Eli Broad, the billionaire founder of KB Home who works mostly as a philanthropic investor now, says the U.S. economy is in its worst straits in more than 60 years.
“This is worse than any recession we’ve had since World War II,” Broad, 75, told Bloomberg News. He calls this the “worst period” of his adult life for the economy and says recovery for the housing market lies “several years” away.
Still, he’s not looking for a 1930s-style depression, thanks to the country’s safety nets. The economy grew only 1 percent at an annual rate in the first quarter, ending the weakest six months of growth in five years.
“I do not think things are going to get any better” before the next president enters the White House in January, Broad says. He says the U.S. banking industry may have to raise additional capital to cushion all its sour loans.
Goldman Sachs has suggested the capital additions may total $65 billion. The biggest financial firms in the world have suffered about $400 billion in write-downs and losses thanks to the credit crisis.
It could take a few years to sell off vacant homes, Broad says. “The problem is, people don’t believe prices have bottomed out,” he says. “You’ve got to induce people to buy houses” with federal policy, including tax incentives.
Consumer confidence and home sales won’t rebound this year, and unemployment, which already has surged to 5.5 percent, will rise further, Broad says. Meanwhile, he expects consumers to continue defaulting on home, auto and credit-card loans.
Tax rebates have helped support the economy in recent weeks, and more federal stimulus is necessary, Broad says.
“I think housing is going to continue to have a corrosive effect on consumer psychology and the economy in general to a far greater extent than people think, or even far greater than I thought about a month or two ago,” he says.
The number of American at risk of being foreclosed out of their homes rose to the highest level in at least 30 years during the first quarter, according to the Mortgage Bankers Association.
Policymakers will have to shift energy, health care and education policy for the economy to gain sounder footing, Broad says. Those represent areas on which his $2.63 billion charitable foundation focuses.
“I worry about the future of America,” he says. “It’s time to regroup and redefine our place as a country, and that’s tough to do.”
On a separate issue, AIG, the troubled insurer where Broad served as a director from 1999-2003 “will turn around in due time,” he says. “It’s not going to be overnight.”
Broad and other AIG investors have pushed for the ouster of CEO Martin Sullivan, after the stock lost half its value in the past year.
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