MONTEREY, Calif. — A few years back economist Christopher Thornberg appeared before California's credit unions during the era when markets only went "boom" with a message that things were likely to go "bust."
While few may have heard him — or wanted to hear him — the observation only added to his credibility.
Thornberg returned again recently before the California/Nevada leagues' Big Valley Conference with a message that addressed the hard times, thoughts on some of the economic stimulus and bailout plans, and a general tone that was more upbeat in terms of what's ahead than many in his audience expected. Below is a look at some of the other observations made by Thornberg, who heads up Los Angeles-based Beacon Economics and who has served as an advisor to the state in several capacities:
- More than 30% of the housing in Santa Ana, Calif. has more than one person per room — not one person per bedroom, one person per room. "Unlike Florida, California has enormous pent-up demand for housing. Nevada, I'm sorry, you're going to be in trouble for a while. Five percent of all homes in Nevada are in foreclosure."
- "The problem with foreclosure is not the foreclosure, it's the empty house left behind. Let's not try loan mods, because they are not going to work. There is an enormous market for foreclosed homes-from people who have been foreclosed upon. I'd suggest that we not count any foreclosure in the last several years against someone's credit; let's give them a mulligan."
- The foreclosure bill is "not going to help anyone in California. It doesn't help the seriously underwater folks, and it won't turn around banks or markets. Is a 3% mortgage for 50 years doing anyone a favor when they are underwater, can't build equity or wealth, and can't afford to leave? It's ridiculous public policy."
- "Did we really need 'waterfall bonds' that are so complex that it takes a team of lawyers six months to figure out what the hell is going on? This was not about spreading risk; this was about hiding risk. The assumptions made by Wall Street were patently ridiculous."
- The pools (of securities) "were ridiculous, right up to the AAA-rated stuff. Those had a 50% burn in 2007."
- "The issue that must be resolved before Wall Street is a viable piece of the economy, according to Thornberg, is compensation that is structured to reward for longer-term management.
