Thursday, December 31, 2009

RNC Questionnaire Mailed to Me



I received this survey from the RNC recently asking me to fill it out so that they can get more evidence to set strategy and show Republican Congressmembers that Obama's policies aren't popular. Humm, the survey seems very biased to me, the questions are loaded--what kind of proof will this survey provide?

And lo and behold, after the questionnaire ends, there is a contribution form for you to send money. This is the first mailing I've ever received from the RNC or any political party. The cynic in me thinks the survey was just to fire people up over controversial topics and remind them of what is going on in Washington today. When they finish, the contribution form is right there so that they can "do something". What do you think?

Wednesday, December 30, 2009

2009 Year End Real Estate Charts






Here are some useful charts as we end the year.

Los Angeles Real Estate Prices Based on Traffic Flow

As we end 2009, it seems the worst for residential real estate is over. During this year, I picked up three properties in the Oakland area and all of them seem to have gone up looking at recent sales data. With properties generating huge cash flows even with a worsening rental market, I doubt that we'll see a new low being made in Oakland. As for the rest of the nation? Who knows. In LA where I live, I see single family homes continuing to trend lower in price, the homes in various non-Westside areas like Riverside, La Puente, Silverlake and so forth need to return to their pre-bubble prices of around $250,000-$450,000 depending on their proximity to Downtown LA.

In LA, it's all about traffic. Traffic is horrible going west in the mornings and east in the afternoons, north and south are horrible all day long. Downtown is the center of the freeway system where all traffic merges into a few lanes ill suited to today's traffic flow. Downtown is also where a lot of high paying jobs are, generally the easier traffic is to and from Downtown, the more valuable the real estate will be. Those who bought homes 30-60 miles away East of Downtown have 2 hour drives each way at least, to and from work. These are the homes that have more to fall, no one wants to spend 4 hours a day in the car, and with prices getting cheaper elsewhere, hitting the magic price point of $400,000-$600,000, the starter home price in LA, real estate in Riverside will have to return to $200,000 to attract takers. Because north/south traffic is especially bad, homes that are oriented on the 5/101/110/405 interstates that seem closer to Downtown than homes to the east oriented on the 10/60 will be just as cheap. That is moving 5 miles north or south is like moving 10 miles east valuewise. The further east and north/south, the lower property values. Homes located west of Downtown are able to escape the bad traffic flow and so reflect that convenience in their prices. West Los Angeles where I live saw prices drop by only 5.5% in 2009 according to Zillow, and the average home is still at a very high $798,900 (Oct 2009 sales).

My general thoughts are that LA has more to fall. It's a rich city, but having to spend $800,000 just to live in a decent area without facing horrendous traffic to and from work is just too much. Surprisingly, it will be these areas that hold up the best as everyone considers traffic congestion to be one of the major factors when deciding where to purchase. Consider this article as a very general overview of the LA market, I was thinking about more specific predictions and so forth but that's a lot harder and more time consuming than I thought it would be. This was supposed to be just a quick 5 minute blurb, but it's been well over 45 minutes now as I have to check facts and so forth. Maybe the lesson from this post is that real estate is very location specific and generalizations are all but useless. No wonder my real estate instructor drilled into us that location, location, location are the three most important factors in real estate. Now that I have 7 properties in LA and Oakland, I fully understand why.

Monday, December 28, 2009

Uncertainty Principle of Economics

With so many people asking why economics isn't able to predict one crisis or another, I've come up with an answer.

Just as physics has its uncertainty principle that forbids absolute knowledge over a particle's position and velocity (momentum to be more correct), perhaps economics should have its own uncertainty principle that it's impossible to predict both direction of a market and the timeframe with certainty. You can predict timeframe exactly, but then have no idea of which way a market will move. You can predict that a market is overvalued and will move down with increasing accuracy, but then cannot pinpoint the timeframe at all.

Such an uncertainty principle of economics would end the questioning of why the latest bubble or market movement wasn't predicted. It's just not possible, if it were, then we won't have a bubble or movement in the first place (think what would happen if we knew housing would drop AND the exact second when the drop would occur). Remember, you heard it here first, I expect a share of the Nobel Prize should someone follow through with the calculations and a formal proposition.

Google's Internet Monopoly

A recent op-ed raises concerns over Google's near monopoly position, read on for my response.

http://www.nytimes.com/2009/12/28/opinion/28raff.html?_r=1

AS we become increasingly dependent on the Internet, we need to be increasingly concerned about how it is regulated. The Federal Communications Commission has proposed “network neutrality” rules, which would prohibit Internet service providers from discriminating against or charging premiums for certain services or applications on the Web. The commission is correct that ensuring equal access to the infrastructure of the Internet is vital, but it errs in directing its regulations only at service providers like AT&T and Comcast.

Today, search engines like Google, Yahoo and Microsoft’s new Bing have become the Internet’s gatekeepers, and the crucial role they play in directing users to Web sites means they are now as essential a component of its infrastructure as the physical network itself. The F.C.C. needs to look beyond network neutrality and include “search neutrality”: the principle that search engines should have no editorial policies other than that their results be comprehensive, impartial and based solely on relevance.

The need for search neutrality is particularly pressing because so much market power lies in the hands of one company: Google. With 71 percent of the United States search market (and 90 percent in Britain), Google’s dominance of both search and search advertising gives it overwhelming control. Google’s revenues exceeded $21 billion last year, but this pales next to the hundreds of billions of dollars of other companies’ revenues that Google controls indirectly through its search results and sponsored links.

One way that Google exploits this control is by imposing covert “penalties” that can strike legitimate and useful Web sites, removing them entirely from its search results or placing them so far down the rankings that they will in all likelihood never be found. For three years, my company’s vertical search and price-comparison site, Foundem, was effectively “disappeared” from the Internet in this way.

Another way that Google exploits its control is through preferential placement. With the introduction in 2007 of what it calls “universal search,” Google began promoting its own services at or near the top of its search results, bypassing the algorithms it uses to rank the services of others. Google now favors its own price-comparison results for product queries, its own map results for geographic queries, its own news results for topical queries, and its own YouTube results for video queries. And Google’s stated plans for universal search make it clear that this is only the beginning.

Because of its domination of the global search market and ability to penalize competitors while placing its own services at the top of its search results, Google has a virtually unassailable competitive advantage. And Google can deploy this advantage well beyond the confines of search to any service it chooses. Wherever it does so, incumbents are toppled, new entrants are suppressed and innovation is imperiled.

Google’s treatment of Foundem stifled our growth and constrained the development of our innovative search technology. The preferential placement of Google Maps helped it unseat MapQuest from its position as America’s leading online mapping service virtually overnight. The share price of TomTom, a maker of navigation systems, has fallen by some 40 percent in the weeks since the announcement of Google’s free turn-by-turn satellite navigation service. And RightMove, Britain’s leading real-estate portal, lost 10 percent of its market value this month on the mere rumor that Google planned a real-estate search service here.

Without search neutrality rules to constrain Google’s competitive advantage, we may be heading toward a bleakly uniform world of Google Everything — Google Travel, Google Finance, Google Insurance, Google Real Estate, Google Telecoms and, of course, Google Books. (more)



The reason Google has a near monopoly is because it offers relevant searches and useful services. Other search engines that started to place paid sites at the top of their queries quickly lost market share and are now all but dead. Google has always made it clear what is a paid placement and what isn't. There's a line that everyone can see separating the two and it works well. Their algorithm works well, that's the #1 reason they enjoy such a dominant position. Recently Microsoft's Bing has come up with a search that works either just as well, or nearly as well, but it's interesting that they've not been able to come up with a search that clearly works better than Google. Even so, Bing is gaining market share, though mostly at the expense of other search engines.

Google maps is far superior to Mapquest. Google maps will lead you to Google Street View, which is a great way to look around the neighborhood without having to drive there. I can only imagine the amount of money and resources it cost to photograph every single street and address from several different views and make it accessible.

In short, Google has a near monopoly because it's good, it's better than the competition, and because there are low barriers to entry, it has to keep on being good or else some other startup will take over. Only a few years ago, people were concerned that AOL and Yahoo would consolidate their monopoly positions as search/gateways to the internet. These concerns have proven to be ill-founded. If anything, AOL and Yahoo are fighting for their lives, fighting to keep relevant in a fast moving and very competitive online marketplace. I believe Yahoo finance is still the #1 finance site on the internet because it's the best. Google finance is not quite as good even though it has certain features Yahoo doesn't.

The internet is the last place government needs to worry about monopoly power and unfair competition. Government should be focusing on Ticketmaster and its monopoly of ticketing, this is an obvious monopoly that tries to inhibit competitors and offers very little yet charges outrageous fees that can be easily 50% of the ticket price. Just try and buy a bleacher ticket to a Dodger's game. $8 for the ticket, but add to that convenience fees of $3 and then mailing fees and service chargers of $2.50 and an additional $5.50 is added on a $8 ticket! How they can be allowed to merge with LiveNation is a mystery to me, where are the anti-trust regulators? Where is the Justice Department on this one? It's so obvious it's a joke.

Regulations can only work if the regulators do their jobs. That's why I'm so skeptical about new regulations and new government agencies that will supposedly cure all of our ills. If only they would start doing their jobs and uphold their current duties, I would be more willing to view regulation as a viable and even superior solution. Please do your jobs government bureaucrats! Perhaps we need a regulation that requires regulators to regulate.


Fixing Corporate America

What we need are interests of owners (shareholders) and managers to be aligned, and a mechanism for owners to enforce discipline on mangers. With alignment, fraud and taking huge risks would not happen, Enron and the housing mortgage bubble would not have happened. All government needs to do is to legally empower owners to have control over what they own.

Why have we not employed this solution yet? Because it benefits neither government nor the managers who donate money to government. There is huge opposition by managers who are able to game the current system, and government has no incentive to make the changes needed so only inferior reforms are proposed.

All the reforms so far being discussed focus on empowering the government to act on behalf of owners to discipline managers. However that solution is far inferior to giving owners direct power to discipline. With government, interests are still not aligned. Government has its own agenda, some of which do not match that of owners. Owners would trade one master for another, and with government, an even more powerful master.

Those who are truly interested in stopping the abuse and ending what John Bogle calls Manager's Capitalism, need only to increase the power and ease by which owners can set manager pay and replace bad managers. Right now managers set their own pay by stacking compensation committees with other managers, and by staggering board nominations and preventing alternative proposals from appearing on the official, company paid, voting documents sent to each and every shareholder. This sets a high bar for shareholders to organize and inform other shareholders of an alternate slate of management. It also makes it difficult to set pay, the very best that can be done is to reject a compensation proposal, but shareholders can never actually make their own proposal without using their own money to mail and inform other shareholders that such a proposal exists.

The current abuse of the corporate structure can be solved, but there has to be enough will to make the right choices, for government officials and politicians to actually want to solve the problem rather than just increasing their own power and importance. That is the high bar to jump, it won't be easy, which is why there are no proposals being seriously discussed that will actually solve what ails corporate America.

Wednesday, December 23, 2009

The Policies of Job Destruction

There's a lot of talk about creating jobs and industries, but with the same breath the pundits proscribe punitive measures that drive jobs and industries away. Government is not good at creating jobs or industries directly. Small businesses are the job creators, industries must find the investment environment attractive.

When expectations of high taxes, and a burdensome environment ensue, jobs will not be created. Look at the punitive tax increases the health care bill imposes, Congress is working overtime to find ways to get money from wherever it can. The regulatory environmental burdens seem to be at an all time high, why would anyone build industrial capacity here in the United States when cap and trade is being talked about and building any sort of factory or manufacturing plant has to go through tons of hurdles? Of course R&D is leaving, why bother to employ researchers when an additional 8-10% will have to be paid thanks to the health care bill? Those who already provide health care know that the bill will only raise health care costs at a time when they need to cut costs? Better just to move to a country without these burdens, this is why a policy of seizing wealth only drives away wealth and destroys the economy. Obama is destroying any prospect of a good recovery with his tax and destroy policies.

Now if taxpayers were getting something valuable in return for all the government spending, then that would cancel out the negatives of higher taxes. But there has been no focus whatsoever on getting value for government spending. All we see is pork and more pork, nothing that makes it easier for employees to get to work faster or for goods to be transported cheaper and quicker. Foreign nations have their negatives too. India's infrastructure is horrible, getting around Mumbai is a nightmare, and China's regulatory environment is even worse for businesses, you never know when the government might turn on you and seize everything you've invested like Russia. That investors are still looking to move to these countries shows how bad it's gotten in the United States, that the advantages the US offers is no longer enough because of all the additional burdens just imposed by Obama. Those who want job growth and capital investment here must make it worthwhile. Businessmen aren't stupid, they must be able to predict future demand and future costs. Everyone can see that the current path the government is taking is unsustainable, and everyone can see that there is no desire to cut future government spending, the budget will have to be balanced by tax increases. Knowing that, it would be foolish to invest in the United States. Not only are the Bush tax cuts going to expire soon, which means a tax increase, but there are serious discussions over a VAT tax and increasing taxes further than the expiration of Bush's cuts will impose. Again, people must think from the prospective of an investor, why should he invest in the United States when there are better opportunities elsewhere? Anger simply makes no difference to the investor, you can be as angry as you want, I'll just take my money where people are happy to see me and my wealth.

Sunday, December 20, 2009

Conservatives and Liberals United Against Health Care Bill Madness

It's incredible that this piece of crap can be passed with everyone against it. Conservatives and liberals both hate it, but somehow it's going through? I don't think it's too late to mount effective opposition, it's time to call the Senators that were on the fence and encourage them to switch over to a no vote. Then the House members, only one Senator has to switch and less than 10 Representatives.

Democrats need to oppose this bill and make sure it never passes. Everyone is in agreement that this is a piece of crap and will fail spectacularly. Once it fails, Democrats will get all the blame, they're the ones who crafted it, who passed it, who control all the levers of government, the backlash will be enormous, the progressive movement will be set back ten years, just as the conservative movement was set back by the horribly incompetent policies of Bush.

You all know what will happen, there is nothing in this bill that will reduce or control costs, when Americans find out that their health care will cost more and be no better, only worse, there will be a lot of anger. We elect Democrats and this is what we get? You can expect another 1994, time for people to DO SOMETHING and voice your displeasure with Senators and Representatives, tell them that you're not in their district but this bill affects everyone in this country and so you are telling them to vote no. If they don't, you'll donate to their opponent come election time and do everything you can to make sure they are defeated. This is the only type of populism that works, the only threat that Congressmen take seriously and the only weapon the people have as powerful as the ones wielded by the large corporations and special interests that have inserted all they've wanted into this bill.

Health Care Final Senate Bill Just More Pork!

So this is what it comes down to, progress for the sake of progress. Passing a bill for the sake of a hollow victory, are you progressives sure you want what you're asking for? Going through the bill, I see nothing but giveaways and grants plus incentives and extra payments to different people and the creation of huge Trust Funds for politicians to dish out money. Oh, and the $200,000 and above tax on the rich isn't indexed to inflation!!! That means it's only a matter of time before we get bracket creep and everyone becomes subject to that tax just like with the AMT. Below are just some of the special programs and extra payments. At some point common sense has to take over and sensible people have to open their eyes and see that this bill is garbage. Blame this on the Republicans? How? This will be the end of your progressive reform, after two pork filled stimulus packages and now this crap, who will ever trust progressives again?





‘‘(1) GENERAL AMOUNTS FOR GRANTS.—For
8
the purpose of carrying out this section, in addition
9
to the amounts authorized to be appropriated under
10
subsection (d), there is authorized to be appro-
11
priated the following:
12
‘‘(A) For fiscal year 2010,
13
$2,988,821,592.
14
‘‘(B) For fiscal year 2011,
15
$3,862,107,440.
16
‘‘(C) For fiscal year 2012, $4,990,553,440.
17
‘‘(D) For fiscal year 2013,

$6,448,713,307.
19
‘‘(E) For fiscal year 2014,
20
$7,332,924,155.
21
‘‘(F) For fiscal year 2015,
22
$8,332,924,155.
23
‘‘(G) For fiscal year 2016, and each subse-
24
quent fiscal year, the amount appropriated for
1509
O:\KER\KER09924.xml [file 5 of 9] S.L.C.
the preceding fiscal year adjusted by the prod-
1
uct of—
2
‘‘(i) one plus the average percentage
3
increase in costs incurred per patient
4
served; and
5
‘‘(ii) one plus the average percentage
6
increase in the total number of patients
7
served.’’.
8




‘‘SEC. 9511. PATIENT-CENTERED OUTCOMES RESEARCH
9
TRUST FUND.
10
‘‘(a) CREATION OF TRUST FUND.—There is estab-
11
lished in the Treasury of the United States a trust fund
12
to be known as the ‘Patient-Centered Outcomes Research
13
Trust Fund’ (hereafter in this section referred to as the
14
‘PCORTF’), consisting of such amounts as may be appro-
15
priated or credited to such Trust Fund as provided in this
16
section and section 9602(b).
17
‘‘(b) TRANSFERS TO FUND.—
18
‘‘(1) APPROPRIATION.—There are hereby ap-
19
propriated to the Trust Fund the following:
20
‘‘(A) For fiscal year 2010, $10,000,000.
21
‘‘(B) For fiscal year 2011, $50,000,000.
22
‘‘(C) For fiscal year 2012, $150,000,000.
23
‘‘(D) For fiscal year 2013—
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O:\MAL\MAL09852.xml [file 6 of 9] S.L.C.
‘‘(i) an amount equivalent to the net
1
revenues received in the Treasury from the
2
fees imposed under subchapter B of chap-
3
ter 34 (relating to fees on health insurance
4
and self-insured plans) for such fiscal year;
5
and
6
‘‘(ii) $150,000,000.
7
‘‘(E) For each of fiscal years 2014, 2015,
8
2016, 2017, 2018, and 2019—
9
‘‘(i) an amount equivalent to the net
10
revenues received in the Treasury from the
11
fees imposed under subchapter B of chap-
12
ter 34 (relating to fees on health insurance
13
and self-insured plans) for such fiscal year;
14
and
15
‘‘(ii) $150,000,000.
16
The amounts appropriated under subpara-
17
graphs (A), (B), (C), (D)(ii), and (E)(ii) shall
18
be transferred from the general fund of the
19
Treasury, from funds not otherwise appro-
20
priated.
21
‘‘(2) TRUST FUND TRANSFERS.—In addition to
22
the amounts appropriated under paragraph (1),
23
there shall be credited to the PCORTF the amounts
24
1691
O:\MAL\MAL09852.xml [file 6 of 9] S.L.C.
transferred under section 1183 of the Social Secu-
1
rity Act.
2

Thursday, December 3, 2009

What's Wrong with California

What's wrong with California? I've collected a few articles that highlight the reasons why California is in such serious trouble. A couple of friends have already moved away, I'm thinking of moving myself. If you don't understand what is going on with California, the articles below will reveal the hellhole I call home.


City Journal says,

When I recently appeared on Glenn Beck’s TV show to discuss California’s dreadful fiscal situation, I mentioned that in Orange County, where I had been a columnist for the Orange County Register, the average pay and benefits package for firefighters was $175,000 per year. After the show, I heard from viewers who couldn’t believe the figure, but it’s true. Firefighters, like all public-safety officials in California, also receive a gold-plated retirement plan: a defined-benefit annual pension that offers 90 percent or more of the worker’s final year’s pay, guaranteed for the rest of his life (and the life of his spouse).

Government employees use various scams to boost their already generous benefits, which include fully paid health care and cost-of-living adjustments. The Sacramento Bee coined the term “chief’s disease,” for example, to refer to the 82 percent (in 2002) of chief’s-level employees at the California Highway Patrol who discovered a disabling injury about one year before retiring. That provides an extra year off work, with pay, and shields 50 percent of their final retirement pay from taxes. Most of these disabilities stem from back pain, knee pain, irritable bowel syndrome, and the like—not from taking bullets from bad guys. The disability numbers soared after CHP disbanded its fraud unit.


From the Sac Bee


Just days before Gov. Arnold Schwarzenegger and legislators finalized a water package, including an $11.1 billion bond issue, state Treasurer Bill Lockyer warned them not to do it.

California is already deeply in debt, Lockyer warned, has huge budget deficits and can't afford another big bond issue.

"The days of blithely heaping more and more debt burden on the general fund are over – at least they should be," Lockyer said.

The earmark-laden bond issue, the package's single most controversial element, raises an interesting question: Just how deeply in debt are our state and local governments?

The answer: No one knows for certain, since debt is scattered through myriad agencies in many forms, but well over a half-trillion dollars is a fair estimate.

Lockyer's warning pertained to the state's "general obligation debt," which currently stands at $59 billion, and there are an additional $50-plus billion in general obligation bonds that have not yet been sold. The biggest chunks of debt, however, are the unfunded obligations for pensions and health care of retired public employees.

The latest annual pension report from the state controller covers 2006, when the unfunded liability was $64 billion. But since then, state and local pension funds have lost at least $150 billion on investments, so a reasonable estimate of today's unfunded liability is $200-plus billion. A state commission, meanwhile, says the state-local liability for retiree health care is about $100 billion.

No one keeps complete data on local government general obligation debt, but it appears to be roughly the same as the state's, perhaps $50 billion, plus several billion dollars in debt incurred by local redevelopment agencies.

There are tens of billions in specialized state debt, such as veteran home loan bonds, "securitization" of tobacco lawsuit proceeds, and budget deficit bonds.

The interest that must be paid on all that state and local debt is probably an additional $100 billion, so we're already talking about well over $500 billion.


Forbes weighs in,


Right now California's economy is moribund, and the prospects for a quick turnaround are not good. Unable to pay its bills, the state is issuing IOUs; its once strong credit rating has collapsed. The state that once boasted the seventh-largest gross domestic product in the world is looking less like a celebrated global innovator and more like a fiscal basket case along the lines of Argentina or Latvia.

It took some amazing incompetence to toss this best-endowed of places down into the dustbin of history. Yet conventional wisdom views the crisis largely as a legacy of Proposition 13, which in effect capped only taxes.

This lets too many malefactors off the hook. I covered the Proposition 13 campaign for the Washington Post and examined its aftermath up close. It passed because California was running huge surpluses at the time, even as soaring property taxes were driving people from their homes.

Admittedly it was a crude instrument, but by limiting those property taxes Proposition 13 managed to save people's houses. To the surprise of many prognosticators, the state government did not go out of business. It has continued to expand faster than either its income or population. Between 2003 and 2007, spending grew 31%, compared with a 5% population increase. Today the overall tax burden as percent of state income, according to the Tax Foundation, has risen to the sixth-highest in the nation.

The media and political pundits refuse to see this gap between the state's budget and its ability to pay as an essential issue. It is. (This is not to say structural reform is not needed. I would support, for example, reforming some of the unintended ill-effects of Proposition 13 that weakened local government and left control of the budget to Sacramento.)

But the fundamental problem remains. California's economy--once wondrously diverse with aerospace, high-tech, agriculture and international trade--has run aground. Burdened by taxes and ever-growing regulation, the state is routinely rated by executives as having among the worst business climates in the nation. No surprise, then, that California's jobs engine has sputtered, and it may be heading toward 15% unemployment.

So if we are to assign blame, let's not start with the poor, old anti-tax activist Howard Jarvis (who helped pass Proposition 13 and passed away over 20 years ago), but with the bigger culprits behind California's fall. Here are five contenders:

continue reading


National Affairs writes,

It would be difficult to overstate the magnitude of California's troubles. In economic terms, the state is simply broke: issuing IOUs as payments for goods and services, begging the federal government to back state debt (a request the Obama administration denied), and watching its credit rating plummet. To address a $42 billion shortfall in February of this year, the legislature enacted a package that included the largest state tax increases in American history, leaving California with the highest sales and personal income-tax rates in the country (though Hawaii would supplant its lead in the latter category in May). When another $26 billion shortfall emerged by summer, lawmakers — chastened by the 2-1 rejection of further tax hikes in a May 19 special election — agreed on another package that featured more than $16 billion in spending reductions, including deep cuts to education, health, and social services.

That's not even the worst of it. For all of the high drama that has accompanied 2009's fiscal travails (a stunning populist backlash against high taxes, widespread public-employee protests over spending cuts), California's lawmakers let the crisis go to waste — failing to use the moment to improve the state's financial outlook. As the San Diego Union-Tribune's John Marelius noted:

[California projects] a deficit of between $7 billion and $8 billion for the next budget cycle. Plus, federal stimulus money, $5 billion of which was used to backfill education cuts this year, may not be available. And about the time the next governor takes office, $16 billion in temporary tax increases that were included in [the] February budget deal will expire.

As if that weren't apocalyptic enough, California's short-term ­financial difficulties pale in comparison to its long-term obligations. In the most recent fiscal year, the California Public Employees' Retirement System and the California State Teachers' Retirement System, the state's two largest pension plans, lost a combined total of nearly $100 ­billion — about a quarter of their value — in the market downturn. If legislators thought tackling a $60 billion deficit was trying, they are sure to love the challenge of making good on California's fixed pension obligations — which Governor Arnold Schwarzenegger has estimated are $300 billion in the red.

And fiscal troubles are just the tip of the iceberg. California's percentage of adults without at least a high-school education is the second-highest in the nation (and the fact that 72% of those without diplomas are immigrants only fuels the state's growing problem of social stratification). The Commonwealth Fund has ranked the quality of California's health care lowest of the 50 states. The state has the highest rate of criminal recidivism in the country. It has six of the ten worst cities in the country in air pollution. Los Angeles and San Francisco have some of the most congested roads in the nation, which costs the state's employers billions in lost productivity each year. The state is seriously discussing mandatory water rationing, and has in recent years experienced severe disruptions of its electricity supply. Unemployment is over 11%, and a recent survey of corporate CEOs ranked California the worst state in the country in which to do business. It is losing native-born ­citizens faster than any other state.


Finally, the New York Times offers another clue as to why California is imploding,

Still, what California does often takes on outsized significance because the state’s welfare rolls are outsized. In July, while looking for budget cuts, Mr. Schwarzenegger complained that California had 12 percent of the nation’s population but 30 percent of the people on welfare.

As elsewhere, California’s welfare rolls plummeted after the 1996 national overhaul of welfare, from 921,000 families in 1995 to 466,000 families in 2008, but they did not fall as much as in most states. In the recession, rolls have climbed and are projected to reach 557,000 families in 2010, or about 1.3 million individuals.

Parents with special hardships or the youngest babies have always been exempt from work requirements in California, but now two large groups making up one-third or more of all applicants can also opt out: single parents with a child age 1 to 2, or those with two children under 6.

Ms. Zendejas, 20, is the mother of two boys under 6. She has worked part time as a supermarket cashier, but under the old work-to-welfare rules she was supposed to spend an additional 15 hours in vocational training or searching for a more stable job, an effort that she found too hard to juggle, resulting in a financial penalty.

Now she needs to do none of that to get her check, and the penalty of more than $120 a month is ending, too. “It’s a relief,” she said.


The shit is hitting the fan. It won't be long now until the final confrontation between the various leeches who are sucking Californians dry and the taxpayers who have clearly reached their limits. After a record tax increase and already with the nation's highest sales taxes and second highest income taxes, the budget deficit will again be in the tens of billions. Stay tuned.