Now With Obama, It's Time To Fix The Foreclosure Crisis In California

Democratic legislative leaders are in Washington today arguing for increased stimulus money for California. I've been arguing that this is required for some time, and hopefully it will be done in such a way that a) it can be applied to the General Fund deficit (so far Arnold has not asked for budget relief in that way) and b) it can be used without up-front money that will be matched, because the cash crisis limits our ability to do that.

However, there is something else that the Obama Administration can do right away to help the bottom line of the state and its citizens, and that is deal with the crisis in the housing market here. It's no secret that California is one of the hardest-hit states by foreclosures; in Stanislaus County, for example, 9 percent of all houses and condos in the county have been foreclosed upon, a staggering figure. That's almost $4 billion dollars worth of foreclosures in Stanislaus alone. In larger counties like San Bernardino and Riverside, you can see how this foreclosure crisis affects new housing starts (there are a glut of cheaper foreclosed homes on the market) and thusly unemployment figures.

Only four years ago, Riverside and nearby San Bernardino, often called the Inland Empire, were California’s economic powerhouse, accounting for more than a fifth of the state’s new jobs. Today, unemployment reigns in the sprawling region east of Los Angeles. The 9.5 percent jobless rate in the two counties matches Detroit’s as the highest of any major metropolitan area in the U.S.

Although there was a surge in construction employment in the U.S., and about a 50% increase in California (as a percent of total employment), construction employment doubled (as a percent of total employment) in the Inland Empire [...]

With the housing bust, the percent construction employment has declined sharply and the unemployment rate has risen to almost 10%. Is it any surprise that jobless rate in the Inland Empire matches Detroit’s as the highest of any major metropolitan area in the U.S.?

Nobody is calling on the federal government to prop up a sick housing market that will not see a broad recovery for a while. But foreclosures have a disruptive effect on the greater economy. They hurt property values, they hurt banks, and they hurt employment. The crisis is only slated to grow if nothing is done, with homeowners of every income class affected. And so foreclosure aid would be a major boost to California, and it can be done both quickly and effectively. By pledging that $100 billion from the TARP program will go to limit foreclosures, Obama has already begun this effort. Ted Lieu thinks that the Obama Administration understands the nature of the problem.

Time is of the essence. I commend the incoming Obama Administration for pledging up to $100 billion from the Troubled Assets Relief Program (TARP) to help distressed homeowners stay in their homes. In California, which has the highest number of foreclosures in the nation, we experience one foreclosure filing every 30 seconds to 1 minute. The TARP funds, which the U.S. Senate recently released, should be immediately put to use to rescue homeowners from foreclosure. Our economic recovery will not begin until we slow down the astronomical rate of foreclosures and stabilize the housing market.

Strategic direction is of the essence. The haphazard strategy of the Bush Administration’s use of the initial $350 billion in TARP funds resulted in the following: more foreclosures, less market confidence, and zero benefits for the ordinary citizen. How does giving yet another $20 billion to Bank of America so it can complete its purchase of Merrill Lynch’s brokerage arm help anyone on Main Street? Answer: it doesn’t. The only people this TARP money under the Bush Administration has been helping have been Wall Street firms. It is time for change and January 20th cannot come soon enough.

However, more needs to be done. Earlier this month, Democratic Senators got Citigroup on board for what is known as "cramdown" legislation, which would allow bankruptcy judges to restructure mortgages that would give homeowners the ability to pay them. The lenders take a haircut but it's a better situation for them than foreclosure, and those who get to keep their homes can continue to contribute to the economy. It's a great idea and a major step toward reforming the hideous 2005 bankruptcy bill. Yet despite supporting it, Obama's team doesn't want to include this reform in the economic recovery package, which I think is a mistake.

President-elect Obama and his advisers are resisting attempts to include a provision in the economic stimulus bill backed by congressional Democrats that would allow bankruptcy judges to shrink mortgages.

In a hastily convened Democratic Caucus meeting last week, Obama economics adviser Jason Furman made it clear to lawmakers that Obama thinks the so-called “cramdown” provision would cost GOP votes and endanger bipartisan support in the Senate.

He committed to dealing with the issue after the bill passes, as did House Speaker Nancy Pelosi (D-Calif.).

Lead supporters of the cramdown provision say the time to deal with the issue is now. Rep. Jerrold Nadler (D-N.Y.) said it’s worth losing some Republican support to help homeowners.

“I would take that risk,” Nadler said. “I don’t think you’re going to get a lot of Republican votes anyway.”

This is absolutely correct by Nadler, and risking a few votes on the margins is no reason not to limit foreclosures now. There is an urgency here, because each foreclosure hurts the housing market more and makes it less liable to recover quickly. We cannot wait a few months for the sake of political expediency. Cramdown needs to happen fast, particularly for us in California.

Random Apolitical Dudes from the Inland Empire For McCain!

This is a budding scandal. The front page of the Washington Post today profiles Harry Sargeant III, a bundler for John McCain who has a knack of getting big-dollar donations out of working-class people in the Inland Empire who've never made a political contribution in their lives.

Some of the most prolific givers in Sargeant's network live in modest homes in Southern California's Inland Empire. Most had never given a political contribution before being contacted by Sargeant or his associates. Most said they have never voiced much interest in politics. And in several instances, they had never registered to vote. And yet, records show, some families have ponied up as much as $18,400 for various candidates between December and March.

Both Sargeant and the donors were vague when asked to explain how Sargeant persuaded them to give away so much money.

This is extremely odd. Non-donors don't just pop up and max out, especially when they don't fit the profile of having $2,300 to spare. There's at least the possibility here of straw donations, where these names are either picked out of the phone book and used as shells so big-money folks can deliver more than campaign finance limits to the candidate, or the contributors are willing participants who give and then get the money back (with a little extra for their trouble) from the same big-money boys.

Adding to the intrigue is that these donors declined to talk about the donations (at first denying they had made them) or who asked them to do so. Half these people aren't registered to vote. And all of them appear to be Arab-American, a community with which Sargeant has unique contacts:

Sargeant's business relationships, and the work they perform together, occur away from the public eye. His firm, International Oil Trading Co. (IOTC), holds several lucrative contracts with the Defense Department to carry fuel to the U.S. military in Iraq.

"It is very difficult and is a very logistically intensive business that we have been able to specialize in," Sargeant said. "We do difficult logistical things that don't necessarily suit a major oil company. It's a niche we've been able to occupy."

The work has not been without controversy. Last month, Rep. Henry A. Waxman (D-Calif.) initiated a review of IOTC's contract to determine whether it was overcharging the military for jet fuel, and to learn how the company, which did not submit the lowest bid, landed the contract to supply the fuel. The Pentagon has said that IOTC won the contract because it was the only company with a "letter of authorization" from the Jordanian government to move the fuel across its territory to Iraq.

Greg Sargent and Eric Kleefeld have more on this element of the story - Sargeant (no relation to the TPM writer) is apparently being sued by the brother-in-law of the King of Jordan.

This is a very shady tale and I'm guessing we haven't heard the end of it. John McCain's absentee leadership has led to serious violations of campaign finance law already - and this could be the worst yet.

Looming Recession Update: We're Ohio Now

I'll fill you in on the protest soon. It went very well. But I'm fortunate enough to be able to go to Burbank at 4:00 on a Friday and protest. Some of our other fellow Californians aren't so lucky. They're busy trying to find a way to keep their homes and feed their families. The LA Times has the latest job numbers, and they're obscene.

California's unemployment rate rose by a whopping half a percentage point in March, reaching 6.2% as a weakening economy shed jobs in the ailing construction and financial activities sectors. In all, 1.13 million were unemployed [...]

California is doing worse than Pennsylvania and Ohio ... the two Rust Belt states that have figured prominently in the presidential primary elections because of their lost manufacturing jobs.

If the governor's budget-cutting plan moves forward and thousands of educators across the state lose their jobs, this will only get worse. The worst, absolute worst numbers are in the Inland Empire, where construction is at a standstill and housing-related employment is melting away.

The rise in unemployment during March affected all of Southern California, with the worst effects in the Inland Empire. The rate in Riverside County -- not seasonally adjusted -- rose to 7.4% from 7.0%, while in San Bernardino County it rose to 6.7% from 6.3%.

7.4% isn't approaching the 1980s just yet, but it's getting pretty damn close. And areas like the IE, which don't have a sustaining support structure for the unemployed or the needy the way that, say, Los Angeles does, are particularly vulnerable. We're on the front lines of an economic meltdown that is rapidly expanding.

Good thing we have a bantaaastic governor who gets on the cover of Time magazine!