Linking ≠ endorsement.
⇧ NASA | Megadroughts Projected for American West – YouTube
NASA scientists used tree rings to understand past droughts and climate models incorporating soil moisture data to estimate future drought risk in the 21st century.
⇧ Stumbling and Mumbling: Austerity, fear and bubblethink
…understanding support for austerity requires not an economist but a psychologist.
An economist who looks for the pattern of behavior of the neoliberal side should discover the reason for such support: further consolidation of wealth, power, and control at the direct expense of the less well-off.
The reason so many people go along with it is because they are paid to do so.
However, the consolidators invariably miscalculate by grabbing for too much. That’s when Syriza and Podemos show up (or the Nazis if the bankers wait too long to hugely compromise).
⇧ BBC News – Nicola Sturgeon attacks ‘Westminster austerity economics’
…cuts have had a disproportionate impact on women, disabled people and those on low incomes.
Of course. What’s new? Nevertheless, you stay at it, Nicola.
⇧ Job ladders and earnings of displaced workers | VOX, CEPR’s Policy Portal
Economists are well aware that worker displacement generates large and persistent earnings losses. This column provides evidence that a theory of job matching, with workers finding poor-quality matches after non-employment and taking substantial time to find high-quality employment, can account for the vast majority of displaced worker earnings losses. The framework implies two policy levers for mitigating individual earnings effects of displacement:
Getting workers re-employed quickly to jump-start the process of finding a good match. This could be implemented using hiring tax credits or wage subsidies to stimulate the demand side, alongside traditional active labour market policies like disseminating vacancy information, and providing guidance with interviewing and writing quality CVs to buttress the supply side.
Helping those out of work to find better matches coming out of non-employment. This suggests support for increasing unemployment insurance (UI) generosity, which should generate more stable post-separation employment (see Centeno 2004, for empirical evidence that greater UI generosity leads to longer job tenure).
⇧ Sweden Imposes Negative Interest Rate and Plans Bond-Buying Program – NYTimes.com
Negative interest rates were almost unknown until recently. But as inflation has fallen, they have increasingly become a feature of monetary policy in countries including Denmark and Switzerland, in the government bond market and even in a few corporate bonds.
Central bank negative rates are intended to encourage companies and individuals to borrow more, increasing investment and consumer spending and driving up inflation.
As recently as October, the Swedish central bank, or Riksbank, said it preferred to avoid a negative rate. But Stefan Ingves, governor of the Riksbank, said the precedents set by Denmark and Switzerland in recent months had reassured the bank’s policy committee that there would be no dire consequences.
We remember when so many academic and professional economists were calling us stupid for calling for negative rates.
⇧ States Consider Increasing Taxes for the Poor and Cutting Them for the Affluent – NYTimes.com
A number of Republican-led states are considering tax changes that, in many cases, would have the effect of cutting taxes on the rich and raising them on the poor.
… Of the 10 or so Republican governors who have proposed tax increases, virtually all have called for increases in consumption taxes, which hit the poor and middle class harder than the rich.
… The strategy of shifting from income taxes to consumption taxes has caused huge budget shortfalls in Kansas and, more recently, North Carolina, which announced a budget shortfall of nearly half a billion dollars.
Taxing the top fifth of earners at the same rate as the middle class would bring in $200.5 billion to state and local coffers, the report says. Taxing just the top 1 percent at the same rate as the middle class would bring in $88.5 billion, 10 times the amount needed to restore five years’ worth of cuts to higher education. The report also breaks it down state by state, saying that Texas and Florida, at the top of the list, would raise about $40 billion each if they taxed the top 20 percent at the middle-class rate, while Kansas and North Carolina would raise about $2 billion each.
“We wanted to connect the dots for people,” said Mr. Herzenberg, an economist at Keystone. “If more money’s flowing to the top, and the top folks are taxed at lower rates, inevitably that’s a problem for state budgets.”
⇧ Going Beyond the Headlines with Global Risk Management | Risk Management
Dante Disparte and Daniel Wagner:
A smart risk manager can tell the difference between routine headlines and game-changing events. Insurance underwriters are trained to be able to tell the difference, so it is incumbent upon risk managers to be able to do the same. Since retreat is usually not an option, risks should be managed proactively, and insurance should be bought early and reviewed often.
That also applies in developed nations, including the US.
⇧ Financialization & Equal Opportunity | Demos
This article is huge. Here’s an extended excerpt. We recommend you read the whole thing. Wallace Turbeville:
In the three decades after World War II, America became the first predominantly middle-class country in the world and our poverty rate was cut in half. Americans experienced what scholars describe as the “Great Compression.” In this era, real average compensation rose nearly one-to-one with productivity gains;1 the bottom 90 percent of households (in terms of income) enjoyed most of the benefits of growth over the slightly longer period from 1933-1973 (see Figure 1). Inequality of income and wealth in the US was at its low ebb.
Over the most recent three and one-half decades, the Great Compression has been almost completely reversed. A large majority of households has seen minimal or no real income gains and a substantial minority actually lost ground. Meanwhile a tiny minority of the most affluent households has enjoyed unprecedented income gains, with the richest 1 percent of households capturing nearly 70 percent of income gains between 1993 and 2012 and virtually all of the growth since the Great Recession.2 Today our society suffers from levels of inequality that threaten to surpass even the extremes of the Gilded Age.
The coming of this second Gilded Age has coincided with a number of important structural changes in our political economy—today our tax code is significantly less progressive, our higher education system is less accessible and much more unequal and our unions and labor rights are comparatively much weaker in the struggle for a fair distribution of wages.4 These structural changes have been justified as strengthening the private sector to encourage growth—growth that supposedly would lift up middle- and low-income households.
Exactly the reverse has unfolded….
Financializat ion is best defined as financial activity that does not improve, and most often burdens, capital intermediation—the matching of current savings [misunderstands credit creation where loans can occur before deposits] with future production activities and societal needs (which we identify as the core social purpose of the financial sector). Capital intermediation is efficient if investment generates optimal positive social outcomes and a higher standard of living across society. Conversely, an inefficient financial system is one that starves productive investment and generates net social costs, which more or less describes what we have today. A financial system that costs the economy more than the benefit provided and/or fails to allocate investment so as to serve the public’s interest is inefficient.
Financialization most obviously includes activities of the financial sector, like excessive and non-beneficial secondary market trading in securities and mis-pricing and excessive use of derivatives. It also includes financial activities of the non-financial sector that are generated by the financialization process. An increasing share of the business of non-financial companies is devoted to activities that can be seen as those of very specialized hedge funds. This is driven by the shareholder value theory of corporate management, valuation practices of investors and executive compensation practices. It is integral to financialization.
… Large-scale wealth accumulation threatens to become dynastic, across generations, and the attendant political influence could threaten basic democratic values.
… The growth of capital devoted to financialization crowds out more productive uses of capital and diminishes the effectiveness of monetary policy, lengthening and deepening the effects of cyclical economic downturns. …
… It is notable that the financial sector has grown relative to the rest of the economy (see Figure 4, above), accelerated by multiple phases of de-regulation, and it is also notable that other, related economic changes have happened over this period. …
Making the system work for the broad public benefit is the job of the government. Notwithstanding the view that prevailed since 1980 (and lingers, still embedded in beliefs systems), without robust regulatory limits on the activities of the financial sector mandated by government, the intermediaries will continue to work in their own interests even though it injures the public.
… Deregulation gave license to the exploitation (it actually encouraged it): elimination of restrictions against capital market activities by depository banks and others created the incentives and means for rapid and pervasive concentration of the banking sector and the enormous capital bases that emerged after 2000; and rapid advances in technology and quantitative analytics supercharged the asymmetric market power. …
Since 2008, the growth of the financial sector and market power of firms within the sector have been sustained and enhanced by the unprecedented monetary policy of the Federal Reserve to maintain interest rates near 0 percent. Initially, this had the dual purpose of lowering the cost of capital for economic growth and allowing the banking sector to “earn its way out of” the losses incurred at the time of the crash. The banks could borrow inexpensively and earn a large spread on investments funded by the cash. Clearly, a large portion of this liquidity was deployed by the banks to support financialization activities…. Despite a seemingly healthier banking system, the Fed continues to pursue this policy because of weak employment. Yet much of the liquidity provided by Fed policy is still funneled into the business of financial rent-seeking and financialization. Even so, it is clear that the massive growth in secondary market trading and the derivatives business is primarily a continuation of financialization trends that began much earlier. It is enhanced by Fed monetary policy, but it predates it and will persist after the policy runs its course.
One important example of household financialization is the real estate bubble that burst in 2007. Many households took on mortgages far beyond their means, effectively banking on ever-rising home values. They were encouraged to do so by mortgage originators that were incented to feed the highly profitable and voracious mortgage securitization business. Households increasingly held large and leveraged derivative positions in real estate market prices. Ultimately, the bubble burst and the securitizations plummeted in value. The damage to the economy was massive, especially to lower income households and people of color.37
Higher education is another striking example. Steep declines in state funding for higher education have driven up tuition costs and fueled an explosion of student debt. Increasingly, students are driven to go through the analysis of whether a college education is “worth it” by comparing the leverage needed to finance higher education with the effects of education on their earning capacities; the social benefits of having an educated population are no longer part of the equation.
Some of the internal numbers in Saez and Zucman are particularly enlightening. They conclude with respect to the top 10 percent that “almost all of this increase is due to the rise of the share of wealth owned by the 0.1 percent richest families, from 7 percent in 1978 to 22 percent in 2012, a level comparable to that of the early twentieth century.” The top 0.1 percent represents 160,700 families with an average wealth in 2012 of $72.8 million.
…new research from the Organization for Economic Co-Operation and Development46 indicates that increased inequality can cause the economic pie to be smaller than it otherwise would be.
…commencing with the Reagan/Thatcher transformation of the relationship between government and the private sector, interests in significant assets were transferred from the public sector to the private sector, especially through privatizations in various forms. Direct transfer of public enterprises and assets to the private sector was one form of privatization. This was more prevalent in the United Kingdom. Particularly in the United States, deregulation, entailing a substantial reduction in the assertion of the public’s interest in businesses via government taxation and regulation, was another (less direct but no less effective) form of privatization. Governments became “poorer,” and the private sector became “richer,” not through organic growth but through transfer of ownership and/or control. It was as if Reagan and Thatcher sought to tee up the world economy for Piketty’s “inevitable” rise of wealth disparity. …
In the United States, about 20 percent of the top 0.1 percent are financial sector supermanagers. The financial sector supermanagers are often compensated by bonuses that are calculated based on the profitability of their firms and of their organizational sub-units within the firms. As a general rule, about one third to one half of the firm’s earnings after expenses go to bonuses and the balance accrues to shareholders.60 Other financial sector supermanagers, especially those who manage hedge funds and private equity funds, are compensated with “carried interests,” or shares in the profits of the portfolios of investment that they manage. In hedge funds, the typical formula is a 2 percent ownership interest in the fund and 20 percent of its profits, both allocated among the fund managers, though some reduction of these amounts, largely for newer hedge funds has occurred.61
An even larger number of supermanagers, between 40 and 50 percent of the top 0.1 percent, manage businesses in the non-financial sector. They are predominantly compensated by transfers of participations in the future profits of the businesses either through options to purchase stock at some point in the future based on today’s prices or through outright grants of stock transfers with restrictions on transfer that lapse over time.63 In both cases, they obtain an interest in firm profits that they cannot realize until a later date. Like their supermanager cousins in the financial sector, their incomes are overwhelmingly indexed to returns from ownership interests in the firm. The predominant form is different (stock options and restricted ownership as contrasted with profit sharing bonuses and carried interests) ….
…the shareholder value theory of corporate governance is defined by the relative ease of measuring shareholder value as the current stock price, divorced from other valuation perspectives—an approach that is intellectually indefensible. …
A corporation that measures its performance by changes in short-term share value behaves increasingly like a hedge fund, and the management behaves in large part as the hedge fund manager.67 …
Just like so many other factors that influence the economy, ownership-based compensation changed markedly starting around 1980. Initially, the largest companies started using stock options and restricted ownership heavily to compensate CEOs at that time. In the mid-1970s stock options and other arrangements based on firm value was about 15 percent of total compensation for the CEOs of the top 100 companies. This practice grew rapidly so that by 1999 almost 90 percent of CEO compensation was based on company value (see Figure 13).
After 1999, the practice spread beyond the very largest companies. By 2012, 66% of CEO compensation for the top 500 companies was in the form of stock options and similar schemes.68
Recent research by Robert Litan and Ian Hathaway has found that basic forces of our system have changed since 1980.80 These findings are related to the investment patterns discussed above and suggest that their effects may threaten the economy fundamentally, especially labor and employment. The study examines business dynamism, the process of “creative destruction” in which firms exit from the economy (often failing) but other firms enter the system. Traditionally, jobs are reallocated from the exiting firms to the new entrants. This “reallocation rate” is crucial because it measures how effectively jobs are reallocated from exiting firms to firms that are new entrants. If the rate is negative, employment opportunities are declining as a result of the process of exit and entry.
The study finds that the rate of exiting firms has not changed materially over the period from the late 1970’s through 2011 (and this continues through 2012, the last year of available data). However, the number of entrants has declined substantially. (see Figure 15a). Even more significantly, the job reallocation rate has trended downward at an increasing rate over the period. (see Figure 15b). The conclusion is that business dynamism has been on the decline and that households depending on labor have suffered greatly.
… In a highly financialized economy, increases in the money supply may be channeled into unproductive financial activities, resulting in much weaker stimulus for production and job creation. If this is the case, the effects of a recession will be deeper and endure longer than would be the case of monetary policy had greater force. [No if]
…. In a financialized economy, monetary stimulus in a down cycle is less effective than it was in a non-financialized economy. The practical issue is that the ability to employ fiscal stimulus is highly constrained by political polarization so that monetary policy is asked to carry a heavier load. We have yet to see the long-term effect of high levels of monetary stimulus in a financialized economy, but it is apparent that it did not adequately addressed [sic] unemployment caused by the Great Recession
… Individual and groups of workers are less secure in organizing collectively because the employers have the capability of moving facilities and operations and have demonstrated the ability to do so. As assets are constrained and shrunk, the willingness of employers to shut down or sell facilities and operations is demonstrated to workers.
… As wealth at the highest level increases, the ability of the very wealthiest to influence political outcomes also increases. Therefore, it is very likely that families benefitting from dynastic fortunes will use their influence to preserve and improve their position using government as the means.
⇧ Argentina’s Lessons for Greece by Raquel Fernández and Jonathan Portes – Project Syndicate
Raquel Fernández, Professor of Economics at New York University and Jonathan Portes, Director of the National Institute of Economic and Social Research:
Thirteen years ago, Argentina was in dire straits. Its peso was pegged to the dollar at a level that far exceeded its value. Its external debt was unsustainable. And political pressure from the United States prevented its weak government from renegotiating a bailout program that even the International Monetary Fund knew was unrealistic.
Today, with Greece facing many of the same challenges, it is worth taking a closer look at the lessons learned from Argentina’s crisis. At the time, we called the policy response “economic and political lunacy…. Each further round of budget cuts has worsened the recession, increased social tension, and further reduced confidence…
⇧ U.S. Foreclosure Activity Increases 5 Percent in January Driven By 15-Month High in Bank Repossessions | Newsroom and Media Center
RealtyTrac…released its U.S. Foreclosure Market Report™ for January 2015, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 119,888 U.S. properties in January, an increase of 5 percent from the previous month but still down 4 percent from a year ago.
The 5 percent monthly increase was driven primarily by a 55 percent monthly jump in bank repossessions (REOs) to a 15-month high. A total of 37,292 U.S. properties were repossessed by lenders in January, up 23 percent from a year ago to the highest monthly total since October 2013.
“The year-over-year increase in REOs in January was the first annual increase nationwide following 25 consecutive months of declines, getting the foreclosure spring cleaning we anticipated in our last foreclosure report off to an early start in 2015,” said Daren Blomquist, vice president at RealtyTrac. “Meanwhile, the number of future foreclosure auctions scheduled in January continued to increase in many states, foreshadowing more foreclosure spring cleaning to come in the next several months in those states.”
“Our agents’ REO and distress business has wound considerably down over the last two years,” said Mark Hughes, Chief Operating Officer at First Team Real Estate, covering the Southern California market. “Despite a bit of an extension to this wind-down process due to delayed actions created by the Homeowner Bill of Rights in 2013, we are preparing that this is really a final push to clear the decks of the a still disproportionate amount of distressed homes and finally bring the market back to a more stability.”
⇧ Mortgage Interest Rate Roundup | Bankrate.com
Mortgage rates jumped this week as investors reacted to a better-than-expected January employment report.
⇧ Politics Counts: Wage Riddle Has Lasted Decades – Washington Wire – WSJ
…wage stagnation goes back much further than the recent business cycle — it goes back decades, in fact.
It’s not a riddle. It was lack of good economic and financial policy and practice.
⇧ Glenn Stevens: Overview of economic developments affecting Australia
Opening statement by Mr Glenn Stevens, Governor of the Reserve Bank of Australia, to the House of Representatives Standing Committee on Economics, Sydney, 13 February 2015:
I note that, on the regulatory front, APRA has announced its supervisory approach to managing the potential risks posed by the rise in lending to investors in housing. This involves more intense scrutiny of investor loan portfolios growing at over 10 per cent per year, with the possibility, ultimately, of additional capital being required if APRA deems it necessary. APRA has also reiterated its expectations for other elements of lending standards such as interest rate buffers and floors. And ASIC has begun a review of interest-only lending in the context of consumer protection legislation. The Bank welcomes these steps and will keep working with other regulators in these areas.
If China goes down, so does Australia. Australia has a major housing bubble based upon mining that is, in turn, based upon China’s need for steel.
⇧ 5 Misconceptions About Economic Bubbles And People Who Warn About Them – Forbes
…misconception assumes that skeptics who warn that a bubble is forming years before it pops are wrong or bad forecasters for doing so, even if they are right in the end. This argument makes little sense to me because I believe that bubbles need to be warned about as early as possible to help prevent their inflation and the ensuing damage that occurs when they pop. In addition, early bubble warnings give the individuals who take heed time to prepare for an economic crisis or to limit their exposure to the bubble.
Major, economy-destroying bubbles typically take at least several years to form and can be spotted early on in their development. For example, the reckless debt buildup and asset price inflation that occurred during last decade’s housing and credit bubble was identifiable as early as 2002 to 2004 [that’s when we saw it], even though it took until 2007 and 2008 to cause a crisis. People who believe that early bubble warnings are wrong are basically implying that the U.S. housing and credit bubble only became a bubble immediately before it popped.
⇧ The Global Economy’s Chinese Headwinds by Adair Turner – Project Syndicate
China is in trouble. Adair Turner, senior fellow at the Institute for New Economic Thinking and at the Center for Financial Studies in Frankfurt:
Last year, the global economy was supposed to start returning to normal. Interest rates would begin rising in the United States and the United Kingdom; quantitative easing would deliver increased inflation in Japan; and restored confidence in banks would enable a credit-led recovery in the eurozone. Twelve months later, normality seems as distant as ever — and economic headwinds from China are a major cause.
⇧ The most foolishly optimistic housing report of 2015 – OC Housing News
I had people condemn me back in 2007 and 2008 for “talking down the housing market.” Although it would be ego-inflating to believe I had such power, no amount of good or bad writing about any macroeconomic variable is capable of influencing what the market is going to do, and belief to the contrary is either self aggrandizement or wishful thinking.
Well, Alan Greenspan used to do it.
Also, lower fuel prices do make construction less expensive to undertake, though the bust in the fracking boom is pulling in the opposite direction. It will take awhile for the dust to settle enough to see the impact of that bust.
Otherwise, we pretty much agree with Larry’s piece.
⇧ Rents Will Stay High for Years, Experts Say | Zillow Blog
“Vacancy rates on rental units in the fourth quarter were down to 7 percent, the lowest in more than 20 years,” said David W. Berson, chief economist for Nationwide Insurance.
The squeeze could continue for years, said Berson, who participated in the survey.
Homeownership certainly isn’t for everyone. Renters should consider how much they have in savings, how long they expect to live there and other factors — but they shouldn’t expect a break on rents.
⇧ Insurers Brace for Claims as More Snow Expected to Hit Storm-Weary Boston
“The majority of these claims are water damage from ice dams and, to a lesser extent, collapses,” said Greenberg.
Total economic damages and losses as a result of U.S. winter storms during the month of January, according to Impact Forecasting, Aon Benfield’s catastrophe modeling division, were estimated at $500 million.
⇧ New Consortium Addresses Drone Usage – Insurance Journal TV
Chris Barrow, president of EagleView Technologies Corp., a company that captured a half a million square miles of aerial imagery this year, explains the reasoning behind the formation of the Property Drone Consortium as well how it can help member companies understand drone regulations, address ease of use and safety…Powered by InsuranceJournal.tv
⇧ NW earthquake-warning system to get its first public test | Local News | The Seattle Times
In the case of a major quake on the offshore fault called the Cascadia Subduction Zone, Seattle and Portland could get as long as three or four minutes’ notice before the ground starts heaving.
“Imagine emergency rooms knowing that they need to interrupt surgeries, or high-rise elevators being able to stop before the shaking starts,” said Barb Graff, Seattle’s emergency-management director. “I truly believe it will save lives.”
⇧ Bills Aimed at Property Claims Litigation Expected in Texas Legislative Session
…the industry is pressing for TWIA-like claims limitation legislation during this legislative session to address the problem of “long tail” hail claims resulting from what they say is questionable litigation and the aggressive actions of public adjusters.
There’s nothing wrong with this if it doesn’t block legitimate claims. We’d have to see more about the issue before taking a professional stand.
Frivolous claims burden the system and drive up insurance costs for everyone, but tort reform needs to be very carefully crafted so that people with real and proper claims are not blocked just to block the frivolous.
⇧ Legislators hear bill to curb construction defect suits – 8 News NOW
Here’s an example where the story mentions both sides of the issue but doesn’t hone in on it quite enough to suit us.
Nevada lawmakers are considering a bill aimed at curbing frivolous lawsuits over construction defects.
Again, we’d have to read the bill. For example: First, how does it define frivolous. Second, what level of proof is required that a suit is frivolous?
Also, a construction defect might not show up for years and might be misdiagnosed by a common property owner.
A construction defect could trigger an insurance claim where the insurance company needs to sue the contractor via subrogation to recover costs associated with paying a claim to an insured damaged by the contractor’s work. If legislation incorrectly blocks subrogation concerning good claims, insurance premiums might have to rise or policies might have to be rewritten limiting coverage more.
At the same time, insurance companies cover contractors.
The issue cuts both ways in insurance.
⇧ Nordic noir – YouTube
On a day when markets seemed freshly optimistic about the situation in Greece, John Authers suggests that the Swedish Riksbank’s historic decision to embrace negative interest rates – along with QE bond purchases and forward guidance – might be seen as a cautionary tale by other central banks.
That’s actually a good point.
However, why didn’t he mention the latest ceasefire agreement made in Minsk?
The Financial Times blames Putin for everything.
However, maybe John thinks it won’t hold. Maybe nobody he’s talked to thinks it’s good enough and solid enough to change financial choices.
⇧ How to Buy a HUD Home [for investors and owner-occupants]- YouTube
This is a good video. The pace is very comfortable, and Mark approaches it in an organized and sufficiently redundant (to drill points in) approach.
It’s for the novice, but 1) escrow repairs and 2) insured versus uninsured escrow need explaining. That certainly doesn’t render watching the video a waste of time (far from it) for the novice because an interested and motivated novice can always research those areas. Not to fear, Mark Ferguson’s article he mentioned (https://investfourmore.com/2013/04/06/o wner-occupants-guide-to-purchasing-hud-h omes/) actually says the following:
What does FHA insured with repair escrow mean on HUD homes?
HUD does not allow any repairs made to properties and typically does not make any repairs to their properties. However, HUD wants to sell homes to owner occupied buyers and many HUD homes need some repairs that will not allow them to qualify for FHA financing. HUD uses a FHA repair escrow to help owner occupied buyers get into these homes. You will see an amount on Hudhomestore.com under FHA repair escrow; this is the amount a HUD appraiser has determined it will take to make the home meet FHA guidelines. The escrow could be $0, in which case the home needs no repairs to go FHA. If there is any other amount the home will have to have some work done to qualify for a FHA loan.
The escrow repair amount is added to the buyer’s loan at closing, it is not a gift from HUD. The work is to be done after closing by licensed contractors within 90 days and the lender will pay out the escrow amount directly to the contractors.
The details of the escrow repairs are listed on Hudhomestore.com under addendum and will list each item that needs repaired. The total repairs cannot exceed $5,000 for the FHA repair escrow. HUD adds a 10% cushion if the repairs cost more than expected, so technically there could be $5,000 in repairs and a $500 cushion for a total escrow amount of $5,500.
Update: HUD no longer lists a repair escrow because they stopped allowing FHA buyers to use the HUD appraisal. Buyers must now get a new appraisal and determine any escrow repairs off of it.
The earnest-money issue for investors is critically important, and the 6th-day tip is excellent.
⇧ Abandoned, foreclosed properties remain a challenge for Pilesgrove, officials say | NJ.com
Maintenance of abandoned and foreclosed properties is a priority for Pilesgrove Township, but locating the owners has proved to be a difficult process, municipal officials said Friday.
The ordinance lists violations as overgrown or neglected grass, accumulation of newspaper/fliers on property, disconnected gas, electric or water utility services to the property and accumulation of hazardous or unhealthy materials.
For each day in violation and until the property is cleaned up, fines could reach $1,500 per day, the ordinance states.
“…disconnected gas, electric or water….” Wow.
⇧ Real Estate Agent Barely Escapes With Life After Attack by Client Video – ABC News
Janice Tisdale was showing Emilio Maldonado a home when he hit her with a tire thumper and held her hostage.
Always have your phone in your hand ready to push the panic button. The Panic button is a phone number in memory ready to be called at the push of one button. Be careful not to push it by accident or prematurely. Your staff and agency should always know when and where you’re out to meet a client or potential client and who that client is. There are apps for those things too.
You can also use your video phone to capture the client’s car and license plate and upload it instantly even before you talk with the client.
For totally new clients, you might want to meet for the first time in pairs (take a team member with you; if you’re a woman, you might want to make that team member a man).
As for concealed carrying of weapons, check your local laws (regardless of your view on the 2nd Amendment); and be aware that bad people often carry too and that you having a gun could escalate this violence. There are non-lethal options. We aren’t trying to tell you what to do on that but are just bringing the stats into the picture so you may make a fully informed decision. We care!
⇧ 5 Signs You Need a New Real Estate Agent | Credit.com
We agree with the article but will add that you might want an agent who is fairly new to the business because that one may have more time and be hungrier so will work harder for you. At the same time, don’t be a bad client. Developing a good working relationship with a knowledgeable agent if you are an unlicensed investor can be the best thing for your success. You want an agent who will listen, but make sure you have your ears open too. Even a newer agent has access to the seasoned, busy pros in his or her agency to answer your quick questions, so you may get the best of both worlds by going with a newer ones.
⇧ Real estate attorney gets 70 months in prison for scam | Northwest Herald
Court records indicate a husband and wife transferred $2.34 million into an escrow account Niew controlled to pay for closings on commercial real estate. Instead, Niew used the money to purchase various gold-mining operations. She also arranged to receive a 20 percent finder’s fee from mining operations in exchange for providing $1.5 million of her clients’ money.
⇧ FTC OKs Zillow-Trulia merger, creating real estate behemoth – LA Times
The rapid consolidation is designed to cut costs and capture a larger share of the $12 billion spent each year on real estate advertising, which remains fragmented across a wide variety of sources both online and offline, local and national.
Some in the real estate industry, especially the National Assn. of Realtors, had voiced concern that the merger might concentrate too much power in one company. Zillow delayed the closing while the FTC reviewed the deal, but said Friday that the agency had given its blessing.
⇧ Real estate rivalry: Arizona industry disputes RealtyTrac’s foreclosure data – Phoenix Business Journal
Arizona State University housing expert Michael Orr and some local real estate executives not only dispute RealtyTrac’s foreclosure data they attack it.
“Every single statistic that RealtyTrac stated about Phoenix is completely false,” said Orr, who is the director of the Center for Real Estate Theory and Practice at ASU’S W.P. Carey School of Business.
⇧ One Fire in a Real Estate Empire Rife with Issues – MissionLocal
Many tenants appear to have made a bargain—they live in rundown and often overcrowded spaces—for cheap rent. In exchange, they don’t complain. Some told us they hesitated to report issues to Lou or to the city for fear of losing the one place they call home. Some were hesitant because they are undocumented, others simply fail to understand that they have any rights as tenants.
That means violations can endure for decades because to get any attention from the city, complaints have to be made.
When asked if their building had smoke detectors both tenants said there were none, but Lola installed her own after she had her first child. Over the years, the building department found numerous safety violations involving expired fire extinguishers, combustible materials in hallways, lack of heat, and blocked exits.
In the most recent notice of violation from 2010, an inspector found hazardous peeling lead paint, broken windows, and unsafe stairwells. It took two visits from the building department before these violations were handled.
During the Fire Department’s most recent visit to that building in June 2014, inspectors found debris blocking escape routes, and hazardous material in the parking lot. Inspectors noticed wire netting and various items stored in the only stairwell to the roof—during a recent visit from Mission Local this stairwell was still blocked with refuse and wire. There have also been instances of expired fire extinguishers.
However, residential tenants on the floor above describe a situation similar to that of many of Lou’s other tenants: tense interactions when it came to fixes; longstanding issues with the building; and single apartments inhabited by many households.
From 2009 to 2013, fire department inspectors report of “extinguishers past due for servicing,” “fire escapes ladders obstructed by awnings,” blocked exits, alarms without power, and missing fire extinguishers. In its most recent visit from the fire department, which occurred in August 2014, the building passed inspection without remarks.
Many tenants just accepted the old plumbing and various other issues as an inescapable fact of living in the Mission District. Most were paying well below market rate, and had been for many years, maybe dividing up a studio by three with each person paying $250 a month.
In an increasingly expensive city with a limited housing supply, a building with a fire hazard or two is better than nothing.
It’s nice that he is somewhat lenient on timely rent payments and will shuffle tenants around to help them hold down a job, but putting lives and health at risk really vastly outweighs those things. He’s also risking insurance coverage and then being hit very hard by a catastrophic loss.
⇧ Sun Sentinel – Rental condos will be harder to find
If you want to rent a condo or townhome, your options in South Florida are disappearing.
Many developers and investors who rented out units after the housing collapse are putting them back on the market now that home prices are rising.
That means you’ll have a harder time finding one to rent, but you’ll have more places to look at to buy.
The article is misleading when quoting that renting versus owning is always throwing your money in the trash. There are many variables involved, and one must always be aware that local-housing bubbles can be created and then pop.
⇧ City takes bid to demolish Cahill properties
Demolition appears to be on the horizon for two abandoned structures in Richmond that have bounced repeatedly through local and state courts while testing the mettle of city officials’ effort to fight blight.
The Richmond Board of Public Works and Safety on Thursday night opened demolition bids on two houses owned by John Cahill, the Ohio man whose properties have been the subject of a legal scrap for almost two years.
⇧ Housing market inventory reaching record low
This also drives up rents but should precipitate more construction for both owner-occupieds and rentals, provided the wages and salaries are there even for less-expensive units.
DENVER — The number of homes on the market at the end of January in the Denver metro area was a quarter of the inventory of a normal year, according to data from the Denver Metro Association of Realtors.
⇧ In real estate, does size matter? | Inman
When anyone Googles a question about real estate, the results are not displayed according to size, company history, gross sales volume or prettiest office space. Google displays the results according to what it deems the best page to answer the question asked. If Google feels Zillow has the best answer, then Zillow will rank first. If the local Keller Williams office or the national Coldwell Banker site has the best page, then they will rank first. But if ACME Real Estate, a one-agent brokerage with a basement office, has the best page, well, ACME Real Estate will hold the number-one position.
Is that true? It has been our understanding that high site rankings positively impact page rankings on the site as well.
⇧ Oil climbs up again: Here’s why prices could easily come down – The Economic Times
…analysts are divided over when the storage tanks in the United States will be filled. Some say maximum storage capacity will not be reached until the middle of summer, depending on how much consumers take advantage of declining gasoline prices to drive long distances on their spring and summer vacations.
Oil production from new US wells fell to 525,000 barrels a day in January from 600,000 in May, according to a report by Rice University’s Baker Institute for Policy Study released this week. Still, overall production in the United States continued to increase, and government and energy experts estimate that it will take at least until the second half of the year for the growth in production to stop.
⇧ Tesla To Offer Batteries To Consumers For Home Energy Storage
The prospect of affordable home energy storage, combined with the continually falling price of photovoltaic solar panels, is likely to change the energy landscape and the business model of established electric utilities quite dramatically over the next decade and beyond.
⇧ Are you losing real estate business because of social media? | Inman
This post by Wade Vander Molen essentially tells you to not be yourself for fear of alienating those who don’t agree with you.
What it doesn’t say is that many people, even though they disagree with the position on a given issue, will like a person with convictions and who will state them, stand by them, and intelligently and honestly defend them.
Also, there are people who will go out of their way to work with and to support others who do agree with them.
We’d rather promote an open society where people don’t have to walk on egg shells and don’t have to be neutral to make a buck. Therefore, to those who refuse to do business with people who simply don’t agree with them on everything, we say you shouldn’t.
Sure there are limits, but err on the side of not cutting people off.
If all of us were to refuse to deal with all but those who agree with us on everything, none would deal with any other. Where would that get any of us?
Would Wade Vander Molen now refuse to do business with us based solely upon what we just wrote (since we don’t agree with him entirely)? We’re not suggesting it.
We will say though that we certainly wouldn’t refuse to do business with him based upon his post.
He could be saying lots of things very strongly in support of things where we don’t agree, and we’d still do business with him and might well recommend him if he does good work for his clients. That’s how we’d like to be treated too.
⇧ Yanis Varoufakis: ‘If I weren’t scared, I’d be dangerous’ | World news | The Guardian
Yanis Varoufakis, it is fair to say, was barely known not that long ago. True, he was a bit of a celebrity in the arcane world of austerity economics. …
At 53, Varoufakis is still clear that he “understands the world better” as a result of having read Marx. But he no longer considers himself a diehard leftie, whatever others may think. Rather, he says, he is a libertarian or erratic Marxist, who can marvel at the wondrousness of capitalism but is also painfully aware of its inherent contradictions, just as he is “the awful legacy” of the left. “It is a system that produces massive wealth and massive poverty,” proclaims the economist who taught at the universities of East Anglia, Cambridge, Glasgow and Sydney after gaining his doctoral degree at the University of Essex. “I don’t think you can understand capitalism until and unless you understand those contradictions and ask yourself if capitalism is the natural state. I don’t think it is. That’s why I am a leftwinger.”
“It’s one thing to say you shouldn’t have gotten into the euro, it’s quite another to say you should get out of the euro. If we backtrack, we fall off a cliff. This is my argument to everyone.” Europe, he insists, is stuck with Greece because Athens is never going to ask to leave the euro. Fittingly, perhaps, the new MP, who has dual Greek-Australian citizenship, is not a signed-up member of Syriza, the party he now represents in the rambunctious Athens parliament. Syriza’s militant wing wants nothing more than to get out of the monetary union.
…”I cannot possibly separate the fate of this country from the fate of Europe. For some reason, lots of terrible things start here and then spread. The cold war was one. It didn’t start in Berlin, it started in Athens in December 1944; the contagion in the eurozone started here in 2010. We are per fectly capable as Europeans of messing things up unnecessarily.”
“We are a party of the left, but what we are putting on the table is essentially the agenda of a reformist bankruptcy lawyer from the City of London,” he says. “The bailout was not a bailout of Greece in 2010, it was a bailout of the German and French banks. The German public was misled into thinking that this was money going to the Greeks, the Greek public was misled into thinking that this was our salvation.”
We were apparently members of “the arcane world of austerity economics.”
He says he doesn’t know what will happen, but we think he has an idea that if Greece refuses to knuckle under, Germany will cave in or Greece will leave.
⇧ How many years do you have to get rich? A new study explains.
There are people out there who have late-age renaissances and start earning like never before. But most of us are not Louis C.K. We set up our careers by our mid-30s, either by working up through the ranks of a company or going to school to position ourselves for a pay bump once we have our fancy degree. By middle age, we pretty much are what we are, professionally. Or, as Schopenhauer supposedly said: “The first forty years of life give us the text; the next thirty supply the commentary.”
Well, people are living longer now, and that trend isn’t going to change unless humanity self-destructs.
⇧ The USA — All Systems Go? – Forbes
…part of the reason for the divergence is that the EU’s policy of austerity-which began in mid-2010-has made the crisis much worse. On that front, the conventional wisdom-as enshrined in the European “Growth and Stability Pact”-is that the country with the bigger deficit would have the bigger problem. And conventional belief would expect this to be state-oriented France, rather than the free-enterprise-oriented USA.
Guess again. As Figure 3 shows, France has run the smaller deficit-both since 2000 and especially since the financial crisis hit in late 2007. France’s average deficit since 2000 has been about 4% of GDP, whereas the USA’s has been about 6%. During the crisis itself, the US government deficit hit 13%-well in excess of France’s maximum deficit of 7%. Under pressure from the EU, France is driving its deficit down now, and it is below 3% of GDP; the USA’s deficit has fallen as its economy has recovered, but it is still larger than France’s at just under 5% of GDP.
So the country with the bigger government deficit is in better economic shape, and that’s the capitalist US of A, not the socialist France.
But why did the USA go down so steeply initially-enough to allow Sarkozy the freedom to disparage the US model in comparison to France? This relates to that other source of money creation that I noted in “Beware Of Politicians Bearing Household Analogies”: private banks. The crisis was caused by a huge collapse in the rate of growth of private debt-from a maximum of 15% of GDP in 2006 to negative 5% (in other words, deleveraging) in early 2010.
France, on the other hand, didn’t experience deleveraging at all.
Read the whole article! The US still isn’t in good shape.
⇧ Something Rotten Is Piling Up in this Economy | Wolf Street
Retailers were able to keep their inventories stable in relationship to sales, which inched up 2.6% year-over-year. So the inventories-to-sales ratio remained at 1.43.
Further up the channel, wholesalers saw sales rise only 1.43%, but their inventories stacked up, and the inventories-to-sales ratio hit 1.22, up from 1.16 a year earlier.
And manufactures? That great “manufacturing renaissance” in the US? Year over year, sales declined 0.9%, but inventories rose 2.7%, and their inventories-to-sales ratio jumped to 1.34 from 1.29 a year earlier.
For all three combined, the inventories-to-sales ratio rose to 1.33 in December, after climbing methodically since summer. The last time it was rising to this level was in September 2008 — the Lehman Moment — when sales up the entire channel were beginning to grind to a near halt, a terrible condition that morphed into the Great Recession.
Wow, we didn’t see anyone else reporting this.
⇧ Republicans seize on HSBC scandal to hold up Loretta Lynch’s confirmation | News | The Guardian
Lynch’s deal with HSBC sparked outrage on Capitol Hill two years ago, as Republicans and Democrats railed against a settlement they said let the bank off the hook by avoiding criminal charges against the bank or its executives.
… Vitter’s and Grassley’s interventions mark a significant step for the GOP, which has so far resisted becoming involved in the scandal.
Until now, Senate Democrats have been most outspoken over the revelations. …
Supplying information “in the context of recent media reports regarding the release of HSBC files pertaining to its tax clients,” Lynch told the committee the deal she reached with HSBC two years ago does not prohibit any new prosecution against the bank over tax evasion if there is sufficient evidence.
Well, “politics” is, or are if you like, definitely afoot, but the questions remain: What did she know, and when did she know it? Thank you, Howard Baker.
⇧ Kevin Gallagher: Emerging Markets and the Reregulation of Cross-Border Finance – YouTube
Hang in there watching the whole video because the whole thing leads up to the last 3 minutes really give you deeper insights into what’s wrong.
Boston University’s Associate Professor Kevin Gallagher (an Institute grantee) discusses…his new book, “Ruling Capital”. As Gallagher points out in the book and in the interview below, the 2008 global financial crisis has opened a new chapter in the debate over the proper policy responses to pro-cyclical capital flows. Until very recently certain strands of the economics profession as well as industrialized country national governments and international financial institutions have remained either hostile or silent to regulating capital movements. But there is no longer policy unanimity on this issue, which is in marked contrast to the period during the Asian Financial Crisis, where the so-called “Washington Consensus” dominated policy making in both the developed and developing world, and capital account liberalization remained paramount. Today, as Gallagher points out, a number of emerging economies, including Brazil, Taiwan, and South Korea, have been successfully experimenting with new capital account regulations (CARs) to manage volatile capital flows and managed to remain relatively unaffected by the turbulence brought about as the Fed began the process of unwinding its quantitative easing program. Even the International Monetary Fund (IMF) has come to partially recognize the appropriateness of capital account regulations and has gone so far as to recommend (and officially endorse) a set of guidelines regarding the appropriate use of CARs.
Gallagher develops a theory of countervailing monetary power that shows how emerging markets can and should counter domestic and international opposition to the regulation of cross-border flows, even as he acknowledges powerful attacks from a multiplicity of interests, seeking to undermine those very regulations.