Amazing story in this week's Los Angeles Business Journal, which has been beating the hell out of the Los Angeles Times in reporting on all the billionaires in L.A. who have lost vast sums — including Kirk Kerkorian, Sumner Restore, Eli Broad — or those whose companies have vanished or might get snapped up — including Angelo Mozilo (Countrywide Financial, the disastrous subprime lender) and much lesser known billionaire Steven Udvar-Hazy (International Lease Finance Corp., which reaps its dough by leasing jets to Hollywood stars and billionaires.)
Too bad for them, eh? But this week's Business Journal cover is even more riveting, showing a $200,000 drop in the median value of Los Angeles County homes in just one year. On Page 31, the paper offers up a fascinating zip code list showing a collapse almost everywhere, from Burbank's pricey view community 91504 to Studio City's leafy, 'burb-like 91604 to Silver Lake's hip but sadly density-threatened 90039.
Last year, a Weekly story by David Ferrell laid out the beginning of these troubles, with economists warning that the worst of foreclosures and home value drops were yet to come.
As Ferrell wrote, for everyone in L.A. who was mystified at how “home buyers somehow were able to afford $585,000 homes — the median, at which 50 percent of L.A. home buyers paid more and 50 percent paid less — the mystery has been solved: Buyers couldn’t actually afford the prices, but bought anyway.”
That piece was especially prescient, with Angelenos in severe trouble because they tricked themselves, buying a home with no money down, or, even worse, signing up for Fannie Mae and Freddie Mac's “liar loans” in which buyers did not have to prove their true income, and told very tall tales to get a house.
What was gripping Angelenos who, with a median household income of about $45,000, clearly could not afford a $400,000 or $800,000 house, yet bought anyway — urged on by the sleazeballs who ran Countrywide, Fannie Mae and Freddie Mac?
It's the same thing that gripped the Dutch in the famed tulip craze of 1637, when the insane speculation in tulips collapsed right after the Bubonic Plague hit, and it turned out that many of the Dutch had listed their tulip investments as a key part of their wills.
They were certain the tulip bubble could never burst. Just like the housing bubble.