
People bought what they couldn't afford because there were loans that allowed it, Lesh said. There's a reason, he said, that everyone doesn't drive a Lamborghini.
When housing prices went up 25 to 30 percent, income was only going up 5 percent. Now, he said, people are afraid to buy even if they have the 20 percent needed for a down payment. Those who want to refinance at a lower interest rate find that loan modification plans have a flaw.
"How do you modify loans with no jobs?" Lesh asked.
He said the federal government's response is ineffective, and he foresees a lengthy crisis, which began in September 2008. "We have yet to hit the bottom," he said.
The six banks in Ventura County are mostly strong and are expected to make it through, said Findley of the Gary Steven Findley and Associates law firm.
He said geographic location during a recession does make a difference and referred to Thousand Oaks as "paradise."
But the future isn't bright.
Findley foresees a long and deep recession, with many bank customers feeling it's not necessary to repay their loans.
Watkins blamed Alan Greenspan, former chair of the Federal Reserve, for today's market troubles.
Throughout his career, Greenspan would jump in whenever the market waned, Watkins said.
Calling it "Greenspanism," Watkins explained how Greenspan trained market participants to take risks without fear because the feds would bail them out.
"Moral hazard is not just a theoretical concept," Watkins said, adding that market participants deliberately made bad decisions.
"The recession ruins lives, ruins families and people will suffer."
Watkins said it's better to let businesses fail and get it over with, instead of extending the pain.
The 64 percent homeownership rate in 1968 increased to a 69 percent rate, which, Watkins said, was too high. More people owned homes than could afford to pay for them.
The bubble burst.
Then the federal bailouts came along.
"The first didn't work. The second didn't work either. They never work," Watkins said.
Government ownership doesn't work, and it didn't work in Sweden, he said.
The weakest economy in decades in California is even worse because the government is dysfunctional, Watkins said.
"Offshore drilling would save us."
But instead, people are leaving and going elsewhere.
"Sell your house, buy a few acres in Texas and you'll be better off."
Watkins advised those who are staying to try to keep their jobs, houses and spouses.
"Losing any one of these could be expensive."
Watkins also advised businesses to cut the fat as deep as possible but to keep their human capital- - their most productive performers- - and to try to increase market share.