News: Real Estate, Risk, Economics. Apr. 13, 2016

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Table of Contents
(Click to sections below.)

1) What tools does the Fed have left? Part 3: Helicopter money | Brookings Institution

2) Global trade should be remade from the bottom up | Larry Summers

3) Snoopy the Destroyer – The New York Times

4) Concentrated Power Drives Extreme Income Inequality and Slows Economic Growth – Evonomics

5) Sober Look: Understanding Negative Interest Rates

6) The 1% hide their money offshore — then use it to corrupt our democracy | Aditya Chakrabortty | The Guardian

7) US banks' dismal first quarter may spell trouble for 2016 | Reuters

8) BlackRock Joins $46 Billion Japan Pullout – Bloomberg

9) Sorry Paul, but the Bailout WAS about the Banks – Credit Slips

10) Housing Slips On Oil… | Builder Magazine

11) Hoverboard Fire Leaves 3 Florida Apartments Damaged

12) The Nature Conservancy Looks to Address South Florida Climate, Catastrophe Risks

13) CORONA: Arson suspect accused of insurance fraud arrested – Press Enterprise

14) Major Hail Damage Reported After Severe Storms Monday | NBC 5 Dallas-Fort Worth

15) How secretive shell companies shape the US real estate market – The Washington Post

16) 'Bubble Real Estate' Is An Actual Company, And Its Founder Is A Serial Evictor: SFist

17) How You Can Use FHA Duplex Financing to Become A Real Estate Investor – MainStreet

18) How negative rates work | FT Markets – YouTube

19) Grateful Dead Ripple by AJ Lee – YouTube

20) How Property Tax Rates Vary Across And Within Counties | Eye On Housing

21) The Case for Free Trade Is Weaker Than You Think – Real Time Economics – WSJ

22) Australia's housing bubble and the road to private serfdom

23) New Report: Why State-Issued Money is Not Debt – Positive Money

24) What If You Were Taxed Like a Multinational? | Investopedia

25) Sweet spot between bubbles – Livemint

26) Sensor on F-17 experiencing difficulties, sea ice time series temporarily suspended | Arctic Sea Ice News and Analysis

27) Homes with 'Subway Tiles' or 'Barn Doors' Sell Faster and For More Money

28) 6 Reasons All Landlords HATE Having to Evict a Tenant

  1.    What tools does the Fed have left? Part 3: Helicopter money | Brookings Institution

    Ben Bernanke:

    4. … unlike debt-financed fiscal programs, a money-financed program does not increase future tax burdens. [6]
    Standard (debt-financed) fiscal programs also work through channels #1 and #2 above. However, when a spending increase or tax cut is paid for by debt issuance, as in the standard case, future debt service costs and thus future tax burdens rise. To the extent that households today anticipate that increase in taxes—or if they simply become more cautious when they hear that the national debt has increased—they will spend less today, offsetting some of the program's expansionary effect.[7] In contrast, a fiscal expansion financed by money creation does not increase the government debt or households' future tax payments and so should provide a greater impetus to household spending, all else equal (channel #4 above).

    Ben assumes the need for the Fed's existence. I don't. He rushed through the issue of inflation being handled via interest rates versus the money supply. I disagree with him that the people would need to be convinced that the money supply wouldn't contract. If the people were to be instructed that reducing the money supply to counteract inflation is no more costly than raising interest rates (in fact less), they'd spend just as easily. More importantly, the people could be instructed as to why inflation need not become a problem requiring a reduction in the money supply/deposits. In fact, without bankers making the credit decision, the people's representatives could spend debt-free money on things where supply and demand would go up in a balanced manner.

    … no one is recommending the use of such policies in ordinary times ….

    I don't exist? But I do exist, and I am calling for it.

    The concern that governments supposedly can't be trusted is easily handled via legislation mandating balanced supply-and-demand outcomes of spending debt-free money on projects and programs, etc. The balance could be achieved via software doing what the Fed board attempts to do in their heads and collectively.

    A possible arrangement, set up in advance, might work as follows: Ask Congress to create, by statute, a special Treasury account at the Fed, and to give the Fed (specifically, the Federal Open Market Committee) the sole authority to "fill" the account, perhaps up to some prespecified limit. At almost all times, the account would be empty; the Fed would use its authority to add funds to the account only when the FOMC assessed that an MFFP of specified size was needed to achieve the Fed's employment and inflation goals. [11] Should the Fed act, under this proposal, the next step would be for the Congress and the Administration—through the usual, but possibly expedited, legislative process—to determine how to spend the funds (for example, on a tax rebate or on public works). Importantly, the Congress and Administration would have the option to leave the funds unspent. If the funds were not used within a specified time, the Fed would be empowered to withdraw them.

    You see Ben's insistence on Fed independence, as if the FOMC is pure and the best solution. It is neither.

    Anyway, it is proper to discuss debt-free money (money-financed fiscal spending). It is a mistake, however, to conclude that it shouldn't be the way we always fund the government.

    Add your comment.

  2.    Global trade should be remade from the bottom up | Larry Summers

    Nothing new here from Larry Summers. Nevertheless, welcome to the club, Larry.

    … a shift from international trade agreements to international harmonization agreements, whereby issues such as labor rights and environmental protection would be central, while issues related to empowering foreign producers would be secondary.

    And that was my position concerning NAFTA. My requirement was, and remains, that we don't find the least common denominator and go with that but find the best standard and apply it globally, with the rich helping the poor to achieve it rather than simply making money off them as wage slaves.

    Add your comment.

  3.    Snoopy the Destroyer – The New York Times

    … the episode also showed that making the breakup of big banks the be-all and end-all of reform misses the point.

    Who said it is the "be-all and end-all"? I haven't heard anyone say it or suggest it or even hint at it. It's a straw-man argument by Paul Krugman. Secondly, who is saying that we need to break up the mega-banks but do nothing about shadow banking? Again, I haven't heard anyone say it or suggest it or even hint at it. It's just another straw man.

    Most people who believe that the mega-banks shouldn't have been allowed to grow as they did (amassing way too much political power), were for nationalizing all of them in 2009, even if only temporarily, as with AIG. I certainly was.

    All of the executives who clamored for deregulation should have been immediately ousted at the very least.

    Doesn't Paul Krugman think so? Doesn't he think they were too big and still too big, too powerful, too entitled?

    Add your comment.

  4.    Concentrated Power Drives Extreme Income Inequality and Slows Economic Growth – Evonomics

    … what if income inequality is shaped, in part, by broad power institutions—oligopolistic corporations and labor unions being two examples—such that some are able to claim a greater share of national income, not through superior productivity, but through market power?

    The mega-bankers know that. So does Paul Krugman. So, why doesn't he understand that breaking up the mega-banks is one part of an overall plan to rebalance the power in the nation?

    I believe he does know it. I believe he has an ideological hatred for Bernie Sanders that causes him to write things in a twisty way to try to constantly cast Bernie in a very negative light.

    Is it nearly subconscious? Why the disconnect?

    It's Bernie's socialism. Paul doesn't like it. Paul is a mixed-economy capitalist who is seemingly rather pro-banker (letting them do just as much as they want just short of crashing the system, even though Paul can't guarantee his plan would keep them from doing it).

    Add your comment.

  5.    Sober Look: Understanding Negative Interest Rates

    Best overview I've seen on negative-interest rates:

    Norman Mogil:

    NIRs are part of a long list of unconventional monetary policy moves which include purchases of government bonds, purchases of mortgages and other asset-backed securities,forward guidance and currency devaluations. To date, these efforts have failed to stimulate growth. Had these governments adopted expansionary fiscal policies, there would not be the need for so many unconventional policy moves, of which the latest is NIRs. In a sense, governments have been struggling to shake off slow growth and deflation with one hand tied behind their backs.

    That's been my position exactly!

    Add your comment.

  6.    The 1% hide their money offshore — then use it to corrupt our democracy | Aditya Chakrabortty | The Guardian

    Thirty years of runaway incomes for those at the top, and the full armoury of expensive financial sophistication, mean they no longer play by the same rules the rest of us have to follow. …

    … The 1% are buying political influence as never before. Think of the billionaire Koch brothers, whose fortunes will shape this year's US presidential elections. In Britain, remember the hedge fund and private equity barons, who in 2010 contributed half of all the Conservative party's election funds — and so effectively bought the Tories their first taste of government in 18 years.

    In Britain and in America, the super-rich have broken Hirschman's law — they are at one and the same time exercising economic exit and political voice. They can have their tax-free cake and eat it.

    In my politics lessons, we were taught that Britain was a representative democracy. But what 30 years of plutocracy have brought is an era of un-representative democracy.

    "The secret of success is honesty and fair dealing. If you can fake those, you've got it made." ~ Groucho Marx

    Add your comment.

  7.    U.S. banks' dismal first quarter may spell trouble for 2016 | Reuters

    Banks have been struggling to generate more revenue for years, while adapting to a panoply of new regulations that have raised the cost of doing business substantially.

    The biggest challenge has been fixed-income trading, where heavy capital requirements, new derivatives rules, and restrictions on proprietary trading have made it less profitable, leading most banks to simply shrink the business.

    This is why the money should come from government and not credit.

    Add your comment.

  8.    BlackRock Joins $46 Billion Japan Pullout – Bloomberg

    You know, the Chinese Communist Party and Xi don't know what they are doing, but neither does Abe.

    What should he do? Stop borrowing. Stop raising taxes. Stop cutting taxes on corporations. Give money to the people until they spend it.

    Add your comment.

  9.    Sorry Paul, but the Bailout WAS about the Banks – Credit Slips

    Here's another debunking of Paul Krugman's anti-Bernie-on-banking ranting. This one brings up some points not covered in any of the links I've provided before up to this one.

    Adam Levitin has done a nice job.

    Add your comment.

  10.    Housing Slips On Oil… | Builder Magazine | Housing Trends, Economic Conditions, Economics, Houston-Sugar Land-Baytown, TX, Brad Hunter, Metrostudy, BUILDER-METROSTUDY, Texas

    Job growth in Houston fell sharply after the price of oil went from over $100 per barrel to $30. There is a historically tight correlation between oil prices and housing demand in Houston, and the recent dual drop continued to affirm that correlation.

    Add your comment.

  11.    Hoverboard Fire Leaves 3 Florida Apartments Damaged

    Officials say three apartments sustained water damage from a sprinkler system after a hoverboard caught fire in an Orlando apartment building.

    If you haven't already done it, ban them immediately from the property.

    Add your comment.

  12.    The Nature Conservancy Looks to Address South Florida Climate, Catastrophe Risks

    …maximize…mangroves, coral reefs, wetlands and dunes, as an important line of defense for coastal and community protection.

    Government needs to get us off carbon burning.

    Add your comment.

  13.    CORONA: Arson suspect accused of insurance fraud arrested – Press Enterprise

    A man accused of setting fire to his Corona home and then filing fraudulent insurance claims amounting to more than $1 million was arrested Thursday, April 7, in San Francisco, Corona city officials say.

    Add your comment.

  14.    Major Hail Damage Reported After Severe Storms Monday | NBC 5 Dallas-Fort Worth

    "Through the attic, through 5/8-inch sheet rock, and then hit the floor and you still have this size left," Graves said, holding a golf-ball sized piece of hail.

    His neighbor's house is in even worse shape. The ceiling is caved in and daylight could been seen through several spots in the roof where hail crashed through.

    "I've been in Texas almost 34 years and that's probably the most devastating hail I've ever seen," Graves said.

    And I've been told hail can reach the size of watermelons.

    Megacryometeors, large rocks of ice that are not associated with thunderstorms, are not officially recognized by the World Meteorological Organization as "hail," which are aggregations of ice associated with thunderstorms, and therefore records of extreme characteristics of megacryometeors are not given as hail records.

    • Heaviest: 1.02 kg (2.25 lb); Gopalganj District, Bangladesh, 14 April 1986.[33][34]

    • Largest diameter officially measured: 7.9 inches (20 cm) diameter, 18.622 inches (47.3 cm) circumference; Vivian, South Dakota, 23 July 2010.[35]

    • Largest circumference officially measured: 18.74 inches (47.6 cm) circumference, 7.0 inches (17.8 cm) diameter; Aurora, Nebraska, 22 June 2003.[34][36]

    Terminal velocity of hail, or the speed at which hail is falling when it strikes the ground, varies. It is estimated that a hailstone of 1 centimetre (0.39 in) in diameter falls at a rate of 9 metres per second (20 mph), while stones the size of 8 centimetres (3.1 in) in diameter fall at a rate of 48 metres per second (110 mph). Hailstone velocity is dependent on the size of the stone, friction with air it is falling through, the motion of wind it is falling through, collisions with raindrops or other hailstones, and melting as the stones fall through a warmer atmo sphere. As hail stones are not perfect spheres it is difficult to calculate their speed accurately.[37] [ records ]

    Add your comment.

  15.    How secretive shell companies shape the U.S. real estate market – The Washington Post

    Ana Swanson:

    In the last quarter of 2015, 58 percent of all property purchases of more than $3 million in the United States were made by limited liability corporations, rather than named people. Altogether, those transactions totaled $61.2 billion, according to data from real estate database company Zillow. Since many of these companies are registered anonymously in the U.S. — often in states like Delaware, Nevada and Wyoming that offer secrecy and tax protections that rival traditional offshore destinations — it's impossible to know just how many are owned by foreigners.

    … in guarding privacy, shell companies also help obscure the ownership information that law enforcement need to fight crime. And that opens the U.S. property market to the kind of nefarious activity highlighted by the Panama Papers — money laundering, drug trafficking and corruption.

    The U.S. government doesn't ask real estate brokers to monitor their clients for money laundering risks, the way that banks and other financial institutions — and real estate brokers in some other countries — are required to do. …

    Shasky-Calvery says that the U.S. already has good controls on money-laundering for property purchases that are made with mortgages taken out at the bank — a category that represents 78 percent of U.S. real estate purchases overall. But the other 22 percent, "cash purchases," is not monitored. This category that includes not just suitcases full of cash, but also certified checks, traveler's checks, personal checks, money orders and money wires.

    … The Treasury program monitors a notably narrow slice of the market, covering only two U.S. cities for six months. It tracks only certain forms of cash — certified checks, cashier's checks, money orders and hard currency — but not wire transfers or personal checks. And since the progr am works through title insurance companies, buyers can get around the monitoring by refusing to buy title insurance.

    "It was troubling to read that some legal and real estate experts mobilized immediately after [the Treasury tracking was] announced to provide suggestions about ways to evade the reporting requirements," Shasky Calvery said in her speech on Tuesday. "We all know that criminals seek the path of least resistance."

    Add your comment.

  16.    'Bubble Real Estate' Is An Actual Company, And Its Founder Is A Serial Evictor: SFist

    … yes, Bubble Real Estate is an actual San Francisco company, and it was founded by a guy who Ellis Acted a bunch of senior citizens.

    Add your comment.

  17.    How You Can Use FHA Duplex Financing to Become A Real Estate Investor – MainStreet

    … FHA will lend to borrowers with less- perfect credit. "FHA only requires a down payment of 3.5% for owner-occupied properties with credit scores down to 580," says Erin Lantz, vice president of mortgage with Seattle-based Zillow. …

    Another important factor is that FHA lets borrowers include projected rental income on mortgage applications. …

    … Borrowers must move into the property within 60 days and live there at least one year. …

    … FHA requires mortgage insurance when lending more than 80% of property value. The costly insurance includes an upfront payment equal to 1.75% of the loan plus monthly premiums of $200 or so on average, for the life of the loan.

    Add your comment.

  18.    How negative rates work | FT Markets – YouTube

    Roger Blitz and Peter Westway of Vanguard discuss winners and losers in a negative rates world.

    They are also used as a means to protect a currency from becoming too hot/disinflationary.

    Add your comment.

  19.    Grateful Dead Ripple by AJ Lee – YouTube

    Add your comment.

  20.    How Property Tax Rates Vary Across And Within Counties | Eye On Housing

    A new NAHB Economics research article shows that the effective real estate tax rates vary substantially across and within counties, with the highest rate area displaying rates that are often multiple times higher than the lowest rate areas within the same county.

    Add your comment.

  21.    The Case for Free Trade Is Weaker Than You Think – Real Time Economics – WSJ

    Greg Ip :

    If China suppresses its own consumption and saves more, its demand for imports from the U.S. will fall. The resulting trade surplus will generate extra savings that will be exported to the U.S., depressing interest rates and pushing up the dollar. As U.S. exports fall and imports rise, domestic output and employment are depressed. The central bank would normally respond by lowering interest rates. But if interest rates—in part because of China's excess savings—are already near zero, the central bank can't boost demand enough to put the unemployed workers back to work doing something else.

    It doesn't matter how China achieves its trade surplus. It could be with an import tariff, capital controls and currency intervention that hold down the yuan, or just a high domestic saving rate. By the same token, the U.S. can undo the damage of a trade deficit by responding with import tariffs or intervention to hold down the dollar. "Neo-mercantilist policies alleviate the secular stagnation of the country pursuing them by exporting savings, but at the expense of the trading partner," ….

    Add your comment.

  22.    Australia's housing bubble and the road to private serfdom

    Residential property is so highly leveraged that even a small fall in its value would have adverse consequences, placing heavily-geared owners in the position of negative equity. Falling prices and credit defaults can reverberate throughout the economy, leading to a recession or worse. After all, a real estate slump drove other wealthy economies into a major downturn ….

    With total household sector liabilities at $2.2 trillion dollars as of 2015, quarter four (Q4), Australians are so indebted that the majority of principal will never be repaid. With nominal rent growth now turning negative and wage growth at record lows, it will become increasingly difficult to finance repayments, especially for first home buyers.

    … traumatised worker syndrome. Households become so indebted that workers one step away from missing a loan payment won't ask for higher wages and entitlements for fear of unemployment.

    All levels of government are responsible, but the Federal Government is the most culpable, both Coalition and ALP. Perverse policies are attributable to the FIRE sector's poisonous effect on democratic processes, a stacked parliamentary deck, extensive lobbying (legalised bribery) and soft corruption. The political and economic classes believe not in the "trickle down", but the "flood up" effect.

    While mainstream economists claim there is no free lunch, it is obvious the wealthy are feasting daily on a banquet of economic rents and unjustified privilege. …

    Economists on the payroll of vested interests have attempted to explain away sky-high prices and private debt on the basis of lower nominal interest rates and inflation, demographic change, developer charges and levies, population growth, a dwelling shortage and so on. During the 2000s, U.S. economists asserted all these factors to falsely justify historically high and rising housing prices. ….

    Financial capitalism has imposed a short-term outlook on the public who are oblivious to the dark history of real estate and banking. Vested interests do not want this history taught because its lessons are stark. With the household sector creaking under an unsustainable amount of debt, housing prices will eventually decline under the weight of the FIRE sector's corruption and inefficiency.

    FIRE stands for Finance, Insurance, and Real Estate. I don't believe the problem belongs at the feet of the insurance industry.

    Add your comment.

  23.    New Report: Why State-Issued Money is Not Debt – Positive Money

    … according to the International Accounting Standards, sovereign money cannot be considered a debt of the state. But if sovereign money is not the debt of the state, then what is it? It turns out that sovereign money conforms to the classification of equity.

    I'm making this next statement before reading the "10-page briefing." It is equity in two senses, one of which is dubious in my view. It is equity for its potential (dubious), and it is equity once spent on lasting projects.

    So, I read the briefing. It's good. However, it assumes the value in the debt-free money that has been created by the government but not spent to acquire an asset but is rather being treated as an asset in and of itself immediately upon creation, the limits of which are infinite. The government has 1) infinite-equity potential or 2) infinite equity, with the distinction being simply the moment the key on the computer is pressed creating the money in computer memory.

    I fully understand money as an asset in the current system and that such money is also created.

    This is an issue of semantics only. I can go with it either way. It's not a big deal.

    They are right that Randy Wray is wrong, exactly as I argued with Randy about it.

    Add your comment.

  24.    What If You Were Taxed Like a Multinational? | Investopedia

    You may want to speak up today. Congress enacted a similar tax holiday in 2004, the American Jobs Creation Act, on the promise that it would create 660,000 jobs. Not one was created.

    However, as soon as that law took effect its biggest beneficiary, Pfizer, started firing people. Soon 40,000 were off its payroll. Pfizer saved $11 billion in taxes, much of it on profits from Viagra, which are earned in America, but turned over to a tax-free European subsidiary as tax-deductible royalties.

    The company pressing hardest this year for another tax holiday? The House members tell me that once again it's Pfizer.

    Add your comment.

  25.    Sweet spot between bubbles – Livemint

    Post-2008 crisis, China's non-financial private sector debt has risen at a rate of $6.5 billion per day. This is rebalancing and restructuring with Chinese characteristics. That is why Vincent Chan, head of China research at Credit Suisse, notes that he is afraid of the medium-term and long-term prospects of the Chinese economy. …

    … A recent research report by Bank of America-Merrill Lynch warns us that a credit crunch could be triggered by the rising defaults in shadow-banking products defined as non-bank-loan debt instruments that include bonds, trusts and credit products offered by peer-to-peer (P2P) and various offline wealth management companies.

    … China has abandoned any pretence of rebalancing (how many times do we have to restate the obvious?) and has reignited a property bubble through renewed lending. … The Wall Street Journal warns of a sub-prime crisis in Chinese real estate as the same fraudulent practices that were pervasive in the US now play out in China.

    … Authorities might have been too clever in thinking that developers would use the profits from the bubble in Tier 1 cities to liquidate inventory of houses in Tier II and III cities. But, the opposite is likely to happen. Developers would think that, if they waited long enough, the government would engineer another bubble in those cities too!

    … the Royal Bank of Scotland, compiled in February. They have 'upgraded' their assessment of the Chinese economy from bumpy landing to hard landing.

    When, not whether.

    Add your comment.

  26.    Sensor on F-17 experiencing difficulties, sea ice time series temporarily suspended | Arctic Sea Ice News and Analysis

    NSIDC has suspended daily sea ice extent updates until further notice, due to issues with the satellite data used to produce these images. The vertically polarized 37 GHz channel (37V) of the Special Sensor Microwave Imager and Sounder (SSMIS) on the Defense Meteorological Satellite Program (DMSP) F-17 satellite that provides passive microwave brightness temperatures is providing spurious data. …

    Add your comment.

  27.    Homes with 'Subway Tiles' or 'Barn Doors' Sell Faster and For More Money

    One would assume these features would also have the same results for middle to high-end rentals.

    Are barn doors a trend or fad?

    Add your comment.

  28.    6 Reasons All Landlords HATE Having to Evict a Tenant

    I take Kevin at his word, but there are landlords out there who are interested in maximizing their bottom line regardless of the damage done, including to good-paying tenants who take good care of their rental units, etc.

    It is "worth it" for such landlords to evict even good tenants.

    Okay, so you say, "That's capitalism." You're right. However, landlords can support governmental subsidies of all sorts that will allow landlords to make a very reasonable profit for the amount invested and for the landlord's work.

    Add your comment.

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