Valley land values in free fall
Developers slowly becoming an endangered species...Sanford Nax
Bryan Garner thought he had the perfect plan: building six houses on 2 acres he bought in a fast-growing part of Fresno.
Then the bottom fell out of the market, and now Garner hopes he can save his own home from foreclosure, his truck from repossession and somehow salvage his dream.
"I expected this to be our future," Garner said as he looked over the property in west-central Fresno. "And it ends up being our demise."
Garner's story is common in this real estate market. He bought the land in 2005 when the market was robust, spent $80,000 preparing it for development and then ran into the most severe housing downturn in decades.
He's not alone. Ennis Homes of Porterville recently filed for bankruptcy protection, and other builders have pulled out of the central San Joaquin Valley, selling developed lots at a loss or disappearing from the scene.
Land values have plummeted.
Garner's land "is probably worth less than half what he paid for it," said Gary Mason, a former subdivision builder and owner of Clovis-based 2M Development Corp. who retooled to become a small builder, constructing five houses last year.
"If you are lucky, you can build a house and maybe get your land costs out of it," he said.
Fresno County has lost 3,600 construction jobs since 2006. The county has 6,641 unsold lots, a three-year supply; and housing starts are projected to fall 11% in 2009, in addition to a 38% decline last year.
Home prices have collapsed, falling about 41% to a median price of about $176,850 since the peak in June 2006, according to a study by Integrated Asset Services, which helps price properties for banks.
Garner's land in Fresno, as well as property in Visalia and Utah, is for sale, but no one is buying. He would partner with someone to finish it, but few are building. Garner constructed one house in 2008 and is finding work scarce, even for a skilled home builder.
"I'm doing fence repairs and small-time plumbing jobs," he said. "It's not enough."
Garner and his fiancé, Irene Mazzella, have planted a vegetable garden to help cut costs, and Garner has bartered out his skills in return for frozen steaks and hamburgers.
It wasn't always like this. A small developer with low overhead, Garner made a living building a few houses each year, especially when values were climbing.
"I was doing three houses a year in 2004 and 2005," he says. "It was a very profitable time to be a builder."
That was when he found the 2 acres with a house on Brawley Avenue, just north of Clinton Avenue. He planned to live in the house and develop the property. He borrowed $250,000 to buy the land, and paid to get the plans through City Hall.
But he can't spend $10,000 for the final map approval, and what's the point anyway when the value of the land -- and the market for new houses -- has plunged to new lows?
Garner is behind on payments and the bank sent him a pre-foreclosure letter. But, in a hopeful sign, the bank said a few days ago that it is considering cutting his loan payments almost in half in return for extending the payment schedule.
"We're praying for a miracle," he said.
He has joined a chorus of pleas for divine intervention. "I get at least one call a week from building contractors asking me if I have any leads for work," said Dick Ellsworth, a subdivision land specialist at Grubb&Ellis/Pearson Commercial.
"This is an important part of our housing component," he said. "There are probably 25 guys out there who built five to 10 houses per year who employed people. They don't get rich, but they were buying new cars and putting their kids through college."
When the the market was crazy in 2004 and 2005, those builders like Garner could have made some money building six or eight houses on that 2-acre parcel. "But [not] in today's market. Ten acres or smaller is not an economic unit," Ellsworth said.
Rick Langdon, regional manager of West Coast Housing Partners in Fresno, said some of his former colleagues in the development industry now consult for banks. Others are on the sidelines, sitting this cycle out.
Small developers don't have the staying power of the publicly traded companies. They can't offer incentives or attractive loans to consumers, and can't compete with all the foreclosures coming onto the marketplace.
"You try to muddle ahead, paying the bills and breaking as close to even as possible. And you move on from there," Mason said.
Mason is holding onto his land until the market recovers. Other small developers don't have that luxury.
"These guys will be left out," Ellsworth said. "They will be hung out to dry because they don't have the deep pockets to get back into business when they need to get back into business."
Rio Mesa's 'litigation magnet'
Madera County plans in a vacuum, to the detriment of the entire region...Editorial
In the eyes of its developers and their supporters, the Rio Mesa area in southeast Madera County will one day be a sparkling new community of upscale homes and comfortable suburban living. In the eyes of its detractors, Rio Mesa is like watching an accident about to happen, and being too far away to help.
Rio Mesa has been on the drawing boards for more than a decade. It would ultimately put 100,000 residents on land that is largely used for grazing cattle today.
It has become a litigation magnet. Most recently, several environmental groups, Fresno County and the Chawanakee Unified School District have filed lawsuits, together and separately, questioning the Madera County Board of Supervisors' unanimous approval of two massive projects in the area. They have a number of well-founded concerns about the planning process being used to advance Rio Mesa.
The overarching problem is the absence of comprehensive planning for this mammoth undertaking. The existing Rio Mesa area plan is a relic of 1995, when southeastern Madera County was in the running as the site for the new University of California campus. The campus ultimately went to Merced, but the plans weren't updated.
Each of the Rio Mesa area projects is being planned separately, which is bad planning. The cumulative impact of all the plans -- on water, air quality, transportation, schools, historical resources -- must be taken into account, and it hasn't been.
Fresno County officials, for instance, are concerned about the impact of 100,000 new residents just across the county line, and they should be. Many of those new residents will work in Fresno and Clovis, bringing more traffic to already inadequate roads. That has to be addressed -- and hasn't been.
The Rio Mesa area includes much of the historic lands of the Dumna tribe, and their concerns have similarly gone unmet. An archeologist hired to study the area complained in a letter to the county that evidence of human remains she found was not included in the draft environmental impact report for the area, a serious omission.
There are real and unresolved concerns about water for the projects. The San Joaquin River Parkway and Conservation Trust is troubled by the impact of one of the projects on the river and the parkway, and has sued to stop it.
As planned, the Rio Mesa projects are all classic suburban sprawl, which is increasingly viewed with skepticism by both experts and the public. As planned, they would be low-density, miles from job centers and indifferent to regional concerns.
That's the most troubling aspect of Rio Mesa and Madera County's attitude. Throughout all of this, Madera County has blithely forged ahead, operating as if in a vacuum. It's been that way since 1893, when its residents seceded from Fresno County. The proud posture of stubborn independence may be appealing, but it sometimes makes for poor neighbors.
'Outrageous' suggestion...R.R. "Ric" Forestiere, Fresno, Letters to the editor
Something's rotten in the state of southwest Fresno County -- or is it at KMPH TV 26? To even suggest that Lloyd Carter has the tiniest racist bone in his body is outrageous and borders on sacrilegious. Lloyd has always been a champion of the underdog and the downtrodden.
Lloyd has railed successfully against the toxic abuses of man and beast for the 30 years that I have known him -- railing against the abuses of fowl and cattle in Kesterson and environs; against abuses of herbicides, insecticides and pesticides infecting the bodies of farmworkers and entering our food chain; against pollution of our air and water; against the abuse of the stewardship of our environment in general and against water hogs in particular.
He has successfully organized and financially supported many nonprofit organizations. If there ever was, or is, a Mr. Environmentalist-Conservationist-Preservationist in the San Joaquin Valley, it has to be Lloyd Carter.
'A charade'...L.W. Johnson, Shaver Lake...Letters to the editor
Charade. That is the best term to describe both environmental activist Lloyd Carter's apology on his abhorrent comments regarding Valley farmworkers and the corresponding response from the California Water Impact Network Board of Directors. In multiple news reports, and CalWIN's own press release, it was stated that following a CalWIN board of directors conference call, that Carter participated in, Carter announced his "resignation."
If the CalWIN board of directors didn't agree with, or otherwise support, Carter's racist comments, they would have held their conference call without him, then declared Carter had been terminated. But CalWIN didn't do that. Clearly Carter's resignation was orchestrated, a charade in the purest sense.
'Justice for everyone'...Bill Simon, Fresno...Letters to the editor
I know Lloyd Carter, and I was astounded by his comments on KMPH last week. I thought the reporter must have gotten it wrong. But, no, the reporter got it right, although we don't know if the whole interview would have put his remarks in a better context. Only the most controversial 15 second soundbite from an interview makes it onto TV news.
The Lloyd Carter I know would not have made those remarks. I certainly have never heard him say anything like that. Those who know Lloyd better than I do say he has been a tireless crusader for social justice and for everyone's rights since he was in college.
But Lloyd is involved in so many causes, instead of "tireless," he usually looks just plain tired. I can only conclude that his fatigued brain failed him when he tried to make a sarcastic comment about poor farmworkers in California's 20th Congressional District. The Lloyd Carter I know would have criticized society for caring so little about its poorest members.
I wish Lloyd well. I know that he will continue to work for social justice for everyone, including those who were rightly insulted by his words the other night.
Editorial: Clean air is for the birds
A wave of the binoculars to citizen scientists.
Those field observers and feeder watchers who participate in the National Audubon Society's annual Christmas Bird Count have provided base line information for studies that challenge us to deal with ecological disruption.
Using bird counters' data collected during the past 40 years, scientists say bird migrations clearly are changing, with the most likely explanation being global warming. Over those decades average January temperatures rose in the lower 48 states by 5 degrees Fahrenheit, and birds seemed to be wintering farther north. Audubon's study confirms the reports: 58 percent of the observed species – 177 of 305 – showed significant movement northward. Bird species also moved from warm coastal areas inland.
In a separate study using computer modeling and bird counters' data, Audubon California's scientists William Monahan and Gary Langham projected effects on birds from low, moderate and high greenhouse gas emissions. "On average, California's landscapes will lose 6 percent of their bird species under low emissions, 14 percent under moderate emissions and 19 percent under high emissions," they wrote. From the Swainson's hawk to the yellow-billed magpie, the scientists pinpoint how species and regions would fare. The "hot spots of loss" in the south include areas of the Mojave and Sonora deserts, Coast Range, eastern Sierra Nevada and Central Valley. In the north, the Modoc Plateau and portions of the Cascade and Coast Range would suffer the most severe losses under the high emissions scenario.
Why should anyone care if birds range northward or disappear? As the health of the birds goes, Langham says, so does the health of the habitat.
What is the best course of action? Cut greenhouse gas emissions, target areas for conservation and move toward clean energy. To protect bird habitat is, after all, to protect our own quality of life.
San Francisco Chronicle
Water agencies debate desalination...Kelly Zito
Is it time to stick a straw into the Pacific Ocean?
About 20 water agencies up and down the California coast seem to think so.
From Marin County to San Diego, small and large projects that turn seawater into tap water are gaining favor, propelled by events unprecedented in California's history: worsening drought, dwindling species of freshwater fish, crumbling plumbing systems and unyielding demand.
"People are worried about water supply," said Michael Carlin, assistant general manager of water at the San Francisco Public Utilities Commission. "Desalination is for drought supply, for an emergency, and it augments existing supply - it's another tool in our toolbox."
But critics argue that desalination is an expensive, environmentally questionable last resort in a sprawling state that misuses one of its greatest assets.
"People are looking for an easy solution, and they look to the ocean," said Linda Sheehan, executive director of the California Coastkeeper Alliance, a watchdog group. "They're ignoring the opportunities we have for conservation, storm water reuse and water recycling."
This is not the first time the desalination debate has surfaced in California. Dry spells and government funds for infrastructure often prompt new studies and investment in the process, which strips salt, debris, bacteria and other substances from saltwater and funnels it to local taps.
But climate change, rising water costs and threats to wildlife have increased the stakes.
On a pretty stretch of beachfront at the Seymour Center at Long Marine Lab, a set of trailers holds the potential answer for the Santa Cruz area. Inside, humming pumps, pipes and tanks treat about 50 gallons of seawater a minute.
Santa Cruz and the Soquel Creek Water District hope to build a $30 million to $40 million plant that would deliver 2.5 million gallons a day to more than 130,000 customers by 2015. A plant that size would help boost supply during summer months and droughts.
"If we face a drought like the late 1970s, we could be 45 percent short of supply," Melanie Schumacher, project spokeswoman, told a group of 20 people during a public tour of the desalination apparatus on Wednesday.
Officials at the Marin Municipal Water District and the Bay Area Regional Desalination Project - comprising the San Francisco Public Utilities Commission, the East Bay Municipal Utility District, Contra Costa Water District and Santa Clara Valley Water District - make similar points about their budding plans to make saltwater drinkable.
Reservoirs for those districts - and scores of others in the state - are at critically low levels after two dry winters and possibly another one this year. Deteriorating fish populations and rules slashing the amount of water pumped through the Sacramento-San Joaquin River Delta have exacerbated the problem for most agencies.
EBMUD enacted 15 percent rationing last year, while San Francisco is contemplating similar measures depending on snow levels by the end of the water year April 1.
Water policy experts, environmentalists and consumer groups recognize the dire circumstances facing many water agencies around California. But they insist that using less water - not adding more to the supply - is the cheapest, fastest and most ecologically friendly way to stem the state's water crisis.
Desalination consumes a lot of energy, catches fish in intake machinery and flushes concentrated brine into coastal areas, and its facilities are unsightly, critics say.
Mark Massara, director of the Sierra Club's Coastal Program, said California has all the water it needs for growth projected through 2050.
"Obviously there's a need for fresh water - but there's a misperception that desalination is the Holy Grail that allows you to engage in unfettered sprawl and ignore conservation," Massara said. "Desalination is still not priced competitively with traditional water costs, and we haven't even hit the tip of the iceberg on conservation."
Research on water consumption seems to bear that out. While per-capita water use in California is decreasing, urban users could cut consumption by 2.3 million acre-feet each year - fully one-third of current urban usage - using low-tech options, said Peter Gleick, an expert on freshwater supplies.
"We should not be building desalination plants where other things make more sense," said Gleick, president of the Pacific Institute in Oakland. "At the moment a lot of other things make more sense."
Alternatives include replacing top-loading washing machines and 3-gallon-per-flush toilets with water-efficient versions, Gleick said, while communities could offer incentives for drought-resistant plantings and use water from showers and dishwashers for irrigation.
Saving water has a price advantage. A study last year by the Los Angeles Economic Development Council found that conservation would cost $210 a year per acre-foot, compared with more than $1,000 per acre-foot for desalination.
In addition, costly amounts of energy are needed to force seawater through the fine membranes that trap tiny salt and other particles.
While the cost of desalination may grow more attractive if surface and groundwater supplies decline further and prices jump, some water experts say California's water crisis has less to do with shiny new water plants than about changing attitudes toward water.
"We need to change how we relate to water and not just dip straws into whatever water source is close by," said Coastkeeper Alliance's Sheehan. "We need to recognize the limitations to the environment and adjust our behavior. If we live in a desert climate, we need to act as though we live in a desert climate."
Skiers, farmers welcome Sierra storms...MARTIN GRIFFITH, Associated Press Writer
RENO, CA (AP) -- Skiers and farmers rejoiced after another storm dropped more than 2 feet of snow in portions of the Sierra Nevada, but the range's snowpack still is below average so far this winter.
The latest snowfall was just in time for the Presidents Day weekend, traditionally one of the busiest periods of the season for Lake Tahoe ski resorts.
Skiers and snowboarders packed the slopes Saturday after a string of storms left up to 6 feet of snow at Tahoe since Sunday and the best ski conditions this year.
"I haven't seen this many people with powder up to their waist in a very long time," said Rachael Woods, spokeswoman for the Alpine Meadows resort just north of Tahoe. "Our parking lots are at capacity today."
Her resort reported 27 inches of snow at its mid-mountain at 7,500 feet elevation over a 24-hour period ending Saturday morning.
While the recent storms have been good news for the region's water outlook, they still aren't enough to erase a dry January, said Dan Greenlee, a hydrologist with the U.S. Natural Resources Conservation Service.
The Sierra would have to see snowfall of 185 percent of average for nearly two months in order to meet an average year's snowpack, he said.
"It's getting tougher and tougher to overcome the deficit," Greenlee told the North Lake Tahoe Bonanza. "These storms are going to improve the snowpack numbers by a few percentage points, but we're not in a situation that can be easily dug out of."
The Sierra snowpack is a major source of water for farmers and residents in California and Nevada.
At a conference in Reno last month, experts offered a grim water outlook for Nevada and California, and warned that farmers can expect to receive less water than normal this year because of a drought.
In Nevada, the snowpack water content as of Saturday was running 71 percent for the date in the Carson River watershed, 68 percent in the Walker River basin, 67 percent in the Lake Tahoe basin and 61 percent in the Truckee River watershed.
Chains or snow tires were still required Saturday afternoon on two highways in Northern California: Highway 88 over Carson Pass and Highway 70 east of Quincy, Calif.
Similar controls were lifted earlier in the day on two other major trans-Sierra highways near Tahoe: Interstate 80 over Donner Summit and U.S. 50 over Echo Summit.
A winter storm watch has been posted for Sunday afternoon through Monday afternoon around Tahoe, where more snow is expected.
Contra Costa Times
Radiation riddle remains...Suzanne Bohan
A large tract of land not far from E. John Ainsworth's Pleasanton home bears no evidence of the research on radiation health effects he led in the 1960s, at the height of the Cold War.
But it was there, at a military installation in Dublin called Camp Parks, that sheep, burros, goats and pigs were placed inside a triple-fenced pasture. A machine then bathed them in dangerous gamma rays, which penetrated deep into tissue and damaged their cells.
Ainsworth's pioneering work in Dublin, and also at Hunters Point in San Francisco, helped in the development of the handful of approved drugs for treating those exposed to the damaging rays. It also deepened understanding of radiation's effects on tissue, blood and DNA.
And his insistence that the nuclear threat hadn't ended with the 1989 fall of the Berlin Wall kept alive the military's largest radiation health effects research program, based in Maryland. Experts now consider the program critical to national security.
"Greater minds in Washington had decided it (the program) was no longer necessary," said Tom Seed, a senior scientist with the countermeasures division at the Armed Forces Radiobiology Research Institute in Bethesda, Md., speaking of his institute.
But Ainsworth, who served as its scientific director from 1989 to 1998, and the officer heading the lab vigorously lobbied the Department of Defense to keep it running.
The DOD rescinded the closure order.
Then came the Sept. 11, 2001, attacks. Soon after came the discovery of an al-Qaida training manual for making a "dirty bomb," composed of radioactive material and conventional explosives. And Mideast instability and hostility toward Western nations continue to stoke fresh fears about nuclear proliferation.
"All of a sudden, there was a realization that the threat hadn't gone away but was just reconfigured," Seed said. "It was a different form, but still sizable."
The lab is now regaining its prominence and employs a staff of 150. "It's growing by leaps and bounds," said Terry Pellmar, who retired last month as the institute's scientific director.
In addition, Ainsworth and Glen Reeves, a colleague at the lab, established a successful program to work with Russian radiation experts after the Cold War ended. They did it, Ainsworth said, to keep the newly unemployed Russian scientists from seeking work with countries antagonistic toward Western nations.
"Having them go to bad places was not in the world's best interest," Ainsworth said. He and Reeves also arranged for the transfer of radiation research from the Soviet Union previously unavailable in the West.
Born in 1933 in Indiana, Ainsworth entered his youth at the dawn of the Atomic Age, after two nuclear bombs were dropped by the United States on Japan in the waning days of World War II. He graduated from Brown University with a Ph.D. in biology, and dedicated his life to researching ways to reduce the threat of radiation by understanding how it does its harm. That knowledge opened doors to developing medicines to counteract its damage, or to prevent injury.
"If we have to send troopers into a radiation field, then we can give them a pill that will spare them the damage that kills cells," said Ainsworth, describing a still-elusive research goal that his work helped hone.
The Bay Area program he headed, which was then the largest radiation health effects program of its kind nationwide, captured the attention of his peers.
"He was a prime mover and shaker of his day," Seed said. "What Dr. Ainsworth developed was a sense of what exposures were damaging and what (exposures) people could recover from."
The large animals served as proxies in the quest to find radio protection for civilians and for military personnel. At both Hunters Point and in Dublin, dogs taken from the pound were used in tests, Ainsworth said.
In Dublin, the farm animals were tested in a fenced-in pasture, which in turn was surrounded by another fence, and then another — to keep trespassers out of the dangerous area.
One time, Ainsworth recalled, a sky diver landed near the outer fence, although apparently not while experiments were under way. But it caused a furor, and signs were erected warning people away from the area, including one on the ground large enough for a passing plane — such as one carrying sky divers — to see.
"We had to keep people out of the damn place," Ainsworth said. He and other researchers observed the experiments from a shack on a distant hill, equipped with binoculars. The studies yielded numerous insights, he said.
From those experiments with dogs, for example, Ainsworth and others learned that not only did gamma rays destroy bone marrow, but they caused damage to the lining of the intestine. So only treating bone marrow, then a common procedure for radiation exposure, might not be enough.
The work also helped researchers understand which animals' biology more closely matched humans, and therefore made more effective research subjects.
There was little controversy then over the use of animals for medical studies, Ainsworth said.
Since then, however, options have narrowed for the use of animals, and one 2005 study cited such limitations as "a major bottleneck" in the development of new or improved drugs for radiation injury treatment or prevention. In 2008, the Food and Drug Administration also issued revised guidelines on the use of animals in research, including animal welfare issues. That report, however, reiterated the agency's mandate that "when human efficacy studies are not ethical or feasible" scientists are required to use animals for research leading to the approval of drugs.
Pellmar, the former scientific director of the radiobiology research institute, said she still points new radiation biologists to older studies like Ainsworth's findings on large animals.
"There's been a tremendous amount that's already been done that they can build on, instead of reinventing it," she said.
"Dr. Ainsworth did some of the seminal work on understanding the biological effects of radiation," Pellmar said.
Ainsworth, who has been married 48 years, has two daughters, a son and seven grandchildren, all of whom live in the area. He still consults, and Seed said many seek out his advice.
Ainsworth, now 75, has esophageal cancer, and his wife, Carolyn, said that three months ago, doctors gave him months to live. His cancer isn't linked to his radiation work, Ainsworth added. "I ascribe it to old age and bad genes."
Ainsworth, an avid photographer, spent the past year transferring a lifetime of slides, photos and home movies to digital formats. He also looks healthy and energetic, and easily smiles.
"He's accepted this with such grace that he amazes us all," Carolyn Ainsworth said. "As he has often said, 'I've lived a wonderful life, and each day is a blessing.'"‰"
Ainsworth expresses some frustration at the progress of research in the area to which he devoted his life, and he marvels at the technological tools now available to radiation biologists. Had they been available to him, Ainsworth said he would have dug into genetic and physiological responses to radiation, enabling a more sophisticated comparison between animals and humans.
"Next time," he said, smiling.
Banks on the brink: Unsavory options may be only salvation...Stevenson Jacobs and Erin McClam, ASSOCIATED PRESS
These days, you can roll up to an ATM at the grocery, the pharmacy, the gas station, the hardware store, the office, even the ballpark. You can check your Bank of America balance on your iPhone. You can text Chase, and Chase will text you back.
That's banking today: It has grown from an almost quaint relationship between teller and customer into a massive, dizzyingly interconnected network that touches almost every adult in this country.
And right now, the federal government — working without a road map, and without a net — is putting together a plan to keep U.S. banks from collapsing.
Not just to get the banks lending again. To keep them alive.
The government announced a plan this past week short on details that would expand the Federal Reserve's role in lending and may include lifting soured mortgage assets off selected banks' books, possibly along with guarantees against other losses and maybe more direct injections of cash.
Financial industry experts say it is a matter of choosing the best of several options, none of them very palatable.
And no one knows for sure what will work because nothing like this has happened in living memory.
Getting it wrong could trigger a replay of what happened after Lehman Brothers collapsed last fall — the stock market in free fall, seizure of the credit markets, ripples of layoffs. Perhaps even a run on other banks — so many customers rushing to pull out their cash that it would make the bank run in “It's a Wonderful Life” look like, well, a feel-good holiday movie.
“The banks are at a terrible junction,” says Robert Reich, a labor secretary under President Bill Clinton. “The bottom is falling out. Almost every area of the credit markets, we're finding people unable to repay their loans. That means many banks are basically insolvent.”
“If one big bank implodes,” he says, “the reverberations could be endless.”
So how did we get into this mess?
And how do we get out?
Washington and Wall Street are still playing the blame game. But most financial experts agree that a cocktail of bad economic policies and lax government oversight led lenders, borrowers and investors to take huge risks.
Greed and recklessness trumped fear and reason, and they led banks to the brink.
To understand how the things went awry this time, go back a couple of decades, to a time when you could walk into your hometown bank branch and speak to a teller who knew your name and kept a pen-and-paper record of your mortgage.
Banking was a simpler affair, and a no-nonsense one: If you didn't make enough money to qualify for a loan, you didn't get one.
But in the 1980s, falling interest rates and loose lending standards opened banking to the masses.
Credit was cheaper, and the government pushed to make more Americans homeowners. The housing boom was on.
Banks and savings and loan associations, or S&Ls, spread across the country offering cheap, 30-year mortgages. By 1980, banks had $1.5 trillion in outstanding mortgage loans, more than double the amount from 1976.
It was, says Eugene White, an economics professor at Rutgers University and an expert on the Great Depression, all about the government's postwar policy of selling a “piece of the American dream.”
“But by doing that, we forgot about the risks,” he says.
Then came the bust. Unable to pay their mortgages, homeowners and businesses began defaulting in droves. Delinquencies soared, triggering the savings and loan crisis, battering the stock market and prompting a huge, taxpayer-financed bailout.
Fast forward to today. Not exactly an example of lessons learned.
Some ingredients of the S&L mess, bought by JPMorgan for a meager $10 a share in a government-brokered fire sale.
Six months later, the crisis spread to Lehman Brothers, a 158-year-old investment bank that helped finance America's railroads. And, this time, the government decided not to step in.
Lehman collapsed in the biggest bankruptcy in U.S. history. Immediately, banks around the world, seized by fear, stopped trusting almost anyone, and lending, the lifeblood of the economy, dried up.
Seemingly overnight, two of the biggest names in global finance were gone.
To the even greater alarm of most Americans, the stock market went haywire. The Dow Jones industrials, in what amounted to a slow-motion crash, plunged 2,400 points over eight straight trading days in October. By late November, retirement accounts were cut almost in half.
To many observers, the big banks broke one of Wall Street's cardinal rules: Be greedy, but be greedy over the long term.
"They forgot their instinct for self-preservation," says Lisa Endlich, author of "Goldman Sachs: The Culture of Success."
This January, the government took over six failed banks, including three on a single day. Last year, it took over a total of 25.
When it happens, the government swoops in and try to minimize disruption. Recently, it has tended to close banks on a Friday and achieve something close to business as usual by Monday morning, arranging for other banks to take on the assets. ATMs have kept working, and people have had access to their cash.
So far, most of the failed banks have been relatively small, many with assets only in the hundreds of millions of dollars. But what would happen if one of the nation's big banks, the kind that manage hundreds of billions in assets, went down?
"That would probably cause a complete meltdown of the American financial system," says Andreas Hauskrecht, an associate professor of money, banking and finance at Indiana University.
After the financial crisis accelerated last fall, the government increased the limit for the amount of bank deposits it will insure for individual depositors, from $100,000 to $250,000, effective through the end of this year.
And while few Americans have to worry about keeping anything bigger than that in the bank, the government could eliminate the limit altogether and insure all deposits regardless of size if a huge bank, such as Citigroup or Bank of America, were to fail, says Jim Wilcox, a professor of financial institutions at the University of California at Berkeley.
No one has ever lost money in an account insured by the Federal Deposit Insurance Corp. But no one has ever seen a bank that size go under, and news of a giant bank's downfall would probably touch off a panic in which even depositors with money in safe banks rush to get it out.
A matter of trust
But there's a bigger economic problem: Other lenders, which hardly trust everybody these days anyway, would stop trusting anybody. Businesses, unable to borrow money day to day, would fail, with worldwide consequences.
It doesn't take an economics degree to realize that would be nothing short of catastrophic for the economy.
"Not to say there's not good aspects of letting someone fail," says Robert G. Hansen, senior associate dean at Dartmouth College's Tuck School of Business. "But the short-term costs of inflicting that punishment to everybody are really high, and I don't think the Obama administration has the stomach for it."
Already, the new administration is treating the Lehman failure as a lesson. Treasury Secretary Timothy Geithner suggested at his confirmation hearing before Congress that the feds would not let another big bank go down.
"Lehman's failure was enormously complicated, an enormously complicated set of events," he said. "It didn't cause this financial crisis, but it absolutely made things worse."
So what now?
Financial experts don't expect the United States to go the way of Iceland, where a collapse of the banking system last month threw the tiny country into turmoil and toppled the government.
What keeps them up at night is a scenario closer to that of Japan, which bungled its own bank bailout in the 1990s and limped along during a "lost decade" of anemic economic growth and high unemployment.
To prevent that, the Obama administration must choose the best of several difficult options, or a combination. The emergency medicine prescribed by the last administration — flooding the financial system with billions of federal bailout dollars — hasn't worked. If anything, banks are sicker.
One idea under consideration is the creation of a government-run aggregator bank, or a "bad bank," that would buy up hundreds of billions of dollars in banks' toxic assets. The government also may decide to pump more money into banks and offer billions in dollars in guarantees against future losses.
But no single fix is seen as a magic bullet, and financial experts say the government is quickly running out of lifelines.
"The longer they wait, the more damage there is to the economy and the more it will cost taxpayers," says Frederic Mishkin, an economics professor at Columbia Business School and a former member of the Federal Reserve Board.
In theory, the government-run bad bank would buy soured debt that's gumming up the banks' books and clogging the flow of credit. That could shore up banks' base of capital, soothe investors and get banks lending again.
But in practice, it's far from simple.
For starters, no one — including the banks themselves — knows how much these assets are worth. The complex nature of mortgage-backed securities, credit default swaps and other contaminated products has made investors too afraid to touch them.
Pricing them is tricky, to say the least.
If it pays too little, the government risks forcing banks to record huge losses on their books, potentially putting them out of business and wiping out shareholders. If it pays too much, it risks shortchanging taxpayers by hundreds of billions of dollars.
"It's a can of worms," says Sung Won Sohn, an economics professor at California State University, Channel Islands.
The forensic nightmare of appraising these bad assets forced the Bush administration to abandon the idea in the early days of the bailout. With the markets spiraling lower, there simply wasn't enough time.
And even if the government figures out how much to pay for the assets this time, the question is how much to buy.
Goldman Sachs estimates the government would need to shell out $4 trillion or more to absorb all the banks' troubled mortgage and consumer debt.
How big is $4 trillion? It's more than one-third of the economic output of the United States in a year. It's more than twice as big as the first federal bailout and the coming economic stimulus combined. Just look at all those zeros: $4,000,000,000,000.
Another vexing issue: Who would be in charge of poring over the banks' books and valuing the assets? Experts say the people best qualified to do that are the same ones who created the faulty products — Wall Street bankers and other investment professionals.
That prospect makes some financial observers queasy.
"We're asking the same people who got us into this mess to get us out. These are the guys who buy airplanes and decorate their offices for a million bucks," says Bill Seidman, a former chairman of the FDIC who ran the government bailout during the savings and loan crisis.
Seidman and others are calling for an alternative rescue plan that they say would avoid the pitfalls of past efforts: a short-term nationalization of the banks.
To many people, that very thought is an affront to the free-market system, more Argentina than America. But that's exactly what the U.S. government did in the S&L debacle of the 1980s.
With Seidman at the helm, the government-run Resolution Trust Corp. took over failed S&Ls and sold off their depressed assets — repossessed homes, offices, cars, planes and even artwork. Any institution needing help had its management fired and its shareholders wiped out.
During the next six years, the RTC sold nearly $400 billion in assets on the books of more than 700 failed thrifts. Then it sold the cleaned-up S&Ls back into the private sector.
The cost to taxpayers? About $125 billion to $150 billion by the time the bailout was completed in 1995, which was about 2 percent of one year's gross domestic product at the time.
Seidman believes a similar plan has the best chance of success. And he claims it would cost taxpayers far less because the government wouldn't have to buy bad assets or inject more money into troubled banks.
Instead, the government's expenses would be largely limited to the cost of cleaning up the seized banks and selling them back into the private sector, Seidman says.
"If we don't do it, we risk staying right where we are — pumping more money into insolvent banks and keeping them alive at the expense of healthy ones," he says.
That's what happened to Japan, which injected billions of taxpayer dollars into the banking system and spawned a legion of "zombie banks" — financial institutions that take government money but don't lend it out.
Nationalization isn't a sure thing either.
In the S&L days, the government recouped some taxpayer money by selling the physical assets of the banks, things like real estate and cars — not the hard-to-value paper assets held by banks today.
That wrinkle makes it much harder for the government to follow the RTC strategy, says Jonathan Macey, deputy dean at Yale Law School and the author of a book about a government bailout of Sweden in the 1990s.
"We're not talking about valuing buildings and dirt," Macey says. "This is quite a bit different."
In other words, it's uncharted territory once again.
New UC eligibility standards will open college doors, but may change demographics...Lisa M. Krieger
A controversial new policy at the University of California will open the country's premier public university system to a wider array of applicants, creating campuses that could be less Asian and more white, with a few more African-Americans and a modest climb in the number of Latinos.
In overhauling its eligibility requirements, UC has eliminated SAT subject tests and agreed to consider lower-ranking students. The plan would broaden the socioeconomic and racial diversity of the applicant pool and offer admissions offices more flexibility in creating a freshman class.
UC leaders have been distressed over the widening achievement gap on their campuses. The impact of the new policy, according to UC's preliminary analysis, would be to simplify the application process and cast a wider net among promising low-income students.
While not guaranteeing admission, it would at least give more students the benefit of a closer look of both academic and nonacademic criteria such as leadership, life experiences and ability to handle adversity. Each UC campus will continue to make its own acceptance decisions.
It's a consequential shift for the UC system, reflecting its effort to balance competing pressures: Should it keep picking the best students statewide? Or as a public education system, should it better represent the state population?
"In my mind, it is a clear departure from the Master Plan, adopted 50 years ago,'' said Steve Boilard of the California Legislative Analyst's Office, which assessed the new policy. "It will really change access to the state's public research universities."
Incoming class in 2012
The new policy applies to students entering college in fall 2012; they are now high school freshmen. It:
n"‚Eliminates "subject tests,'' called SAT IIs, in which students are tested on classroom material such as chemistry, biology or English literature. UC is the only public university in the country to require students to take two such tests, although top private schools, such as Harvard and Stanford Universities and the California Institute of Technology, either require or recommend them. The SAT I, which measures general aptitude in math, reading and writing, is still required by UC.
n"‚Significantly increases the number of students eligible to apply from each high school — from the top 4 percent to the top 9 percent, as long as their GPA is at least a "weighted'' 3.0, up from a current "unweighed'' minimum of 2.8. All candidates are promised a review of their resumes and essays.
n"‚Reduces the number of students who are guaranteed UC admission — from 12.5 percent to 9 percent of the state's high school graduates.
"We are a public university,'' UC President Mark Yudof said. "We have to be a place that provides opportunity and socioeconomic mobility.''
But by moving UC away from its original goals — by promising to review applications of the top 9 percent of graduates from every high school, rather than guaranteeing admission to the top 12.5 percent of students in the entire state — critics fear the institution could weaken its academic rigor.
"It falsely suggests that the top 9 percent of students at the worst school in the state are academically equivalent to the top 9 percent of students at the best school,'' said Jay Schalin of the John W. Pope Center for Higher Education in Raleigh, N.C.
Signed into law by Gov. Pat Brown in 1960s, California's educational Master Plan designated UC as the state's research institution — and the training ground for the state's future doctors, lawyers, economists and other professionals. Students who weren't as academically strong were steered to the California State University or community colleges.
But that approach has given UC a lopsided population because strong students at poor high schools, who are overwhelmingly Latino and African-American, failed to qualify. And although Asians account for only 12 percent of the state's population, they represent 37 percent of UC admissions.
A preliminary analysis of the new changes predicts that the number of Asians admitted to UC could decrease because Asians tend to do well on the "subject tests,'' which are no longer part of the application.
The number of admitted whites could increase. In past years, whites have been more likely to apply to middle-tier private schools that don't require "subject tests,'' so often skip them — cutting off their access to UC if they change their minds, said UC-Davis professor Mark Rashid, who headed the faculty committee that created the new admissions policy. But he added that the increase in admitted whites may not translate into boosted enrollment, because they may decide to go elsewhere.
Admission of African-Americans and Latinos may climb. African-Americans and Latinos have been less likely to take "subject tests," because the tests are expensive and students didn't recognize their importance until too late.
African-Americans and Latinos also could benefit from the expanded class-ranking criteria, because top students from troubled schools such as San Jose's Lick High School could be UC-eligible.
The intent is not to "racially engineer'' the student body, Rashid said. "It is a legitimate hope to increase access of those who have been disenfranchised,'' he said. "But did we engineer it to achieve that? No.''
The changes are predicted to cause a 12 percent to 17 percent rise in applications. Because most UC campuses can't grow, admission could become more selective at some campuses. The pressure is likely to be most pronounced at "middle tier'' schools — such as UC-Davis, Santa Barbara, Santa Cruz and Irvine — where students who were once ineligible might now apply.
It's unlikely to affect the top-tier UC-Berkeley and UC-Los Angeles campuses, because the newly eligible students are expected to be less academically qualified than their typical applicants.
Move draws fire
The changes to the traditional system have triggered howls of opposition from a variety of groups.
"The university has essentially lowered its standards,'' said Ward Connerly, the former regent who designed Proposition 209, the 1996 initiative that banned the use of race as a factor in admissions. He accused UC of evading the meaning and spirit of the initiative.
Also angry are Asian-American organizations. They contend that subject tests are a better indicator of college readiness than the SAT I, which favors American-born students over immigrants because scores are influenced by expensive "test prep'' and family upbringing.
Asian-American leaders have long been suspicious that UC holds their youth to higher standards than other ethnic groups. The state should take pride in the large number of Asian-American students who have succeeded at UC, said Vincent Pan, director of Chinese for Affirmative Action.
In a January memo to the state Legislature, the state's nonpartisan Legislative Analyst's Office said it may be time to rethink the Master Plan, but criticized the new strategy.
"It is fair to ask whether the Master Plan is still the best approach,'' said the Legislative Analyst's Office's Boilard. "My only concern is rather than UC making the decision on its own, there should be a larger conversation with the Legislature and the public.''
Santa Cruz Sentinel
UCSC Students encouraged to think about their food's origins...Maggie Beidelman
SANTA CRUZ -- "When you get a hamburger in your mouth, where is that meat coming from? Where was that wheat grown? Is it genetically modified meat?" asked Brittany Cole-Bush, a UC Santa Cruz student and member of the Community Agroecology Network.
Those were the types of questions asked at the second annual Strengthening the Roots: Food, Justice & Fair Trade Convergence held at UC Santa Cruz this weekend.
Organized in part by the United Students for Fair Trade and the California Student Sustainability Coalition, the conference is one of five summits across the nation and the largest regional meeting in California for youth dedicated to the discussion of "real food" -- that is, ethically produced and environmentally sustainable food.
"People aren't aware of their food systems," Hai Vo, a senior at UC Irvine, said during the Youth Leaders Panel on Saturday.
Vo is a member of the West Coast Real Food Challenge, a movement to switch universities like UC Irvine and UCSC from 2 percent of total food purchases of "real food" to 20 percent by 2020.
Youth leaders like Vo are concerned there is a disconnect between producer and consumer, the environment and the community.
"It's very difficult to monitor the organic movement," said Vo, "but this is a neat space for us to physically see how palpable the movement is."
The excitement of the youth at the conference -- about 100 -- was palpable. Strangers from Fremont to Florida, brought together by their passion for Fair Trade and sustainable food, exchanged Valentine's Day hugs and shared fresh organic volunteer-prepared meals.
Friday evening featured four presentations of Pecha Kucha, a combination of Spoken Word and PowerPoint, in which key words like "change" inspired lively discussion and reevaluation of personal food choices.
"I can do more to lessen my carbon footprint by buying local food than by riding my bike," discovered Dave Shaw, a youth farmer and instructor at Gaia University, an international university dedicated to local and global sustainability and justice.
Marc Rodriguez, a member of the Coalition of Imokelee Workers in Florida, spoke about farm laborer issues. There is exploitation of both farm workers who don't get paid living wages and college students who are forced to buy expensive meal plans for low quality food from a commercial industry, he said.
"At a very basic level, it's about freedom and slavery, dignity and exploitation, and what kind of world we really want to live in," he said.
The conference continues until 1 p.m. today with a Food Sovereignty and Food Security Panel and action strategy session until 1 p.m.
"Bringing students together can be very empowering," said Vo. "I get energized from other people who are doing the same advocacy I'm doing."
New York Times
Visionaries on a Mission: Save the Earth...HARRY HURT III
SCIENTISTS and environmentalists have reached a growing consensus that time is running out for Planet Earth. The polar ice caps are melting. Three-quarters of the world’s flowering plant species are at risk of extinction. One in eight bird species is vanishing. Ninety percent of big fish like cod, tuna and swordfish that once swam the oceans have already disappeared. Air, water and ground pollutants from fossil-fuel sources are poisoning major population centers.
But according to Edward Humes, author of “Eco Barons: The Dreamers, Schemers, and Millionaires Who Are Saving Our Planet” (Ecco/HarperCollins, $25.99), there is “a secret plan to save the Earth.” This plan is being carried out by a group of “eco barons” — both men and women — who are the modern-day heroic counterparts to the villainous 19th century robber barons who originally set the nation on the path to environmental destruction.
“In an era in which government has been either broke, indifferent or actively hostile to environmental causes, a band of visionaries — inventors, philanthropists, philosophers, grassroots activists, lawyers and gadflies — are using their wealth, their energy, their celebrity and their knowledge of law and science to persuade, and sometimes force, the United States and the world to take a new direction,” Mr. Humes declares.
A writer for Los Angeles magazine and a frequent contributor to The Huffington Post, Mr. Humes is the author of nine previous nonfiction books. In 1989, he won a Pulitzer Prize for an investigative series about the United States military.
“Eco Barons,” which will be released next month, offers encouraging, often inspirational, profiles of nearly a dozen would-be planet savers. Among the more compelling of these characters are Douglas Tompkins, a surfer, climber and private-plane pilot who founded the North Face and Esprit clothing lines, and his wife Kristine McDivitt, the former chief executive of the Patagonia outdoor wear firm.
Mr. Tompkins sold out of the apparel industry after concluding that he had been merely “manufacturing desires to get people to buy products they don’t really need.”
Over the past 18 years, the couple has acquired more than two million acres for conservation in Chile and Argentina. The crown jewel is Pumalín Park, a vast nature sanctuary which they finally succeeded in giving to the Chilean government after debunking initial public suspicions that they were conspiring in a mysterious plot to undermine national security.
Even more controversial and no less results-oriented are Kierán Suckling and Peter Galvin, co-founders of the Center for Biological Diversity, an activist group whose aggressive use of the 1973 Endangered Species Act has prompted other environmentalists to brand them as radicals.
In the early 1990s, they won both fame and infamy by protecting the endangered Mexican spotted owl against the intrusion of lumbering interests in Arizona and New Mexico. (“We effectively ended the timber industry in the southwest,” Mr. Suckling boasts.)
According to Mr. Humes, the center has won about 450 of some 500 lawsuits filed over the past 15 years, resulting in first-time protections for 350 endangered species and the preservation of 70 million acres of critical habitat.
Another eco baron demonstrates what individuals of modest economic means can achieve on the environmental front through vision and persistence. Carole Allen, a widowed single mother who works at the juvenile probation department in Houston, rallied a group of local schoolchildren around the cause of saving the endangered Kemp’s ridley sea turtle.
In so doing, she provoked the wrath of the 17,000-vessel shrimp trawling fleet in the Gulf of Mexico, whose drag nets routinely scooped up thousands of turtles every season.
But thanks to the unrelenting efforts of Ms. Allen and her youthful cohorts, Texas officials ultimately agreed to enforce laws that require turtle exclusion devices on the shrimpers’ nets and a partial ban on shrimping within five miles of the coast.
THEN there is Roxanne Quimby, who started out selling organic honey, candles and lip balm from the back of a Volkswagen minibus, and went on to help create the national cosmetics company Burt’s Bees. Having recently sold her stake in the company, Ms. Quimby has amassed a fortune of over $360 million, which she is using to create a 3.2 million acre public preserve in the Maine woods.
Mr. Humes extols the accomplishments of Andrew Frank of the University of California at Davis, who invented and patented the plug-in hybrid, a vehicle that can run on a combination of gasoline and electrical power. Mr. Frank has since used off-the-shelf parts to turn a Ford Explorer into a vehicle with “the efficiency equivalent of a 100-mile-a-gallon motor scooter.”
Mr. Humes also applauds the efforts of Terry Tamminen, a former Malibu pool cleaner, in formulating California’s Global Warming Solutions Act, one the nation’s most comprehensive environmental laws, and cheers the eco-conscious philanthropy of Ted Turner, who annually supports over 500 environmental organizations and plans to bequeath to conservation most of the 2 million acres of land he owns in the United States.
The inherent flaw in “Eco Barons” is its sprawling scope. Although Mr. Humes is an able reporter and a passionate writer, he tries to cover too many ecological crises and praise too many people. At times, the book reads like a roster of nominees for the environmentalist hall of fame.
But his urgent message is clear: We must all strive to become “eco barons” in our own right if we are to save Planet Earth.