Linking ≠ endorsement.
↑ Lawrence Summers on ‘House of Debt’ – FT.com
No mea culpa from Lawrence Summers:
Their analysis, presented with far more depth and subtlety than I have been able to reflect here, is a major contribution that furthers our understanding of the crisis. It certainly affects what I will examine in trying to predict and forestall future crises. And it should influence policies aimed at crisis prevention by demonstrating the insufficiency of keeping financial institutions healthy and by making a case for macroprudential measures directed at preventing runaway growth in household debt.
Start where Mian and Sufi start, with the idea of “cram-down”: the notion that bankruptcy judges should be allowed to write down mortgage debt, and that permitting them to do so would increase the bargaining power of homeowners seeking relief. Although it is more complex than Mian and Sufi suggest, I believe on balance this would have been better public policy, and so argued vigorously in these pages in February 2008.
Why didn’t the administration push for such legislation? Simple. The judgment of the president and his advisers was that there was essentially no chance of it getting the requisite 60 votes in the Senate, where we were not even able to muster a simple majority. Should a more Herculean effort have been made? Perhaps. But the president and his team felt that in a world where many legislative battles lay ahead, a failure on cram-down would be costly in time and political capital. Critics who disagree at this late date are obliged to provide an alternative analysis of the political calculus, not a mere recitation of the arguments for cram-down.
… Forcing writedowns was precluded for regulators who feared what it would do to banks’ capital positions.
Well, we’re critics, and we say the following. “Should a more Herculean effort have been made? Perhaps.” Perhaps? Wow! In our view, it’s no perhaps but definitely.
The American people were ready and willing to literally force all politicians to do what was in the very best interest of the people in general.
William K. Black has explain in great detail and very often exactly how things should have been handled. The problem with Mr. Summer’s view is that he is asking us to think within his small box that precludes Mr. Black’s actual experience in government as a regulator/prosecutor.
Had the President gone before the American people and told them that his plan is what Bill Black says it should have been, the American people would have backed the President. Mr. Obama chose not to do that but rather allowed Misters Geithner, Bernanke, and Summers, etc., to (what Mr. Black predicted would happen) turn into, among other bad things, the very secular stagnation Mr. Summers identifies, writes about, and deplores.
↑ Off the Charts Blog | Center on Budget and Policy Priorities | State and Local Jobs Far Below Pre-Recession Level
… the growth in the working-age population since the recession started means that many more people today want to work but don’t have a job. Second, the number of government jobs remains well below pre-recession levels. State and local employment, for example, remains more than 450,000 jobs below the December 2007 level (see graph).
The May 20 defeat of Augusta’s latest sales tax referendum had a hidden downside: cutting proposed funding for one of the city’s most pervasive problems.
Planning and Development Director Melanie Wilson said she pushed for the first time to include funds for demolitions in the tax package, about $4 million that likely would have leveled nearly all the known derelict, abandoned and other nuisance properties in Richmond County.
↑ IMF sounds alarm on UK house prices but changes its tune on austerity | Business | The Guardian
The IMF has voiced concern in the past over the UK’s path out of recession. Last year, its chief economist, Olivier Blanchard, controversially accused Osborne of “playing with fire” by maintaining spending cuts as economic growth faltered at the time, with Lagarde’s assessment on Friday confirming a full retreat from Blanchard’s stance.
“I am happy to come back yet again and say that we had clearly underestimated the growth of the UK economy in our forecast a year ago,” she said.
But the latest report said it expected the recovery to continue beyond next year, though not at the current rate of more than 3%.
Hmmm, we need data that separates out the real-estate bubble caused by the foreign wealthy investing in London. Is that a recovery for the average citizens? We think not. It appears deliberately artificially skewed for the elite over those average citizens, who are still very much hurting.
This lowers our estimation of Ms. Lagarde’s powers of observation and analysis, etc.
↑ Bill that would allow towns to take action on neglected properties clears Assembly panel | NJ.com
Legislation that would empower municipalities to take action against creditors who fail to maintain vacant properties that are slated for foreclosure was released by an Assembly panel on Thursday.
State and local governments around the country really seem to be stepping up on this important issue.
↑ The German economy: Clouds ahead | The Economist
Germany’s current-account surplus has averaged nearly 7% of GDP since 2006 and reached a new peak of 7.5% in 2013. Sustaining so big a surplus is all the more remarkable since Germany’s main export market, the rest of the euro zone, has been so sickly; the surplus with other euro members has fallen from 4.5% of GDP in 2007 to 2.1% in 2013. But exporters have been adaptable, taking advantage of the hunger in high-investing emerging markets for the machinery and transport goods that German firms excel at producing.
Because of that, the Germans can drag their feet concerning the stimulus the rest of the EU needs. We believe it will come back to haunt them.
↑ New evidence on Africa’s integration into global value chains | OECD Insights Blog
This year’s African Economic Outlook shows that Africa’s integration into global value chains (GVCs) is greater than one might have expected—in fact, Africa is the world’s third most GVC-integrated region, ahead of North America and South East Asia.
↑ HomeJab connecting real estate brokers and agents with professional videographers | Inman News
HomeJab aims to help real estate brokers and agents across the U.S. connect with vetted videographers to help them produce quality, affordable listing videos.
The Philadelphia-based startup currently has a network of approximately 350 filmmakers in 40 U.S. states that real estate pros can search for by city on the HomeJab platform, HomeJab founder Joe Jesuele told Inman News.
Short and right to the point:
From the household survey, the unemployment rate held at 6.3%, but the addition of 192,000 to the labor force put some welcome upward pressure on the rate. That’s a good thing. Most analysts agree the unemployment rate overstates the health of the labor market because the labor force participation rate has declined significantly since the recession began and has yet to recover. The Federal Reserve abandoned the 6.5% threshold for the federal funds rate in recognition of this disconnect.
At this point a very positive (and much anticipated) labor market development would be for payrolls to continue expanding at a pace of at least 200,000 per month and the unemployment rate to hover at the current level (if not increase) as discouraged workers return to the labor force.
Now that’s what we’re talking about.
↑ Sobering Survey Highlights Housing Crisis Shell-Shock
The American view of the financial importance of homeownership and awareness of the sacrifices it can entail appear to be shifting according to results of a recent survey released by the McArthur Foundation. Americans have a lessening conviction that homeownership is the path to financial security and many believe that finding affordable housing is a major challenge and one that the government should address.
It’s a good report. It gives one a good sense of what the people who are impacted are thinking.
Los Angeles officials unveiled new recommendations Tuesday to toughen and make smarter use of the city’s foreclosure registry program.
Calling the 4-year-old registry well intentioned but “flawed” and “ineffective,” City Controller Ron Galperin released a 40-page audit of the program with recommendations to boost transparency and better fund inspections of blighted foreclosures. Council Member Gil Cedillo joined Galperin at a news conference, saying he plans to file legislation that would enact those recommendations and create a new inspection fee.
↑ Rates on 30-year mortgages hover near 4 percent | Inman News
Rates on 30-year fixed-rate mortgages averaged 4.14 percent with an average 0.5 point for the week ending June 5, up from 4.12 percent last week and 3.91 percent a year ago, according to Freddie Mac’s latest Primary Mortgage Market Survey.
We are not surprised.
↑ KBRA’s Whalen: Are US home prices falling? | HousingWire
Well said by Christopher Whalen:
… most troubling reason why prices for US homes are likely headed for a period of weakness is the poor economy, including weak job growth and consumer incomes, the latter of which are actually negative in real terms. The lack of employment opportunities has stifled the formation of new households, one reason why some of the most bullish prognostications by economists and housing analysts regarding “pent up demand” have been proven badly wrong. New mortgage originations are running at less than $1 trillion annually, about a quarter of the peak levels of a decade ago. Rising mortgage rates and continued tight lending standards only add to the challenge for consumers.
The housing boom of the 2011-2013 period was not a normal example of home price recovery, but rather a spasmodic reaction to the process of working through millions of foreclosed homes in the wake of the subprime bust. The fact that home prices were rising 5-6x GDP growth suggests that the upswing was unsustainable.
↑ Gilbert to buy 4 more downtown Detroit properties | Crain’s Detroit Business
Dan Gilbert is buying four more Detroit central business district properties, this time from the Downtown Development Authority, whose board approved selling the buildings Wednesday afternoon.
Gilbert, the founder and chairman of Detroit-based Quicken Loans Inc. and Rock Ventures LLC, now has a real estate portfolio of more than 50 buildings totaling more than 8 million square feet. He has spent more than $1.3 billion buying and renovating property in Detroit, mostly in the central business district.
This is a solid overview of why the recent jobs report isn’t great.
Construction and manufacturing jobs are still way down. Due to automation, manufacturing might not recover its percentage.
Government jobs are also still way down, and the US Postal Service is likely to continue reducing employment indefinitely. We’re waiting for more news about the Amazon deal. Of course, there’s concern that Staples will take postal jobs. Would those be new Staples jobs?
People have retired, but that doesn’t fully explain the much lower labor-participation rate.
Plus, as we’ve mentioned before, the population has increased. It’s done so such that 7 million jobs are needed to cover just that aspect.
Therefore, for those and other reasons, we’re a long way from being out of the woods.
We thought Detroit would have been further along on such an ecological application.
The City of Detroit delivered an eviction notice Friday to the 18 urban goats of Brightmoor.
A goat farm designed to help eliminate tall weeds and vegetation in the blighted Brightmoor neighborhood has been given until Monday to vacate, less than 36 hours after it was launched.
Mark Spitznagel, founder and Chief Investment Officer of the $6 billion hedge fund Universa Investments, and Idyll Farms, a Leelanau County-based farm, are the creators of the large-scale urban farming experiment named Idyll Farms Detroit, which opened for business on Thursday on a desolate block next to a burned-out abandoned house.
↑ Scientists warn against China’s plan to flatten over 700 mountains | Environment | theguardian.com
Scientists have criticised China’s bulldozing of hundreds of mountains to provide more building land for cities.
In a paper published in journal Nature this week, three Chinese academics say plan to remove over 700 mountains and shovel debris into valleys to create 250 sq km of flat land has not been sufficiently considered “environmentally, technically or economically.”
↑ [Includes a highly recommended segment] Free Banking w/George Selgin & Ann Pettifor on Boom-Bust UK Economy – YouTube
In the link above entitled “IMF sounds alarm on UK house prices but changes its tune on austerity | Business | The Guardian,” we critiqued Christine Lagarde’s reversal concerning the British economy. Then we came across this video segment, which starts at 14.02.
… Erin checks in with Dr. Ann Pettifor on the UK economy. Madame Pettifor discusses how the UK is in the boom part of its boom-bust cycle, and she breaks down some of the credit dangers lurking as well as stagnant wage growth.
↑ [Includes a recommended segment] Thomas Palley on ECB policy + Keynes & Ladar Levison talks Govt Surveillance – YouTube
At the 3:25 mark:
… we sit down with economist Dr. Thomas Palley to get his view on the ECB decision and explore distinctions between New Keynesian economists and Post Keynesian economists.
He does a nice job of making clear that the negative-interest rate plan is supply-side when we do need demand-side action. Also, with no strings attached to the use of the money, costs could be passed on in unhelpful ways. This is all why we’ve been calling for our central bank, the Fed, to require banks to educate borrowers much better on finance, etc. We’ve also made clear that negative rates are far from the only measure we’d like to see activated.
↑ Hotel investment activity remains strong in Q1 2014 – YouTube
Mark Wynne Smith, global CEO of JLL’s Hotels & Hospitality Group shares an update on the global hotel investment market.
↑ The Biggest Policy Mistake of the Great Recession | The Fiscal Times
… the idea of recapitalizing banks so they can resume lending falls apart upon scrutiny. “If you walk through it, we just think it doesn’t make sense. How can an economy with so much debt need more lending?”
A cultural bias against debt has crept into these debates too, blaming homeowners as “deadbeats” who bought “too much home” and ignored the risks (see the famous Rick Santelli rant). But while a 40 percent drop in home prices spares nobody, responsible or otherwise, this perspective also ignores a simple fact: There are two sides to a debt contract. “We blame the homeowner because they paid the price, but the only way that can happen is if a lender lends to the borrower,” Sufi said. “There is responsibility on both sides of the contract.”
Indeed, Sufi and Mian detail in the book how credit growth, particularly to low-income, high-risk households, fueled the housing bubble. Thanks to securitization, lenders could extend shaky credit and then pass off the risk to investors around the world, disconnecting themselves from any price drops. That’s before you get into how they ignored underwriting standards in a rush to lend, and fraudulently sold mortgage-backed securities without divulging the poor quality of the underlying loans. “Lenders should be held accountable for their actions,” Sufi said.
↑ Negative interest rates | Econbrowser
Most of the criticisms about negative-interest rates are valid.
Our approach, however, is to design a complete monetary and fiscal package, not simply demand interest on reserve deposits.
You may find this link informative before reading James Hamilton’s article: https://www.ecb.europa.eu/mopo/implement/mr/html/index.en.html
It is our understanding that the negative rate will be applied against excess reserves, which as of April 2014, stood at 91,643 million euros.
The European Central Bank announced on Thursday that it is moving interest rates into negative territory, charging banks for maintaining deposits with the ECB rather than paying the banks positive interest. The hope is that lower (now even negative) interest rates may provide some stimulus to the European economy which might help bring European inflation closer to the ECB’s 2% target. Here I offer a few thoughts on this move.
↑ It’s Taking Longer After Each Recession To Get Back to Normal – Real Time Economics – WSJ
This time the recovery took longer than in 2001. And in 2001 it took longer than in the 1990s, which in turn took longer than in the 1980s. If the current period has a redeeming quality, it is not its strength but its length. And it’s only if jobs continue to grow at their new peak for a long, long time that the economy could truly catch up.
The needless fear of overheating is what’s keeping us down.
The Fed has its ZLB issue, but the US Congress doesn’t. Fiscal spending could have revved things up long, long ago while households and firms continue deleveraging. It would not have been dangerous. It’s how the US financed WWII after all.
Of course, as we’ve said over and over, we could use interest-free currency and peg issuance to velocity and productivity, which would keep inflation and deflation both in check; but that would be easy, fair, just, and perfect.
↑ Real-estate regulators cracking down on unethical managers
Unethical property managers have created problems for the region’s real-estate investors.
The many investors who snatched up metro Phoenix homes during the downturn could be making a tidy profit by renting them out. Unless they hired the wrong property manager.
Since July 2013, more than 20 Arizona real-estate agents and property managers have lost their licenses, been indicted by the state or told to stop handling properties for other owners. Among the accusations: stealing rent money from owners and tenants, failing to keep accurate records for landlords and operating a management business without a license.
Do your due diligence concerning any management firm or person you’re considering.
There’s a short check list at the end of the article, but make sure the management firm is fully insured. Obtain a current Certificate of Insurance directly, not from the management firm. Don’t just stop there.
What properties are they currently managing and for whom? Check them out.
You can also pull reports (background, etc.) on firms and individuals you’re considering.
↑ Highland councilmen target unkempt properties : Highland Community News
More of the “clean-up” trend:
HIGHLAND [Indiana] | The Town Council is looking to neighboring communities for suggestions on handling unkempt properties.
Several councilmen said they are not pleased with what they consider the unsightly appearance of many homes throughout the town.
↑ The Jobs Market Hasn’t Hit the Wall – Bloomberg View
Mohamed A. El-Erian:
… despite the solid job creation, earnings growth remains anemic. As such, it is hard to make a strong case that the labor market is getting too tight overall. There are more jobs to be gained before the natural rate becomes a binding constraint, and before the current monetary policy stance goes from being economically enabling to disruptive. This validates the Fed’s pivot from focusing on a single job metric (the U-3 measure of unemployment) to a more holistic assessment of labor market conditions.
↑ The ECB and Sisyphus: it won’t be finished unless it does QE | George Magnus
Unfortunately, the following by George Magnus is absolutely correct:
…What the Euro Area really needs is a strategy, worked out with member governments, to lessen deflationary pressures in the periphery of Europe, while pushing up inflation in Germany. If this were ever to happen, then a rise in Bund yields relative to the rest of the Euro Area, would one day constitute credible evidence not only that deflationary pressures were being overcome, but also that Germany was shouldering a part of the adjustment in Europe. No one should be optimistic that this is even close to happening, or ever will — until such time, if ever, as German economic and governance policies with respect to Europe change in a material and shocking (compared to now) way. For that to happen, one would imagine the Euro Area would have to have re-entered a financial, and existential crisis, or a political crisis in which a major European country was threatening to quit the Euro.
↑ Hidden Assets Seen Worth $2 Trillion Targeted by India – Bloomberg
India’s new Prime Minister Narendra Modi didn’t waste much time: Among his first acts on his first day in office was to make it a priority to recover billions of dollars stashed overseas to avoid taxes.
Within 24 hours of his May 26 inauguration, Modi created an investigative team of former judges and current regulators to find the concealed assets, known as black money, and bring them back. At stake is what’s estimated to be as much as $2 trillion, more than India’s annual gross domestic product.
That’s a big deal. It’s part of a huge, global crackdown that will unfold for perhaps decades.
↑ China’s real-estate market sees land sales plunge – Asia Stocks to Watch – MarketWatch
“May is traditionally the hot season, but China’s property market has cooled further, ” Soufun said, adding that property developers remain in “wait-and-see” mode.
Several Chinese cities even recorded no land sales at all.
↑ Office Property Management Trends – YouTube
David Ford, SVP with Transwestern calls into the show to discuss property management trends in the U.S. Office Market.
He really focused on San Francisco.
Not long ago all the talk in China was about market-driven reforms, but a closer look at the its mini-stimulus reveals micro-management by policymakers, says Breakingviews’ Peter Thal Larsen.