News: Real Estate, Risk, Economics. Dec. 29, 2015

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Table of Contents
(Click to sections below.)

1) mainly macro: UK flood prevention: the missing billion

2) Managing the Fed’s balance sheet | Econbrowser

3) Shale’s Running Out of Survival Tricks as OPEC Ramps Up Pressure – Bloomberg Business

4) We need a Dutch-style Delta plan to stem the tide of floods | Henk van Klaveren | Opinion | The Guardian

5) Freak storm in North Atlantic to lash UK, may push temperatures over 50 degrees above normal at North Pole – The Washington Post

6) German politicians slam Greece over handling of refugee crisis | Reuters

7) Where next for the three arrows of Abenomics? – Telegraph

8) Little Pink (Modular) Houses – Bloomberg Gadfly

9) China Clamps Down on Online Lenders, Vows to Cleanse Market – Bloomberg Business

10) The Fed and Financial Reform — Reflections on Sen. Sanders op-Ed | Larry Summers

11) Destructive Long-Termism – The New York Times

12) A Crisis Worse than ISIS? Bail-Ins Begin | WEB OF DEBT BLOG

13) Don’t get ripped off in wake of storms

14) Policy Effectiveness Since 2008 – The New York Times

15) California Wildfire Contained, Now Comes Worries About Landslides

16) Most of those without Medicaid are the working poor

17) Why economists put health first – Agenda – The World Economic Forum

18) Why It’s So Exciting to Work in Historic Preservation Right Now — Next City

  1.    mainly macro: UK flood prevention: the missing billion

    Simon Wren-Lewis touched on this before. He’s obviously and correctly trying to drive it home.

    I still find it remarkable that no one has held the government to account for this huge failure. Flooding is currently costing at least £1 billion a year. Even if filling that spending gap had prevented only a small proportion of these current and future costs, it would have produced a handsome return, as well as avoiding a great deal of individual heartbreak. Yet the government continues to get away with talking about unprecedented rainfall, as if no one had thought this might happen. John Deben, Chairman of the Statutory Committee on Climate Change, tweets

    “Surprising no broadcaster seems to have sought to discuss advice on flooding and adaptation to climate change given to Government”

    The Labour Party too appears to have made no attempt to coordinate a media attack on the government, in an area where their own record was exemplary.

    It’s a gigantic risk-management issue that appears to be being ignored or covered up or both, depending upon which side of the ideological fence the failing party is on.

    As the old saying goes, an ounce of prevention is worth a pound of cure. Spending whatever it costs to prevent Anthropogenic Global Warming will be worth vastly more than waiting for the disasters and paying to fix those after the fact.

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  2.    Managing the Fed’s balance sheet | Econbrowser

    Yeoman work by James Hamilton:

    Once the Fed has created new deposits, nothing an individual bank could do apart from withdrawing the deposits as cash would make the deposits disappear. If a bank makes a loan to a customer of another bank, the result of the loan is the deposits just get transferred from the first bank to the second with the total end-of-day Fed deposits of all banks unchanged. But the volume of Fed operations beginning in 2008 far exceeded that needed to meet demand for currency. Initially the Treasury held some of the extra deposits that the Fed was creating in the Treasury’s own account with the Fed, as seen in gray in the figure above. But with interest rates so low and the Fed offering to pay 25 basis points on reserves, banks were quite willing to hold the reserves at the end of each day rather than try to invest or lend out these funds themselves. Banks would make loans or investments during each day, of course, transferring the deposits between banks. But at the end of the day some bank was perfectly willing to hold the deposits overnight rather than try to make one more investment. The result is that most of the new Fed liabilities that have been created since 2008 have simply remained as deposits held on account with the Fed.

    That’s why people have said that the banks simply park their money at the Fed. MMTers have pounced on that notion as mistaken. However, it isn’t mistaken. It’s simply insufficiently explanatory.

    The commercial banks leave a great deal of their money parked at the Fed in excess-reserve accounts rather than lending (and thereby moving those reserves from excess accounts to regular-reserve accounts).

    It’s still fractional-reserve banking in the US too and regardless of whether the Fed will or won’t always fund reserve accounts as needed by illiquid but ostensibly solvent banks.

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  3.    Shale’s Running Out of Survival Tricks as OPEC Ramps Up Pressure – Bloomberg Business

    The Energy Information Administration now predicts that companies operating in U.S. shale formations will cut production by a record 570,000 barrels a day in 2016. That’s precisely the kind of capitulation that OPEC is seeking as it floods the world with oil, depressing prices and pressuring the world’s high-cost producers. It’s a high-risk strategy, one whose success will ultimately hinge on whether shale drillers drop out before the financial pain within OPEC nations themselves becomes too great.

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  4.    We need a Dutch-style Delta plan to stem the tide of floods | Henk van Klaveren | Opinion | The Guardian

    When more than 1,800 people died in the wake of the 1953 North Sea flood in the Netherlands, the national reaction was: never again. The resulting Delta programme to close off the south-western river delta from the sea was so bold that its name became synonymous with dealing with a crisis. If an issue needs a major response, you can be sure that a Dutch politician will call for a “Delta plan to tackle X”. It is time that the UK took some of that attitude and got a Delta plan to tackle flooding.

    Flooding has become an almost annual event in the UK. We are waiting for the next storm and flash flood to hit, with another group — or even the same group — of people evacuated, all followed by the promise of some money for a bit of flood defence work. As a nation, we can no longer afford to accept that.

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  5.    Freak storm in North Atlantic to lash UK, may push temperatures over 50 degrees above normal at North Pole – The Washington Post

    I’m posting this not as an alarmist. The storm may very well not pan out on the extreme high-end for the North Pole. It would still be interesting to read, for one, simply for the weather modeling aspects and graphics, etc.

    The GFS model projects the temperature at the North Pole to reach near freezing or 32 degrees early Wednesday. Consider the average winter temperature there is around 20 degrees below zero. If the temperature rises to freezing, it would signify a departure from normal of over 50 degrees.

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  6.    German politicians slam Greece over handling of refugee crisis | Reuters

    To me, Schaeuble’s motto toward Greece seems to be: kick them for lacking the funds to deal with the refugee crisis caused by non-Greeks and while drowning them, the Greeks, in completely unnecessary debts.

    Isn’t it obvious? Doesn’t the West have a moral and ethical obligation to aid Greece on all fronts rather than inflicting brutal and, again, unnecessary austerity on them?

    Where’s the compassion? I don’t see it anywhere in Wolfgang Schaeuble’s approach. His is not the type or level of leadership Europe requires.

    The German people lack needed vision if they think Merkel and Schaeuble have demonstrated the proper direction for the betterment of Germany, Europe, and the world. Austerity is evil. It is solely for the benefit of the shortsighted greedy, not good for the whole people at all, only bad.

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  7.    Where next for the three arrows of Abenomics? – Telegraph

    How long will it take for the economists, politicians, and people to get it? If you want inflation, issue money directly to the people until the desired rate of price inflation is reached (regardless of how much of the money the people save).

    Who already knows this? The bankers. Why isn’t it common knowledge? The bankers.

    Three years on from prime minister Shinzo Abe’s pledge to smash deflation, the world’s third largest economy is still struggling.

    I said the tax rise would be counter-productive. It was.

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  8.    Little Pink (Modular) Houses – Bloomberg Gadfly

    To break these misconceptions, the Modular Home Builders Association recently formed a committee to coordinate a national marketing effort. While they don’t have all the details nailed down yet, Tom Hardiman, the association’s executive director, says it will emphasize all of the things modular homes are — and not what they aren’t.

    Modular homes are also fully insurable under standard homeowners and dwelling policies.

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  9.    China Clamps Down on Online Lenders, Vows to Cleanse Market – Bloomberg Business

    China appears to be aggressively moving to shut down the wild-west, snake-oil aspects of its capitalist economy.

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  10.    The Fed and Financial Reform — Reflections on Sen. Sanders op-Ed | Larry Summers

    So, Larry Summers responds to Bernie Sanders with the following Summers’ error:

    Sanders asserts as many do that Glass Stegall’s repeal contributed to the crisis. I may not be objective as I supported this measure as Treasury Secretary but I do not see a basis for this assertion. Virtually everything that contributed to the crisis was not affected by Glass Steagall even in its purest form. Think of pure investment banks Bear and Lehman, or the GSEs Fannie and Freddie, or the banks Washington Mutual and Wachovia or AIG or the growth of the shadow banking system. Nor were the principle lending activities that got Citi and Bank of America in trouble implicated by Glass Stegall.

    Moreover preventing financial institutions from diversifying into multiple activities can actually make them more likely to fail. Imagine how much better the outcome would have been if Lehman had sold itself to a large bank during 2008. There is the also the further point that without the repeal of Glass Stegall it would have been much more difficult to aggressively use the discount window to contain panic following Lehman s fall.

    I don’t think it’s Larry’s lack of objectivity but rather his misunderstanding about how the repeal of the Glass-Steagall Act impacted regulation of Wall Street investment banks and commercial banks at the time leading up to the Great Recession.

    The repeal of the Act allowed previously walled-off banks to invest in entities that got themselves into great trouble. The Fed stepped in and flooded the entire sector with cash. Fiscal solutions were a mere whimper. The whole economy suffered immensely. Had the Act not been repealed, the Great Recession likely would not have happened, as the entire deregulation frenzy and the speculative mania all went together.

    Yes, Larry you had a huge hand in creating the mess. I suggest you own right up to it.

    See also: real-estate-risk-economics-dec-23-2015/# 12231514

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  11.    Destructive Long-Termism – The New York Times

    One of the reasons I got tired of reading Tim Taylor:

    Paul Krugman:

    … we did not, repeat not, have massive stimulus. Here’s the ARRA as a percent of potential GDP:

    So in response to the worst financial crisis in three generations, we briefly provided stimulus of a bit more than 2 percent of potential GDP, which quickly went away. Should we be surprised that this effort proved inadequate — exactly as predicted?

    Furthermore, at this point there is overwhelming evidence that fiscal policy has strong effects — that the multiplier is well above one. I’ve seen nothing suggesting that fiscal policy has lost traction ….

    … if you have a persistent problem of inadequate demand — which is the secular stagnation argument — then find things that will boost demand. Don’t throw up your hands and whine that you can’t, and/or use demand-side problems to argue for other stuff that has no obvious relevance to the problem. You may think you’re being wise and judicious, but you’re actually engaged in an act of evasion.


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  12.    A Crisis Worse than ISIS? Bail-Ins Begin | WEB OF DEBT BLOG

    Title II is aimed at “ensuring that payout to claimants is at least as much as the claimants would have received under bankruptcy liquidation.” But here’s the catch: under both the Dodd Frank Act and the 2005 Bankruptcy Act, derivative claims have super-priority over all other claims, secured and unsecured, insured and uninsured.

    What about FDIC insurance? It covers deposits up to $250,000, but the FDIC fund had only $67.6 billion in it as of June 30, 2015, insuring about $6.35 trillion in deposits. The FDIC has a credit line with the Treasury, but even that only goes to $500 billion; and who would pay that massive loan back? The FDIC fund, too, must stand in line behind the bottomless black hole of derivatives liabilities. …

    We need to lean on our legislators to change the rules before it is too late. The Dodd Frank Act and the Bankruptcy Reform Act both need a radical overhaul, and the Glass-Steagall Act (which put a fire wall between risky investments and bank deposits) needs to be reinstated.

    Meanwhile, local legislators would do well to set up some publicly-owned banks on the model of the state-owned Bank of North Dakota — banks that do not gamble in derivatives and are safe places to store our public and private funds.

    Look. I love Ellen Brown. She’s great. However, you need to understand something I’ve written over and over. The US government will not leave FDIC in a lurch. It won’t do it because it doesn’t want to face the pitchforks of the people, who would definitely overturn the government in a radical reformation leading to the nearly complete demise of capitalism, crony and otherwise. The government knows that the Internet has changed everything and that the call for throwing the bums out would be more than well received on both ends of the political spectrum but most assuredly by the left, which left would swell as never before in the US.

    So, while Ellen is completely right that the whole thing is a mess and needs reforming before we would ever reach the place where the US government would have to issue the public statement in the face of economic collapse caused by bankers speculating in hundreds of trillions in worthless derivatives (again), we should go forth with the needed reforms without aiding fear mongering.

    I definitely do not think Ellen is a fear monger. I believe she really believes that the financial powers that be are capable of being so stupid as to cut their own economic throats. I hope she’s wrong. I think she is. History, especially recent history, tells me she is.

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  13.    Don’t get ripped off in wake of storms

    Consumers should be wary of potential price gouging following last week’s storms, according to a news release from the Tennessee Department of Commerce and Insurance.

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  14.    Policy Effectiveness Since 2008 – The New York Times

    Here’s Krugman following up on his post above.

    I came down pretty hard on Tim Taylor yesterday, but with reason. There is simply no reason any reputable economist should, at this late date, be saying things like “We tried huge stimulus, but it didn’t work, so maybe fiscal policy is ineffective.” This just flies in the face of the facts. Three points:

    He’s right.

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  15.    California Wildfire Contained, Now Comes Worries About Landslides

    As firefighters mopped up the remains of a wildfire on the Southern California coast, authorities turned their focus to a new concern: a landslide if rain pounds the charred hills.

    In a heavy rain, the denuded soil could threaten nearby railroad tracks, U.S. 101 and the Pacific Coast Highway.

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  16.    Most of those without Medicaid are the working poor

    As a landlord, do you have tenants that fall into the gap? If so, do you think your government has made a wise choice that doesn’t hurt your business?

    They toil in America’s fast-food restaurants, call centers and retail stores — yet as many as five million Americans remain not only poor but also uninsured, despite an array of state and federal policies specifically intended to help them get health care.

    These people are caught in a health care netherworld. Their employers classify them as part-time workers or independent contractors, therefore avoiding any obligation to provide health care. Their state governments have not expanded Medicaid to include low-wage earners. And government mandates set a standard for “affordable” coverage that is not affordable at all for these families.

    A months-long USA TODAY examination of how the Affordable Care Act impacts the working poor — especially in the 20 states that haven’t expanded Medicaid ….

    Read the next link (below) too.

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  17.    Why economists put health first – Agenda – The World Economic Forum

    When people are healthy and financially stable, their economies are stronger and more prosperous. And, with benefits ten times greater than initial costs, investing in health first may ultimately pay for the rest of the new global development agenda.

    So the question is not whether universal health coverage is valuable, but how to make it a reality.

    Is the USA going to fall further behind other nations, even Kenya and Uganda? How will that be good for the US economy and your business in the US?

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  18.    Why It’s So Exciting to Work in Historic Preservation Right Now — Next City

    Anna Clark:

    … the Urban Land Institute and NeighborWorks America showcases 16 of the best ideas for affordable rentals from around the country. Real estate economics haven’t been sufficient to ensure that the supply meets demand, but to be clear, these clever mechanisms aren’t about charity: According to the report, they have raised more than $3 billion and developed nearly 60,000 housing units, with more on the way. Many are able to offer returns to their investors.

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