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- Higher Homeownership Poses Risk to Employment: Cutting Research – Bloomberg
Shamim Adam reports:
A 1 percent increase in homeownership is estimated to lead to a 2.2 percent gain in unemployment over the long term, they said.
"What is the price paid by society for the widening of home ownership?" the economists wrote. "The research suggests that policies have led to an unknowing impairment of the markets for labor and enterprise. The evidence is that high home ownership weakens the vitality of the labor market and slowly grinds out greater rates of joblessness."
Governments should encourage more rentals instead of providing financial incentives to those buying homes, Blanchflower and Oswald said.
"High levels of home ownership do not destroy jobs in the short term; they tend to do so, according to our estimates, a number of years later," Blanchflower and Oswald wrote. "Unless these long linkages are properly understood by politicians and other policy-makers, the deleterious consequences of high levels of home ownership cannot be appreciated."
That sounds very logical to us. Homeownership is just not a good fit for everyone. Germany has a strong economy, yet a much higher percentage of Germans have been renters over the decades than Americans have been in America. Building more rentals would lower rent rates, not what current landlords want to hear. Still, it needs to be understood by governments.
- For signs of bubble, look no further than LBOs
A number of measures that focus on leverage, particularly in the area of corporate takeovers, show that kind of risk-taking back at levels just before the financial system imploded and sent the economy into its worst slump since the Great Depression.
Leveraged buyouts—LBOs—for both big and midsize companies are approaching debt levels last experienced in 2007, according to the latest figures from Thomson Reuters.
"They're [the Fed is] cognizant that one of the ways monetary policy in general and specifically (quantitative easing) and forward guidance works is through financial channels, by bringing down term premia and risk premia and encouraging people to take risk," Feinman [Josh Feinman, chief global economist at Deutsche Bank] said. "But they're also worried that kind of thing could get out of hand."
As our loyal readers know, we think the Fed has been stimulating the wrong sector of the economy: Wall Street rather than Main Street.
Source … http://www.cnbc.com/id/101160647
- Bank of England might be open for business, but it's heading for a fall /Euromoney magazine
Finn Poschmann writes:
Bank of England governor Mark Carney is correct that the City of London should be open to global finance. But he dismisses moral hazard and market distortions — the inevitable consequence of easy money and a reflationary UK housing policy — at his peril.
We say, at England's peril and more.
- Twitter Helps Revive a Seedy San Francisco Neighborhood – NYTimes.com
The middle stretch of Market Street here has befuddled mayors, investors and entrepreneurs for decades.
Studded with check-cashing joints, strip clubs and dollar stores, the seven-block strip known as the Mid-Market had resisted cleanup efforts and resolutely remained the same: a seedy place to visit day or night. Even the area's community groups said they were fearful.
Mid-Market is home to some of the highest vacancy rates in the city for office or retail, despite its proximity to City Hall, which is a few blocks away.
So it seemed implausible that a young company, heralded as one of the technology industry's next big things, would want to make its headquarters in Mid-Market. But in April 2011, that young company, Twitter, dispelled rumors that it was leaving San Francisco for a nearby city suburb and instead announced it was relocating to Mid-Market. In June 2012, it moved in.
Twitter leased space from Shorenstein Properties, a real estate firm based in San Francisco, known for its blue-chip office towers in the Financial District here. Shorenstein bought an 11-story building in 2011 fronting Mid-Market that had been vacant for five years. For them, it made sense to buy the undervalued Art Deco landmark built in 1937, which had some of the most spacious floor plans in the city at a time when office space was tight. Twitter signed a lease until 2021 for 295,000 square feet in the building and could expand that as its work force grows. "In our gut, we believed if we changed it, they would come. We thought it would be a real catalyst for the neighborhood," said Charles W. Malet, chief investment officer for Shorenstein Properties.
- Video [Recommended] From Kuala Lumpur: How Britain is exporting its homes | Faisal Islam on Economics | Faisal Islam on Economics
… it's not just the super rich — an oligarch buying a bolthole in Mayfair. These are upper middle classes of the world looking for a safe bet for their abundant savings- the London property market.
If they all pile in and other places relax or London tightens up, values could crash, relatively speaking.
- Regulators contact more banks over currency market manipulation | Business | The Guardian
Jill Treanor and Dominic Rushe report:
JP Morgan and Citigroup join Barclays in list of banks co-operating in international investigation into forex trading
Barclays said six of its staff had been suspended while an internal investigation into currency dealings was under way.
A global investigation into allegations of manipulation in the £3tn-a-day currency markets appeared to be deepening with more banks admitting they were co-operating with regulators and Barclays suspending six of its traders.
- The 3 Biggest Risks Spooking Global Investors | Economy Watch
Marc Chandler writes:
Europe seems poised to snatch defeat from the jaws of victory. It has been a particularly good year for EMU. After initially blowing it, European officials managed to address the Cypriot crisis and although it retains capital controls, it remains in every other way a member of the monetary union. The six quarter contraction ended. Italian and Spanish stocks and bonds have rallied strongly, helping to ease their debt servicing costs and rebuilding investor confidence. Target 2 imbalances have been reduced and banks have returned nearly 40 percent of the LTRO borrowings.
Yet the repayment of the LTRO funds has seen the excess liquidity in the system fall. Excess liquidity has fallen by about 470 billion euros to stand just below 150 billion. Nearly 380 billion euros of LTRO borrowing has been returned, including what was announced before the weekend.
In order to respond to the tightening of financial conditions in the euro area and the increasing risk of deflation, the ECB needs to do something as bold as the OMT announced in mid-2012.
- Lovely partners with Experian to let renters submit application and credit report with one click | Inman News
Paul Hagey reports:
Rental site Lovely has partnered with Experian on a new rental application system that company claims makes it "the first fully integrated rental marketplace where renters can find, apply for and secure" an apartment using a single platform. "Apply with Lovely" saves apartment hunters time and money, the company claims, by allowing them to submit their rental application complete with an Experian credit report with a single click, for a flat fee of $20 per application.
"…$20 per application."?
- Inflation — The Economic Lowdown Podcast Series
Deflation is a decrease in the average level of prices, or a negative inflation rate. It may seem like deflation is a good thing — who wouldn't want to pay less for their favorite things? However, deflation can be very damaging to an economy. Like high or volatile inflation, deflation makes planning for the future very difficult. Also, because not all prices drop at the same rate, businesses may find that the price of the product they are selling has dropped, but the costs of their rent, utilities and other inputs have not — so these businesses must cut production or close entirely. In either case, there are fewer jobs. Expectations about deflation can also change your purchasing decisions. Imagine that you have saved $4,000 which is exactly the price of the car you want. You could buy it today, but you've noticed that every time you pass the dealership on your way home from school the car is $100 less than the day before. What would you do? You would likely wait to see if the price keeps dropping. Tomorrow, the car could be $3,900. Other consumers will act the same way. They will hold off on their purchases waiting for further price reductions. If consumers keep waiting, and nobody is buying, businesses will have to cut prices even more, produce less and maybe even close. You can see how this becomes a downward cycle.
- Jones Lang LaSalle endorse the formation of IPMS coalition | International Property Measurement Standards (IPMS)
Commenting on the recent announcement that 19 leading property professionals from around the world have been appointed to create the International Property Measurement Standards Coalition (IPMSC), the first global standard for measuring property, Alan Robertson, CEO of Jones Lang LaSalle Middle East & North Africa said:
"This is good news for the Middle East and North Africa (MENA) real estate markets. For the first time investors will be able to use an internationally agreed standard methodology to measure property assets across the real estate market.
At the moment, real estate is measured differently between countries and even between different developers within the same country. This has resulted in the application of different measuring methods for calculating rentable or saleable areas.
- Why Washington Is Cutting Safety Nets
Robert Reich says:
Neither of these two strategies — buying back stock and paring payrolls — can be sustained over the long run (so you have every right to worry about another Wall Street bubble). They don't improve a company's products or customer service.
If wages keep being lowered relative to the top 10% or even just disappear, which they have for so many people who've given up looking, how in the world is the US economy going to do well? How are people even going to be able to afford rent (Blackstone take note), even low rent, when there is also a shrinking safety net or one that will completely disappear? Why are policy makers so bent upon thinking so shortsightedly?
Henry Ford made sure his workers, all of them, could afford the cars he made. However, many of the people who work at Walmart can't afford to buy groceries there without SNAP benefits (formerly Food Stamps). What would happen if SNAP benefits were to keep dropping while Walmart were to continue to hold wages down where they are? Would that be good business? Is subsidizing Walmart's owners that way (taxpayers, who may not even shop at Walmart, paying for Walmart employees to be on the SNAP program) a good policy for the US to even allow?
- Assessing the Economic Recovery – Boston Fed
Boston Fed President Eric Rosengren:
"At a growth rate of 2.8 percent, we do not attain 5.25 percent unemployment until the end of 2018."
Yet, there are people talking about a taper in December, 2013. We don't see it yet at all.
The Fed needs to educate us on what sort of models they are planning to use to determine when the taper will begin. They need to tell us just how gradual it will be when they do start. Without that sort of information, how anyone can do a proper job of estimating when the taper might begin simply escapes us.
- The end is near for Norway's housing boom | City A.M.
Guy Bentley reports:
Norway's prolonged housing boom may be coming to an end according to Capital Economics. The London-based consultancy believes that a total collapse in house prices is unlikely, but the slowdown in the housing market suggests the economy may deteriorate more than had been expected.
- China Needs 7.2 Percent GDP Growth To Sustain Job Market: Premier | Economy Watch
China's economy must continue growing by at least 7.2 percent per year in order to sustain the unemployment rate from rising, said Premier Li Keqiang in remarks published on Monday.
Nevertheless, the country's leaders are still embarking on a new set of economic reforms to shift China's reliance on exports to a domestic-led economy.
Many people, especially the wealthy and young in the US, think China will overtake the US economy before 2020. That seems highly unlikely to us.
China has huge environmental issues, which will translate into huge and very expensive health problems if they don't get them under control very quickly. They've also been spending wildly and have yet to rein in their bubbling housing market.
Can they turn on a dime while keeping everyone working? Will they have the cash to buy the foreign labor the way US companies did while maintaining a welfare state at home?
We shall see. Maybe they can pull it all off. It sure would be amazing.
- Slow Growth May Be Here to Stay | Commercial Observer
Robert Knakal writes:
Adam Smith wrote in 1776 in The Wealth of Nations, "It is in the progressive state, while a society is advancing to the further acquisition, rather than when it has acquired its full complement of riches, that the condition of the laboring poor, of the great body of the people, seems to be the happiest and the most comfortable. It is hard in the stationary, and miserable in the declining state."
So what is the answer? Taxes must rise, and spending must be cut. Think Simpson-Bowles. Social Security benefits must kick in at a later age. Medicaid and Social Security must be means-tested, so we don't subsidize folks who don't need it. Immigration must be reformed to encourage wealthier and more highly skilled workers to apply for citizenship. This will also increase the group of folks in our economy who are of working age. And education must be made competitive on a global basis.
We know that raising taxes during a recovery hurts, not helps. The private sector is still overly leveraged. If the public sector stops spending, the economy will freeze.
Social Security is an issue of growth. If we publicly spend on the right things, Social Security won't be a problem.
The same goes for Medicaid, which actually is means-tested and serves the poor. He probably meant Medicare, which is actually cheaper on average than private, for-profit insurance: more cost effective, less overhead expenses as a percentage for the same care. Should we extend Medicare to everyone so aggregate-medical costs could drop dramatically while leaving nobody behind? A healthier workforce and citizenry is a more productive and profitable population.
As for immigration, we certainly aren't against it; but we really need to lift the people who are already here and are citizens. Just brain-draining other nations is not a good long-term solution.
The last point Robert made is though one with which we can agree. We should consider seeing 4-year public universities funded, as 4-year public high schools are funded. Doing that might put the US at the top across the board.
- Texas Rising: More Jobs, More Business, More Housing – Investors.com
Marilyn Alva reports:
While many parts of the country have not fully emerged from the housing crisis and recession, Texas continues on a tear with new building and thriving residential and commercial real estate markets.
And that shows no sign of letting up.
Construction crews are finishing office towers, industrial buildings, rental apartments and single-family homes — and breaking ground on others to meet demand from expanding businesses and the growing number of people who work for them and need homes.
- Analysts: Fannie Mae LTV Threshold Will Reduce Options, Not Risk
Interesting: Krista Franks Brock writes:
While it would seem Fannie's objective in lowering the LTV [Loan to Value] requirement [from 97% to 95%] would be to reduce risk, the two authors [Laurie Goodman and Taz George of the Housing Finance Policy Center] say this action would be a misguided attempt. They say, "If the intent was to reduce risk, this was a crude way to accomplish it," mainly because among loans with LTVs of 80 percent or higher, credit scores are a better default forecaster than LTV ratios.
It is our understanding the LTV is used in conjunction with credit scores, not in lieu of.
We don't want to say more without first reading the blog post on the Urban Institute site: http://blog.metrotrends.org/2013/09/fann ie-mae-reduces-max-ltv-95-data-support-m ove/
So, we just read the blog post. We wonder a bit if Fannie Mae is thinking that during a housing downturn, the higher starting equity would keep more people from going underwater as much as they otherwise would. If so, the difference of 2% isn't very much. Also, as the post discusses, many people would simply turn to other agencies.
Perhaps then, this is a way of winding down Fannie Mae in anticipation of setting up the market for privatization.
- China 'bad bank' plan perplexes market amid secret debt workouts /Euromoney magazine
The Chinese government says it wants to transform its asset management companies — established to take on growing bad debts in the banking system — into commercially driven enterprises. In reality, a lack of transparency on portfolio loans means analysts are none the wiser as to the scale of the problem and the resolution process for legacy loans.
Investors looking for information on the level of credit impairment in the Chinese banking system are unlikely to learn much from the next round of non-performing loan (NPL) workouts.
After reporting Rmb539.5 billion ($87.8 billion) of NPL in the commercial bank sector at the end of the second half — the seventh consecutive quarter of increased NPL balances — the Chinese government is revitalizing its asset management companies (AMCs), or bad banks, with an infusion of private capital to acquire and work out the nation's stock of problem loans.
The move reprises the government's 1999 NPL strategy, when China formed four AMCs to receive some Rmb1.4 trillion of bad loans from its four state-owned banks ahead of those lenders' stock market listings. During the original process, the government required the AMCs to buy the assets at face value, rather than at fair value based on credit performance, presumably to support the appearance of balance-sheet strength at the soon-to-be-listed public lenders.
Chinese financial markets have changed a lot since then and the bad-bank plan has allowed the good banks to show massively improved balance sheets. Indeed, market participants say the NPL ratio in 1999 was more than 20% of Chinese banks' total loan balance, and could have been as high at 40%. By contrast, the latest CBRC figures show total NPL balances represent less than 1% of the total loan balance.
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