Cramer Goes to Cali, Finds a Crisis

Jim Cramer, the boo-yah yelling financial advisor of CNBC’s Mad Money, recently left Wall Street and went out to California. What he saw there was a housing market in full-blown crisis.
Touring the Inland Empire, Cramer viewed the decimation created by the current housing and mortgage meltdown: in street after street, neighborhood after neighborhood the homes sat with no buyers. The only noticeable occupants were the mosquito’s whose eggs found safe harbor in the rain-filled pools of foreclosed homes.

Across the nation the problem is spreading with homes sitting empty and their prices in a free fall. On Tuesday the S&P Case/Shiller Index- regarded as one of the most accurate national housing indicators- recorded a drop in home prices nationwide of 1.7% from the previous quarter, the largest recorded drop in the index’s 21 year history.

And it is only going to get worse, especially in California. A panel of experts are predicting a drop in home value as high as 25%, and for the market to not bottom out until well into 2009.
By the time it takes to correct itself, it is estimated that $1.7 trillion in inflated housing wealth will have evaporated and consumer spending hit hard. An average of 4 to 9 cents is lost in spending for every dollar a homes’ value declines, based on projections consumer spending will take a hit of $153 billion.

Cramer returned from his trip deeply impacted- and recalled his experience in this video. He said things that many without media platforms have said before- that the people on the east coast, including the Fed, do not understand how bad housing really is- that the housing market is in crisis.

The same Cramer I, and many others, had critiqued as representing the schism in thought between Wall Street and Main Street, was now telling his money-managing friends that they were out of touch.

And he is right.

The economy faces a crisis. Americans have grown more and more dependent on inflated housing prices, credit and other means of ‘fake’ wealth. At the same time, our national debt, balance of trade deficit and current account deficits are all reaching record highs, while the nations manufacturing base has lost an estimated 3 million jobs in the last decade.

The housing crisis that is decimating California is a troubling sign of things to come; the symptoms of the larger sickness that has seen our country moving away from genuine production into non-tradable goods.

When it is all added up- decreasing home prices, debts, rising oil costs, the plummeting dollar- the troubling reality of the American economy emerges: we are not as wealthy as we think we are.

The Fed, the President and members of Congress should take a trip out to California soon to see the devastation. Maybe as they are walking around the newly built ghost towns of housing developments, and between copious applications of mosquito repellant- they can come up with some policy to get us out of this mess.

Jim Cramer made the trip- and he came back changed.

Jim Baird is the managing editor at EconomyInCrisis.org. He is a journalist and commentator. Mr. Baird studied in the Honors Politics program at the University of Edinburgh and is a graduate of The Ohio State University where he studied political science and journalism.