Sunday, May 24, 2009

Silicon Valley: Cracks in the Foundation

Silicon Valley... it's different here.

No, not really, but that is the kind of ridiculous thinking that permeates the mentality of people living here.

Silicon Valley, AKA 'Self-Entitlement Valley', 'Silly Valley', etc...

I know someone in Santa Clara that paid $850K for a house in '05--one of those new, packed-in, little communities. They owe $750K and the Z-est is $600K; maybe it would sell for $550K today. I then searched 18 houses immediately surrounding this one; all purchased in '05 for $750K-850K. Unless they put massive dollars down, every house debtor is seriously underwater and ALL should walk away. But this is Silicon Silly Valley, it's different here. Wrong. At bottom, these boxes should be priced around $350K. Things are just starting to get interesting, but most of the debtors are in serious denial.

After the dot-com garbage and now the exploding real estate debacle, where will the next phony injection of wealth come from for Silicon Valley?

2009-05-24: Recession suddenly humbles high-tech sector
Five miles away, former indoor plant specialist Michael A. Jones is having what he calls "a humbling experience" at a nonprofit food pantry, choosing dented cans of corn and tuna, a crunched box of Rice Krispies and some soon-to-expire milk to supplement his food stamps.

Jones used to gross $12,000 a month as an indoor horticulturist for high tech companies, restaurants and car dealerships
(SAY WHAT?? $12K/month for a glorified gardener?!), although not Silicon Valley Auto Group. Then "everyone cut back all at once and we had to shut down," he said. "It happened fast."

The Associated Press Economic Stress Index, a month-by-month analysis of foreclosure, bankruptcy and unemployment rates in more than 3,000 U.S. counties, shows that last year, as the national economy tanked, high tech economic centers from California's Silicon Valley to North Carolina's Research Triangle were apparently "recession-proof" with increasing jobs and stable housing prices.

Last fall, everything changed. When previously invested funds petered out, there was no new capital. Bankruptcies, foreclosures and unemployment in high tech regions spiked, and are now at some of the highest levels in the country.

For example:
-- Santa Clara County, home to Silicon Valley, saw bankruptcies soar 59 percent in the past 12 months, and projections are that they're still climbing;

"We had hoped we might stay insulated from the global economic crisis, and for a long time we were," said Silicon Valley Network president Russell Hancock. "But then it caught up with us and now everyone is laying off."
"There isn't anybody who isn't laying off," he said, then draws a long breath before reciting this list: "Microsoft, Intel, Hewlett Packard, Sun, Yahoo, Apple, Google." He pauses a moment to consider that. "Google. When Google is laying off you know something is going very wrong." (
What's wrong is Google, itself.)

"Folks believe that because we're in the Silicon Valley with million-dollar homes and billion-dollar businesses, hunger and homelessness don't exist. But in fact it's getting much worse, and it's just really frightening," he said.

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