I honestly don’t understand this at all (from Krugman):
In January 2005, National City’s chief economist had delivered a prescient warning to the Fed’s board of governors: An increasingly overvalued housing market posed a threat to the broader economy, not to mention his own bank and others deeply involved in writing mortgages.
The message wasn’t well received. One board member expressed particular skepticism — Ben Bernanke.
“Where do you think it will be the worst?” Bernanke asked, according to people who attended the meeting, one in a series of sessions the Fed holds with economists.
“I would have to say California,” said the economist, Richard Dekaser.
“They have been saying that about California since I bought my first house in 1979,” Bernanke replied.
This time the warnings were correct …
Krugman points out the obvious: that California did in fact go through a major housing bust in the mid-late 90s. This reminds me a bit of Greenspan’s belief that the average national housing price would never decline in the United States, despite the fact that the housing index in Japan had gone down 60%.
I understand that economics is complicated and that things like housing prices are very difficult to predict. But why ignore actual data that is staring you in the face? I just don’t understand this at all.
I emailed my friend at a hedge fund (who sometimes takes a more sympathetic view of such things) and asked him how bad he thought Bernanke had screwed up on this. He answered:
horribly. i remember living in california during that time and seeing the huge asset bubble collapse. what an idiot.
srv
You have no idea how brilliant these people are.
Bernanke is widely regarded as THE best expert on Great Depression economics.
I can accept that both statements are true. That is the single thing that terrifies me the most.
asiangrrlMN
Hubris. That’s the first word that comes to mind. Asshat is the second.
MikeJ
If nobody saw it coming and everybody ignored it, why did all the banks hedge against it and buy insurance to cover the possibility that people wouldn’t repay mortgages?
Parole Officer Burke
You have a friend at a hedge fund?
Corporatist! Wall Street sell-out!
Matt Taibbi is very disappointed in you, Doug.
drillfork
Couldn’t be that Bernacke just doesn’t give a shit about housing, like he doesn’t give a shit about unemployment, could it?…
cmorenc
Economists like these are like the leaders of the shipbuilding industry a century ago who proclaimed that the Titanic is “unsinkable”.
And then simple vain greed by the Captain and chief ship designer in wanting to set a speed record in transatlantic crossing time by sailing full steam ahead through an iceburg field proved them wrong. Kinda like sailing with investments in real estate full steam ahead through the iceburg field of a real estate bubble.
Seanly
Data that doesn’t match one’s world view, belief system or other component of psyche are often ignored. Reference children’s belief in Santa Claus and adults’ belief in UFOs, ghosts, angels, demons, God or libertarian economics.
Mnemosyne
I’m wondering where the eff Bernanke’s house is that it didn’t get caught up in the bubble deflation of the late 1990s. Brentwood? Beverly Hills? Marin County?
My friend’s sister bought a cute little two-bedroom house in Michigan a few years ago for $80,000. It’s now worth $20,000 and still sinking. Sure, she’s not in over her head, because she got a mortgage she could afford, but it still pisses her off that she’s paying $60,000 more than the goddamned house is worth.
cmorenc
@MikeJ
Because there was even lots more money still to be made by lots of high-flying people in these industries through the fees, commissions, etc. involved in the hedge /insurance transactions. You make money going both ways, in principle.
PeakVT
Cult or science? The debate over economics continues… and here’s some evidence that it largely operates as a cult.
ETA: call you Senator and tell him to vote against Bernanke.
Roger Moore
Didn’t those people pay any attention? Anyone who lived in California at that time, had a brain, and didn’t have a reason to ignore the bubble could see it. People were buying houses with monthly payments twice the rent on a similar place, admitting that it was a bad deal, but expecting to make up their losses when they sold. That’s a damn good definition of a bubble mentality.
The Raven
No-one really knows. It’s part of bubble psychology, and is an on-going research topic, see Robert J. Shiller, passim.
jager
In my Southern California neighborhood, built mostly in the late 70’s and early 80’s, when new, the homes were 175-225k (expensive in those days!) A few years ago the values had risen to well over a million dollars with minor upgrades like dumping the green appliances! Now they sell (when they sell) for 650-750, if you were in about 10 years ago you are okay, if you took out loans against the value or re-fied you are screwed. If you bought at the top of the market you are dead in the water. Times are tough, in one cul de sac of 12 houses, 4 guys are un-employed. This is an area filled with hard-working, educated and nice people and at least 30% of them are fucked, maybe for ever! Not many people in my area used their houses as a ATM like OC folks did. Most put the money back into the house, others sent their kids to college, it is just a horse shit situation!
Martin
Seriously, anyone who looked at the market knew it was going to blow up.
My city of 150,000 people had a median home price of $990K at the peak. How the hell do you get half the home buying population with a household income north of $200K, especially when the median at the time was $115K?
It was obviously impossible to sustain, and it wasn’t just my city. Almost the whole county of 3 million people looked like that, as did many other counties in the state. How long can any housing market last with a median price 9x higher than the median income? How hard is it to send a researcher out to count up how many people and how many dollars are in such markets? It was easy to spot, and some of us even planned around it. We bought near the peak but kept our purchase within 15% of the jumbo mortgage point, which was 3.5x the median income. Our home price fell some, but is still up from when we bought. We’re in the sweet spot of affordability. We bought our previous home right before prices recovered from the previous bubble, so we knew how this would work.
If I could figure that shit out without an army of analysts and more data than NASA and Bernacke can’t with those things, then God help us.
Mike G
Economics operates in an authoritarian environment of powerful entities with lots of money. Thus there is a strong tendency toward groupthink, asskissing, blowing sunshine and telling people what they want to hear. There are a few exceptions like Krugman, but the people who get ahead in the profession, particularly outside academia, are usually distinguished not by their prescience or intelligence but their aggression and political skills.
Witness the ‘Dow 36,000’ guy getting hired as an economic advisor by the magical-fantasist authoritarian Bush Assministration.
If you’ve worked in a large corporation you probably know what I’m talking about.
Napoleon
I have never even been to California and yet I knew of that bubble. I seem to recall that the California bubble of the late 80s/1990ish was fairly well covered in the financial press. I am almost certain that Barron’s had a huge cover story on it. It almost defies belief that he would not have heard of it at the time.
Zifnab
Because MONEY, BITCHES!
Greenspan opened the money spigot and hosed down an overheated housing market. Then Helicopter Ben stepped in and insisted that if things really went to shit we could always just print more money.
And they all got invited to the nicest parties and were hob-nobbing with all the captains of industry, so why mess up a good thing, amirite?
Besides, it pays good money to be this wrong. Just ask the CEOs of Merril Lynch, BoA, AIG, Goldman Sachs, Wells Fargo, Bear Sterns, Countrywide…
asiangrrlMN
First time I’ve ever gone OT (ha!), but I had to share this. Now…the helicopters…are…laughing….
Martin
@MikeJ:
They did that for all their mortgages, so it’s not an indicator.
Ohio Mom
Mnemosyne, your friend’s sister is paying a lot more than $60,000 more than the house is worth when you add in all the interest she’s paying on top of that — even if she has a good rate. Sounds like she is the poster child for someone who should run some numbers and consult with a lawyer about walking away from her mortgage. Because unlike California, it’s hard to imagine Michigan home values bouncing back.
slag
@Mike G:
Indeed. This standard is what is now called the “meritocracy”. It’s everywhere.
Matt
Didn’t you say a couple of threads ago that you don’t write about economics?
R-Jud
@Napoleon:
Heck, I was a kid then, and I could have told you three things about California: Disneyland is there, they grow oranges and stuff, and the houses all cost too much.
Polish the Guillotines
Something I don’t see mentioned much these days when it comes to the California real-estate bubble is how it’s connected to the dot.com bubble.
During the mid to late ’90s — especially in the Bay Area — freshly minted dot.com zillionaires were getting into furious bidding wars with each other over prime housing. They were paying waaaaay over market value for bungalows and modest 3/2 types of single-family homes in the best neighborhoods. In many cases, they’d tear ’em down and build “monster homes.”
The impact of this crazy over-bidding was to drive nearly all Bay Area and Silicon Valley prices through the roof making it impossible for most middle-class folks to buy in the area. Subsequently, this spawned the construction boom in outlying areas that had previously been rural or agricultural in composition and demographics.
That’s a big reason why I live in Solano county, 60 miles from my job in Daly City.
I suspect a similar dynamic was happening in SoCal as well, and it eventually drove tech out of state — and the money followed. And the housing bubble grew.
One bubble begat the other bubble, IMHO.
AngusTheGodOfMeat
Because Denial is not a river in Uganda, Sadiqi.
Kyle
Bernake wasn’t paying much attention, and foran official to personalize an economic issue to his own experience is extremely unprofessional, like the Chimp setting foreign policy based upon gazing into Putin’s eyes or Merkel rejecting his surprise backrub.
California went through a major housing price dip in the early 90s after the military-industrial complex (temporarily) wound down with the end of the Cold War, with price drops in the 30% range all around southern Cal.
Parts of California have always had nutball pricing (like Santa Barbara) but the real sign of a ridiculous bubble in the last few years was when mega-commute blech areas like Riverside and Lancaster, and crapholes like Inglewood, boasted median prices in the $400-500k range despite median incomes around $60k.
A lot of people saw it coming, but those who spoke up were shunted aside by the Emperor’s New Clothes machine. Sadly, it’s the American Way.
KG
@MikeJ: not only that, they stockpiled money for a wave of lawsuits that never really materialized (and retaining all the big law firms to create potential conflicts). Instead, so I’m told, most of that money went into loss mitigation programs. They saw it coming, and they were ready.
Martin
Most of the people in my city did, but not my neighborhood and the neighborhood has held up well – only about one foreclosure for each 500 homes this year. Drive half a mile away and you can find foreclosures neighboring each other. It’s remarkable how stark the difference is – just based on when the neighborhood was built and the mindset at the time.
Mnemosyne
@Ohio Mom:
She’s also in the midst of a divorce (yes, she’s having a crappy year) and it may well come to that because she and her soon-to-be-ex-husband are playing hot potato with the house since neither one of them wants to be stuck with it.
Sometimes I feel bad about being 40 years old and not owning a house yet but, ya know, we’re debt-free. No credit card debt and both of our cars are paid off. In this economy, we feel pretty good about that.
bystander
If Krugamn wants to hold Bernake accountable, he needs to get in line. There’s all kinds of right under his nose Bernake would choose to ignore.
Bernanke ARM OK, Head “Explodes”?
Bernanke’s Reply: On The Doom Loop
Actually, as I think about it, this could actually be made into a very long list…
Ken
PeakVT @10 : Cult or science?
In science, when the data disagrees with the theory, you scrap the theory. In economics… well, let’s go back to DougJ:
Martin
@Polish the Guillotines:
Every bubble is connected to something. The worst hit areas of this bubble are extreme bedroom communities that got wiped out due to gas prices going up. That 70 mile each way commute to LA or SD or SF was long, but affordable until gas hit $4.50. At that point people were paying as much in gas to get to work as they were on their mortgage and they just couldn’t afford to keep doing it – they were trapped. The new communities had no mass transit or jobs, and they had to keep going to work. Once those homeowners went underwater, the whole town was fucked.
ThatLeftTurnInABQ
It has long been part of the economic psychology of California not to ignore bubbles or assume that they are permanent, but to assume that after each crash a new bubble will start forming in short order. And for good reason, because ever since 1849 that is pretty much how the economic history of the state has shaken out. Sort of How I Stopped Worrying And Learned to Love the Bomb, applied to bubblenomics.
Llellorin
@MikeJ:
Correct me if I’m wrong, but those were hedges against individual mortgages failing, not the market generally.
From what I’ve read so far (and again, correct me if I’m wrong), the entire hedge system was based on the idea that mortgage failures were independent random events with rates determined by historical data. If you make that assumption, you can work out the odds of a particular derivative product failing based on its mix of mortgage types, and set a rate at which you’ll on average make money even with occasional derivative failures. Under those assumptions, it’s possible but unlikely for a derivative to fail, and that should be hedged against.
What was ignored was the possibility of a general market collapse. When that happened, the assumptions that underlay the hedging went south–in particular, the subprime mortgage failure rate soared far beyond its historic rate, because those mortgages generally depended upon the possibility of refinancing. Because the possibility of a bust wasn’t considered, AIG didn’t remotely have the resources to cover their credit default swaps. (A big problem was that CDS contracts are not technically insurance, and have no credit reserve requirement as an insurance policy would.)
jenniebee
Fuck me gently with a chainsaw, the Alabama AG is on MSNBC right now explaining that he’s going to challenge Health Care reform on constitutional grounds, on the theory that the deal with Nelson was unconstitutional under – get this – the General Welfare clause. That’s the one that gives Congress the authority to “provide for the general welfare.” Also, apparently it isn’t fair to Alabama that Nebraska got this deal because “the Democrat party” doesn’t listen to Alabama’s Republican senators. Of course, if any single Republican had been willing to vote for this under any circumstances, Ben Nelson wouldn’t have gotten his sweetheart deal.
I blame the hunter.
Zifnab
@jenniebee:
This’ll be a fun way for Alabama to piss away tax payer funds. At best, the Nelson deal might be ruled unconstitutional. But not even Scalia & Co is crazy enough to try and rule the whole damn 2000 page law as illegal over one $100 million deal that has epic amounts of precedent behind it.
This will be a fun epic fail to follow. Perhaps the yukster can bring on Orly Taitz as assistant legal council.
Polish the Guillotines
@Martin: Yeah, gas prices were part of the mix, but demographics played a huge part. Most of the jobs in these outlying areas are pretty blue-collar. My neighbors on either side of me were in the trades. One got wiped out in the housing collapse — no more work — and was foreclosed on. Poster-child for the sub-prime mess*. The other tried to sell out and move. He moved, but couldn’t sell (I watched the prices on his fliers plummet every couple weeks and knew I was screwed) so he tried to rent it out. That failed, so it’s been in foreclosure for months.
Fortunately, the first home sold in foreclosure last summer. The previous owners bugged out and left everything in shitty shape, but the new owners are gradually getting it together.
Our general area got clobbered. Clobbered.
*My wife was an escrow agent and notary (until the collapse). She notarized their docs and told me it was the shittiest loan she’d seen in a long time. Their days were numbered.
Ailuridae
To Doug’s query in the post it seems that Upton Sinclair hit the right note:
“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”
DougJ
Didn’t you say a couple of threads ago that you don’t write about economics?
I hardly ever do at all and when I do, it’s just to quote someone more knowledgeable then I am.
scudbucket
@DougJ: Is it, at root, any different than Ben’s decision to maintain low inflation rather than create jobs? But that gets us back on the ‘sociopathic indifference’ thing which, is boring and sad.
Raenelle
Atrios saw it coming two years before it burst. We live in southern California. My husband wanted to move (he said it was a better investment) and I kept telling him (thanks to Atrios’ advice) that there was a bubble. My husband rejoined that everyone else was saying it was a smart investment, and housing prices always go up–insane, I know, but everyone (friends, relatives, business associates, everyone but Atrios and me) was saying this. He didn’t understand why everyone who made as much money as he did seemed to live at such a higher standard. I manage the money, and I couldn’t explain it then either. He was actually checking out houses when the bubble burst. Another instance of a DFH who was right, and thank God I paid attention.
Dave Fud
For your friend, there is nothing like being on the receiving end of the stick to suddenly be a believer in systemic risk. The traders and banks still all think they can do better and avoid it.
At our cost, and at the cost of a crashed economy. But they’ll make out like bandits, so it’s ok for them.
Tomlinson
I am trying to imagine any Congress-critter of any stripe looking at a lawsuit against what amounts to, really, just a normal run-of-business earmark, with anything less than stark terror.
I mean, seriously, are we going to pull back all earmarks?
Tomlinson
Bernanke completely screwed up. I was in CA during the tail end of that late-80’s crash and it was a mess. The run up to the next one was trivial to see – we were shopping houses at the time and realtors were just blatant about it: “yeah, it’s a piece of crap, but the price will double in 5 years and you can put some sweat equity in…”
To a large degree, that’s why we bolted. It was insane.
Sasha
Here’s a hint for next time: If housing market prices are high enough that police and firemen cannot afford to buy a house in the city they protect, you’re probably in a housing bubble.
Roger Moore
@Martin:
The gas prices added to the problems, but they aren’t at the root. The root problem is that house prices were grossly out of line with incomes, so that people couldn’t afford those houses at the prices they were selling even if gas were free. Prices were so high that buyers could only make their payments by taking out interest only, negative amortization, variable interest rate loans. Anything that increased their payments or reduced their income was going to send a lot of people into default. Gas prices may have triggered it in some cases, but there was going to be hell to pay once people had to make more than the very low initial payment.
Comrade Dread
Icebergs… meh. Yes, that Titanic sunk, but this one really is unsinkable.
tamied
@Raenelle:
That’s an easy thing to do, just live on credit and buy whatever you want. That’s how they did it.
jl
I think all you people just do not understand the special insights and the “economic way of thinking”. This is sad. I will provide a basic primer of intuitve economic insights:
1) In economics, reality is just a special case.
2) The beauty and elegance of economics is that it is applied mathematics with no applications.
3) Something might work in reality, but would never work in theory.
4) If you see twenty dollar bill on the sidewalk, don’t bother to pick it up, since if there were one there, some would have picked it up already.
Economists believe wholeheartedly in these principles. I resolutely and cleverly acted on principle 4 just a few evenings ago.
You sad deluded non-economists have provided us with thousands of years of Festivus airings of grievances, which is why we will continue to improve your economic welfare, even if it kills you.
Martin
@jenniebee:
Then every single earmark would be unconstitutional under the same grounds. How can a half million dollars for a new bustop in Akron help anyone but the residents of Akron?
I hope AL succeeds, Nelson loses his deal after the bill is a done deal, and take-home politics dies a swift death. Won’t happen, but I’d welcome it.
Tomlinson
If so, people were VERY close to the edge. And didn’t really try to jack down their driving miles.
If you assume that someone is driving 20K miles a year, at $2 a gallon and 20 MPG, they’d be spending $2K a year on gas. Jack the price of gas to $4, that’s $4K a year. Ouch, yes, but any normal suburbanite can probably cut half of that out, by carpooling, being more prudent about grouping errands, etc.
Martin
@Roger Moore:
Gas prices were the trigger, is all I’m getting at. Once the bubble is triggered, then it’s just a shitslide the rest of the way – the loan folks and realtors lose work, the trades and construction gets killed. As areas clear out, other service sectors get whacked, then retail gets hit, and these folks then start contributing the problem as they can’t make their payments, and on it goes.
For the people moving there, it’s always a gamble – can the bubble hold long enough for the area to create its own economy. That’s always been true of suburbs which are built off the tax base of the inner city (who do you think pays for the freeways, water, sewage, and so on for a new town with no tax base?) and the people who can afford to move there then get a cheap ride because all of their initial infrastructure cost is paid for by someone else. The risk is that not enough people will follow them and the town will always be dependent on that original tax base who eventually will screw them.
That’s a fundamental weakness of this nation, and California in particular – that we are more inclined to build new infrastructure in the hopes that someone will use it than to invest in the infrastructure of those who are actually paying the bills. I would say that is one of the most profound differences between the US and much of Europe – we’re willing to treat our cities and the last generation of infrastructure investment as disposable. We just waste our investments because there is no built-in reward system for preserving it. How does a Congressman get re-elected for bringing back money for upgrading the waste water system?
Corner Stone
California is an albatross around our necks. I wish we could just give it to some other nation and let them deal with their bankrupt ass!
Martin
@Tomlinson:
The problem was as Polish notes – a lot of these people were blue-collar. Many were trades driving their 12MPG pickup to LA for work. That’s almost impossible to car-pool, and even if it was easier, we’re so sprawled that finding a car-pool buddy is damn near impossible. LA is 30 miles across. Then Long Beach south of there, then Orange County below that. You had people all driving 70 miles to work, but all in different directions.
And these folks were driving 4000 miles per month. At 20MPG, you’re talking 200 * $4.50 = $900 per month for gas alone, plus insurance, tires once a year, an oil change every month, and so on. My dad did it 15 years ago in a 36MPG car when gas prices were $2. It was killer, but he bought a house for $70K when everywhere else was $250K. He actually came out ahead (other than his time) but had he kept doing it, it would have turned into an awful decision. I had another friend commuting from central OC to San Diego. I have an employee now commuting from San Diego to central OC – 85 miles each way, but fortunately she can take the train. It’s remarkably common to find people putting down these distances.
By comparison, I’ve never lived more than 3 miles from work. Housing is expensive, but gas, insurance, not to mention my time makes up the difference – plus, with a short commute you save on a lot of other things. There are many days when I have appointments or other tasks that I just stop home for lunch. I almost never feel compelled to eat out – grab a bite to eat or a coffee in the morning or dinner on the way home, which I probably would do if my work day was 3 hours longer due to the commute.
Martin
@Corner Stone:
And yet we’re the highest contributors of surplus tax in the nation. 1/3 of our federal taxes don’t return. Lose us and you’d have to lose most of the midwest as well since we’re funding them. Our budget deficits have never been larger than our federal tax surplus, by the way, so even if the Fed gifted us our deficits, the Fed would still come out ahead.
I wouldn’t mind just one year of federal dollars having to balance out. The south, save Texas, would simply fall apart.
liberal
Uh, maybe because economics as commonly practiced isn’t an empirical science?
jager
The Guvanator this morning said he wants the Feds to bail out the state. If not, social services, education, etc would be cut even further. Just one fucking time I’d like to hear or see a California politician call for an extraction tax on energy or a modest income tax increase for the highest earners in this state…we are 17th in taxes and the only energy producing state without an extraction tax!
Corner Stone
@Martin: You and your damn hippie friends can take a hike! There’s not one single redeemable thing about it!
liberal
@Mnemosyne:
Yeah, well, someone is going to have to pay the bill for bailing out the banksters, and (unfortunately) it’s people like you (and me).
I’d guess that my share of this sh*t sandwich is in the tens of thousands.
jl
@jager: Yeah, I heard to the Gubernator’s old ideas repackaged for next year’s disaster. Arnold has made some very important gestures (not sure they are anything more) towards good action on global warming, the environment and (to lesser extent) water.
But his new budget and revenue retread seems pathetic.
Underneath the veneer of moderation, Arnold is a real tax-cut fanatic. He can’t even stomach the smallest extraction tax, but wants to expand drilling? WTF, is the oil going to go someplace else if we tax the extraction?
And I read something that says he wants to cut CA corporate tax rates again? Supply side vodoo is still rattling around in his big empty head? I will try to get more details later. I can not believe he wants another corporate tax cut.
Edit: forgot to mention that he asked Bush II for a federal bailout too. Even that pathetic begging act is retread.
liberal
@Corner Stone:
Oh, that’s going too far! Californians (my mom is a native, BTW, and bitches constantly about having moved to the midwest with my dad decades ago) have done us all a favor by doing some very costly experiments. They demonstrated:
(a) Direct democracy doesn’t work
(b) A sure-fire way to screw up an economy is to essentially eliminate property (read: land) taxes
liberal
@jager:
Biggest problem re taxation is Proposition 13.
At least some people actually earn incomes. Landowners never earn appreciating land values.
Martin
@jager:
I propose fueling our power plants with Republicans starting with the governor and working down. The number of problems this would solve is too numerous to list.
jl
@jager:
OK, the Arnoldanator is not completely insane. He wants to reduce or eliminate the recent corporate tax breaks, not expand or increase them. Whew. What I read earlier today must have been misreported.
But one thing that has infuriated me about the national reporting on the CA crisis is that it is not solely a big liberal overspending state crisis. To some extent it is. But is also a continued demonstration that supply side economics does not work.
The feather headed D-list actors playing TV reporters and analysts in the national affairs press cannot be bothered to learn that CA is still giving tax breaks to big business, throughout the crisis. I think, IIRC, that has been an insane demand made by the ultra crazy CA GOP, that has to granted in order to get any budget through with the dumb 2/3 requirement in the legislature.
The CA GOP will scream about a repeal of the disastrous corporate tax giveaways being an economy destroying tax hike, and the bold Gubernator man of steel will either give in to them, or throw a tantrum, or make a hollow and rude threats like he did last year that will just make things worse.
from story:
“If Washington does not provide roughly $8 billion in new aid for the state, the governor threatens to severely cut back — if not eliminate — CalWORKS, the state’s main welfare program; the In-Home Health Care Services program for the disabled and elderly poor, and two tax breaks for large corporations recently approved by the Legislature, the officials said.”
http://www.latimes.com/news/local/la-me-budget23-2009dec23,0,7164018.story
Janus Daniels
Because you get paid to ignore actual data that is staring you in the face.
Sloegin
The powers that be are also ignoring (or failing to tell you) that there’s a whole ‘nuther push on the housing market… all those baby boomers.
Guess what, they’re starting to retire, and a lot of em have a 2nd (or more) residences they use for rental income; they’re gonna be selling these properties to supplement their retirement income putting even more downward pressure on the housing market.
Mike G
If housing market prices are high enough that police and firemen cannot afford to buy a house in the city they protect, you’re probably in a housing bubble.
In Santa Barbara, we have trouble getting DOCTORS to move here because of housing costs. And it has been this way for over a decade when prices started surging after the post-Cold War decline. Something like 5% of cops and firefighters live locally.
mmc
The current Despair.com demotivational calendar has a poster that sums it up “Economics: The art of explaining tomorrow why the predictions you made yesterday did not happen today” If you haven’t seen their demotivational posters I highly reccommend going and checking them out.
Martin
Not necessarily. The police chief for our city lives around the corner from me, which means he’s in the bottom third of the housing market. Most of the officers commute in from at least one town away, but that could be as little as what, 5 miles?
If you have the kind of sprawl we have here in SoCal or around NYC, you normally don’t have to go very far to find some kind of affordable housing. 10 miles from me is downtown Santa Ana which has rather low prices. It’s pretty sketchy, but I doubt that would bother a cop. It is a problem when the social service professionals aren’t personally invested in their community however. A cop patrolling his own neighborhood will be much more invested in the job than one patrolling a neighborhood he would never see outside of the job.
jl
@jl: Can’t help but to note that last year I thnk Arnold hit up Dubya for $5 billion. Now it’s an $8 billion beg to Obama.
I think that is a good measure of Arnold’s outside the box thinking and effectiveness in solving the CA budget crisis.