Nice Work If You Can Get It

Update--Sunday, August 22. See end of post in red.

In June, when the Claremont Unified School District was still negotiating with the Claremont Faculty Association, Wes Woods II had an article in the Daily Bulletin about the heated nature of the contract talks.

One interesting point that came out in Woods' article was the amount CUSD spent on the law firm that represents the district:

The school district's Los Angeles-based law firm, O'Melveny & Myers, also has been an issue for the union. Tonan said the firm spent about $149,000 in reduction in force hearings in 2008-09, while the union's firm spent about $28,000.

A union flier was shared with the media, union officials and the school district that indicated Claremont Unified's attorney Framroze M. Virjee (image nearby) was paid $765 an hour for every hour he was at the bargaining table. Virjee's law firm, O'Melveny & Myers, was paid more than $535,000 in 2008- 09 and more than $365,000 in 2009-10 by Claremont Unified.

That's right. CUSD spent $900,000 on legal expenses in the past two years. That's almost 1 percent of the district's November Measure CL bond, and you can bet that some of the money the bond generates will somehow end up compensating the district for their legal expenses.

As we're discovering, there's real profit (or cost to taxpayers) to be found in the education business, at least in consulting and contracting work. In return for those expenses, administrators and teachers alike avoid the level of sacrifice they ask property owners - the ones footing the bill - to make, and the elected school board officials get to continue to play their self-indulgent fiscal games. The trade off is that schools are more expensive to run but are in no substantial way better than they were last year or the year before that.

It's a little like the inverse of Moore's Law. CUSD's costs relative to performance are falling. Or maybe it's just a manifestation of Baumol's cost disease.

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A couple quick comments:

• Since Woods' article in late-June, CUSD and the CFA have agreed to a contract that calls for the union to accept larger class sizes in the middle and high school grads and to concede $1.58 million in health and welfare benefits over the next two fiscal years. In exchange, the union has agreed to support the November Measure CL bond with the understanding that they will get their former benefits back if the bond passes - an arrangement that allows both parties to circumvent the law requiring such school bonds to not be used for administrative or teacher salaries - at least, that's what CUSD officials have said.
  
  
• O'Melveny & Myers is a true legal heavyweight. The firm, which is the 19th largest in the world, has for partners such luminaries as former Reagan White House Counsel Arthur B. Culvahouse, Jr., and former Clinton Administration Secretary of State Warren Christopher.
  
  Claremont is more than a little familiar with O'Melveny & Myers. Former CMC trustee Louis Caldera, who served as U.S. Secretary of the Army from 1998 to 2001 and who lost his most recent White House job in 2009 after a PR flap, is an O'Melveny alumnus. And CMC retained O'Melveny to conduct an investigation into the Nazi stolen art controversy involving CMC history professor Jonathan Petropoulos a few years ago.

Update, Sunday:

Saturday's Claremont Courier touched on this issue. On page 5, The Courier describes an offer at last Thursday's School Board meeting by Marcie Gardner, a Chaparral parent, to help look for a cheaper law firm. As an aside, that ought not to be too hard.

Gardner is quoted, "One area that seems out of control within the district is legal fees, and I say that because I'm a lawyer and I have quite a bit of experience with things related to education. The hourly rate that is being paid by the district for an attorney is double and sometimes triple the going rate of what these services would cost in the open market." [emphasis added]

We also received a cryptic email from a reader on this general topic, and we can't help but read it as also casting aspersions on the ol' Insider:

The reader writes:

900,000 is a lot but how much of that 900,000 was tied to defending Tonan's personal lawsuit against the district? How much was tied to the negotiations that were dragged out to ridiculous lengths only to be settled after Tonan's lawsuit was settled? A settlement, mind you, that could have been reached 6 months ago if it were not for Tonan's conflict of interest.

There is more out there that you are ignoring. I'm wondering if it's intentional.

--Outside Claremont
We asked for additional info, and the reader was good enough to give us one specific that appeared on page 6 of the 2010-2011 Claremont Courier Almanac, sent with the paper a week or so ago (our reader refers to the personal lawsuit between the Tonan family and the district):

Settled for 75k I heard. Settlement between the union, that Tonan heads, and CUSD came immediately afterwards.

One view is the Tonan dragged this out, at great cost, until the issue with his wife was settled...

--Outside Claremont
Notice the walk-back from the main point: "One view is..." Our reader isn't even saying that's what he believes. We hold no brief for Joe Tonan or the merits of his case. The fact is, we never understood nor were given a cogent story on the Cynthia Estep-Tonan dismissal. It seemed both sides were scurrying for cover and obfuscation in that one. (to readers who don't know what we're talking about, we don't blame you. You'll have to look at back numbers of the Claremont Courier from Spring 2010 to see articles on the brouhaha accompanying Ms. Estep-Tonan's dismissal as a school nurse by CUSD.)

Anyway, the reader makes a valid point by inference. Total district legal cost equals average hourly rate times number of billed hours. Ms. Gardner says the average hourly rate is too high; our reader implies that the number of billed hours is higher than necessary.

Both are easily within the control of the School Board: Hilary LaConte, Jeff Stark, Mary Caenepeel, Beth Bingham, and Steven Llanusa. Get a less stratospheric attorney and don't get involved in labor disputes where you are having some one like good old Fram (see above) bill you north of $700 per hour and then have to write a check to your employee for $75K.

Our daddy always told us that the party that had to write the check was the party in the wrong.

State Budget Crisis: It's Baaaaack

The California state budget deficit continues to grow, this just six weeks after state legislators and Governor Arnold Schwarzenegger papered over a $15 billion deficit with a thrown-together, gimmicky budget that was nearly 3 months overdue.

Claremont and other California local governments dodged several fiscal bullets when state leaders declined to pull local funding from such things as state transportation bonds.

Now comes the news that the state is looking at another huge deficit. The Sacramento Bee reports:

California faces a massive $11.2 billion deficit this fiscal year, even higher than projected in recent weeks, Senate President Pro Tem Don Perata said Wednesday.

Without immediate intervention, the nightmare could lead to an additional $13 billion hole in the 2009-10 fiscal year, according to Perata, citing numbers he said came from the Governor's Office.

The Oakland Democrat said the gap is so severe that it cannot be bridged by spending cuts alone. He suggested Wednesday that the state increase its vehicle license fee and tax oil extraction in California.

The LA Times has an article today detailing the steps that Governor Schwarzenegger is contemplating to close the deficit. These measures include a 1.5% sale tax hike, which, together with the recently passed half-cent LA County MTA sales tax hike, would mean that purchases in LA County would be subject to a 10.25% tax rate.

Schwarzenegger is also talking about taxing oil extraction in the state as well as a number of other services.

In addition to the tax hikes, Schwarzenegger is also proposing spending cuts, including a possible $2.5 billion from education. He also wants to furlough state employees one day a month and may cut two paid holidays. The governor sent a letter to all California government workers notifying them of the possible cuts.

The Bee's State Worker blog has the letter posted. It begins, "Dear Valued State Worker":

Click on images to enlarge

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Calling All Telecoms

If you like cellular towers, get ready for more.

The Claremont City Council last night approved a streamlined process for getting the beasts installed. They're much nicer now than they were 10 years ago, so you may see them masquerading as trees or even barns.

The wireless industry pays cities well for the use of parks and other public places to set their towers, and with our town's habit of spending like a drunken sailor, even with the current economic climate, an ever-shrinking municipal General Fund reserve, and a now-deferred $15.2 billion state deficit waiting to raise its ugly head in a year, Claremont is seeking out every available revenue stream possible.

Desperate times require desperate measures. Or, a cell-tower in every park.

PFF Shareholder Meeting Set for September

The Daily Bulletin's Matt Wrye reports that PFF Bancorp has set a date for its shareholder meeting to vote on the proposed merger of PFF and FBOC Corp., which also owns Cal National Bank.

Wrye's article, also posted on his blog The Bizz, had the info on the next month's meeting:

PFF Bancorp, the financial parent of PFF Bank & Trust, announced on Wednesday that its shareholder meeting will be held on Sept. 25 at 9:30 a.m. at the company's headquarters on 9337 Milliken Ave.

Votes will be tallied for the proposed merger between PFF and FBOP Corp., an Illinois-based company which owns several banks throughout the country.

If shareholders approve the acquisition, PFF banks will become Cal National Bank institutions.

With its common stock -- along with special series shares that PFF issued to FBOP through an agreement -- FBOP controls 28 percent voting power and will vote "yes" on the merger.

Collectively, PFF's board members and certain executive officers hold almost 3 percent voting power and will also vote "yes" on the merger.

Odds are that the merger will be approved, putting an end 116-year-old PFF as an independent institution. A shareholder class-action suit was settled recently, but PFF still faces a suit by employees who participated in the company's 401(k) and stock-option program and who are claiming to have lost millions of dollars it when the stock went belly-up.

PFF Faces 2nd Lawsuit

Rancho Cucamonga-based PFF Bank settled its shareholder lawsuit last week, potentially easing the way for its planned merger with FBOC, Inc., an Illinois banking concern.

As an article by the Daily Bulletin's Matt Wrye reported, the suit had alleged that PFF executives got rid of their company stock at a time when they knew they faced big losses from problem loans to builders and developers.

Wrye also informs us that PFF workers and retires have filed their own class action suit against the company:

Meanwhile, Pittsburgh- based Stember, Feinstein, Doyle & Payne - in conjunction with an Agoura Hills firm - filed a class-action suit against PFF and executives on Tuesday seeking to recover $80 million for 900 employees and retirees.

It says executives invested workers' 401(k) and stock plans into PFF shares while knowing the company wasn't "accurately recording its financial condition on its books" and disclosing its true condition to the public.

"They knew the company was headed for trouble," said Steven Pincus, attorney at the Pittsburgh law firm.

More lawsuits could be on their way. If those plaintiffs win, it would deliver a devastating blow to a bank already being watched by federal regulators because of liquidity issues.

Wrye's piece also reminds us of how poorly PFF has performed. According to the article, the company has suffered over $240 million in combined losses in the past three quarters and customers have withdrawn $600 million in assets between March and June this year.

As we previously noted, some of the PFF board fared well with stock options before the bank's fall from grace, to the tune of many hundreds of thousands of dollars in profit from stock sales.

PFF Bancorp Now Traded OTC

As of last Friday's close of the New York Stock Exchange, PFF Bancorp is no longer traded on the NYSE.

Shares of PFF, formerly listed as PFB on the NYSE, is now traded on the Over the Counter Bulletin Board, as the Riverside Press-Enterprise reported. PFF will now trade on the OTCBB under the symbol PFFB.

According to the PE article, the move to the OTCBB has no effect on PFF's sale to FBOC Corp., the Illinois-based banking company that is attempting to take over the troubled local bank. FBOC also owns Cal National Bank, whose operations will merge with PFF's.

PFF Bancorp has a redesigned website trumpeting the sale to FBOC with the slogan, "the Best is yet to come..." We can only hope.

PFF's stock price has tumbled precipitously in the couple years, from a high near $40 a share to $1.05 as of Friday's NYSE close. So, just in case, apparently to inspire depositor confidence, the new PFF site also has a link to "A Comprehensive Guide to FDIC Insurance."

At least a lucky few were fortunate enough to escape the wreckage with their own, special insurance.

Trickle Down

The top stories yesterday seemed to be of the financial sort. The Federal Reserve and U.S. Treasury stepped in to help shore up mortgage lenders Fannie Mae and Freddie Mac, which together either directly hold or supply the backing for $5.3 trillion in mortgages.

And then there was the Federal Deposit Insurance Corp.'s takeover of Pasadena-based IndyMac Bank. A run on the bank by IndyMac depositors left the institution so cash-poor that it triggered the FDIC action last week.

With over $32 billion in assets, IndyMac represents the second-largest U.S. bank closure since 1934. The lines of rattled depositors queued up outside IndyMac branches yesterday seemed more like images from the Great Depression than contemporary America. The Daily Bulletin has an article covering the story from a local angle:

La Verne residents Bill and Nancy Armstrong arrived at the Foothill Boulevard branch an hour before the bank opened and got in a line that was 100 people long.

The elderly couple has their life savings in their neighborhood bank, including assets from inherited property.

Nancy Armstrong said she remembers the stories of her parents going through the Depression.

"Once you live through that, you learn to be frugal," she said. "Now here we are."

David Barr, an FDIC spokesman, said customers will be informed about how their accounts are structured and may be eligible to recoup dollar-for-dollar beyond the $100,000 limit.

If deposits aren't fully insured, customers will receive a receivership certificate and told about the process to possibly recoup more of their money.

More bank trouble is on the way, all courtesy of the mortgage meltdown. The FDIC lists 90 banks as troubled, and more failures are on the horizon. None of this bodes well for Rancho Cucamonga-based PFF Bancorp, whose shares closed yesterday at $ .80 per share, down from nearly $40 two years ago. PFF is awaiting shareholder approval of a sale to FBOC Corp., an Illinois banking concern that owns California National Bank. The sale may also be affected by a pending shareholder suit.

The Bulletin's Matt Wrye also had an article about the PFF sale, which noted that top PFF officials should get by just fine after the buyout, thank you:

If the acquisition is approved, PFF's president and CEO, Kevin McCarthy, and its chief financial officer, Greg Talbott, would each receive more than $2 million if they quit their jobs or are fired within 90 days of the merger. McCarthy already has said he will leave the company after the transition.

These employment agreements were inked in September, according to SEC documents, and they're on top of another $4 million other executives would get under the same rules.

"There are shareholders interested in stopping the sale," said Walter Hackett, who during the housing boom was a vice president and commercial note department manager.

He's also a witness for a group of shareholders building its case against PFF.

"I had to remind them that I didn't work for them, that I worked for PFF shareholders," Hackett said about certain PFF executives he worked with. "Ultimately, that's why I left."

Most analysts seem to think the current crisis of confidence will be less severe than the Savings and Loan bailout of the 1980's, which ended up costing Joe and Jane Taxpayer nearly $125 billion. As with every preceding financial crisis, we'll just have to ride this one out. That's the price of being a debtor nation when the bill comes due.

In the meantime, the effects of the current troubles continue to trickle down to the local level. Faced with tightened credit, rising food and energy costs, and a general uncertainly, consumers are reining in spending, which means lower sales tax revenue to cities like Claremont that are dependent on that income source.

It was telling at last week's city council meeting to hear councilmembers comment that Claremont cannot really afford $500,000 from the General Fund for a one of the proposed plan to mitigate tree root damage along Shenandoah Dr. near The Claremont Club. Cost was not the main reason councilmembers cited for opting for one of the other less expensive choices, but it was nonetheless a concern.

Time will tell if the Big Project mentality that has dominated our city government in recent years will give way to fiscal restraint as we wait for this storm to pass. There is an city election next year, and Claremont Mayor Ellen Taylor has hitched her wagon to a number of big ticket items: Police station - $25-30 million; Padua Ave. Sports Park - $10-12 million; water company takeover - $100 million-plus; affordable housing project - unknown costs.

We get to see in coming months whether politics trumps reason.

Accounting for PFF's Fall

Daily Bulletin reader Dwight Siebert of Claremont has a letter in today's paper commenting on the collapse of PFF Bancorp. Siebert, who says he had a PFF account 50 years ago as a paperboy, writes that PFF, which survived two world wars and the Great Depression may need some lessons in accountability:

Now PFF board member Jil Stark is quoted in the Daily Bulletin (June 16, 2008) saying she never thought the bank would be in such dire straits where a buyout was the only viable option.

Sounds to me like the rest of the board wasn't thinking, either.

As we wrote last week, PFF and its board have been sued by a shareholder who is seeking class-action status for PFF shareholders claiming the PFF board breached its fiduciary duties by failing to adequately manage the bank's crisis.

Stark and the PFF board may be learning that the Claremont way of handling crises - ignoring them when they're developing and denying responsibility after the fact - won't work in this case.

Penny Stock News

PFF Bancorp has certainly fallen on hard times, selling itself off at a fire sale price of $1.35 a share a few short years after trading at almost $40 a share. Correction: maybe selling itself off....

Now, PFF is making headlines in Europe as an example of the excesses of the housing bubble here. The Financial Times had an article about the pounding small banks have taken, and they led off with PFF:

When PFF Bancorp, Southern California's oldest bank, was sold for the fire-sale price of $30.5m this month, it was buckling under the weight of soured loans to real estate developers and its stock had plunged more than 95 per cent from its 2006 peak.

Like many small regional and community banks, PFF increased its loan portfolio over the past decade - doubling it to more than $4bn - in large part by financing commercial and residential developers and homebuilders during the house price boom. Now, as these companies struggle through the housing slump, lenders such as PFF are feeling the pinch.

Banks' first-quarter losses on such real estate loans were more than 15 times the amount of the same quarter last year, according to the Federal Deposit Insurance Corporation.

PFF Bancorp, which trades as PFB on the New York Stock Exchange, closed yesterday at $1.08 a share.

Class Action Suit Sought Against PFF Board

Former Claremont McKenna College official Jil Stark and the rest of the PFF Bancorp board of directors are being sued for selling the Rancho Cucamonga-based company in what amounts to a fire sale price of $1.35 per share. That deal, which would allow FBOP Corp., to takeover troubled PFF, is awaiting approval by the Securities and Exchange Commission and PFF shareholders.

According to the Riverside Press-Enterprise, the lawsuit was filed earlier this month by a shareholder upset with the sale:

The lawsuit was filed June 18 in Los Angeles Superior Court by attorneys for plaintiff Menachem Maiman. It alleges PFF officials "breached their fiduciary responsibilities to maximize" shareholder value, failed to engage in an orderly sale of the company, and agreed to sell at a price that is "grossly unfair."

The suit notes PFF stock had once traded as high as $30 in July 2007. As recently as April 30, it closed at $3.78 per share. On the day the merger was announced, the closing price was $1.25.

The suit asks the court to stop the merger, or rescind it if a court judgment is not rendered until after the merger is completed. It also asks that the defendants account to plaintiffs for all damages caused to them, and account for all profits and "any special benefits' obtained by defendants in the planning of the merger.

Joseph Levi, the attorney handling the suit for the plaintiff, is seeking to have the case certified as a class-action suit. PFF officials kept characteristically silent on the matter.

You can read the complaint on Attorney Levi's website. One of the interesting points it makes is that at a time when PFF's most immediate concern should have been a $44 million debt obligation that was coming due, the PFF board wasted valuable time trying to generate $460 million in cash through a stock offering that seemed to have very little likelihood of working out. In the meantime, the loan payment was coming due, and the PFF board was forced to hold their fire sale rather than conduct what the plaintiff's filing called "an orderly sale." According to the lawsuit, the $460 million the PFF board was chasing "far exceeded its historical equity."

Great leadership shows its strengths in times of crisis, no? This certainly seems to support what PFF employee Virginia Soper was saying back in May when PFF stock was still trading above $1.50 per share. If the FBOP takeover is allowed to go through, the PFF name will cease to exist after 116 years.

Imagine a financial institution surviving the Great Depression and then succumbing to this latest turn of events. That's a truly remarkable mismanagerial acheivement. An Inland Empire all-timer even.

PFF Bancorp shareholders can get more information about the lawsuit here.

(Click on Image to Enlarge)

Money Matters

PFF BY THE NUMBERS

Daily Bulletin business reporter Matt Wrye has a post about PFF Bancorp on the Bulletin's blog The Bizz.

Wrye says the numbers underlying the collapse of PFF's stock (PFB:NYSE) are, to say the least, sobering:

The Rancho Cucamonga-based financial holding company released some mind-boggling data on Thursday morning in its 186-page annual 10-K financial report, and the numbers aren't surprising.

For starters, customers collectively pulled out almost $520 million in deposits between March 31 and June 13. That's about 16 percent of the bank's total deposits reported for the fiscal year ending March 31.

Over the same fiscal year, PFF's debtors couldn't pay back 468 loans worth $955 million, and about $608 million of this shows "weakness in the underlying collateral or borrower strength."

PFF announced last week that it had worked out an agreement to allow Illinois-based FBOP Corp. to takeover PFF. That sale will have to go to PFF shareholders for approval.

The Press-Enterprise reported that PFF has no alternatives to the takeover because its cash reserves have fallen precariously low. The Press-Enterprise article actually described the withdrawals by PFF customers as a "run on the bank":

Because of bad home loans, the bank lost $225.4 million in its fiscal year that ended March 31, according to filings.

Since that time, a run on the bank by customers pulling out their deposits put PFF in position where it had no cash flow and no means to pay off its debts.

PFF's auditors, KPMG LLP, wrote in the Thursday filing that the company wouldn't be able to pay off its debts without being sold.

SAY NO MORE

The Bulletin's Will Bigham has an article about the budget Claremont's city staff is presenting to the City Council for the next two-year budget cycle.

Bigham reports that city sales tax revenues are off $1.7 million from the $5.8 million staff had previously estimated for the current fiscal year which ends June 30th. Staff is claiming that property tax revenue will be up, however, and the city has also seen an increase in revenue from the transient-occupancy tax money it receives thanks to the new Hotel Casa 425 and the spruced-up Doubletree Hotel.

City staff has trimmed the city's operating budget slightly, according to the article. The current fiscal year's operating budget was $38.4 million. That drops off to $37.5 million for FY2008-09 and $38 million for FY2009-10.

The article did not indicate how the belt-tightening would affect any large-scale projects, such as a new police station or a new affordable housing project.

Claremont staff reports that they did not have to lay off any employees and they achieve the budget cuts by not replacing employees who leave, other than a few key positions, as you will read below.

People visiting Claremont should also take note that the city is counting on another revenue stream for money. Call it a highway end-user tax:

The city is also estimating that money collected from traffic fines and parking citations will balloon in the next two years.

Parking citations are expected to rise from $110,000 in this fiscal year to $200,000 in each of the next two years. Traffic fines are expected to rise from $325,000 annually to $405,000 annually.

Police Capt. Gary Jenkins said the increases are expected mainly because vacancies have been filled at the department for traffic and parking enforcement.

There's no effort at all to go out and do more traffic enforcement with the intent of gaining revenue," Jenkins said. "It's more an issue of proper staffing, and these are the revenues we're projecting because of proper staffing."

Right.

Claremont would never institute speed traps or traffic citation quotas, nudge nudge, wink wink.

PFF Agrees to Buyout

The Los Angeles Times reported today that PFF Bancorp, parent company to PFF Bank & Trust, has agreed to be acquired by FBOP, Inc, an Illinois-based banking concern and parent company to California National Bank.

The Times article focused on the problems facing local community banks, problems directly tied to construction loans and the housing market crash:

Southern California's oldest bank, PFF -- formerly Pomona First Federal -- had doubled its loan portfolio to $4 billion over the last decade, in large part by financing residential developers and builders of affordable housing in the Inland Empire.

But the bank's losses on such lending has soared, sending the stock price of its parent company, PFF Bancorp, down 90% this year. Desperate for fresh capital, the company agreed Monday to be acquired for $30.5 million in cash.

Home-mortgage specialists may have been the first lenders to suffer for their roles in financing the housing bubble. But, as foreclosures rise and home prices fall, many smaller banks and thrifts that backed residential developers and home builders are watching black ink turn red and are spending uncomfortable amounts of time with regulators. The financial institutions also are enduring jabs from critics who say they tossed lending standards out the window.

PFF Chief Executive Kevin McCarthy said in an interview that his bank started pulling back on land loans two years ago, anticipating a downturn like "the normal economic cycles we've always had out here."

"But nobody foresaw what would happen to the housing market, or that sub-prime mortgages would collapse so completely," he said. As for the sale to Oak Park, Ill.-based FBOP Corp., parent company of community banks including California National Bank, McCarthy said it was a hard but necessary choice: "I'm doing this to keep as many employees on the job as I can."

Community banks embraced commercial lending in recent years, largely ceding home loans, credit cards and other mass-market products to big national players.

Residential construction loans, which generate big fees, were especially profitable for smaller banks -- until housing collapsed in places like the Inland Empire, where prices are down more than 30% from their highs, and the Central Valley, where some former boom markets are off more than 40%. Raw land on which Ontario-based Empire Land installed roads, sewers and utilities, expecting to then sell it to builders, has declined even more.

The Daily Bulletin's Matt Wrye also reported on PFF and said the takeover deal is pending shareholder approval. The article painted a dire picture for PFF:

"I don't think shareholders have a whole lot of options," said Joseph Gladue, banking analyst with Los Angeles-based B. Riley & Company, Inc., about whether shareholders will approve the deal. "They're sort of between a rock and a hard spot. If the company falls under `adequately capitalized,' the (federal) regulators will come in and put some severe restrictions on it."

PFF reported millions of dollars in loan losses over its last two quarters because housing developers stung by the subprime mortgage meltdown can't repay PFF what they borrowed.

Monday marked the bank's deadline to pay off a $44 million overdue loan from an undisclosed lender, but the bank, once again, couldn't make deadline. It's been pushed off until June 16 of next year.

PFF's losses for the quarter ending March 31 are also a lot higher than expected: $204 million.

Claremonter Jil Stark, who has been on the PFF Board of Directors since 1975, is also quoted in the article. When PFF stock (PFB: NYSE) was flying high not all that long ago, Stark made about $417,000 from her stock options.

Mortgage Scams on the Rise

In other, non-Alvarezian crime news, we're finding that economic hard times bring out the worst in people:

An 87-year-old Claremont woman as swindled out of her $800,000 home by a self-ordained minister named Leroy Dowd. Dowd, who formerly ran the Los Angeles-based Triumph Church of God, offered to help the victim with her Social Security and Medicare benefits if she signed her house over to him.

Then, working with two accomplices, Dowd sold the house and made an estimated $775,000 in the process. An article by KNBC-TV described how the scam worked:

POMONA, Calif. - A 71-year-old self-ordained minister is expected to be arraigned Wednesday on charges alleging he duped an 87-year-old Claremont woman into signing over the grant deed to her home. The accused, Leroy Dowd, operated the now-defunct Triumph Church of God in Los Angeles. His arraignment has been delayed for medical reasons, but he is expected to appear in Pomona Superior Court today.

Dowd met the woman through church in December 2006, and allegedly told her he could secure widow's benefits for Medicare and Social Security if she signed over the grant deed to her $800,000 home -- which was paid in full, according to the District Attorney's Office.

Dowd sold the home eight days later to Bessie Mae Moore, who allegedly posed as a straw buyer for the home and obtained financing through Alexander Trevino, who worked as a loan officer at a Glendale mortgage business and is accused of falsifying the financial information on Moore's loan application.

With the economy hurting, we're likely expect to see a rise in these sorts of scams. Just last March, the San Bernardino County District Attorney's office filed a case against another a group based in the San Fernando Valley accused of forging signatures on loan documents, sometimes with very high, undisclosed fees and sometimes without the homeowners' full knowledge.

In the same case, California Attorney General Jerry Brown's office froze the mortgage broker's assets and filed a civil action seeking $20 million in fines and restitution against the company.

A 3/19/08 LA Times article reported on the details of the criminal and civil actions against the group:

California authorities said today they cracked a mortgage fraud ring that allegedly victimized thousands of Californians, some of them elderly and some who lost their homes.

The San Bernardino County district attorney’s office this morning arrested five people and were waiting for two more to surrender to face charges of conspiracy, grand theft and elder abuse as part of a crackdown on alleged sub-prime mortgage lending scams with the California Department of Justice.

A related lawsuit filed in Los Angeles County Superior Court accuses six companies of using predatory lending practices to trap homeowners in illegal and expensive loans.

As the mortgage crisis worsens, a growing number of fly-by-night companies are employing utterly brazen tactics to push homeowners into illegal and unconscionable loans,” Atty. Gen. Jerry Brown said. “The illegal sales practices of these companies … included psychological pressure, forgery and outright lies.”

The companies, which did business throughout Southern California, used bait-and-switch tactics to take advantage of thousands of consumers, costing many of them their homes, Brown said.

Economy in Recession, Buffett Says

San Bernardino business writer Matt Wrye has a blog called The Bizz where he writes about Inland Empire business issues.

Wrye had a post yesterday about billionaire investor Warren Buffet comments that the U.S. economy is in recession. Buffett also said that the recession is going to be longer and deeper than people are expecting right now.

So, with California already facing a projected budget deficit of over $15 billion, and cities across the state, including Claremont, having similar budget problems, elected officials are having to deal with a sea of red with no prospect for relief in the immediate future.

At the state level, Governor Arnold Schwarzenegger is proposing to borrow against California Lottery revenues while simultaneously cutting back on health and social services. Here in Claremont, the Claremont City Council and its various commissions and committees continues to spend like drunken sailors as City Manager Jeff Parker wrestles with a possible loss of $3.5 million or more in sales tax and state money. Claremont receives approximately 57% of its sales tax revenue from the Claremont Auto Center, whose sales are down because of the rise in gas prices and the downturn in the economy.

And other local businesses are suffering as well. PFF Bancorp (NYSE: PFB) has continued to plummet in value, going from a peak market capitalization of over $900 million to $30.31 million as of Friday's market close. PFF's fall has been tied to the housing market's problems and to loans made to home builders.

If Warren Buffett is correct, then we all have some more belt-tightening to do before things improve.

CMC Dean Hess in Today's LA Times

Claremont McKenna College's Dean of Faculty, Gregory D. Hess, was quoted as an economics expert in a front-page article in today's Los Angeles Times. The article is about the roiling financial markets and the Federal Reserve's facilitating the sale of investment bank Bear Stearns to JPMorgan Chase & Co.

Hess, the article reported, is a former Federal Reserve economist. He appears to be of the mind that any intervention by the Fed in our financial markets is likely to be limited:

Critics argue that the Fed's freedom of action is limited by the size of its portfolio of Treasury securities, which is essentially the only financial instrument that federal law allows it to buy outright. At $709 billion as of Thursday, the portfolio is hardly chump change.

But it is dwarfed by the size of the country's financial markets.

"The Fed has enormous resources, but they are not infinite," said Gregory Hess, a former Fed economist and the dean of the faculty at Claremont McKenna College.

Hess, in his role of dean of faculty at CMC, was also involved in reviewing the Jonathan Petropoulous matter, as we noted yesterday.