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Finance

As San Francisco leads a new economic upswing in the state, it’s time to act unnaturally

The $25 million man, as I called him, was the symbol of California’s boom-or-bust economy. In the early 1990s, when California was struggling through one of its cyclical busts and commercial real estate in particular was hit hard, this man was $25 million in debt.

The $25 million man was a commercial real estate developer and consultant. He had rung up his debt during the go-go times of the late 1980s and very early 1990s, but when the market swung back — as it always will — he was left with astronomical debt. I knew him professionally, and when I learned about the state of his finances, I remember thinking that there’s just no way he would ever work his way out of that debt, short of filing for bankruptcy.

But there was no bankruptcy, as far as I ever learned. He stuck it out, and I’m happy to report that he remains in business today. One hopes he’s older and wiser from the experience.

Unfortunately, wisdom usually is the first thing to go out the window when money becomes easy again.

Now multiple reports are emerging that we’re once again digging ourselves out of the depths of the Great Recession. The Federal Reserve’s Beige Book was released in mid-January and offered signs that things were picking up on the West Coast. Manufacturing is rising, though still under capacity; holiday sales were slightly improved; the housing market is strengthening; and the folks who are reaping the lion’s share of the improving statistics are in the information technology industry. No surprise on that last one.
Nationally, economists are expecting modest growth this year, assuming Congress doesn’t keep slamming on the brake with artificially created scare moments, such as fiscal cliffs, debt limit increases, and sequesters. President Obama appears to have learned from his bruising battles with the Tea Party-led GOP in the U.S. House that giving in to bullies only encourages bullying behavior, so he’s digging in his heels so far in his fights with Congress.

We shall see who ultimately wins that battle, but again if the federal government doesn’t get in the way, then the nation can expect a good year. Here in the City, we can expect a very good year.

Andrew Ross reported in the San Francisco Chronicle that economists are bullish on the Bay Area. And for anyone who’s nursing a grudge against those highly paid tech workers who are pushing up home prices, Ross quotes Stephen Levy, director of the Center for Continuing Study of the California Economy, as saying that 2013 “will be the year the recovery becomes real to many more people, not just for those in the tech sector.”

So we are back in an economic upswing in California, and in San Francisco it’s even better. San Francisco was one of the top 10 cities in the nation last year for job creation — something I took no small pleasure in informing my Tea Party friends back East who liked to approvingly cite Mitt Romney’s disparagement of California as some sort of third-world failed economy. And Bloomberg reports that the whole Bay Area led the state in job growth last year, adding 91,400 jobs in 2012.

In the pages of the Marina Times, we have covered the effects of the upswing on our residential real estate market. Prices have skyrocketed for new homes; it has also skyrocketed for commercial real estate. When the nonprofit Commonwealth Club of California recently announced that it had completed the purchase of 110 The Embarcadero, it patted itself on the back because the purchase was initiated during the trough in the market; by the time it was in escrow and nearing completion, it began to look like the deal of the century because prices were rising so fast.

But as a native Mid-westerner, a born-and-bred Wisconsinite who believes in open and cautious government and business, I would like to import some of the Midwestern pragmatism into the boom-and-bust activity here on the West Coast. San Francisco football exported to Wisconsin its West Coast offense; now here’s a helpful return trade. I’m like the slave installed in a Roman general’s chariot as he parades through the eternal city in his triumph, whispering repeatedly in his ear, “Remember, you are mortal.”

Things will swing back. That doesn’t mean people should bury money in the ground or not enjoy themselves; it does mean that they should be prudent about their investments and spending during these boom times, because the pendulum will swing back. For cities and states, multi-year budgeting is a good start. For individuals and businesses, financial planning that includes what you’ll do when the next bust inevitably comes along should become the new normal.

Because in this age of large stock options and multimillion-dollar trophy homes and can’t-miss social media startup investments, it’s even easier than in 1993 to become the new $25 million man.

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