Arizona’s Ailing Economy

May 20, 2008

Transcript:

Ted Simons:
Tonight on "Horizon," from mortgages to car loans to credit cards, many things are putting people in debt in this ailing economy. Part two of our economic series examines the credit crunch. Plus, how is the economy affecting Arizona's job market? We'll talk about employment issues. Also tonight a story of a family's hope for achieving the American Dream. It's told in the documentary, "Dream in Doubt." Those stories next, on "Horizon."

Announcer:
"Horizon" is made possible by contributions from the "Friends of Eight," members of your Arizona PBS station. Thank you.

Ted Simons:
Good evening, and welcome to "Horizon." I'm Ted Simons. When interest rates rise and fall on mortgages, credit cards and auto loans, how does the impact ripple through the economy? To delinquent payments from borrowers and tightening loan terms by lenders, affect the overall financial markets and all consumers in some way? We'll examine that as we continue our series on "Arizona's ailing economy." Joining me now is Dr. Tony Sanders, ASU Professor of Finance and Real Estate for the W.P. Carey School of Business. Tony, good to see you again, thanks for joining us.

Anthony Sanders:
Thank you very much for having me.

Ted Simons:
How much trouble are people getting into right now with debt?

Anthony Sanders:
Well, this is the big problem that's hitting not only Arizona but the rest of the United States. We have people that went out and bought the house of their dreams, they took out home equity loans on top of it, which are like credit cards. They have credit cards and then they buy a big car. The problem is they eventually get to the point where they get tapped out on their availability of credit and consumer spending goes downhill.

Ted Simons:
The mortgage crisis, how much is this kind of the umbrella over all of this?

Anthony Sanders:
It's interesting. The mortgage crisis is very important in this, particularly as we've heard the sub prime. But sub prime, over 50% of those loans were not only the loan itself, but the home equity loans stacked on top of it, or what we call piggybacks. So people just went out and borrowed way too much money and can't pay them off.

Ted Simons:
Interest rates rising; falling…how does that ripple through the economy?

Anthony Sanders:
As interest rates rise, of course, most of these mortgages are adjustable rate mortgage resets. So when rates rise, the general tendency is for people then to default. What we're seeing is that even when they're keeping rates lower than expected, housing prices are dropping so much in certain areas that defaults are still spiking, despite the fed's, for example, best efforts at trying to keep rates manageable.

Ted Simons:
And defaults are spiking. It looks as though it's going to continue for a while, doesn't it? And is there a bit of a lag in delaying those reports?

Anthony Sanders:
Absolutely. What we're seeing now is, we're seeing, just in Arizona in general, we're seeing the big housing price declines occurring in certain neighborhoods, but not all over town. Scottsdale, Paradise Valley, are still strong. But if you go out to the west or go down south, we're really seeing housing prices falling much more than people would like. And it's, you know, it's tough.

Ted Simons:
We're also hearing of a lot of folks who are walking away from homes with the thinking being, it's better and economically smarter for me to go ahead and walk away from something I'm upside down in, as opposed to just hanging on to a sinking ship. What happens to someone who walks away from a home?

Anthony Sanders:
Well, the ex-baseball player José Conseco walked away from his home in L.A. I have to tell you, it's a bad idea. Here's what happens. First of all -- the mortgage giants who buy a lot of the loans have said, specifically, do not walk away from your loan. If you do, you're not going to get financing for at least five years, maybe up to 10 or 15. It's going to destroy your credit and you will not have access to loans. That is the biggest problem from walking away.

Ted Simons:
Are these anecdotes -- where someone walks away from their loan and two years later their credit is good enough to go ahead and re-apply and get re-accepted for another loan --

Anthony Sanders:
Not right now. If this is going on, we're going to see people doing that and not getting a loan. In fact, this is what's killing the sub prime market. Sub prime market is evaporated in the United States, so people now who want to "re-fi" their loan because rates went up a little bit, already embedded in their mortgage, can't "re-fi."

Ted Simons:
As far as car loans and as far as credit cards, talk more about that. I think we get so involved in the mortgage crisis, we forget that these are options, as well. And as you mentioned earlier, folks are extended everywhere.

Anthony Sanders:
One of the big problems is that our economy, particularly in Phoenix, is driven a lot by consumer purchases. The one thing we like is to have people that have more money. As the money available for consumer purchases dove, we're seeing some stores going out of business, etc., that's because people have not only tapped out their mortgages, they went heavy into credit cards, bought everything they could, went heavy into car loans or leases, which some people think aren't really car loans, but they in fact are. And so what we've seen is people have just literally tapped out and they've got nowhere to go.

Ted Simons:
Those who have acted responsibly or at least figured out their limitations or just didn't feel like moving in the past ten years or so, how are they affected by all of this going on in the periphery?

Anthony Sanders:
This is a perfect example of what we call spill-over effects, or in other words innocent victims are getting harmed. Rates are going up all over the place. Even if you have very good credit and you want to buy a big home, a jumbo, you're going to find that rates have risen up to over 150 basis points, where they used to be 30. That's a third of a percent. Now it's over 1.5% higher than standard conforming rates, so they're getting hurt. Nobody wants to fund these markets anymore. And we're seeing neighborhoods next to areas that have experienced bad news in terms of housing, they're starting to see softness. So yes, those are actually innocent victims in this market.

Ted Simons:
You have the fed chairman's ear. He's asking you, "Hey Tony! What should I do with interest rates right now?" Your answer?

Anthony Sanders:
My answer would be to raise them, believe it or not, rather than lower them. We haven't seen a lot of the spillover. Meaning that he lowers rates. That doesn't mean rates come down on mortgages. What that does, long rates are actually going up a little bit, short rates are coming down a little bit. But that doesn't necessarily mean your arm rate's better off. That's kind of an illusion. We're not seeing a lot of action there. I would say in terms of inflation, to raise rates a little bit and try to get our overall economy back on track.

Ted Simons:
Was there a touch of irresponsibility in lowering interest rates as quickly and for as long as we've seen them, so far?

Anthony Sanders:
Certainly, if we get Allan Greenspan in here, we could have a wonderful debate on, did you keep rates too low for too long. I think that's probably the general consensus amongst people that are -- the fed-watchers. We really did. We kind of overheated the housing market, and we probably could have avoided doing that.

Ted Simons:
Is that the biggest lesson we can take from all this? What are some of the other lessons with this credit crisis? To a lot of folks this is all new to them. What do we learn from all this?

Anthony Sanders:
We learned that banks, in general, are generally very good at what they do. But some financial institutions got kind of sloppy because the fees are big. In terms of loans. Not the ones sold to Fanny & Freddy. But some of these sub prime loans, the fees that the lenders make are huge. A little sloppiness got in there, and people got into mortgages they shouldn't have. We have to have a little clamping down on what's the underwriting standards that banks are employing. People are buying anything. And then somehow we have to get education to consumers on abuses of credit. People are bad at abusing themselves in terms of credit. They take out way too much, and then suddenly go, oh my gosh, I'm in trouble. Well they really need better consumer counseling to try to get them to hold off on that F-250. If you're a Ford dealer, I apologize. Really we binged on credit. Well, the federal government is binging on credit too, so they set a bad example. There's got to be much more moderation in terms of what people are doing with their credit.

Ted Simons:
Alright Tony, thanks for joining us. We appreciate it.

Anthony Sanders:
Thanks a lot.

Ted Simons:
There is help for consumers who are having trouble paying their bills. Credit advisors say to prioritize. First, pay for your living expenses, your place to live and automobile. While you don't want to harm your credit rating, unsecured credit card payments can be secondary. There's a nonprofit organization that provides assistance to people trying to figure that out. Merry Lucero reports on how people can stop being slaves to debt.

Phone Operator:
We need to pick a due date for you, a date you can have your payment here each and every month.

Merry Lucero:
This North Phoenix Call Center handles about 130,000 incoming calls a month from people in bad debt situations. Counselors from money management international and consumer credit counseling services are getting more calls primarily for one reason.

Jim Triggs:
We're seeing a lot more consumers that have housing issues that are related to their overall debt issues. In addition to that, we see a lot more consumers who are just more financially stressed. And in a position to where even a debt management program or a debt repayment program is not a viable option at this time, solely because they're in such a position that they couldn't make the payments to their creditors. But I think the main difference in the housing situation, and consumers having issues making their mortgage payments.

Merry Lucero:
That housing situation has added to the financial hardships people are in right now.

Jim Triggs:
A large contributing factor was the "bad mortgages" people got into several years ago, when the housing boom in Arizona went crazy. A house you could have bought for $150,000 is now $300,000, and the only way a person could have gotten into that home was an interest-only loan or an arm-type loan, with some sort of introductory rate that ran out at a certain point. A lot of consumers signed those notes feeling like they would re-finance in a couple of years. Once the interest rates changed, or once the introductory-interest-only payments changed, and then with the crash, if you will, of the housing market, they are in a position where they cannot refinance the home. More often than not right now people are upside down in their homes, especially if they got into a loan like that a few years ago.

Merry Lucero:
Jim Triggs says consumers who can't make their mortgage payments often call too late, and have to walk away from the home.

Jim Triggs:
Unfortunately, they don't call us soon enough. If they called sooner, we could probably help them more. But they usually aren't motivated to pick up the phone and ask for help until they're in a position where they're facing foreclosure possibly, or maybe even bankruptcy. Or generally they're just in a position where they cannot meet their living expenses and pay their credit card payments.

Merry Lucero:
Triggs advises people not to supplement their living expenses by living on credit.

Jim Triggs:
The unfortunate part is eventually it runs out. Eventually the available credit runs out, and they realize they're in a position where not only can they not pay their creditors back, but now they're not even able to meet their living expenses without using credit, which they no longer have.

Merry Lucero:
So what can you do if you are behind in payments?

Phone Operator:
We put you on a program. We don't want you to use the accounts anymore. So if you've been using them, you'll want to stop.

Merry Lucero:
You can call 1-800-308-2227 for free credit counseling and budgeting advice, and when needed, arrange a debt management program.

Jim Triggs:
The benefits are the creditors will waive or reduce interest, based on their specific policies. They will lower payments potentially, based on their specific policies. And the ultimate benefit is the program itself is geared to get you out of debt within five years, as opposed to you making minimum payments on your credit card that could last into the teens of years, depending upon your balances and your interest rates.

Merry Lucero:
There is a small fee for administering the debt management program. For help with a delinquent mortgage, or to find out about a reverse mortgage, you can call the home ownership preservation foundation number. That's 888-995-HOPE. And the biggest benefit to squaring up with creditors?

Jim Triggs:
The number one benefit is not being a slave to your debt any longer, not knowing that X amount of your income every single month is going to unsecured credit card payments where you're paying predominantly interest charges as opposed to the principle payments that you're making to the creditors.

Ted Simons:
The bottom line: people in a financial hardship have two options; reduce outgoing expenses or increase income. To do the latter they may be dealing with employment issues. How are the state and national economies affecting Arizona's job market? Joining us to talk about that, Department of Commerce Deputy Director and former Joint Legislative Budget Committee Senior Economist Kent Ennis. Kent, good to have you on the program.

Kent Ennis:
Thank you.

Ted Simons:
The numbers regarding employment, what are they telling us?

Kent Ennis:
Well, we have slowed considerably this year. In the past two or three years we were growing in the 5% range or about 125,000 jobs a year, roughly. Last year the state gained about 31,000 jobs, or about 1.2%. But this year, for the first time in more than 20 years, we think that the state may have a very slight 1/2% decline in overall jobs in calendar year 2008. I have to emphasize though that there are sectors of the economy that are continuing to do well, but the decline in jobs is concentrated in two sectors. That's construction and financial services that are both related to the housing crunch.

Ted Simons:
So those two are affected as far as negative. Are we seeing an uptick in anything, or some encouraging signs where there's something positive to report?

Kent Ennis:
Certainly. Education is growing, health services are growing. We have a very young state, an older group here that baby boomers are demanding health services. Our health care is growing. Our leisure and hospitality industries are continuing to grow, albeit slowly. But this is still a fantastic place for people from the United States and around the world to visit, so that industry is doing well. The industry we're very pleased to see, the mining industry, which was down for a number of years, is doing quite well, and we expect it to rise. Although the numbers in that sector are now down, but they're adding very high-paying jobs at the mines and other places.

Ted Simons:
That brings me to my next question regarding the jobs that we're talking about, those that are being lost, those that are being gained, are these higher-paying jobs than what we've seen come to Arizona in the past?

Kent Ennis:
The construction workers make good wages, there's no doubt about it. I think that, in terms of the health care, these are generally good-paying jobs. I think we always have the issue with the leisure and hospitality, we've said this for years, if not decades, that those are not as high-paying as we want, but they're still good jobs. And education, those are pretty well-paying jobs. I have to also emphasize that our aerospace and defense sector, which Arizona is one of the leaders in the nation, these are extremely high-paying jobs, and they are adding at this time, too.

Ted Simons:
As far as the employment slowdown though, compare and contrast this one with the times that we've seen slow growth in the past.

Kent Ennis:
We've seen so far in this slowdown, which started in 2007, is a mixed picture. In previous downturns the last one that was in the 2001 period after 9/11. And the one prior to that was all the way back in 1990. They were broad-based declines, all sectors were declining. We haven't seen that so far in this cycle. We've only seen primarily construction, the finance sector, and a little bit of slowdown in manufacturing, in the broad manufacturing sector. Some areas of manufacturing as I mentioned are doing well. It's concentrated this time in a couple of industries. It's not broad-based yet, and we don't expect it to be broad-based. We expect this to be a tough year, no doubt, but we believe that there will be a resumption of overall growth later in 2008, and we'll see positive growth in 2009.

Ted Simons:
Interesting. We're hearing a lot of anecdotal evidence regarding the employer sanctions law. People telling stories or hearing this and that. What are you seeing in terms of numbers, and employment numbers in particular, as far as an impact of this law?

Kent Ennis:
Well, we're hearing anecdotes all over the place about effects in grocery stores and some neighborhoods, about restaurants, about this and about that. I have to say, at the department of commerce, we are the official statistical agency. And we cannot see an official pattern in these statistics for the following reason. Those workers that lived in the cash economy may have never been there, if you know what I mean, and therefore under the new employer sanctions, we can't say whether they were there or not so we can't compare the difference. And let's be honest, in those instances where the employers did have paperwork but it wasn't the proper paperwork, but now there's more checks and balances in the system, they're not going to be talking about it too much. We may actually be in a situation from the official statistics where we may never be able to see what the impact of this is, and yet all around us we're hearing this and that story. We may never officially know. We have a project going on right now to try to determine what the numbers are, but it's a painstaking statistical process. It's not evident from the employer numbers.

Ted Simons:
Last question: when companies talk about relocating here or starting up business here, what are they looking at? Are they looking at low taxes? Are they looking more at amenities? Are they looking at housing prices? What are you hearing? What are you seeing along those lines?

Kent Ennis:
We believe the quality of life is one of the highest attributes that companies are looking for. An available educated workforce, which Arizona certainly has. We have so many high-tech companies that have moved here for that very reason. Things like utility costs, transportation costs; these are very high. It's said over and over that taxes are important. But from all the surveys we've looked at, and we look at a lot, taxes are important but they are by no means the most important. The quality of life, the availability of the workforce, and the cost of doing business. We're competitive in all of these areas.

Ted Simons:
All right, very good. Well Kent, thank you so much for joining us. We appreciate it.

Kent Ennis:
I appreciate it.

Ted Simons:
When the terrorist attacks occurred on September 11th, 2001, many U.S. residents from the Middle East feared retaliatory attacks. But a Sikh from India was the first in America killed in a hate crime that was aimed at terrorists. Balbir Singh Sodhi was shot while he worked in his family's Mesa convenience store. Ironically, Sodhi and his brothers came to America to avoid violence aimed at Sikhs. The story of the Sodhi family and their American dream is told in the film "Dream in Doubt." It airs tonight at 10:00 p.m. on Independent Lens on Eight TV. Mike Sauceda tells us more.

Mike Sauceda:
A crowd gathered recently in a darkened Scottsdale community college auditorium to watch the premiere of a film that centers on an event that shook the valley after 9/11. "Dream in Doubt" is a documentary about the murder of Valley resident and Sikh, Balbir Singh Sodhi. He was murdered just days after the terrorist attacks. Filmmaker Tami Yeager started making the film two years after 9/11.

Tami Yeager:
I started shooting in May of 2003. I started at that point because the trial of Frank Roque was just about to begin. I realized it had been two years since Balbir was murdered. I felt like there still hadn't been a lot of coverage in the media. I still knew through my friends that there were hate crimes happening two years after 9/11, untold story. So I reached out to the Sodhi family. When I spoke to Rana on the phone, one of the very first things that he said to me was,
"I think you should come now because my friend -- was shot last week in a hate crime. Some truckload of young men had pulled up to him when he was getting out of his semi. They had yelled to him, go back to where you came from, and shot him in the stomach. So it was at that point when I knew that we really had to make the film, there was no turning back. I want people to be inspired by the fact that their own community was very much a part of supporting the Sodhis in a way that they now feel that they can stay here. They feel like the Phoenix Valley came out in droves to support them and that was such an important part of their process. I do really hope that viewers will watch the film and feel a sense of pride about that.

Mike Sauceda:
The film was five years in the making and examines the validity of the American Dream.

Tami Yeager:
The American Dream absolutely lives. I think Rana Sodhi and his family are a testament to that. When I started the film, I really honestly had no idea that I personally would ever make a film about the American Dream or about patriotism. I was actually relatively cynical when I started the process, feeling like what's happened to our country, we've broken down, we haven't learned from our lessons in history. Here we are responding in a very volatile environment, suddenly racism is bubbling over the surface again.

Mike Sauceda:
Yeager said making the film changed her image of Arizona as a horrible place.

Tami Yeager:
Arizonans are a rich and -- let's see - I need to think about how to say that. I don't want to say redeemed, because it wasn't really -- it shouldn't have been blamed on the entire Phoenix Valley community for what happened. Although there have been a number of incidents here, and in fact they do still continue, even around the Sodhis. But what I do think is that it illustrates that these kinds of things are happening in communities across the country. What I felt like was coming to Phoenix and exposing one community meant it was symbolic and representative of what was happening in other places but we just weren't hearing about it. [applause]

Mike Sauceda:
At the event, sponsored by the local chapter of the Anti-Defamation League a panel consisting of Rana Sodhi, Balbir's brother, Yeager and former county attorney Rick Romley was able to talk to the audience after the film. Romney prosecuted Frank Roque who was found guilty of killing Sodhi.

Rick Romley:
After 9/11 I was very concerned as to the response by some individuals, and whether or not hate crimes would be a serious issue here. And when I heard of Balbir's death, I got the call, I went out to the crime scene that night. I was able to determine that it was a hate crime. I was determined at that time that a strong statement needed to be stated, that we would not tolerate this. This was not going to be acceptable in our community.

Mike Sauceda:
Rana Sodhi said he was glad that Yeager made the film, "Dream in Doubt."

Rana Sodhi:
I want to make our future more brighter. We want to educate more people to understand other peoples. Personally, I was feeling the whole of America is a melting pot with different cultures and different people from different countries. We should understand and respect each other to build a better future. When she came, I said that's a wonderful idea. Do whatever you want, I'm with you. Do what you want, I'd love to educate more people to respect each other. I don't want to see any hate crime in the future.

Mike Sauceda:
Rana Sodhi says despite the murders of brother Balbir and another brother -- he still believes the American Dream is not in doubt.

Rana Sodhi:
We believe it, I believe it, we are the best country in the world, and we keep our beauty and we keep our heaven as heaven to respect everybody.

Ted Simons:
Again, "Dream in Doubt" airs tonight at 10:00 p.m. right here on Eight TV. It's been years since we've seen inflation rates like the ones we've been experiencing recently. Prices for basic groceries and energy are skyrocketing. A local economist will discuss rising prices and what's behind them Wednesday at 7:00 on "Horizon". Thursday we will continue our series on the economy. Of course Friday, it's the "Journalist's Roundtable". Please visit our website at azpbs.org/horizon for video and transcripts of this program and an archive of previous programs. That's it for now. Thanks so much for joining us, I'm Ted Simons. You have a great evening.

In this segment:

Dr. Anthony Sanders:Professor of Finance and Real Estate, ASU W.P. Carey School of Business;Kent Ennis:Department of Commerce Deputy Director and former Joint Legislative Budget Committee Senior Economist ;