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April 21, 2010  Alejandro Lazo   Copyright 2010 Los Angeles Times

The California foreclosure crisis appears to be abating, new data show, as the federal government and big lenders step up efforts to keep troubled borrowers in their homes.

Mortgage default notices — the first step toward foreclosure — plunged 40.2% statewide in the first three months of the year compared with the same period in 2009, according to San Diego research firm MDA DataQuick.

Foreclosure sales dropped 1.7% from a year earlier and 16.1% from the last three months of 2009, DataQuick said Tuesday.

The numbers suggest that the housing market won’t be flooded by a fresh wave of bank repossessions, which had been seen as a major threat to the market’s recovery.

“It is surprisingly good news,” said Gerd-Ulf Krueger, principal economist at Housingecon.com. “There is still a lot of supply lurking out there, but at this point, it looks like it is pretty much under control.”

Stuart A. Gabriel, director of UCLA’s Ziman Center for Real Estate, said the declining foreclosure numbers are “consistent with a broad range of indicators that are suggestive of not only a healing economy but the beginning of healing in the housing market.”

Southern California home prices jumped 14% in March from the same month a year ago, to a median $285,000.

Even so, economists note that further gains statewide are jeopardized by continued high unemployment, particularly in the Inland Empire and the Central Valley.

Foreclosure activity remains concentrated in these inland areas, which suffer from above-average unemployment. DataQuick said mortgages were most likely to go into default in Merced, Stanislaus and San Joaquin counties. Defaults were least likely in the Bay Area counties of Marin, San Francisco and San Mateo.

“In coastal California, things are looking pretty decent,” said Richard Green, director of the USC Lusk Center for Real Estate. “I still think if you get into the Inland Empire, Fresno, Bakersfield, Modesto, people are really struggling because the unemployment rate is so high — so that people just need help to get out from under.”

California loan default notices peaked at 135,431 in the first quarter of 2009. Since then, the federal government has put increasing pressure on banks to work with homeowners behind on their payments. At the same time, experts say, banks have recognized that flooding the market with foreclosures weakens the value of the properties they have taken back and must resell.

“The Great Depression was, no doubt, depressing”

I thought I’d compile a few paragraphs to give us a glimpse of the past as the majority of us weren’t around back then. Thank God, because it sure wasn’t much fun.

As it turns out the Stock Market Crash of 1929 didn’t create the Great Depression,

it was just perhaps the last tick of the bomb that imploded the whole market and world economy. The SEC, The Security and Exchange Commission had not been created yet and the practices in the 20’s were operating in a rather less-than-ethical space. New Companies like General Motors, seemed to be making everyone rich, operators like Joseph Kennedy, (and a slew of others) were notorious for making the big bucks in questionable practices. Investment scams that inflated values of stocks ( that were eventually dumped by the scammers) and consequently, left the investor pools holding the proverbial bag. These were the scams of the day.

Ivar Krueger was notoriously one of the best con men of the day. Known as the “Swedish Match King” as it turns out, his whole empire was founded on deception. Issuing worthless securities and counterfeiting Italian government bonds were some of his scams. Another king of unscrupulous behavior was Samuel Insull a claimed self-made millionaire who lulled working class investors into his public utilities empire.

Just prior to the depression unemployment was already very high.

Housing starts were way down in 1927 and the new mechanized factories were laying lower level workers off by the thousands. Warehouses filled up with supplies and the demand suddenly slipped because people just could not keep up with the increasing supplies manufacturers were now producing. To further complicate the situation people were taking their life savings, and like lemmings were rushing off into half-cocked investments with the hope of getting rich. Investment firms offered massive amounts of credit as it only took 20% in actual cash to obtain credit. Banks joined the fun as well and loaned millions to speculation and quesationable schemes. Enormous debt had been established and the wealth was all on paper.

In 1928 Hoover made a speech making a bold statement to eliminate poverty.

By September of 1929 the market had reached it’s peak. Although, a closer examination proved steel and automobile production in steep decline. Steel and automobiles were the centerpieces of the American economy. Like animals that sense a earthquake before it happens, startled European investors started to withdraw their investments in the US market. The free-fall had begun. Brokers called investors to pay off the debt they had leveraged. As a result they quickly sold stock to pay their debt. This brought more fear as stock prices plummeted and the demise expanded exponentially as the vicious cycle ensued. By Black Tuesday October 24, 13 million shares were sold off. J.P. Morgan Jr. tried to offset the the fall with a pool of bankers and money to fluff up consumer confidence -but this too failed. By the following Tuesday another 16 million shares were sold off and within a few days the wealth of a country, which was built on inflated stock prices simply vanished before every one’s eyes!

In one year alone, 1300 banks failed.

Obviously there was no FDI insurance back then so when your bank went down, so did everything you had with it! Within three years or so 5,000 banks had closed. Speculative investments and the bad mortgages were the culprits behind the failures. This created more trouble as there were very few banks to extend credit and capital to people and businesses. Ford laid off 75,000 workers, and Ivar Krueger and Samuel Insull’s empires came crashing down.

In prior domestic depressions the American people were able to shake them off.

Prior to America’s mechanization people lived on farms and were able to produce, for the most part, what they needed to survive. But now through technology, America had revolutionized it’s economy, and, the worlds. This newly urbanized and mechanized America suddenly had millions of workers unemployed. Record keeping was obviously less accurate back in the day, but official estimates put unemployment at 25%. Most historians scoff at those figures and claim that 40 to 50% of the available workers were out of work!

Just to keep it in perspective we’re presently (at the time of this writing) enjoying 7% unemployment.

Hoover really couldn’t do a thing to right the ship

whatever he did it was either wrong or done too late. “Hoovervilles”, communities of cardboard shacks were in all of America’s largest cities.  Hundreds of thousands were without hope, homeless and in a depressing state of despair. Hoover in 1932 created the RFC, the Reconstruction Finance Corporation. This functioned solely to loan money to the railroads and banks. This wasn’t accepted very well as it was another example of his willingness to aide Corporations and ignore the poor. Hoover was staunchly opposed to assist the starving populace with direct aid. He felt that was something the socialists would do- he was diametrically opposed. He preferred ”rugged individualism.”

It appeared to many Americans that Hoover just didn’t care about the millions out there starving, homeless and out of work.

In 1932 the depression perhaps peaked. And, the pain was felt across the land, although, in the White House Hoover kept up an image he felt would be good for ‘moral’ and had white gloved servants serving them multi-course meals.

In perhaps one of the more inhumane incidents that is preserved in the Great Depressions history was the “dough boys and the Bonus Army’s march on Washington.” The populace was at a breaking point and a group of former World War I infantrymen though it be a good idea to let Washington see the reality for themselves. The “dough boys” complete with families, journeyed any way they could to the Capital. They were a vagrant Army of sorts. They occupied buildings along Pennsylvania Avenue and set up encampments. They had all reached the end of their line, destitute, out of work and with no hope. These veterans were guaranteed a bonus and they came calling on it now. They coined themselves the Bonus Expeditionary Force. Rather then meet with the leaders of the movement Hoover decided to call out the troops, which were commanded by none other then Douglas MacArthur. The third cavalry led the assault and moved in on the “bonus Army”. Major George Patton commanded the operation. Innocent bystanders mixed in with the former soldiers were attacked with tear gas, tanks and bayonets. After nightfall the tanks rolled over the encampment and then it was torched and burned down. In the aftermath there were more then one hundred casualties and including two babies that died from suffocation from the tear gas.

Not long after that Hoover lost the election to Roosevelt and things began a slow mend. Eleanor Roosevelt met with the Bonus Army, mingled and talked with them. While Hoover will be remembered for sending the army in, Roosevelt was remember for sending his wife.

During these trying economic times we are experiencing today, right now, I couldn’t help but reflect back in history to the great Depression to get a glimpse of just how bad it was. It was bad, real bad. Based on what I have read there are many similarities. One wonders if the administration has reflected back on the depression to better understand what we and the world are dealing with now. Let’s hope we are turning the corner in the United States and will see a transition over the next twelve months or so.  While I’m an optimist at heart, I still believe we have a long way to go.  The foundation has been shaken and we need to strengthen it before we can totally rebuild.

http://www.msnbc.msn.com/id/28698830

http://www.msnbc.msn.com/id/28917922/

http://news.bbc.co.uk/2/hi/business/davos/7859179.stm

http://www.dontknowmuch.com/kids/about.html

Sources:

Don’t Know Much About History

By: Kenneth C. Davis  ISBN 0-380-71252-0

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