Linking ≠ endorsement.
⇧ Australia: Haven for Bank Control Frauds? | naked capitalism
Paul Egan and Philip Soos:
Brailey says that every subprime LAF she has examined is manipulated, and around 18 per cent of full-doc loans are also fraudulent.
… it appears control fraud is present within Australia's banking system. Overall, mortgage loans have grown exponentially over the last two decades, indicated below.
It has never been a better time to be a criminal, as long as you're a white-collar criminal in the FIRE sector. …
Australia has two major control frauds rapidly growing without restraint, namely the subprime mortgage and debenture-funded pyramid business scams, which Brailey estimates will cause over $100 billion in losses — each. ASIC's leadership knows full well about these control frauds, for Brailey has informed them repeatedly for over a decade. But when you're the head of ASIC on $700,000 annually with every conceivable perk, you tend to have more in common with the financial robber barons you're supposed to regulate than protecting the common rabble from their predations.
As Australian economist Phillip J. Anderson has so well documented in his book on US real estate cycles from 1800 to 2008, fraud is never detected by the mainstream for two reasons. The first is that FIRE sector executives and managers are extremely powerful politically, financially and legally, so few will tangle with them. Secondly, during the boom phase of an asset bubble, the public is too self-centred to care, speculating to make paper profits (phantom wealth). It's only when asset bubble burst do the frauds rise visibly to the surface for all to see.
⇧ Energy in the future: Rising oil and gas production gives US more geopolitical clout
There was not one word on the environmental impacts of fracking in the linked article, as if it doesn't matter or something.
If the environment continues to suffer more and more from carbon burning, even natural gas is going to come under more and more pressure to be stopped altogether.
What's the point in producing all the carbon energy if we make the planet more and more uninhabitable?
That's something that the younger generations must step up to and confront the older folks with who are behind the fracking boom. Those older folks are going to die off while leaving a toxic legacy, unprecedented climate turbulence, earthquake swarms, coastal flooding, and God only knows what else.
⇧ Steve Keen will be right one day on Australian housing crash: Peter Switzer
"Keen is the former Professor of Economics at the University of Western Sydney, which surprisingly closed down its School of Economics.
"He became famous for raising concerns about the escalation of debt — here and worldwide — before the GFC.
"After that he became infamous for warnings about a house price collapse, another stock market crash and recessions.
"And this is where it gets tricky in assessing Keen.
"He lost a public bet with former Macquarie Bank economist, Rory Robertson, over the likely fall in Australian house prices.
"It resulted in Keen having to walk from Canberra to Mt. Kosciuszko — 224 kilometres — wearing a T-shirt that read: "I was hopelessly wrong on house prices".
Well, we think China is the only thing propping up Australia, and China is slowing, slowing, slowing. Add to that the corruption documented in the first link above, and you have an inevitable crash waiting.
How in the world could Australia escape it? They'd have to do radical surgery to their entire economic system. Are they up to that? So far, no country has been.
Steve Keen was simply early.
⇧ Confounded Interest | Mortgage Lenders Set to Relax Credit Standards (Agreement With Fannie, Freddie for More Applicants to Qualify for Loans)
Fannie and Freddie are loosening credit standards (expanding the credit box) against stagnant wage income. Unless the DTI requirements are changed, the effect may be less than Laurie Goodman thinks. And the employment-to-population ratio needs to rise as well.
Lowering standards was not the right place to place the emphasis. Jobs, wages, hours, and supply were the right places.
⇧ Structural Reforms to Reduce Debt and Restore Growth | Cato Institute
The following couldn't be more wrong. Douglas Holtz-Eakin:
Facilitating economic growth is more a philosophy than a specific piece of legislation. It is a commitment at every juncture in the policy process to evaluate tradeoffs among social goals, environmental goals, political backers' goals and economic growth — and err on the side of growth. …
The second flaw in recent policy approaches has been its misguided reliance on temporary, targeted piecemeal policymaking. Even if one believed that countercyclical fiscal policy ("stimulus") could be executed precisely and had multiplier effects, it is time to learn by experience that this strategy is not working. Checks to households (the Economic Stimulus Act of 2008), the gargantuan stimulus bill in 2009 (American Recovery and Reinvestment Act), "cash for clunkers" (the Car Allowance Rebate System), tax credits for homebuyers (the Federal Housing Tax Credit and the HIRE Act, consisting of a $13 billion payroll hiring credit, expensing of certain investments, and $4.6 billion for schools and energy), the Small Business Jobs Act of 2010, and the state-local bailout Public Law 111-226 ($10 billion for education, $16 billion for Medicaid) have all failed to generate growth.
Begin with entitlement reform. The policy problem facing the United States is that spending exceeds any reasonable level of taxation for the indefinite future. There is a mini-industry devoted to producing alternative numerical estimates of this mismatch, but the diagnosis of the basic problem is not complicated and leaves bare the prescription for action. The budget problem is primarily a spending problem and correcting it requires reductions in the growth of large mandatory spending programs—Social Security and federal health programs.
First of all, the environment has to come first for the reasons mention above, not growth. However, taking care of the environment can be a huge growth industry if the people want it so. It's not a "free-market" decision. It's actually simply a democratic-political decision that can and should be made.
Second, the stimulus was way too small and then poorly targeted for job growth. What should have happened was that the US government should have created massive works-programs with accompanying high-skills training.
Third, we don't have taxes to raise governmental revenue. Taxes are for draining dollars from circulation. Dollars come from issuing bonds and some from creating cash (paper bills and coins). We could issue money without creating bonds/debt. We could spend the new money directly into the economy paying for the things mentioned above while not increasing the National Debt but rather paying it down to zero.
It would not be difficult. The only reason you don't hear about it is because those who want to make more profits off everyone else being kept in the dark have more control on what gets out there in the general population.
Unfortunately, there are many academic economists (including of the liberal-macroeconomic variety) who don't want to shine the light of this. They have vested interests in the status quo.
⇧ Private money vs totally-public money, plus some history | FT Alphaville
We aren't going to critique Izabella Kaminska's article.
We will say up front though that we are for having only one currency (sovereign or nationalized, bond-free, pegged to real-economy productivity) and only one bank (public and national). Other than that, we're for grassroots democratic economic decisions being taken on the basis of full transparency: a fully informed electorate.
Let's close the week off with little bit of "history is just repeating itself" education for both the champions of private cryptocurrency, unaware of the private origins of evil fiat currency, and the "take away the banks' power to create money!" Positive Money campaign in light of the recent deluge of historically myopic press releases in our inbox.
The following four links form a chain from this one.
⇧ Cycles, relativity and behaviours | Dizzynomics
This week I strayed into the absolutist world of free-banking enthusiasts.
Now, it's not like I haven't come across these guys before — they lurk everywhere — but this week I discovered they don't just represent an extreme economic faction, they (like goldbugs, bitcoiners etc) seem to be reason and logic deniers.
⇧ Free Banking – Dizzy Miss Izzy
Tell me I'm not with it, if you must, but the fact is that until a couple of days ago I'd never heard of Izabella Kaminska, who bills herself as a "finance blogger" and believer in something called the "collaborative economy," in which sharing things takes the place of buying and selling them, the result being, she claims, a reduced carbon footprint.
And so it happens that, Despicable Free Banking Nobody though I am, I find myself submitting, for The Rt. Hon. GPB's consideration, my own humble post, the gist of which is that Ms. Kaminska hasn't the foggiest idea what she's talking about.
⇧ A few thoughts on free banking, Scott Sumner | EconLog | Library of Economics and Liberty
I must admit that I found this to be very annoying, but not for the reasons you might assume. I consider myself to be neither pro- nor anti-free banking. Rather I'm annoyed because I greatly respect the high quality research being done by free banking enthusiasts, and hate to see the entire group dismissed with belittling insults.
I have no doubt that Kaminska has run across a few ill-informed free bankers on the internet. I've run across more than a few uninformed Keynesians, monetarists, Austrians, MMTers, etc., on the internet. But any reader of her post is going to assume that she is being dismissive of the entire school of thought.
⇧ What Is Free Banking All About? | Uneasy Money
I notice that there has been a bit of a dustup lately about free banking, triggered by two posts by Izabella Kaminska, first on FTAlphaville followed by another on her own blog. I don't want to get too deeply into the specifics of Kaminska's posts, save to correct a couple of factual misstatements and conceptual misunderstandings (see below). At any rate, George Selgin has a detailed reply to Kaminska's errors with which I mostly agree, and Scott Sumner has scolded her for not distinguishing between sensible free bankers, e.g., Larry White, George Selgin, Kevin Dowd, and Bill Woolsey, and the anti-Fed, gold-bug nutcases who, following in the footsteps of Ron Paul, have adopted free banking as a slogan with which to pursue their anti-Fed crusade.
We'll say that we found this series educational, though we don't expect to remember all the names and dates but more the broader arguments.
Regardless, we certainly aren't persuaded by the "free-banking" idea, even the one proposed by David Glasner, though his is vastly better than the Wild West versions we've been hearing about.
In the interest of disclosure, we actually don't like the Bitcoin concept at all.
It struck us from the start, when they were $25 and just starting (when we were invited to participate by insiders, just as we had been invited to participate in the Silk Road website — we declined both) that Bitcoin was a Ponzi scheme that would end up facing taxing and regulatory barriers rendering it redundant at best: pointless from the start.
We shall see. It will depend upon the government. What good is Bitcoin? We prefer reforming the US dollar and banking system to make them both public, national, and highly democratic from the bottom up.
⇧ Beijing Lecture 1: Failure of Neoclassical Paradigm Part A – YouTube
The first speaker, introducing Steve Keen, is very difficult to understand. The audio during that part is very bad. However, once Keen starts in, it is vastly better, though not without issues. Steve does, however, use a very clear outline and graphs to show the way.
Neoclassical economics was triumphant before the economic crisis and has been in both disarray and denial since. This lecture covers why the evolution of Real Business Cycle and DSGE modeling from the original IS-LM approach was necessary for Neoclassical thought in order to be consistent with its core belief that monetary factors do not determine the level of real economic activity.
We think this is an excellent primmer.
⇧ South Stream closed, Gazprom builds new Black Sea pipeline to Turkey – YouTube
This is a big geopolitical deal, as Turkey is a member of NATO and had desired to become an EU-member state.
Russia backs Assad of Syria, while Turkey wants him removed. Iran too backs Assad, while Turkey is talking about shipping Iranian gas through Turkey to Europe.
With Saudis not cutting oil production to increase oil prices, will the US be able to afford to fill the void in Europe left by sanctions against Russia. With carbon-energy prices dropping so much, will the US be able to afford to produce the fracked gas?
Russia is scrapping its multi-billion dollar South Stream pipeline to focus instead on Turkey becoming a key gas transit hub. The announcement was made after hours of talks between the presidents of Russia and Turkey.
⇧ 10 U.S. Real Estate Markets Investors Should Watch – US News
As with any type of investment vehicle, anyone who wants to succeed in the realm of real estate investing needs to be a studious observer of market trends. Tracking everything from unemployment, job creation, population migration and economic stability, to housing inventory, home prices and rental yields in any particular region is essential.
Just like anyone else with goods and services to sell, the most successful investors are ones who own the supply when the demand comes calling. However, after the Great Recession hit, the next great wave of first-time homebuyers, the millennials, did not come calling. Instead, they were either attending college, or trying to start their careers fresh out of college.
"If they are moving to that market, then you can make money off millennials by renting to them initially, and then flipping to them as they decide to become homebuyers," says Blomquist.
⇧ Factories Humming in U.S. Even Amid Global Slowing: Economy – Businessweek
Manufacturing growth in the U.S. barely skipped a beat in November, holding near the strongest pace in three years, as the world's largest economy rose above a global slowdown.
The Institute for Supply Management's factory index was little changed at 58.7 last month, the second-strongest level since April 2011, compared with 59 in October, the Tempe, Arizona-based group reported today. Readings greater than 50 indicate expansion.
Orders over the past four months have been the strongest in a decade as growing demand from American clients makes up for any letdown among foreign customers. Figures yesterday showing retailers struggled to lure shoppers during the first weekend of the holiday season raise concern that the pace of growth will be difficult to sustain heading into 2015.
"If we don't see consumers spend at a very markedly improved pace in November and December, we are looking for manufacturing, which has been really the silver lining of the recovery in the second and third quarters, to fall off sizably," said Lindsey Piegza, chief economist at Sterne Agee & Leach Inc. in Chicago.
The two main factors to watch are gas prices and the dollar. Lower gas prices have traditionally been a leading indicator for a boom. A stronger dollar, on the other hand, has meant less US exporting but more importing, harming domestic manufacturing.
⇧ Fed welcomes energy drop, shrugs off disinflation threat | Reuters
The Federal Reserve is welcoming the sharp drop in global energy prices, with two influential policymakers on Monday cheering the boost it should provide American pocketbooks and shrugging off any pressure on already low inflation.
They think the lower gas prices will heat up the economy by allowing more things to be done with fewer dollars which reduced costs will not lead to increased savings.
However, the youths of the nation were severely burned and scarred by the Lesser Depression. It will be a hard lesson to unlearn, and maybe they shouldn't unlearn it but pay off their student debts and then save more. Maybe the government should step up with fiscal spending.
Fat chance of that now what with deficit hawks running the show in Congress though.
⇧ A European Plan for France and Germany by Henrik Enderlein and Jean Pisani-Ferry – Project Syndicate
Henrik EnderleinHenrik Enderlein and Jean Pisani-Ferry:
Lackluster productivity growth is prima facie evidence of a supply deficiency. The combination of high unemployment and falling inflation is prima facie evidence of a demand shortfall. Interest-rate differentials within the same currency area are prima facie evidence of fragmentation. The truth is that Europe suffers from multiple ills.
So action is needed on all three fronts. The question is how to carry it out.
⇧ Coppola Comment: Structural destruction
Canada, which had neither a property market crash nor a banking crisis, shows the smallest fall. Interestingly – and contrary to popular belief in the States – both the UK and the Euro area appear to have suffered a worse fall in trend RGDP directly attributable to the crisis than the USA did.
Fiscal spending is the way out.
⇧ A glut of oil? | Econbrowser
The world is awash in oil, I'm hearing. The problem is, it's fairly expensive oil.
…if it had not been for the success of Canada and the United States, world production of crude oil would be down overall over the last decade.
OPEC is out to crush the competition from expensive oil. The Saudis will take a loss to do it, to regain market share before raising prices again but more carefully.
⇧ China is finally getting deposit insurance – and that's bad news for the rich – Dec. 1, 2014
China is poised to start offering nationwide deposit insurance, a long-awaited reform that promises to protect most of the country's bank accounts.
The proposed insurance scheme will guarantee deposits up to 500,000 yuan ($81,395), according to a draft report released by China's State Council. The top-end limit would fully protect more than 99% of all bank accounts.
But what's good for typical Chinese could be bad for the 1%. Accounts with more than 500,000 yuan — which make up 50% of total deposits — will be left unprotected, according to Wei Yao, an economist at Societe Generale.
They'll just break up their larger accounts into accounts that fall under the ceiling.
The article goes on though to make the claim that the introduction of this insurance signals that the government will stop bailing out the banks.
Well, that wasn't the case in the US. We had FDIC, and our banks were bailed out.
⇧ Robert Samuelson Dedicates Column to His Own Ignorance: He Didn't Know Keynesians Predicted Weak Recovery | Beat the Press
Robert Samuelson apparently didn't know that all sorts of good Keynesian types, starting with Paul Krugman, predicted that the recovery would be weak due to inadequate stimulus. (Here, here, and here are a few of my own contributions along these lines.)
The basic story is pretty damn simple. When the housing bubble collapsed we lost well over $1 trillion in annual demand. Housing construction fell from a record share of GDP to near record lows, as the boom had led to enormous overbuiilding. In addition, consumption fell as the $8 trillion in ephemeral housing equity created by the bubble disappeared. When this massive amount of housing wealth vanished so did the consumption that it supported.
As all good Keynesians tried to explain, there is no easy way to replace this loss of demand in the private sector, hence the need for government stimulus. And, we said at the time, we needed a larger and longer one than the stimulus package approved by Congress.
⇧ Four years on: from the emergency budget to the autumn statement 2014 | Politics | The Guardian
Dave Prentis, Unison general secretary
"This is the most draconian budget in decades. This budget signals that the battle for Britain's public services has begun, with the government declaring war. Public-sector workers will be shocked and angry that they are the innocent victims of job cuts and pay freezes.
"A 25% cut in departmental public spending will decimate our public services. The budget will do nothing to restore confidence or kick-start the recovery, but will push local economies into the ground, raising the spectre of breadline Britain.
"Nurses, social workers, midwives, paramedics, police community support officers, housing and environmental officers who provide vital public services, are among those who will be hit hardest by the two-year pay freeze, and for local government workers this comes on top of this year's freeze."
"Everything we said in 2010 was proved right. Osborne's approach to public spending has been a disaster. His plan simply didn't work. It did nothing to reduce the deficit. It penalised the poor, sick and vulnerable and left public services in dire straits. Hundreds of thousands of public sector workers lost their jobs.
Breadline Britain is now a reality with nearly a million people using food banks. Budgets and jobs cuts have gone from bad to worse. And sadly we haven't seen the end of this government's austerity measures.
"The recovery the government has been boasting about is still not being felt by workers. A recovery that only benefits the few privileged in this country is no good for the economy and for workers."
⇧ Energy Companies Seen to be Affected by Low Oil Prices: Video – Bloomberg
George Magnus, senior economic adviser to UBS AG in London, says energy companies may face "financial difficulty" if oil prices continue to fall "substantially." He speaks to Anna Edwards, Mark Barton and Manus Cranny on Bloomberg Television's "Countdown" after West Texas Intermediate tumbled below $65 a barrel to the lowest level since July 2009 amid speculation prices have further to drop before OPEC's decision to maintain output slows U.S. shale supply.
⇧ Oil, Sanctions And Russian Politics
Frances Coppola (again):
Although the falling ruble offsets the damage to a net oil exporter that falling oil prices inflicts, Russia suffers badly from Dutch disease because of the dominance of its energy industry, which means that other sectors are relatively undeveloped and many items — including essential foodstuffs — are imported. Inflation is now rising fast and the CBR may be forced to raise interest rates again soon, inflicting further damage on an already fragile economy.
It's too bad for Russia that it doesn't know how to handle its economy without interest.
There are ways, and they are vastly superior to usury-based systems.
⇧ Real world contradicts right-wing tax theories | Al Jazeera America
Sometimes it pays to not know what you're talking about. Just ask Laffer. David Cay Johnston:
Ever since economist Arthur Laffer drew his namesake curve on a napkin for two officials in President Richard Nixon's administration four decades ago, we have been told that cutting tax rates spurs jobs and higher pay, while hiking taxes does the opposite.
Now, thanks to recent tax cuts in Kansas and tax hikes in California, we have real-world tests of this idea. So far, the results do not support Laffer's insistence that lower tax rates always result in more and better-paying jobs. In fact, Kansas' tax cuts produced much slower job and wage growth than in California.
The thing is that Arthur Laffer knew that his theory doesn't work before he told Kansas what it should do. So, why did he do it? Well, why did the Koch brothers get such a windfall?
Whose side are you on?
Oh, tax cuts will work under some circumstances; but generally, they are a bad approach to solving economic problems.
Of course, we could do away with taxes and usury (interest) altogether.
⇧ Drought-Stricken California Braces for More Rain, Possible Mudslides – NBC News.com
The parched state of California is suddenly getting drenched.
Rain swept in Tuesday from Mexico to the Oregon state line, dousing a state in the midst of a historic drought. Voluntary evacuations were posted outside Los Angeles, cities and counties in Northern California made sandbags available for pickup, and flooding and car crashes were reported in San Francisco.
Global Warming results: From extreme to extreme on steroids.
⇧ China's Housing Market Review Post the PBOC rate cut
A very smart article: Junheng Li:
We believe the stock market's recent performance reflects an unwarranted optimism based on a false assumption that the latest PBOC benchmark cut and the future rate cuts (including RRR cuts and other expansionary open market and repo actions) will reverse the deterioration of the residential housing sector, the lynchpin of China's economy. …it will not reverse the weakening of the property market, both secondary and primary.
⇧ Real Estate Watch: Oil, western migration, and home prices – BNN News
Using history as its guide, BMO's Kavcic notes migration flows into Alberta could be "cut in half" in the next year or two.
Without a doubt, the same thing will happen in Texas if OPEC doesn't drop production.
The fracking real-estate boom will greatly slow, just as the tarsands boom will die way down.
⇧ OPEC is wrong to think it can outlast U.S. on oil prices – MarketWatch
Yes, it costs Saudi Arabia only about $2 a barrel to get crude CLF5, -2.06% out of
the ground. But analysts insist the Saudis' real pain point is more than $100 a barrel — more than $30 higher than its price now — because of what they do with the money once they have it.
In 2010, for example, the Saudis spent $130 billion to combat the Arab Spring, the Persian Gulf Fund reports. Some of that money went for better education and health care, and a little for infrastructure. Then there was a 15% raise for government employees, higher unemployment benefits, a government-subsidized minimum wage hike and 500,000 new homes in a nation of 28 million people. It cost 30% of Saudi gross domestic product.
Oh, that's assuming the "pain" would be enough to stop them from producing so much. Honestly, we don't see it. Are they really that soft?
They know they will continue losing market share if they let the US continue the fracking boom. The Saudis bite the little bullet now, or they lose out completely in the not-too-distant future for reasons of technological advancements mentioned in the linked article.
Besides, the US is far from the only thing they're worried about: Russia, Syria, Iran, ….
⇧ 15,000 robots usher in Amazon's Cyber Monday
An army of 15,000 robots is ready to roll as Amazon's fulfillment centers prepare for the holiday sales onslaught.
This is why we've said that society needs quickly to prepare for the day when there simply won't be "jobs" demanding compensation from workers.
We need to devise an economic and financial society now such that a high quality of life is a birth right of every human being and without any human having to work for compensation.
If you are an investor in 1-4 unit properties in Arizona, California, Nevada, Oregon, Utah, or Washington, please do the financially responsible thing and make sure you have proper Landlord Insurance with PropertyPak™. We love focusing on real estate and the economy in general, but we are also here to serve your insurance needs.
Hill & Usher (PropertyPak™ is a division) has many insurance offerings. See our menu above for more info and links.
Did this post help you? Let us know by leaving your comment below.
Note: This blog does not provide legal, financial, or accounting advice. Seek professional counsel.
Furthermore, we, as insurance producers, are prohibited by law from disparaging the insurance industry, carriers, other producers, etc. With that in mind, we provide links without staking out positions that violate the law. We provide them solely from a public-policy standpoint wherein we encourage our industry to be sure our profits, etc., are fair and balanced.
We do not necessarily fact checked the contents of every linked article or page, etc.
If we were to conclude any part or parts of our industry are in violation of fundamental fairness and the legal standards of a state or states, we'd address the issue through proper, legal channels. We trust you understand.
The laws that tie our tongues, so to speak, are designed to keep the public from losing confidence in the industry and the regulatory system overseeing it. Insurance commissioners around the country work very hard to analyze rates and to not allow the industry to be damaged by bad rate-settings and changes in coverages. The proper way for people in the industry to deal with such matters is by adhering to the laws, rules, and regulations of the applicable states and within industry associations where such matters may be discussed in private without giving the industry unnecessary black eyes. Ethics is very high on the list in the insurance industry, and we don't want to lose the people's trust. That said, the industry is not perfect; but what industry is?
For our part, we believe in strong regulations and strong regulators.
We welcome your comments and ask you to keep in mind that we cannot and will not reply in any way or ways where any insurance commissioner could rightly say we've violated the law of the given state.
We are allowed to share rating-bureau data/reports and industry-consultant opinions but make clear here that those opinions are theirs and do not necessarily reflect our position.