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Rain, rain, go away: if ever there were downpour conditions in the economy, it's now: job losses, a soft housing market, a severe credit crunch. And yet Texas seems to be in far better shape than most every place else. How did we get here? Where do we go from here?

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EVAN SMITH, TEXAS MONTHLY PRESIDENT AND EDITOR IN CHIEF: Let's begin with a satellite view of the Texas economy--from your particular perspective and that of the constituencies you serve. Comptroller, as the state's chief financial officer, how do you think we're doing?

COMBS: The state has enjoyed tremendous growth--incredible sales tax growth of 12 percent three years ago, then 10-plus percent, then 6.6 percent. It has been rockin' and rollin'. In 2008 the state brought in about 71 percent of all new jobs in the country. Certainly the wheels have come off some wagons, but you have foreclosure numbers that I think are still remarkably good for Texas. Our numbers for the last month are actually down about 90. We're running about 1 foreclosure out of about 896 [mortgages] in Texas, versus 1 out of 70 in Nevada, I out of about 165 in California, 1 out of 186 in Florida, and 1 out of 147 in Arizona. We're not sleeping in our cars. We're still largely employed. We're actually fairly lucky. We got hit late, but I expect Us to see some light in October, November, December. I'm actually expecting to see our gross state product up 1.5,1.7,1.9 percent for 2009. So the state is so much better off than anyplace else. I really attribute that to how badly damaged we were in the mid-eighties. We lost 368 banks and 200,000 to 300,000 jobs, and we said, "Never again; let's diversify." Which we've done. Also, we put together the Rainy Day Fund, which will have $6.7 billion in it by the end of August. Only six times in its nineteen-year history has a dispersal been made from it exceeding $100 million.

SMITH: Ernie, you speak for the interests of working people all over the state. Do they share the comptroller's optimism?

CORTES: It varies. I mean, in the Valley you're seeing almost double-digit unemployment. There had been an awful lot of job growth in places like McAllen and other areas tied to the Mexican economy--well, that's getting a serious hit. I'm hearing lots of stories about people having very, very hard times in McAllen, Harlingen, Brownsville. San Antonio is really scared to death about the Toyota plant.

HUFFINES: Is the Valley declining because of the weakness of the peso?

CORTES: The weakness of the peso but also the continuing violence on the border and also a big drop in trade. The benefits that were supposed to have come from NAFTA have never come, because the shifting of manufacturing to China has clobbered the Mexicans.

HUFFINES: What happened with Holy Week? I was down in Brownsville, Harlingen, McAllen, and Victoria recently, and they were hoping for a Semana Santa.

CORTES: All I know is there were no Mexicans at the malls. I remember back when the peso had a big crisis in the early eighties. It was really, really awful. Some of the shopping centers were virtually ghost towns. It's not quite that bad, but people are nervous.

SMITH: What about other areas of the state?

CORTES: I'm worried about El Paso. And we met with the chairman of economic research for the Fed in Dallas, and he said that the economies of Dallas-Fort Worth and Austin are much more like the economies elsewhere in the country, hut the rest of the state is going to get hit later.

WEINSTEIN: The numbers show that right now Dallas-Fort Worth has the highest unemployment rate in the state among the large metros. The fact that the Dallas area has arguably the most diversified economy in Texas and yet has the highest unemployment indicates to me how widespread, how broad-based, this recession is. It's affecting every individual and every sector.

SMITH: James, how do the banks see things?

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HUFFINES: I agree with what the comptroller said. There are six-hundred-plus banks in Texas, and with the exception of the large, multinational banks, the industry is fairly healthy--certainly by the standards of the other states.

COMBS: Especially the community banks.

HUFFINES: That's what Texas is. It's a community-banking state. Most of those banks are well capitalized and still making loans. I also agree with the comptroller that one reason we haven't experienced the downturn as severely is that there are still a lot of bankers who remember the eighties. On a lot of the underwriting...

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