Linking ≠ endorsement.
↑ Why do we need a California Public Bank? – YouTube
Ellen Brown is a longtime Internet friend of ours. We support her Public Banking initiatives. They aren’t a panacea but very solid stepping stones away from our current and urgent economic and financial crises.
You might want to subscribe to her YouTube channel.
California has the financial ability … right now … to fully fund education, support small business, rebuild our infrastructure, protect homeowners from Wall Street predatory lending, become a leader in protecting our environment while saving money on energy, and significantly expand low-cost public transportation. With a state-owned, public bank we can make all these changes and more.
↑ Barry Eichengreen takes issue with those who claim that the eurozone crisis is over. – Project Syndicate
Barry Eichengreen, Professor of Economics and Political Science, University of California, Berkeley:
Its banking union may be flawed, but at least it exists, and over time those flaws can be fixed. The stress tests may be flawed, but at least they are better than Europe’s two previous attempts. ECB action this summer may underwhelm, but at least the eurozone’s monetary-policy officials will do something.
The eurozone will not collapse this year, but its troubles are far from over. Europe will not draw a line under its crisis. Decisiveness is not the EU way.
↑ Realtors Discuss the Importance of Commuting Costs, Traffic to Homebuyers
“Seventy-three percent of recent home buyers said that commuting costs were an important factor when deciding whether or not to purchase a home,” said NAR economist Jessica Lautz. However, it is important to take into account the demographic and age of the buyer, she said.
Younger, single buyers place more importance on urban amenities.
↑ Summer buying season in bloom [?]
During April, the lowest-cost third of the region’s housing stock saw a 20.6 percent year-over-year increase in the median price paid per square foot for resale houses, according to La Jolla-based DataQuick.
The annual gain was 17.1 percent for the middle third of the market and 9.6 percent for the top, most-expensive third.
That has an impact on sales, the company noted in its April market report released this week.
Last month the number of homes that sold for $500,000 or more increased 9.3 percent from one year earlier, while $800,000-plus sales rose 5.8 percent. Sales below $500,000 fell 11.4 percent year-over year, while sales below $200,000 plunged 35.1 percent.
↑ Newsmakers Mel Watt | Video | C-SPAN.org
Fannie and Freddie profits are mostly if not entirely from litigation settlements and dipping into reserves, according to Mel Watt. The profits are not sustainable as is, he said.
Mel Watt talked about his plans for the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac. Mr. Watt, who resigned from Congress to become director of the FHFA in January 2014, announced plans for the agency that were different from those followed by his processor, Ed DeMarco. He said the agency would work to make credit more available to home buyers and take steps to ensure liquidity in the housing market. He also said Fannie Mae and Freddie Mac would remain engaged in their mortgage roles for the foreseeable future. Congress was also considering legislation about the future of Fannie and Freddie, and Mr. Watt said it was not his role to comment on such legislation. At the time, Fannie Mae and Freddie Mac supported loans for about two-thirds of new mortgages. After the interview, the reporters discussed his responses with the host.
↑ Homebuilding: Labor, land shortages affecting the industry – Sun Sentinel
Home construction in Palm Beach and Broward counties continues at a modest but unspectacular pace, though it isn’t lack of demand that’s holding back builders.
The biggest headaches: labor and land constraints.
↑ [Yves Smith segment recommended] Deutsche Bank leaves Vegas & Yves Smith on PE Real Estate Tricks – YouTube
Deutsche Bank is finally able to leave Las Vegas! That’s because before their fear became loathing, and they found a buyer for their always-in-the-red Cosmopolitan Hotel in Las Vegas, Nevada. Erin takes a look.
Then, Erin sits down with financial blogger powerhouse Yves Smith of Naked Capitalism to talk about private equity and their rental shenanigans. They talk about why PE firms have gotten into the real estate market and the problems created by their actions. What are these PE firms trying to do and do they create jobs? Smith breaks it down.
↑ Bank of England Governor issues warning over housing inflation – Telegraph
Britain’s housing market has deep structural problems and rising prices represent the biggest risk to the economy, the Governor of the Bank of England warns today.
Mark Carney expresses concerns about another “big debt overhang” building up, with homebuyers taking out loans many times larger than their salaries.
He says in an interview with Sky News that the UK desperately needs new house-building to help control price inflation.
↑ Canada’s Real Estate Market Is ‘Fraying’: Report
Canada’s real estate market may look healthy, but it’s showing signs of fraying in certain regions and prices could fall by 25 per cent in the long term.
So says a report by Capital Economics, a consulting firm that is holding fast to an ominous prediction it made for home prices in 2012 and 2013.
↑ E-signatures making real estate deals easier
Real estate professionals say that e-signatures, which New York state lawmakers approved in 2012, is one of the most significant technological advancements in the industry in years.
“It’s changing the way we do real estate today. It eliminates the need for them to print it out, scan it, email it back,” said Maneiro, associate broker at Remax Realty Group, 40 Grove St.
The article discusses several other technological advancements impacting real-estate marketing.
↑ Americans owe $1.2 trillion in student loans, surpassing credit card and auto loan debt totals – NY Daily News
Student loans have passed credit cards and auto loans to become the second biggest source of personal debt in the U.S., trailing only mortgages.
College tuition in California used to be free! It still could be, easily. It should be free throughout the US. Anyone who can do the work should be able to go right on through graduate school.
With the amount of money we created to bail out the bankers, we could have funded the educational system many times over. Where are our priorities?
If we would shift to a debt-free currency, we could fund the system overnight and immediately forgive all current student loans.
↑ ‘Sweet Home Alabama’ town in traffic turmoil | Fox News
EUFAULA, Ala. — Travelers heading through southeast Alabama to Florida Panhandle beaches have a four-lane road the entire way except for a half-mile stretch in Eufaula. That section, gracefully lined by Southern mansions and giant oaks, narrows to two lanes.
Now the town finds itself in a battle of Southern charm vs. traffic congestion as the state makes plans to widen U.S. 431 and remove some trees.
↑ North Korean government issues uncharacteristic apology after building collapse leaves hundreds dead – Asia – World – The Independent
In an uncharacteristic step by the North Korean government, officials have made a public apology after a building collapse in Pyongyang reportedly led to the death of hundreds of people.
↑ Record flooding in Balkans | All media content | DW.DE
After days of heavy rains, swaths of Serbia and Bosnia and Herzegovina are underwater. Parts of the countries saw as much rain fall in 40 hours as they normally get in two months, officials said. Authorities said over 20 people have died as a result of the flooding.
↑ Geithner: By bailing out banks, it looked like we were “rewarding the arsonists” | HousingWire
During an NPR interview Monday [May 12, 2014], former Treasury Secretary Timothy Geithner said he and other administration officials failed to communicate how the bailout of big banks benefitted the American people.
We disagree with Mr. Geithner’s characterizations of the sources of the crisis and of the intelligence and knowledge of the American people in general.
The underpinnings of the crash were fraudulent. The entire process was a Ponzi scheme. It was a game of musical chairs, a game of hot potato, which only the bailed out won when they truly should have, and could have without harming the economy at all, lost.
AIG was effectively nationalized. There was absolutely no reason whatsoever not to nationalize all the offending Wall Street commercial and investment banks. Their doors could have remained open under new management. Depositor’s deposits would have been even safer and their tax dollars would not have been squandered.
Those on Wall Street saved themselves via lobbying and campaign contributions and the revolving door to and from Treasury and other departments and agencies.
We wasted a great deal of both time and money when we could have had the whole thing over with and cleaned up long ago and the economy humming again but this time not based upon bubbles based on fraud or anything else, just solid growth in the real economy.
It’s your turn on the soapbox. Let us know what you think.
↑ The Case Against the Bernanke-Obama Financial Rescue – NYTimes.com
In a series of papers, Mr. Mian and Mr. Sufi gradually developed a theory of the boom and bust. They found evidence that lenders flush with cash had made increasingly risky loans. They found, for example, that lending volumes had risen fastest in areas where average incomes were actually in decline. This process continued until the borrowers started defaulting so quickly that the risks became impossible to ignore, and the loans dried up.
When housing prices crashed, people lost their equity, but their debts did not disappear. They cut back on consumption, and the economy fell into recession. And, importantly, the households with the largest debt burdens cut back the most.
We don’t understand how this is news, so to speak. If the news is that it’s backed up by data in hand, then we understand; but we did know what picture that data paints even without having had the data in hand. Right? We knew the data would support our understanding of what happened.
We also agree that unsuspecting borrowers, those who were relying upon the “experts” (the lenders), should have been bailed out before the banks (if the banks should have been bailed out at all; we think not, as stated above).
↑ mainly macro: Keynesian economics works: Eurozone edition
… Keynesian economics said this would end in tears, and it did. The precise nature of the tears is to some extent a detail. (If you think the Eurozone crisis was all about fiscal profligacy rather than private sector excess, you are sadly misinformed.) Of course Keynesian economics could not have predicted the perverse reaction to the crisis when it came: austerity in the core as well as the periphery. It could not have predicted it because it was so obviously stupid given a Keynesian framework. But when general austerity came, from 2010 onwards, the implications of Keynesian analysis were clear. Sure enough in 2012 we had the second Eurozone recession, helped along by some perverse monetary policy decisions.
Paul Krugman also tends to note how most of those who bet against Keynesian predictions on interest rates and inflation after 2009 have yet to concede they were wrong, and Keynesian analysis was right. The bad news from the Eurozone is that this kind of denial can go on for fifteen years (and counting)! But there is a reason why we teach Keynesian economics – it works.
↑ Mark Roe proposes a strategy that would force bank managers to prioritize stability over profitability. – Project Syndicate
A more aggressive approach would compensate bankers with the same bonds that guarantee their institutions’ short-term, volatile, and risky debts. As a result, bank managers would have a personal financial stake in ensuring that the risky obligations do not blow up, as they did during the 2007-2008 financial crisis. If the obligations deteriorated and the bank failed, the managers would be left unpaid. Because the obligations would be guaranteeing the rest of the bank’s operations, the managers would, it is hoped, be especially vigilant in ensuring that basic operations were safe.
That would certainly be an improvement if there were no loopholes allowed.
↑ Accounting for Discouraged Workers in the Unemployment Rate | St. Louis Fed On the Economy
In an Economic Synopses essay, Vice President and Economist B. Ravikumar and Technical Research Associate Lin Shao, both with the St. Louis Fed, construct a measure of “potential labor market participants” based on discouraged workers who might be expected to re-enter the workforce. Since December 2007, about 40 percent of discouraged workers, on average, re-enter the workforce every month. Ravikumar and Shao then calculate a new unemployment rate including these potential labor market participants.
This new measure results in an unemployment rate that is only slightly higher than the official rate. For example, the official unemployment rate in October 2009 was 10 percent, while Ravikumar and Shao’s rate was 10.2 percent. The U-4 rate was 10.5 percent.
We don’t think that’s an accurate reflection of those who would reenter were there enough jobs. We think it’s too low and that a careful survey would yield better results.
↑ Why Thomas Piketty is Wrong About Inflation and Interest Rates | Fixing the Economists
Economists like Piketty would do well to give these issues a bit more thought before spooking the general public with the boogeyman of the supposed burdens of public sector debt and the supposed unsustainability, reminiscent of the doomsday warnings of the Austrian cranks, of eroding it through a healthy inflation.
We must admit, we too were struck by Thomas Piketty’s seeming level of concern about public-sector debt. Perhaps something was lost in translation; otherwise, he does have a tad of the Austrian School mentality in him.
↑ Springtime for Bankers – NYTimes.com
… there’s also something else going on. In both Europe and America, economic policy has to a large extent been governed by the implicit slogan “Save the bankers, save the world” — that is, restore confidence in the financial system and prosperity will follow. And government actions have indeed restored financial confidence. Unfortunately, we’re still waiting for the promised prosperity.
One reason for sluggish recovery is that U.S. policy “pivoted,” far too early, from a focus on jobs to a focus on budget deficits. Mr. Geithner denies that he bears any responsibility for this pivot, declaring “I was not an austerian.” In his version, the administration got all it could in the face of Republican opposition. That doesn’t match independent reporting, which portrays Mr. Geithner ridiculing fiscal stimulus as “sugar” that would yield no long-term benefit.
But fiscal austerity wasn’t the only reason recovery has been so disappointing. Many analysts believe that the burden of high household debt, a legacy of the housing bubble, has been a big drag on the economy.
… if borrowers were irresponsible, so were the people who lent them money. But when crisis came, bankers were held harmless for their errors while families paid full price.
And refusing to help families in debt, it turns out, wasn’t just unfair; it was bad economics. Wall Street is back, but America isn’t, and the double standard is the main reason.
There’s a great deal of truth in that.
↑ Debt Forgiveness In History | House of Debt
During the Great Recession, policy-makers followed a very different strategy. Underwater homeowners were left drowning, with no meaningful assistance. It is a striking contrast, one that everyone should contemplate. What was different this time? Almost every reason for lack of action was likely present in the previous episodes.
We aren’t alone in noticing the historical discrepancy. Here is Brad DeLong, a top economic historian, in his review of our book:
All I can say is that I thought that this was the system that we had. I thought—from the Great Depression era history of the HOLC and the RFC, from the 1980s history of the Latin American debt crisis, from the 1990s history of the RTC, from innumerable emerging-market crises, et cetera, that we understood very well that this is what we should do. Whenever the financial system got sufficiently wedged we resolved it—we turned debt into equity, and we crammed losses down onto debt holders whose investments were ex post judged to have been ex ante unwise.
And from my standpoint the true puzzle is why Bernanke, Geithner, and Obama were so uninterested in pulling out the Walter Bagehot-Hyman Minsky-Charlie Kindleberger playbook and following it in housing finance from 2009-2014. Did they read no history?
We thought so too. We thought it so much that we thought they’d error on the side of creating too much stimulus and rev up inflation. Wow, were we ever wrong about the power of the Austerians’ grip. We thought that the Austerian School would be immediately and completely discarded, but they pulled out their liquidation principles and Washington was cowed where the banks should have been nationalized (at least temporarily, as with AIG).
↑ Washington Equitable Center for Growth | Reviewing Ryan Avent’s Review of Amir Sufi and Atif Mian’s House of Debt: Friday Focus: May 16, 2014
… I reflect that Chrysler and GM got resolved with their top executives fired and their shareholders and option holders zeroed out; the New York banks got fed huge amounts of money while their top executives kept their jobs and their shareholders and option holders got made large whole, and underwater homeowners got nothing.
↑ Piketty crossing the Delaware — Crooked Timber
Piketty’s proposal for a global wealth tax requires an end to the capacity of capital to escape taxation by exploiting the limitations of national taxations system, through tax havens, transfer pricing, artificial corporate structures and so on.
Given the limited record of success in past efforts to control global tax evasion and avoidance, Piketty is reasonably pessimistic about efforts in this direction. But the latest news from the OECD is remarkably positive. All members of the OECD (notably including evader-friendly jurisdictions like Austria, Luxembourg and Switzerland) have agreed to a system of automatic information exchange for tax purposes. Moreover, the “too big to jail” status of major banks engaged in facilitating tax evasion and money laundering, may finally be coming to an end.
↑ China’s housing boom is on shifting demographic sands | Business Spectator
Between 2028 and 2033, Chinese citizens older than 60 years would number between 390 million and 440 million. In addition to that, the country would also need to look after another 270 million people. That number includes 40 million disabled and 230 million underage people.
What it means is that in less than 16 years time, the country’s 700 million working-age people need to support roughly the same number of old, young and disabled people. By way of comparison, more than 900 million working-age Chinese are looking after 500 million people today. And that is going to change dramatically in the next two decades.
What does it mean for the Chinese economy? It simply means that the number of jobs will shrink, the country has to take on more debt, innovation will suffer and mobility within corporations is also set to decline.
Add to that China’s environmental woes, the fact that many other nations can easily compete on wages, China’s rather bellicose approach right now that will send many nations into each other’s arms to counter China’s military rise, and the Chinese huge real-estate bubble that simply has to burst.
↑ Multi-Family Real Estate Forecast: 2014-2020 – Forbes
Multi-family housing construction is doing surprisingly well recently. Over the long run, housing units in buildings with five or more housing units comprise about 25 percent of all housing units constructed. So far in 2014, the figure is 35 percent. Why is multi-family so popular now?
Before reaching for a major change in attitudes about how we live, let’s consider other possibilities. Part of the story is demographics. Young adults are much more likely to live in apartments than are older adults. And the number of young adults (which I’m defining for this purpose as ages 20-34) is rising, as the children of the baby boomers come of age.
↑ [Recommended interview] Amir Sufi’s solution for the Great Financial Crisis & Gazprom deal in China – YouTube
Our lead story: Today’s top story: a $456 billion, 30 year gas supply deal between the Russian state-run oil company Gazprom and China. The deal is expected to be the headline business and trade deal for Russian President Vladimir Putin’s visit to China.
Then Edward Harrison sits down to talk to Dr. Amir Sufi, a professor of finance at the University of Chicago Booth School of Business, about his upcoming book he co-authored called “House of Debt.” He takes a close look at how low income households disproportionately feel the effects of declining home prices, and he offers an interesting solution to debt overhang.
Then in today’s Big Deal, Edward Harrison and Erin talk about the AT&T deal with DirecTV. What does this mean for the market and for you? Check it out.
↑ US bond yields’ surprise reverse – YouTube
We include this because it has a direct bearing upon mortgage bonds as well and hence the entire real-estate market and general economy. What did/does the Fed know, what will it do, and what will be the result?
To us, it shows that the Fed has had the opposite impact it wanted. It has slowed the economy via its taper.
That said, we believe the real immediate blockage lies in the hawkish federal fiscal policy and that the Fed can do some more things but hardly dramatic given its mandate constraints.
Investors expected 10-year Treasury yields to keep climbing this year, to 3.5 per cent. Instead they have dropped to 2.5 per cent. Michael Mackenzie, the FT’s US markets editor, explains to John Authers why traders were wrong-footed.
↑ Seattle agrees to lower height limits of new houses on small lots | Local News | The Seattle Times
A majority of Seattle City Council members Monday sided with neighborhood activists and agreed to set lower height limits for homes built on small lots in single-family zones.
The council also voted down a provision known as the “100 percent rule” that would have allowed developers to build on undersized parcels if the property was the average size of others on the block.