Beginning 13 years ago, CalPERS invested heavily in real estate at the height of the housing bubble. From 2003 to 2006, the pension fund committed $46 billion to real estate investments, including ambitious projects in New York City and Sacramento that eventually went haywire. The result: In the year ending Sept. 30, 2009, CalPERS lost a stunning 49 percent of the value of its real estate portfolio. A November story in the Los Angeles Times depicted the nation’s largest pension system as only now digging its way out its disastrous investment choices in real estate.

Last week, CalPERS announced it would buy up to a 25 percent ownership stake in the 550-megawatt Desert Sunlight solar project near Joshua Tree National Park in eastern Riverside County, which was until recently the world’s largest solar plant.

CalPERS did so despite taking a bath on its clean energy investments in the 2014-15 fiscal year. However, analysts said that year was an outlier because of the abundance of cheap oil distorting energy markets. Meanwhile, there are many reasons investors are attracted to major solar projects, starting with the fact that state laws require utilities to buy steadily more renewable energy and that solar power technology used in large projects steadily grows more advanced.

Utility think tank warns of ‘potential obsolescence’

But the downside is that making such investments amounts to betting that the status quo of electricity distribution won’t change much in coming years. Among those who question that premise are those with the most to lose from a change in the status quo: the nation’s utility companies. As solar power technology steadily grows more advanced on a small-scale as well as an industrial scale, the huge surge in solar panels on homes and businesses has led a think tank financed by energy utilities to question to issue a harsh warning:

If demand for residential solar continues to soar, traditional utilities could soon face serious problems, from “declining retail sales” and a “loss of customers” to “potential obsolescence,” according to a presentation prepared for the group. “Industry must prepare an action plan to address the challenges,” it said.

That’s from a Washington Post story last year headlined “Utilities wage campaign against rooftop solar.”

A September report in Forbes magazine included an interview with John Berger, CEO of Houston-based solar company Sunnova, who said utilities have plenty to worry about. “Residential solar has already become conventional energy,” Berger told Forbes. “The future will be baseload natural gas and residential solar. The coming solar boom will be just as big and important as the shale gas boom.”

Meanwhile, at least eight battery technologies offer the promise of storing solar power by day for use at night — the biggest obstacle to rooftop power largely supplanting the conventional electricity grid.

CalPERS’ investment in the Riverside County project may look safe now. But in coming years, it may look like a “solar bubble” mistake as small-scale solar takes off.

By Chris Reed

California Attorney General Kamala Harris is among the many Americans of all political persuasions who are outraged that few are taking the fall for the grotesque irresponsibility that led to the housing bubble, its collapse, and the recession of the past six years.

She sued quasi-federal mortgage-issuing giants Fannie Mae and Freddie Mac in December over their foreclosures of 12,000 homes in California. Last week, she targeted Standard & Poor’s over the credit-ratings agency’s high marks for many firms involved in the bubble.

But Harris, who is half black and half Indian-American, is doing more than a little grandstanding here. Like most politicians and most of the media, she chooses to ignore the coarse racial politics that led both George W. Bush and Bill Clinton to push policies that inevitably inflated the housing bubble. It’s the uncomfortable back story that is usually ignored in favor of the tidy narrative of evil Wall Street and supine regulators.

On June 17, 2002, Bush announced a drive to get 5.5 million minorities out of apartments and into their own homes. The primary method amounted to affirmative-action lending — eliminating down payments and loosening income requirements. As The New York Times noted in a 2008 analysis, Bush’s primary means of achieving this end was insisting that “Fannie Mae and Freddie Mac meet ambitious new goals for low-income lending.”

Against this backdrop, Harris’ insinuation that Fannie Mae and Freddie Mac were racially predatory looks grossly demagogic. This is from a Huffington Post account of her lawsuit:

“Harris also called on Fannie Mae and Freddie Mac to disclose whether they have complied with civil rights laws protecting minorities and members of the Armed Forces against unlawful convictions and foreclosures.”

So if affirmative action backfires, the quasi-government agency pursuing affirmative action under pressure from the president faces civil liability?

Clinton’s role in inflating the housing bubble was every bit as direct as Bush 43’s. In 1997, he appointed Andrew Cuomo, the current New York governor, to be secretary of housing and urban development. Cuomo had little banking or lending expertise, but he had a broad banking and lending agenda. Veteran journalist Wayne Barrett laid out his folly in a 2008 analysis in Village Voice:

“Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country’s current crisis. He took actions that — in combination with many other factors — helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded ‘kickbacks’ to brokers that have fueled the sale of overpriced and unsupportable loans. …

“Perhaps the only domestic issue George Bush and Bill Clinton were in complete agreement about was maximizing home ownership, each trying to lay claim to a record percentage of homeowners, and both describing their efforts as a boon to blacks and Hispanics. HUD, Fannie, and Freddie were their instruments, and, as is now apparent, the more unsavory the means, the greater the growth.…

“Cuomo … did more to set these forces of unregulated expansion in motion than any other secretary and then boasted about it, presenting his initiatives as crusades for racial and social justice … .”

Somehow I doubt this coarse and depressing history will be mentioned by Kamala Harris, who is an utterly conventional California Democrat despite her exotic background and moralistic rhetoric. Wall Street did behave with gross irresponsibility, Standard & Poor’s did fail as a credit-ratings analyst, and thousands of other white-collar types did behave unethically. But the ethical failing that started it all was bipartisan racial pandering dressed up as the pursuit of “social justice.”

The result here in the Golden State:

“Latino and African-American homeowners in California have experienced foreclosure rates 2.3 and 1.9 times that of non-Hispanic white borrowers.  Latino borrowers alone make up 48 percent of all foreclosures.”

That is from a 2010 report by the California branch of the Center for Responsible Lending. How perverse that from 1997 to 2006, the Center for Irresponsible Lending was at 1600 Pennsylvania Ave.

Commentary

April 24, 2012

By Wayne Lusvardi

The ongoing economic malaise of the past half decade has slammed most social and economic groups in California. How are Hispanics doing here, especially in light of the bursting of the Housing Bubble?

For example, consider Riverside County, which according to the 2010 U.S. Census is 46 percent Hispanic. Housing prices there have dropped 30 percent. Worse, construction work, a mainstay of Hispanic family income, has crashed 70 percent.

This matter was considered recently in the City Journal by Heather Mac Donald in her article, “California’s Demographic Revolution.” She wrote that, “unless Hispanics’ upward mobility improves, the state risks becoming more polarized economically and more reliant on a large government safety net.”

But she is mistaken that California is beset by a lack of upward social mobility for most Hispanics solely caused by social and economic pathologies.  If the Housing Bubble demonstrated anything, it was that Hispanics have suffered not from too little, but too much, upward mobility by government-induced home ownership for Hispanics.

Moreover, the percentage of young Hispanic gang members is less than 5 percent of the total population of Hispanics age 15 to 24 in Los Angeles County.  While Mac Donald’s concern about lack of social mobility for Hispanic gang members is warranted, it lacks a sense of proportion.

Unfortunately, the evidence Mac Donald offers is based on selective casual interviews and observations from those at the very top and bottom of the social class spectrum, rather than from upwardly mobile suburban Hispanics themselves.

Mac Donald drew her conclusions largely from highly selected interviews with members of the Crazy Little Stoners gang in the city of Santa Ana; an anti-gang intervention cop; educators from UCLA and the University of California, Berkeley; California’s largest Spanish-language newspaper, “La Opinion”; a San Jose State University political science professor; and a publisher of a Spanish-language classified advertising newspaper. Mac Donald bases most of her observations on the City of Santa Ana, which is comprised of 78 percent Hispanics.

Gathering the views of gang members from dysfunctional families in ethnic enclaves, ethnic newspaper publishers and university faculty club members isn’t likely to shed much light on Hispanic upward or downward social mobility.  To do that one would have to interview first, second and third generation Hispanics who have immigrated to California.

Where upwardly mobile Hispanics would be found in the Los Angeles area would be in suburban San Gabriel Valley, where, contrary to many stereotypes, Hispanics are a near majority.  There are 1.5 million people in the San Gabriel Valley and 45 percent, or 675,000 people, are Hispanic.

Downwardly mobile Hispanics would likely be found in the cities of Stockton, Modesto, Fresno and Visalia, where home loan defaults and foreclosures are some of the highest in the United States.

But Mac Donald didn’t interview Hispanics in suburban San Gabriel Valley or California’s Central Valley.  If she had, she might have found that economic inequality is not the same as lack of social mobility.

Inequality Not Same as Social Immobility

Sociologist Peter L. Berger once observed, “Thus one may have a society with very unequal distribution of income and wealth in which there is, nevertheless, a high degree of social mobility; conversely a society with egalitarian distribution may have little social mobility.”

Mac Donald seems to confuse economic inequality with lack of social mobility. She accurately reports:

“Hispanics made up 60 percent of California’s poor in 2010, despite being 38 percent of the population. Nearly one-quarter of all Hispanics in California are poor, compared with a little over one-tenth of non-Hispanics. Nationally, the poverty rate of Hispanic adults drops from 25.5 percent in the first generation — the immigrant generation, that is – to 17 percent in the second but rises to 19 percent in the third.”

But this trend of third generation downward economic mobility is typical of nearly all income and ethnic groups in American history and proves the openness of the social class system.  Sociologists even have a term for it: the “circulation of the elites.”

There’s also an old saying in America, “from shirtsleeves to shirtsleeves in three generations.” We’ve all seen a go-getter rise above the socio-economic level of his parents (who often were immigrants), then witness his children not perform as well. Perhaps the kids had it too easy and became lazy. In any case, it happens all the time.

As Berger explains:

“Put simply: the son of the truck driver has a reasonable chance of making it into the world of professional or business privilege; but individuals in the latter world have a high chance of failing to prevent their sons from ending up as truck drivers.”

Both upward and downward movements along the social class spectrum don’t invalidate but support the egalitarian dynamics of American society. It is less of an advantage to start out at the top and less of a handicap to start out at the bottom. Historically, mobility rates from manual to white-collar occupations have been higher in American than in other industrialized countries, capitalist or socialist.

Mac Donald’s Thesis Similar to Upton Sinclair’s

Mac Donald’s thesis that most Hispanics are trapped in an underclass of dysfunctional families in an oppressive economy sounds similar to famous California socialist and novelist Upton Sinclair.  In his 1906 book, “The Jungle,” Sinclair portrayed the plight of a Lithuanian character named Jurgis Rudkus, who believed in the Horatio Alger dream that through hard work he could realize the American Dream.

Sinclair wrote that the fictional character Rudkus found “the whole country…was nothing but one gigantic lie.”  But as The Economist magazine points out, we would find it ridiculous today to be troubled about poverty of Lithuanian-Americans. Arguably, Hispanic immigrants have more opportunities today than Lithuanian immigrants had in 1906. For many Hispanic economic migrants from rural Mexico, just moving to California is upward mobility.  Social mobility is relative.

In 1934, Upton Sinclair ran as a Democrat for governor of California on a platform of “End Poverty in California — EPIC.”

California’s Hispanic Housing Bubble and Bust

Arguably, Hispanics received the most benefit and the most harm from subprime lending during the Housing Bubble.

A 2005 study by the Federal Reserve Bank of New York of 75,744 minority subprime loan borrowers found the largest percentage was Hispanic (15,647 loans or 20.7 percent).  This study found no evidence of adverse pricing of subprime loans by race or ethnicity and minority borrowers paid lower rates.

A 2008 study by the U.S. Federal Reserve in Washington, D.C. found Southern California was the hot spot for the most subprime loans in all of the United States in 2005.  And out of the top 10 cities with the most subprime loans, six were in California (percent of Hispanic population in parentheses): Riverside (45 percent), Bakersfield (45.5 percent), Stockton (37.6 percent), Modesto (35.5 percent), Fresno (50.3 percent) and Visalia (46.0 percent).  Where Hispanics got into trouble had more to do with home equity loans than primary home purchase loans.

Hispanics were hit hardest with foreclosures after the Housing Bubble popped.

If the Housing Bubble demonstrated anything, it is that Hispanics suffered not from too little, but too much, upward mobility by government-induced home ownership policies.

Hispanic Family Dysfunction and Crime Have Declined

As to Mac Donald’s dysfunctional family hypothesis, the California Hispanic teen birth rate has dropped 33 percent since 1991, according to U.S. Vital Statistics Reports.  The overall teen birth rate has also dropped. But apparently the absolute number of Hispanic teen births has risen because the total Hispanic population has increased.  Hispanic teen birth rates are relative.

Hispanics are 48.7 percent of all arrestees in the state and victims of 44.5 percent of all homicides. Nevertheless, the Hispanic homicide rate has dropped 7.9 percent since 2009. The proportion of Hispanic crime remains high in California. But the percentage made up of young males is highest in California and non-Hispanic crime has declined.

CA Hispanics Are Diverse

All California Hispanics cannot be pigeonholed as being held back from upward social mobility by dysfunctional families and an oppressive economy.

According to the website Los Angeles Community Policing, there are 85,298 gang members in Los Angeles County.  Of this, 53,121 are Hispanic gang members.  This would be the size of a small city in Los Angeles County.  No one has better data than the Los Angeles Community Policing website.

But this needs to be put into broader perspective:  53,121 Hispanic gang members reflect only 3.5 percent of the 1,483,827 young people in Los Angeles County age 15 to 24 (Source: American Community Survey 2010).  In other words, 96.5 percent of youth in Los Angeles County are not members of gangs. California’s future is not as bleak as Mac Donald would have us believe.

There are rural Hispanics described by Victor Davis Hanson who live in “relative poverty.” They have cell phones, big screen TVs and brand new trucks. But they some are involved in the underground economy of copper and other metal theft.

Then there are the Hispanics represented by the Latino Water Coalition in California’s Central Valley.  They formed the coalition after a bogus environmental lawsuit shut down water to Central Valley farms from 2007 to 2010 to protect the Sacramento Delta Smelt fish.  Many of these Hispanics enjoy the relative upward mobility of escaping poverty in Northern Mexico for work in California’s agricultural industry.  It is their children that will be more likely to have upward social mobility.

There are those Hispanics caught up in a system of trying to obtain educational credentials or licenses to work their way up California’s state-controlled occupational ladder.

And there are upwardly mobile Hispanics such as those living in the San Gabriel Valley in Southern California, mentioned above.

Hispanics are diverse and most are not trapped living in dysfunctional gang families who lack a “bourgeoisie” work ethic.

Government can do little to increase upward mobility for those Hispanic families beset by family dysfunction and hard crime.  Hispanics caught in such situations can be salvaged.  But it is mainly up to the civil society of mediating institutions, such as extended families, churches and private organizations to do so.

Hispanics in California benefitted from hyper-social mobility during the Housing Bubble. And Hispanics have disproportionately suffered from the aftermath of that abnormally rapid burst in upward mobility.  Thus, the much-ballyhooed decline of Hispanic social mobility due to social and economic pathologies really isn’t happening.  It is too much government-induced social mobility, not too little, that most Hispanics continue to suffer from.

The apparent social policy underneath the Housing Bubble was an attempt to prop up the decline in formations of intact families that form the basis of the economy.  Without enough young intact families at the base of the demographic pyramid to take out home and business loans, the elderly are unable to get a decent return on their savings and investments.  The result of this demographic imbalance has been an economic depression.

To Get Social Mobility Working Normally Again, Increase Interest Rates

To restart the normal cycle of social mobility for Hispanics and everyone else, interest rates have to rise.  That would mean ending the current Federal Reserve policy of “interest rate repression,” as described by economist Carmen M. Reinhart. Presently, interest rates are below 1 percent for 82 percent of Treasury Bills.

For the intergenerational life cycle of the economy to revive and upward social mobility to resume, interest rates must rise at least 2 percentage points over the current inflation rate of about 3 percent. The current interest rate policy of the U.S. Federal Reserve, unfortunately, is slated to continue for two more years of very low interest rates.

California is presently caught in a pincers between keeping government bond rates low and squelching any economic recovery in the process. This is why current proposals by the governor and the teachers’ unions to raise taxes are being designed to be a “millionaires’ tax” that doesn’t adversely affect most Hispanics or others in the working and middle classes.  But a tax increase will mostly preserve lucrative pensions for upward mobility for government technocrats. A tax increase will do nothing to restore the normal process of social mobility for Hispanics, or restore the economy and prosperity for all Californians.

Heather Mac Donald has good reason to be concerned about the social mobility of young Hispanics in California.  But the problems can be solved with more sensible economic policies.

By WAYNE LUSVARDI

On the eve of President Barack Obama’s State of the Union address, 16 California House Democrats pleaded for more relief for homeowners in foreclosure.  It was all show and no go, however. It was all meant to posture and pander before TV cameras and fawning newspaper reporters covering the State of the Union speech.

Dataquick real estate data service reported 61,517 more Notices of Default on delinquent home loans were filed in California during the fourth quarter of 2011.  But newspapers headlines are portraying that the delinquents’ elected representatives are “doing something” to save them.  Nothing could be further from the truth.

Of the 61,517 new Notices of Default filed in the fourth quarter of 2011, 60,289 were because borrowers were in default on multiple loans.  For example, a borrower could owe on a primary mortgage and a line of credit on the equity in his home.  There is very little any relief program can do when 98 percent of those delinquents are also in default on more than one loan.  Homeowners were pulling money out of their homes to live on as if it was a money tree. When all the leaves were plucked, the tree died. When the whole forest died, the economy died.

According to Dataquick, homeowners were typically nine months in arrears on their loan payments when the lender filed a Notice of Default.  The typical borrower in default owed $19,949 on a home with a $333,036 mortgage.  Most of the loan delinquents were in lower income areas where most households don’t pay income taxes.  So households that don’t pay income taxes added nearly $20,000 of debt.  The debt has created a hole in the state budget that can’t be plugged.  Lower income homeowners went on a feeding frenzy of “greed” that no pop journalist wants to write about.

Obama’s speech mentioned nothing about how homeowners saving $3,000 a year on their mortgage would even dent the foreclosure crisis in California. It would only help homeowners who are already financially responsible. But politics is a game of creating a perception that government can save you after it created a problem in the first place, in this case the Housing Bubble.

Foreclosures Decreased but Were Offset by Short Sales

Short sales reflected 19.8 percent of all the re-sales of homes in the fourth quarter of 2011.  A short sale is where lender is willing to sell a home for less than the loan on the property.  Over the last four years, the percentage of short sales his climbed from 16.4 to 19.8 percent of sales.

Notices of Default and actual foreclosure Trustees Deeds recorded have somewhat declined. But this has been offset by the increase in short sales.

John Walsh of Dataquick said, “We are certainly seeing a lower level of foreclosure activity than a year or two ago.  The question is how much of that decline is due to market conditions, and how much is due to policy changes that try to address economic distress and lower home values.  Strategies now include short sales, refinances, interest rate changes, principal reduction as well as just plain waiting longer.”

Politicians want banks to delay foreclosures so the pols can stay elected. The banks seem to prefer just waiting it out until the next election cycle is over to find out what policies will be implemented. Then they can proceed.

The Continuing Stark Reality

Unemployment is still running 11.1 percent in California.  There are still 281,142 initial unemployment insurance claims.  About one third of all home re-sales — 33.7 percent — were foreclosures in the last quarter of 2011 (down from 57.8 percent in 2009). Loan delinquencies remain clustered in areas with the lowest home values.  Nothing Obama or the Democratic contingent in Congress from California is doing is going to change this reality.  But the newspapers are reporting that your representative is “doing something.”

Into this stark reality, redevelopment agencies are absurdly bemoaning that yet more affordable housing is needed.  Owner-occupants bought about 70 percent of all foreclosed homes. Thus, the market, not government, was generating its own affordable housing.

Investors bought the other 30 percent of foreclosures.  They apparently returned the properties to affordable rental housing.

CA’s Democratic Congressional Posturers

Despite all of the above, California Democratic congresspersons complained that the foreclosure crisis was somehow worsened by the Republicans blocking the appointment of the head of the Federal Housing Finance Agency.

Said Rep. Dennis Cardoza, D-Merced, “The administration has been playing footsie on this topic.”

Cardoza is probably right. The president has been playing political football with foreclosures.  But that is probably not what Cardoza meant. The term “political football” refers to a problem that doesn’t get solved because of the politics involved.

Not to be outdone in political posturing and pandering, Rep Mike Thompson, D-St. Helena, said, “It’s not good enough to keep people in their home.”  Well, he’s right on that.  Just the 61,517 delinquencies filed in the fourth quarter of 2011 would equate to $20.48 billion in loan defaults. That would be the equivalent of the California state government’s structural $20 billion budget deficit all by itself.

Executive Action

But it was Rep. Jerry McNerney, D-Pleasonton, who probably “takes the cake” for his call for Obama to take executive action without Congress.  McNerney called for a “real plan for reducing the principal owed on underwater homes.”

Asked how much that would cost, Edward De Marco, the acting director of the Federal Housing Finance Agency answered, “$100 billion.”  It’s probably more like $1 trillion; $100 billion would be about five months of loan defaults in California alone.

Now there’s a true political panderer for you. The country and the state are already broke from the Housing Bubble.  And a congressman wants the president to wave a magic wand to give a $100 billion bailout to delinquent homeowners.  But we live in a system in which the president has to share power with the Republican-controlled House of Representatives that holds the purse strings.

Politics in California is mostly symbols and not substance.  But the newspapers and broadcast networks take it seriously. And the California electorate keeps electing them. And why not?  If you could get a free 20 grand and live in a home rent free for a few years until your home is foreclosed on, wouldn’t you vote for those who created such a plundering of wealth of the savings and pensions of the middle class?

While California burned, Obama and 16 California members of congress played a fiddle to the media.  At least their tune was in harmony with their constituents.