California in HUGE trouble
Probably more than any state in the country, CA generated a greater absolute and relative percentage of revenues from the real estate boom.
CA was the home to the subprime industry. Something like 1 in 10 residents held a real estate sales license. The rise in property values generated enormous increases in property taxes. The rise in new home constuction created a boom in jobs, permit fees, ect...
CA became accustomed to the higher revenue base and spending grew dramatically at the state, county and local level. Same with the business and individual levels.
The problem is those revenues were created by simply borrowing money that many couldn't afford to borrow and unreasonable expectations. Now the revenues have evaporated in just about a year but the debt remains. The effect is violently rippling through the economy.
We saw four retailers with strong exposure to CA go bankrupt in July: Mervyn's, Steve and Barry's, Bennigans/Steak n Ale, and Shoe Pavillion. Repeatedly, other retailers are feeling the effects such as HomeDepot and Starbucks.
Now we have large commercial vacancies where mortgage companies once occupied. Vacant shopping centers, and schools in the middle of corn fields, where homes were to be built. Incomes for probably over a million people in CA have simply evaporated just factoring real estate sales people, construction workers, and mortgage employees and others directly related to the RE industry.
The revenue CA became accustomed to is simply gone and its government, businesses and residents borrowed billions against expectations that will never materialize.
The boom this time created much more revenues and debt than any of the previous booms. Its the margin or debt that will be the BIG issue. The fall out from trying to deal with it is going to be much more severe.
CA simply has no way to reasonably service its debt without MASSIVE changes. MASSIVE CHANGES.
In the end it was simply a ponzi scheme. We kept letting people borrow money they couldn't afford to pay back forcing the price of real estate up to higher and higher prices. Each time a transaction was made, money spread around to the sales people, mortgage companies, banks, government, retail stores ect..... Property taxes exploded.
Now that money is gone forever.....but the debt remains....a HUGE amont of debt....more than ever before in CA history.
There is little doubt at this point that dealing with this will be difficult.....very difficult. Now the question will be to what extent will sacrifices be imposed between the residents and financial system?
You simply can't tax your people more....the incomes for many is gone. Same with business. The leaves budget cuts...and the dollars are HUGE.
Clearly the fireworks are about to begin....and it will not just be CA.