Subprime Suspect
Until recently, the long-simmering problems in the subprime mortgage market appeared to be localized — contained to a few unfortunate housing markets and a few unfortunate companies whose fortunes were linked entirely to lending to individuals with poor credit. But this week, the subprime contagion spread rapidly. Countrywide Financial, a huge lender with little subprime business, reported that an unexpectedly large chunk of its prime loans were going sour. Homebuilders reported dismal results. Suddenly aware that loans don’t always get repaid, the Wall Street credit machine, which has helped keep the stock market aloft, shifted into neutral. Investors reacted accordingly, repricing risk and driving stocks down with alacrity.
But the origins of the subprime mess can’t be found in Lower Manhattan, or in Washington, where regulators generally snoozed as subprime emerged from a tiny niche to become a mainstream phenomenon. No, this trend, like so many others, started in Southern California.
Until recently, Orange County was New Jersey to Los Angeles’s New York — upscale but generally ignored, and not nearly so chic or happening as its urbane neighbor. Television helped change the image with glitzy offerings such as “The O.C.,” “Laguna Beach” and “The Real Housewives of Orange County.” These shows portray the county’s glittering beach communities as the capital of plastic surgery and extreme consumption. But inland, just over the hills, the massive planned community of Irvine has become the nation’s capital of real estate folly.