Bailing Out California--How Will The Nation React?
While the stunned nation watches, LA burns. In the background, the smart financial people have been murmuring about California’s insurance crisis. Many major insurers have been cutting back their exposure in California or even pulling out of the state, due to the onerous state regulations. It’s difficult for most of us to feel sorry for insurance companies, but they do provide a necessary service. Last night in a comment I quoted Scott Adams’ ruminations on what could be coming for the LA area in terms of rebuilding:
1. It can take years to get anything approved in normal times in California. The backlog from the fire could push it out a decade.
2. The cost of building a custom home in California is roughly double the market value of the home when done.
3. The new home will get a property tax step-up to become unaffordable for anyone who owned the original home for a decade or more.
4. The fire risk will return once everything regrows, and insurance companies will not come back. Here I assume continued state incompetence.
5. There are not enough qualified builders to rebuild.
6. Owners would be rebuilding in the midst of unchecked and growing crime.
As one tweeter noted, there are still empty lots in the Oakland Hills, 30 years after that disaster.
Put these two factors together, based on this article:
Speaking only of the affluent regions that have been devastated—which are not the only areas hit by wild fires—we read:
State Farm non-renewed approximately 1,600 policies in the region in 2024, of approximately 30,000 homeowners and 42,000 apartment policies it dropped statewide, citing rising costs and risks.
“This decision was not made lightly and only after careful analysis of State Farm General’s financial health, which continues to be impacted by inflation, catastrophe exposure, reinsurance costs, and the limitations of working within decades-old insurance regulations,” the company said in a statement.
The initial state response to the fires?
Ricardo Lara, commissioner of the state’s Department of Insurance, issued a one-year moratorium on Jan. 10, preventing non-renewals and cancellations for households in and adjacent to the fire sites.
Correct me if I’m wrong, but that suggests to me a sharply increased incentive for insurers to pull out entirely, beginning in the “non-adjacent” areas. This will only make the insurance crisis worse. That’s exactly the crisis that the rest of the article goes into, noting up front that
Supervisors in counties from across the state passed resolutions last year calling for a state of emergency due to a lack of affordable insurance.
“At this point, it’s not an exaggeration to say the state’s facing an insurance crisis of both affordability and availability,” Ray Mueller, San Mateo County supervisor, said during a board meeting on Oct. 8.
Seven of the 12 largest insurers, including State Farm which represents about 10 percent of the market share, according to Department of Insurance data, paused writing new policies since 2023.
A lack of availability has left many Californians with only one option, the so-called FAIR plan—an insurer of last resort financially backed by insurance companies.
In the event the plan goes insolvent, insurers are on the hook to cover the losses, with each company paying out based on market share—thus incentivizing limiting liability by reducing exposure, analysts said.
At last check, FAIR had about $300M in reserves—LOL!
Some are actually proposing—gasp!—deregulation of the insurance industry. But think about that concept for just a moment. Doesn’t it presuppose responsible government—as opposed to the governing system Californians have foisted upon themselves for the past several decades? How likely is it that Californians—and especially the political class—will actually awake from their deep ideological dream state and get in touch with reality? I would never count on that. When the citizens of a state so richly endowed as California simply trash it, you’re talking about a deep cultural problem that will not change quickly, whereas the very real crisis in state finances is the light approaching from the other end of the tunnel.
Juche Respecter 41K @JucheRespecter
The insurance system in California has straight up collapsed. The state is now on the hook for like 100+ billion in damages MINIMUM, and the state is already running a record budget deficit it couldnt even dream of closing before the fires.
The state is completely f*cked.
6:56 AM · Jan 13, 2025
Well, could this crisis galvanize the political classes in DC to take effective action? In your dreams—or nightmares:
Juche Respecter @JucheRespecter
Like this is basically the textbook example of a political/economic crisis that collapses a polarized political system like the US.
Unless the political class in DC get too gridlocked to do this lol
Even NPR can see the dangers:
It’s true. California’s total budget is around $320bn. Around $100bn of that already comes from the Federal Government. If the state is hit with ~$100bn in insurance claims then it’s basically game over for California.
Long answer: No. Of course not. So who’s gonna bail out California? The states in “flyover country.” Bail out the elites who have run California into the ground? That would be a real hard sell—in fact, it would likely turn out to be political suicide across most of the country. After all, it’s not as if California is the only state facing fiscal hard times. In fact, by most accountings, my own state of IL is in worse shape.
Here’s one idea offered up on the internet:
Control the ports and the offshore rigs and you can ignore the blue strip of the coasts, the real value is in the central valley and the food production.
For most Americans that might be tempting, and the fact that it is so tempting does point to the reality of Californian freeloading on a vast scale. But it’s an obvious non starter. Think of the spillover effect that would result! On the other hand, the idea contains the germ of a solution, one which has been on the back burner for many years: Break up California into multiple smaller and more manageable states, then deal with the dysfunctional blue areas separately. Maybe even place the non-functional units into some form of outside management, as territories rather than states with votes in Congress. It all points to the fundamental weakness in a federal system as our has developed: How do you deal with a federal unit that simply goes crazy and runs itself into the ground, one that’s too big to be controlled by the central government short of open warfare, but which has amassed too much political leverage within the federal system?
California as it now stands is simply too big a part of the US economy—and population—to ignore much longer. It’s also too big a problem in multiple respects, not least as a petrie dish incubating the worst excesses of Woke American culture. Isn’t it time to pay attention to America rather than blowing our remaining wealth on Anglo-Zionist imperial adventures in Russia, the Middle East, and the Far East? Make no mistake about it, Trump will have to address the issue of California or he can kiss MAGA goodby. Sadly, in the nature of human governance and informed by the historical record, it’s all likely to get much worse.
More Schlichter--the war of the elites on the normals:
The thing you must understand about the rich Californians who vote for Democrats – and not only vote for them but actively campaign for them and donate to them – is that this kind of leftism isn’t just a belief system. It’s their religion. Well, more accurately, it’s a substitute for religion. There’s an empty space inside every human being that normal people fill up with things like faith, family, and patriotism. The rich blue voters of California fill it up with ... wokeness, a dash of climate change, and a heaping helping of smug self-satisfaction. The resulting dog’s breakfast is what passes for their souls.
There Is No Bottom for Blue California
Town Hall ^ | 13 Jan 2025 | Kurt Schlichter
After a fire that never should have happened burned thousands of houses to the ground in a liberal enclave of Los Angeles through a combination of Democrat incompetence and more Democrat incompetence, you might ask yourself whether the deep blue people of Los Angeles are ever going to come to their senses and start electing people who aren’t a bunch of communist morons more concerned with Ghana junkets and lesbian representation at the fire department then with actually doing their jobs. Don’t bother asking. The answer is “No.” They’re never going to change. They can’t change. They’re going to keep on electing the same brand of Democrat mediocrities who got them into this mess, but they do have a plan. They’re going to blame the weather, insurance companies that don’t want to lose money, Donald Trump, and anything but themselves for the chaos they voted for.