Fixing California's "Ghost Suburbs", One Stupid Law at a Time

The Fresno Bee reports that the California Assembly's banking committee will spend part of Monday reviewing a particularly dumb bill related to the state's four-year-old real estate meltdown. AB 935, written by San Fernando Valley Assemblyman Bob Blumenthal, will require banks to pay the state $20,000 every time they foreclose on a homeowner. This is particularly interesting to bureaucrats throughout the state, of course, who fret that they lose millions in property tax revenue whenever the paper value of these houses collapses.

The first sign that this isn't a good idea: the bill would send the banks' money to "community programs". A group lobbying for the proposal suggests that $12 billion could be funnelled to such programs within two years of the law's passage. Given the way dollars get spent on "redevelopment" in California, we'd tend to expect that this program will enable a ton of new graft without helping any actual communities. But there's also the stupidly-obvious-economics angle to consider. If you attach a large financial penalty to foreclosure, you attach that penalty to risky lending in general. Which means that neighborhoods already blighted by foreclosures will likely stay blighted, because banks will be leery of loaning money to people willing to live in them. Of course, since the parasites in Sacramento only really care about extracting as much money as possible from California's private sector, this likely won't be seen as much of a problem.