Is California becoming a "party economy"? Governor Schwarzenegger should talk to Joe Diamos.
Diamos says we're in trouble
Since our credit crunch of 2008 and the staggering wave of not just job losses but the dramatic drop in overall job creation over the last eight years, I've always believed our American economy was in trouble.
Rather than throw out a bunch of statistics, I decided to turn to someone who's in the middle of the economic storm: Joe Diamos of Diamos Funding Group in Redwood City, Ca.
Diamos' company is a law firm that specializes in representing you before the bank you have a mortgage with to get that bank to adjust your loan - called "loan modification" - so that you're better able to afford your monthly payments.
I asked Mr. Diamos how the economy was doing; I didn't get an enthusiastic answer. "It's terrible", he said. Diamos has a specific recommendation for Governor Arnold Schwarzenegger and the California Legislature.
"Get business to stay in California. We're losing business left and right to other states, Nevada, and so on. We've got to keep businesses here."
I wondered if the Governor and other politicians really understood what was going on? "I think people in general are starting to wake up now," he responded. "People are hurting all over."
Does the Gov get it?
Will a great credit score make a difference in getting a home loan? "What's killing the economy is that they've lowered the requirements so much that anyone could get credit; now we have a wave of foreclosures because people aren't working. It's so bad now, no one can get a loan. If you had an 800 credit score, on the job for 10 years, but lost your job, now the banks will not take a risk on you."
Diamos says banks are out of trillions of dollars because of the foreclosure wave and the credit crunch and says that President Obama's program to help keep Americans in their homes does not have enough money in it. "When Obama put money aside he only put in $75 billion. That's not enough to solve the problem. Everyone's down in (housing) value. One step is to raise the amount of money in the program. The banks spend $50k to foreclose. Banks are between a rock in a hard place; they spend $50,000 to foreclose or that amount to maintain the loan."
"It's a complicated issue, he said. "I think we need to have the market take its course. California's businesses are being chased away; we've got to get them back."
Diamos does not recommend buying a home; his advise is buying real estate is not the best move. "Renting is better", he says. "Give the house back. Real estate's not coming back for 20 years. We've got trillions more foreclosures coming."
Then we have "option on loans" - payment should have been $6,000, after you hit a certain point, you have to make the payment over $7,000 - that will cause another wave of foreclosures." (Option loans are such that payments are calculated to "baloon" after five or ten years because payments are recalculated. Without them, buyers could not easily afford larger, more expensive dwellings.)
Diamos continued, "Then we have commercial real estate and that's another wave of foreclosures coming. I don't think anyone knows how bad the foreclosures are going to be," he said. "We have a big hole. Hold on to your cash; cash is king."
"We do the foreclosures, we've got a line out of the door. If you're behind on the mortgage we modify your loan. I can't get you a loan if you want one, but I can fix the one you have. It's getting worse and worse and worse. The banks don't need to issue loans to make money."
So if you want to have your loan modified, call Joe Diamos. But regarding the American and California economy, we're in trouble. There's no clear idea of what's fueling economic growth because we're losing so many jobs, especially manufacturing employment opportunities.
My personal contention is that our entire system is contracting under the growing weight of the offshoring of employment and we've got to take a measure of draconian protectionism.
Our trading partners will not like it, but on the other hand they need our active economy as a place to sell their goods and services; if our economy is weak it hurts them.
The stimulus package of $780 billion is not large enough; $2 billion would be more effective and I'm not listening to cries of socialism - that' really not the point. Governments running our economic competitor nations have no problem pumping money into their economies so we shouldn't either.
Diamos is correct in stating that the key to the recovery is small business, but we need to have programs to help our businesses grow and not tax them to death as they do it.
