News: Real Estate, Risk, Economics. May 10, 2016

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Table of Contents
(Click to sections below.)

1) Who are the 30 Worst Brokers in America When Measured By Misconduct?

2) A Europe Day reflection: don't swallow the Treasury line, but it's still better to remain — Prime Economics

3) The top towns for real estate investors

4) mainly macro: Economists versus bankers

5) The Folly Of German Economic Policy – Forbes

6) Even China's Party Mouthpiece Is Warning About Debt – Bloomberg

7) The economic "disease" eating away at the US – CBS News

8) Helicopters on a Leash

9) Post-Katrina Flood Case Given Class Action Status

10) Donald Trump on the debt: "You never have to default because you print the money" – Vox

11) S&P Warns of Climate Risks to Financial Sector | Bloomberg BNA

12) Remaking Goose Island, One of Chicago's Great Industrial Hubs – Curbed Chicago

13) Creating Quality Workforce Housing – YouTube

14) South Dakota tax haven explained | FT World – YouTube

15) Regular on New York's 'Worst Landlords' Lists Is Charged – The New York Times

16) Canada wildfire: 85% of Fort McMurray has been saved, says Alberta premier | The Guardian

17) The World's Most Extreme Speculative Mania Unravels in China – Bloomberg

  1.    Who are the 30 Worst Brokers in America When Measured By Misconduct? –

    … results, while not conclusive, suggest that misconduct is targeted at customers who are potentially less financially sophisticated.

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  2.    A Europe Day reflection: don't swallow the Treasury line, but it's still better to remain — Prime Economics

    I've deliberately avoided the Brexit issue. I'm personally for a United States of Europe not necessarily based upon the USA but definitely integrated at all levels and vastly more democratic than the EU is now (or even than the USA is now).

    Jeremy Smith has caused me to post on this issue because he has done a yeoman's job of looking at the economic history and possibilities and done so in a very credible manner.

    His post is long but worth the read. Here are my key takeaways:

    There are millions of Europeans who oppose the ultra-free-trade dogma that leads to TTIP and the empowerment of international corporations at the expense of people and their governments. It is unacceptable to have unemployment above 10% for year after year. The Eurozone economic policies and means of enforcement have been a disgrace and greatly damaged economic activity.

    Concerns over the Treasury report
    My main concerns with the Treasury paper are these:

    (b) The paper concentrates overwhelmingly on the issues of Trade and Foreign Direct Investment, as if they are the only important aspects of economic activity and well-being. I would argue that the evidence from actual real world results does not bear out the assumption that these are such critical factors as is assumed in determining the development of national income.

    (c) The paper says almost nothing about aggregate demand. It assumes that "free trade" and supply side issues are the only ones that are important, and that only by increasing 'trade', can you increase wellbeing. In fact, it is aggregate demand – domestic as well as international – that is central to economic development and national prosperity, and trade mainly follows demand rather than causing it. Thus a proper analysis of the UK's prospects inside or outside the EU needs to take many more factors into account, if it is to have any evidential or persuasive value. …

    It is not my purpose to deny that much trade brings benefits to citizens and in the productive capacity of a country. Likewise with productive investment that is there for the long-term. But once again, the modelled benefits are hard to see so clearly when one examines the real-life data. And the "free trade" dogma assumes that all kinds of trade are always and everywhere positive – which we increasingly understand is not the case.

    … the Treasury report simply says this about the benefits of trade as a member of the EU:
    "Membership of the EU has made it easier to trade both with the EU and the wider world. Trade as a share of national income has risen to over 60% in the past decade, compared to under 30% in the years before the UK joined the EU. The HM Treasury analysis, which is in line with academic research, shows that EU membership increases trade with EU members by around three quarters."

    They do not argue directly here – though it is picked up elsewhere in the paper as we will see – that increased trade leads to – or is at least strongly correlated with – increased GDP, but in fact the correlation is far from strong, and leads into complex issues of causation (e.g. it is more likely that increased economic activity causes more trade, rather than vice versa). …

    … there is no evident link between the extent of FDI (as stock or flow) and the development of GDP or GDP per head, and the Treasury does not try to make a data-related link. The report again seems to invite the reader to infer conclusions that are not made explicit, nor the subject of comparative cross-national study.

    … the Treasury report seeks to make a link with increased productivity (1.77):
    "There is strong evidence that UK trade and investment has been higher as a result of this access to the Single Market. This has increased productivity in the UK. Higher productivity means better quality jobs, and higher real wages and household incomes."

    The problem is, productivity in the UK is far behind most other high-income EU and OECD countries and in recent years has not been growing rapidly, precisely at the time when FDI has been rapidly increasing and is far greater than elsewhere. Either the increases have not had the claimed impact on productivity, or the rest of the economy is in the direst condition…

    The UK's GDP per head has risen more than any othre country's over the period, but the increase in exports as a percentage of GDP was less than elsewhere, and the rise in exports (in USD) was less than in the other comparators bar France. Germany's exports had to work much harder to achieve its increase in GDP per head!

    … The Treasury report slips in that it is investment, not foreign investment as such, that is the key to productivity but refuses to draw a wider conclusion:
    "Access to the Single Market affects the incentives of businesses to invest in the UK, both for domestic firms and foreign firms. This matters because investment in the economy is a key determinant of economic output and productivity growth."

    And the role of the public sector is likely to be crucial in building our next-generation infrastructure, and in kick-starting and supporting private investment. There will also assuredly be a positive multiplier effect from such a programme.

    … A government committed to a more "autarkic" policy might be able to deal with the situation, but that is not what we will have. …

    … to friends who see the economic faults of the EU and especially the Eurozone, and are thinking how to vote, I would argue that our task is to work in solidarity, to work for unity to change the EU's policies in a progressive and democratic direction. My vote to remain will be based on the opposite economic grounds to the "Remain" campaign's.

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  3.    The top towns for real estate investors

    Knoxville, Tennessee, for example, saw a nearly 20 percent jump in single-family rent rates in the first quarter of this year, compared to a year ago, according to RentRange, a provider of market data and analytics for the single-family rental industry. Its average gross yield for investors was just more than 8 percent. Syracuse, New York, also ranks in RentRange's top 10 list of the most lucrative rental markets, with rent gains of more than 17 percent annually and an average gross yield of nearly 11.27 percent. Milwaukee, New Orleans and Charleston, South Carolina, round out the top 10 list.

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  4.    mainly macro: Economists versus bankers

    Simon Wren-Lewis

    … good reforms are those that can best resist political or economic manipulation by banks, and perhaps [not perhaps but rather definitely] economists in general have been slower to see that than some of their colleagues in other social sciences.

    The situation changed after the financial crisis, for obvious reasons. Since then economists have increasingly questioned whether the whole business model behind banking is sound. In particular they have questioned why banks should be so different from other companies in terms of the amount of equity capital they hold in relation to their assets. These economists include the previous governor of the Bank of England, Mervyn King. They have also questioned whether one of the side effects of current regulation is to maintain the monopoly power of big banks.

    So who cares if economists have crossed swords with bankers? It matters because finance gets away with so much partly through a process of mystification. Mystification is how banks can perpetrate widespread fraud on consumers and businesses. When bankers say that being forced to 'put aside' more capital keeps money out of the economy it sounds plausible to many, even though it is completely false. (Admati and Hellwig (pdf) list 30 other similar false claims.) There is also a belief that because bankers are involved in financial markets, they must know something about how the macroeconomy works, a belief which the FT op-ed shows is clearly false. In all these cases, economists can provide demystification.

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  5.    The Folly Of German Economic Policy – Forbes

    Frances Coppola:

    Berlin believes that if those countries adopted prudent German-style economic policies, they too could have current account surpluses. But this is a fallacy of composition. It is not possible for all countries simultaneously to run current account surpluses. We do not trade with Mars.

    John Maynard Keynes's famous "paradox of thrift" states that when everyone tries to save at once, economic output falls, to everyone's detriment. A current account surplus is simply an excess of saving over investment, so if every country tries to run a current account surplus, global output must fall.

    That's only true where the money supply for further increases in productivity is constrained. That's why I've been advocating for fiscal stimulus via debt-free issuance, which is completely legal in the US. The only obstacles are the libertarians and pro-usury Keynesians (Keynes was unfortunately pro-usury himself) in the US government.

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  6.    Even China's Party Mouthpiece Is Warning About Debt – Bloomberg

    When will the People's Daily be raided?

    The article runs directly counter to Xi's orders to the press.

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  7.    The economic "disease" eating away at the U.S. – CBS News

    … the major source of productivity growth is technological innovation. Historically, one source of innovation has been offshoots from government investment in basic research. Presently, as a percent of GDP, government support for basic research is at a 50 year low.

    Fiscal stimulus is required.

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  8.    Helicopters on a Leash

    Adair Turner:

    Japan today illustrates that danger. Having eschewed monetary finance for too long, it now has so much public debt (about 250% of GDP) that if that debt were all monetized, excessive inflation would probably result. But there is no credible scenario in which that debt can ever be "repaid" in the normal sense of the word. De facto monetization is the inevitable result, with the Bank of Japan purchasing each month more bonds than the government issues, even while it denies that monetary finance is an acceptable policy option.

    It is better to recognize the technical case for monetary finance and mitigate the political dangers than to prohibit its use entirely and pile up still greater dangers for the future.

    Of course to the second paragraph, but the first is wrong.

    Debt can be retired via new money issuance. Then, any oversupply leading to too much inflation can be simply taxed out of the system. That always seems to escape the "experts." I wonder why (tongue in cheek).

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  9.    Post-Katrina Flood Case Given Class Action Status

    The Judge, who ruled the federal government is responsible for some flooding that hit New Orleans after Katrina, granted class-action status.

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  10.    Donald Trump on the debt: "You never have to default because you print the money" – Vox

    I've been trying to tell people that Donald Trump is resourceful. I'm not endorsing him. I'm simply saying that he is continually learning and remains very open to new ideas.

    Anyway, he just did MMT a huge favor.

    Dylan Matthews:

    … countries like the US that do control their own currencies always have another option: They can pay off the debt by printing more dollars. This might lead to undesirable levels of inflation, but that's probably better than a full-on financial catastrophe.

    Trump's latest comments suggest that he grasps this notion. In doing so, he's echoing a heterodox left-wing economics movement that's gotten some buy-in from Bernie Sanders as well: modern monetary theory.

    My readers are not surprised.

    BTW, Krugman is flat out wrong about it. We don't need bonds. MMT doesn't care much either way. "Sovereign Money" is a hybrid movement that combines elements of Fisher with MMT but emphasizes democratizing the economy above all else. It's highly progressive (way too much for Paul Krugman, who falsely imagines that "The Facts Have A Well-Known Center-Left Bias": http://krugman.blogs.nytimes.com/2016/05  /09/the-facts-have-a-well-known-center- left-bias/ , as if a few Bernie supporters proves Paul's "rule.")

    Stephanie Kelton is a much better economist in my book, and her good friend, Billy Mitchell really gets the debt-free money idea (along with public banking in the form of the US Treasury being the one and only bank we should have).

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  11.    S&P Warns of Climate Risks to Financial Sector | Bloomberg BNA

    "At the end of last year, we did a lookback over the previous two years of all our global rating actions to see how much climate risk and environment risk has actually impacted credit ratings," Michael Wilkins, S&P's global head of environmental and climate risk research and one of the authors of the report, said May 4 at an event hosted by Bloomberg.

    The ratings agency identified about 300 examples where those risks had a material impact on corporate credit analysis and almost 60 cases where it led to rating actions, most of which were downgrades.

    How will your real-estate investments be impacted by anthropogenic global warming?

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  12.    Remaking Goose Island, One of Chicago's Great Industrial Hubs – Curbed Chicago

    You're working on a number of adaptive reuse projects on Goose Island, an area along the Chicago River's North Branch that has a long history of being an industrial corridor. What is one of the biggest challenges in renovating and repurposing an older structure to meet a new use?

    A building is a living and breathing thing. If an older structure isn't heated or cooled in Chicago, for even a few years, it will fall apart from the inside out. We look for buildings with great bones that have been built to withstand the test of time, like 909 W. Bliss, a 300,000-square-foot concrete loft in Goose Island. Our goal is to restore buildings to their former grandeur, while modernizing them so they will be around for the next hundred years. Balancing the past and the future is the contrast that makes repurposing an old structure so special. It's different than building a ground up development, where value engineering often defines the form. In Goose Island's case, the form exists, and you need to work with the form to enable modern functionality. This is an awesome challenge.

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  13.    Creating Quality Workforce Housing – YouTube

    Avanath Capital Management Founder & CEO Daryl Carter spoke to MHN about how his company is combating the issue of affordable housing around the country and the top trends he's seeing in multifamily workforce housing this year, at the 2016 ULI Spring Meeting.

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  14.    South Dakota tax haven explained | FT World – YouTube

    Trust us. We just want privacy, not secrecy?

    The US is a magnet for offshore wealth, notably South Dakota, which has guaranteed secrecy for family trusts. The FT's Kara Scannell, investigations correspondent, explains.

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  15.    Regular on New York's 'Worst Landlords' Lists Is Charged – The New York Times

    Wow!

    For decades, Steven Croman was a successful landlord in New York City. His companies bought up more than 140 Manhattan apartment buildings, often filled with rent-regulated tenants. And then, methodically, he pushed them to leave, buying them out of their leases for relatively modest sums or, if that did not work, harassing them until they left, tenants said. He was a regular on "worst landlords" lists. His tenants even started a website against him.

    Mr. Croman's business came to embody in many ways how rent regulations have eroded in the city, putting housing out of reach for more and more people. He was able to deregulate most of his rent-stabilized apartments within just a few years of buying the buildings, enabling him to collect much higher rents.

    On Monday, though, his fortunes took a different turn. Mr. Croman, 49, turned himself in to the authorities around 7 a.m. in Lower Manhattan. He was charged with 20 felonies, including grand larceny, criminal tax fraud, falsifying business records and a scheme to defraud, relating to accusations he inflated his rental income to secure more than $45 million in bank loans. He faces up to 25 years in prison. His mortgage broker, Barry Swartz, 53, was charged with 15 felonies.

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  16.    Canada wildfire: 85% of Fort McMurray has been saved, says Alberta premier | World news | The Guardian

    Some 2,400 homes and buildings were destroyed or damaged by the fire, said Notley.
    Fort McMurray fire damage

    For the tens of thousands of residents now scattered across the province, many of them wondering whether they have a home to return to, Notley had good news. Some 85% of the city — around 25,000 structures — had been saved. "The city was surrounded by an ocean of fire only a few days ago," said Notley. "But Fort McMurray and the surrounding community have been saved and it will be rebuilt."

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  17.    The World's Most Extreme Speculative Mania Unravels in China – Bloomberg

    Do they know what they're doing? No.

    As the nation's army of individual investors piled in, they traded enough cotton in a single day last month to make one pair of jeans for everyone on Earth and shuffled around enough soybeans for 56 billion servings of tofu.

    Now, as Chinese authorities introduce trading curbs to prevent surging commodities from fueling inflation and undermining plans to shut down inefficient producers, speculators are retreating as fast as they poured in. It's the latest in a series of boom-bust market cycles that critics say are becoming more extreme as China's policy makers flood the financial system with cash to stave off an economic hard landing.

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