Sacramento Bee columnist, Dan Walters wrote an interesting piece this week (May 17, 2009)
raising the question - Does California get the blame for creating the recession?

Walters makes his case by stating-

“A very good case can be made that California's developers, mortgage lenders and house-hungry
but income- deficient residents, with state and local officials as enablers, created an unsustainable
housing bubble. And when that bubble burst, leaving holders of mortgage bundles – many of them
overseas banks – with little more than toilet paper, it created a banking crisis that spread to virtually
every other segment of the global economy.”

Of interest, Walters took no time to explain the origin of the loan products that were created such as the
zero down and interest only products that help to ignite this disaster.  Nor did he discuss the lack of
review by regulators or by bond raters that could have interceded preventing the caustic nature of these
bundled portfolios.  Nor did he discuss the issues of credit swaps and derivatives; the very products that
help bring down the financial markets, products that should have been examined by both government
regulators and by the marketplace which were unfortunately ignored by both.

Sorry Dan, but it was good ‘ol’ greed and not just Californians greed either that caused this debacle. 
Income deficient Californians were not the problem.  It was the lack of income verification of borrowers
by professionals  from the investment communities of real estate and mortgage banking that wanted
more money and sought everyway to get it. 

Walters continues;

”the state has been ground zero for the collapse of those mortgages as adjustable interest rates "reset"
upward, having recorded more than a half-million foreclosures and other symbols of distress. Currently,
another 400,000 home loans in the state are delinquent because the economic crisis that was spawned
by the banking crisis means hundreds of thousands of California families have lost their incomes – folks
who were reasonably good credit risks originally – and cannot make their mortgage payments.”

Walters has his facts correct, but the current number makes up less than 5 percent of the total homes
in the state. Keeping this in perspective it is important to understand that there are over 90 percent of
Californians that own homes that are current on their mortgages. 

The real question is - Could California as the 8th largest economy in the world and comprises12%
of the nation’s GDP really have had that much impact on the global economy – such an impact that it
single handedly caused this recession? Doubtful

But, if history should prove this premise correct, then maybe California should be run as a nation rather
than a state.  Let’s see if Walters addresses this topic in the future.


Tjohnson@CaliforniaBusinessMinute.com
www.CaliforniaBusinessMinute.com