1--Why The Unemployment Rate Fell For 'All The Wrong Reasons', Huffington Post
Excerpt: Although the unemployment rate fell to from 9.4 to 9 percent in January, a scant 36,000 jobs were added to payrolls. The word many economists are using Friday morning to describe this discrepancy is simply "confounding."
"We don't believe the extent of the drop in the unemployment rate," said Stuart Hoffman, an economist at PNC. "It's like funhouse mirror image, although I don't know if there's anything funny about it. The unemployment rate appears to be falling much stronger than it actually is, while payroll job growth is probably stronger than it actually is -- but certainly not strong enough to suggest that drop in the unemployment rate."
The Bureau of Labor Statistics' monthly report is composed from two different sources: the household employment survey, which is measured by contacting American workers, and payroll employment as reported by employers. The confusion surrounding this jobs report boils down to this: although there are now only 13.9 million officially unemployed Americans -- down from 14.5 last December -- that drop was not matched by an increase in hiring.
One reason for January's sharp drop in unemployment is that more workers than ever have grown so discouraged that they have simply stopped looking for work. If an unemployed American stops searching for work, they are no longer counted as officially unemployed. Indeed, the pool of workers who have given up the hunt has reached a stunning new low for this recession: nearly 5 million have dropped out of the labor force completely.
2-- Mortgage rule could exacerbate housing slump, Reuters via patrick.net
Excerpt: U.S. regulators are gearing up for a landmark decision that could be pivotal in the recovery of the housing market -- how much risk can mortgage lenders sell to investors without having to hold on to some of it themselves?
The new standard will determine what loans are deemed safe enough for lenders to sell without holding 5 percent of the value on their own books.
How officials choose to define these new ultra-safe loans -- dubbed qualifying residential mortgages -- will have implications for who can get a mortgage, the price they will pay and how quickly the struggling housing market revives....
This 5 percent "risk retention" rule was mandated by last year's rewrite of Wall Street rules to try to improve mortgage underwriting by making lenders bear more of the cost of loans that go bad.
Poor underwriting led to the mountain of bad debt that touched off the financial crisis and led the nation into its deepest recession since the Great Depression. Federal Deposit Insurance Corp Chairman Sheila Bair wants to require 20 percent down payments to thwart the excesses that fueled the financial crisis. Industry heavyweight Wells Fargo has proposed an even tougher standard: 30 percent.
Loans that do not meet the new "QRM" definition would not be allowed to be fully securitized. Since lenders will be bearing more risk, they will want to pass off their increased costs to the borrower.
3--The Real Estate Lobby Is Ready to Rumble, Bloomberg
Excerpt: Barbara J. Thompson plans to put a human face on the high-stakes debate over whether to preserve cherished U.S. government subsidies for home loans....What unites them is a desire to protect a near-century of grants, tax breaks, and insurance policies funneled in large part through the government-owned mortgage-finance companies Fannie Mae (FNMA) and Freddie Mac (FMCC), which played starring roles in the U.S. housing crisis. Fannie and Freddie bought home loans from banks and sold them to global investors with an implicit government guarantee to cover losses in the event of a default. The arrangement helped foster an $11 trillion mortgage industry and supported a housing sector that overheated—and then started unraveling in 2008.
Now as lawmakers begin to overhaul the system, the housing lobby is mobilizing against its common enemy: a Republican plan to eliminate the federal government's guarantee of mortgages. "It's a coalition that's going to be very difficult for our adversaries to beat," says Jerry Howard, president and chief executive officer of the National Association of Home Builders. "We're preparing for one hell of a fight."
The group includes financiers who want to keep capital flowing on Wall Street, legions of real estate brokers and builders whose incomes depend on a robust housing market, and activists committed to the cause of shelter as a basic right....
Republicans and their free-market allies want the mortgage system to stand on its own, and they've targeted the government guarantee for extinction.
4--U.S. housing reform at risk of stopping way short, Reuters via patrick.net
Excerpt: America’s mortgage market almost sank the world economy. But no one has yet done anything to fix it. After blowing two deadlines, the government’s ideas are finally due out as early as next week from the U.S. Treasury, and these recommendations will frame the debate. But the danger is they will be premised on dogma that should in fact be seriously questioned.
Proposals have been circulating ever since the previous administration seized Fannie Mae and Freddie Mac in 2008. Most agree that both entities should be wound down, one way or another. But whether government should still have a role subsidizing housing finance is still up for grabs — or rather, few seem able to resist the idea that it should. The trouble is that financial types have become accustomed to a government safety net, and few of the constituencies involved are willing to challenge key U.S. housing myths.
Myth 1: Significant reform will kill the housing market.
Many fear any major overhaul of U.S. housing finance will slam a still tottering housing market. If America scraps its current system tomorrow, that’s what will happen. At a minimum, removing the government subsidy should nudge mortgage interest rates higher, potentially knocking home prices down further. But the UK took more than a decade to phase out tax deductions on mortgage interest. Homeowners, would-be homeowners and mortgage lenders can adapt to even a potentially wrenching change if there’s a five or 10-year transition period. The United States needs to get started on a plan.
Myth 2: The U.S. mortgage market is too big for the private sector to handle alone.
The $10.6 trillion mortgage market is huge, and Fannie and Freddie own or guarantee roughly half of it. But the size of the market — and the secondary market in securitized mortgages, and so on — was part of the problem in the years leading up to the 2008 crisis. The market is already down from its $11 trillion peak, but it is still nearly twice as big as in 2001. With the national average home price down more than 30 percent from its highs and millions of homeowners in danger of foreclosure, it’s clear only a smaller mortgage market is really sustainable.
Fully private-sector mortgages would be more expensive, but at the right price banks will lend. Studies conducted before the financial crisis suggested that government backing saved homeowners only 0.15 to 0.4 percentage point on their mortgage interest rates.
5--Housing Bubbles Are Few and Far Between, Robert Schiller, New York Times
Excerpt: With Karl Case of Wellesley College, who developed the S&P/Case-Shiller Home Price Indices with me, I have been surveying opinions of home buyers in the United States on and off since 1988. We have found a fairly steady downtrend since the early-to-mid-2000s in a number of speculative attitudes. On questionnaires, people are less likely to report that they think of housing as an investment, or to express the view that real estate is the “best investment.”
As an investment, in fact, they are more likely to see housing as risky. Although they still have solid expectations of home price increases over the next 10 years — a median of 5 percent annually, in nominal terms — those expectations have been declining and are not nearly as extravagant as they were before the market peak.
IT will take a while for the housing market to recover fully. Still, many people continue to think of housing as an investment, and so it does seem that we are in danger of encountering another whopper bubble someday. Even so, both the history of land bubbles and the slowness of shifts in public opinion suggest that such bubbles will be fairly rare.
Add the new policy restraints, and a new national housing bubble looks even less likely anytime soon.
6--Droughts, Floods and Food, Paul Krugman, New york Times via Economist's View
Excerpt: We’re in the midst of a global food crisis — the second in three years. World food prices hit a record in January... These soaring prices have had only a modest effect on U.S. inflation, which is still low..., but they’re having a brutal impact on the world’s poor, who spend much if not most of their income on basic foodstuffs.
The consequences of this food crisis go far beyond economics. After all, the big question about uprisings against corrupt and oppressive regimes in the Middle East isn’t so much why they’re happening as why they’re happening now. And there’s little question that sky-high food prices have been an important trigger for popular rage.
So what’s behind the price spike? American right-wingers (and the Chinese) blame easy-money policies at the Federal Reserve, with at least one commentator declaring that there is “blood on Bernanke’s hands.” Meanwhile, President Nicolas Sarkozy of France blames speculators, accusing them of “extortion and pillaging.”....
But the evidence does, in fact, suggest that what we’re getting now is a first taste of the disruption, economic and political, that we’ll face in a warming world. And given our failure to act on greenhouse gases, there will be much more, and much worse, to come.
7--Fed Watch: Acceleration Alert, Tim Duy, Economist's View
Excerpt: For those of us still fretting over a struggling US economy, the first week of February delivered a host of data that should raise red flags. Simply put, the solid activity of 4Q2010 looks to have carried through into the new year. This could be shaping up to be a far more interesting year for monetary policy than I would have imagined just six weeks ago. While I believe the baseline forecast – complete the current asset purchase program and then move to the sidelines for the remainder of 2011 – incoming data suggests a need to be prepared for a fallback position. And that fallback is no longer toward additional easing.
If you believed the 4Q10 GDP report revealed a far stronger economy than the headline number suggested, you would have been looking for some blowout numbers from the ISM reports. And that is just what we got.... In short, it was tough to ignore the strength in the ISM report. Moreover, its service sector counterpart revealed similar trends, albeit to a lesser degree.
The manufacturing report also revealed accelerating price pressures, with the prices paid index jumping 9 percentage points to 81.5. All commodities were reported up in price...The Personal Income and Outlays report pointed to a consumer willing to step back up to the plate. Although real income gained a scant 0.1 percent, real spending grew 0.4 percent....
Not surprisingly, the saving rate declined – one has to consider the possibility that saving is settling into a new equilibrium around the five percent mark. If so, pessimism on the consumer outlook was overblown and, more importantly for the immediate outlook, the rise in the saving rate is now behind us. Income gains will thus largely translate into spending gains in the months ahead.
Moreover, early evidence suggests that consumer spending continued to grow in January.....Cutting through the analysis, it seems that most are in agreement on one important point – the unemployment rate has made a dramatic drop in the past two months. The kind of dramatic drop that points to some real improvement in the labor market.
We have just one solid quarter of real final demand behind us, and the early read on January data is reinforcing the importance of that demand. Sustain final demand anywhere near 7 percent growth – or even 4 to 5 percent – and labor market improvements will emerge in short order....
The baseline assumes that labor force participation will climb as the economy gains strength. This will constrain the potential for wages gains and, consequently, inflation as well. Simply put, there is no reason the Fed cannot allow the economy to run hot, hot, hot for several quarters.
8--Merrill Lynch’s Horrific Irish Bank Adventures, The big Picture
Excerpt: The problems in Ireland makes the woes in Greece look merely like a bounced check. And Ireland’s eejit politicians, FOLLOWING THE ADVICE OF MERRILL LYNCH, turned the entire population of the Emerald Isle into indentured servants to bankers, guaranteeing all of their bad loans with taxpayer money.
Private gains, socialized losses indeed.
Here’s what makes this story so amazing. Merrill’s analyst warned about the Irish Bank problems in advance, he was fired for his troubles.....I read the next four paragraphs about Merrill Irish bank analyst Philip Ingram in sheer astonishment:
On March 13, 2008, six months before the Irish real-estate Ponzi scheme collapsed, Ingram published a report, in which he simply quoted verbatim what British market insiders had told him about various banks’ lending to commercial real estate. The Irish banks were making far riskier loans in Ireland than they were in Britain, but even in Britain, the report revealed, they were the nuttiest lenders around: in that category, Anglo Irish, Bank of Ireland, and A.I.B. came, in that order, first, second, and third.
For a few hours the Merrill Lynch report was the hottest read in the London financial markets, until Merrill Lynch retracted it. Merrill had been a lead underwriter of Anglo Irish’s bonds and the corporate broker to A.I.B.: they’d earned huge sums of money off the growth of Irish banking. Moments after Phil Ingram hit the Send button on his report, the Irish banks called their Merrill Lynch bankers and threatened to take their business elsewhere. The same executive from Anglo Irish who had called to scream at Morgan Kelly called a Merrill research analyst to scream some more. Ingram’s superiors at Merrill Lynch hauled him into meetings with in-house lawyers, who toned down the report’s pointed language and purged it of its damning quotes from market insiders, including its many references to Irish banks. And from that moment everything Ingram wrote about Irish banks was edited, and bowdlerized by Merrill Lynch’s lawyers. At the end of 2008, Merrill fired him.
9--Supreme Court Justice Clarence Thomas Falsified 20 Years Of Financial Disclosure Forms, Velvet Revolution
Excerpt: We learned two weeks ago that Supreme Court Justice Clarence Thomas had falsely stated on his Financial Disclosure forms that his wife had no non-investment income from 2003-2009. In fact, she had received a salary of at least $100,000 each year from the conservative Heritage Foundation. Therefore, on January 24th, our attorney Kevin Zeese wrote a letter to the Department of Justice asking that Justice Thomas be prosecuted for making false statements. The next day, we received his amended filings which showed that he had actually falsified 20 years of disclosure forms beginning in 1989 during his initial Supreme Court nomination process. We then issued a press release calling for his impeachment and an audit of every decision he has been involved with to determine if his false information undermined the fairness of the cases.