Monday, September 20, 2010

Today's Best Reads

1--Bond Markets Get Riskier, Mark Gongloff and Carrick Mollencamp, Wall Street Journal

Excerpt: "Bondholders got burned" buying deals in 2005 through 2007 because indentures, or the contracts that govern the bonds, didn't protect them, said Adam Cohen, founder of Covenant Review LLC, a New York credit research firm. "They said 'never again,' but now in a hot bond market, people are buying into those covenant loopholes all over again, and they're going to get burned again."

While most analysts don't think the bond market is in a bubble, they are seeing a repeat of some behavior from the last run-up. "In 2001-2003, clients were desperate for yield and were willing to invest in stuff you could tell was risky because it promised a higher return," says George Feiger, CEO of Contango Capital Advisors. "You see the same pressure today."

2--The Case for a Housing Bottom in 2013-14, Charles Hugh Smith, Daily Finance (Another "must read" from CHS)

3--Did France cause the Great Depression?, Douglas Irwin, VOX

Excerpt: A large body of research has linked the gold standard to the severity of the Great Depression. This column argues that while economic historians have focused on the role of tightened US monetary policy, not enough attention has been given to the role of France, whose share of world gold reserves soared from 7% in 1926 to 27% in 1932. It suggests that France’s policies directly account for about half of the 30% deflation experienced in 1930 and 1931.

4--Financial Innovation and the Distribution of Wealth and Income, Margaret M. Blair, SSRN

Abstract: Now that Congress has passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, regulators promulgating the rules under this new bill must tackle a major problem that the reform bill addresses only indirectly. This is the problem of excessive “leverage” – financing with too much debt. Leverage permeates the modern financial system. Leverage makes the system too large, in the sense that large parts of the system operate outside the reach of regulators, and the system has a tendency to create vastly too much money and credit, thereby causing asset bubbles. Asset bubbles create the illusion that the financial sector is adding substantially more value to the global economy than it really is, and expose the rest of the economy to too much risk. Moreover, too much of society’s resources go to compensate the people in the system who are causing this to happen.

5--Lessons from the great Depression, Euro Intelligence

6--There is No Evidence for the "Structural Unemployment" Story, Dean Baker, CEPR (Baker is "right again")

7--The Stagnating Labor Market, Mike Konczal, naked capitalism

Excerpt:Everywhere we look, across occupations and sectors, people with the skills to work their jobs are more likely to be working part-time for economic reasons in 2010 than they were before the recession. This is a story of aggregate demand, not a story of skills mismatch...

If the issues of long term unemployment and the large number of people dropping out of the labor force are not addressed soon then what is an aggregate demand problem can become a structural problem through hysteresis effects. Officials need to act in a bold and imaginative manner to repair the labor markets dysfunctions-much as Roosevelt did-or risk entrenching the social misery that engulfs many Americans today.

8--"Manufacturing Consent" through polling, Yves Smith, naked capitalism

Excerpt: It’s not generally well understood the extent to which the polling industry is, largely knowingly, producing ‘results’ which significantly overstate right-wing biases.

9--Ally's GMAC Mortgage Halts Home Foreclosures in 23 States, Bloomberg (comment: Wanna bet GMAC can't take the losses?)

Excerpt: GMAC Mortgage ranked fourth among U.S. home-loan originators in the first six months of this year, with $26 billion of mortgages, according to industry newsletter Inside Mortgage Finance. Wells Fargo & Co. ranked first, with $160 billion, and Citigroup Inc. was fifth, with $25 billion.

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