Thursday, May 12, 2011

Today's links

1--CoreLogic: House Prices declined 1.5% in March, Prices now 4.6% below 2009 Lows, Calculated Risk

Excerpt: Notes: Case-Shiller is the most followed house price index, but CoreLogic is used by the Federal Reserve and is followed by many analysts. CoreLogic reports the year-over-year change each month, and the headline for this post is for the change from February to March 2011. The CoreLogic HPI is a three month weighted average of January, February and March, and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic® Home Price Index Shows Year-Over-Year Decline for 8th Straight Month

CoreLogic ... today released its March Home Price Index (HPI) which shows that home prices in the U.S. declined for the eight month in a row. According to the CoreLogic HPI, national home prices, including distressed sales, declined by 7.5% in March 2011 compared to March 2010. ... Excluding distressed sales, year-over-year priced declined by 0.96 percent in March 2011 compared to March 2010....

The index is down 7.5% over the last year, and off 34.8% from the peak.

This is the eight straight month of year-over-year declines, and the ninth straight month of month-to-month declines. The index is now 4.6% below the previous post-bubble low set in March 2009, and I expect to see further new post-bubble lows for this index over the next few months.

2--Corporate Martial Law: Public Schools Auctioned Off to Highest Bidder, Alternet

Excerpt: Michigan's new emergency financial managers are being dispatched to poor communities of color, where they're being given total power to attack public institutions....

If you’ve ever wondered whether the solution to a cash-strapped low-performing urban school district’s financial and education woes is the wholesale privatization of the public school system, you’re about to get your answer. Detroit, which is caught up in a state that has turned on its public workers, is auctioning off its public schools.

The city is taking applications as part of its Renaissance 2012 plan to put 45 public schools up for charter school takeover, and yesterday, the Detroit Free Press reported its gotten 18 charter school companies eyeing some 50 schools.

The Detroit school system is facing a dizzying $327 million budget deficit, and is under strict orders to deal with massive debt. But under the rule of Bob Bobb, the emergency financial manager appointed to caulk the sinking ship, the deficit has actually grown by over a $100 million, even as teachers have made significant concessions in pay and benefits. His latest attempt to deal with the massive deficit called for 45 schools to eventually be shut down if they weren’t converted to charter school control. Of those, 18 would be shuttered in June if no new outside charter school operator is identified. The rest are slated for outside takeover by 2012, Bobb has said. Charter schools are privately run, publicly financed schools.

3--US Home Market Takes a Tumble, Wall Street Journal via Automatic Earth

Excerpt: Steepest Quarterly Decline Since 2008.....Home values posted the largest decline in the first quarter since late 2008, prompting many economists to push back their estimates of when the housing market will hit a bottom.

Home values fell 3% in the first quarter from the previous quarter and 1.1% in March from the previous month, pushed down by an abundance of foreclosed homes on the market, according to data to be released Monday by real-estate website Zillow.com. Prices have now fallen for 57 consecutive months, according to Zillow....

While most economists expected sales to decline after tax credits expired, the drag on the market has been greater than many anticipated. "We expected December and January to be bad" as the market reeled from the after-effects of the tax credit, said Stan Humphries, Zillow's chief economist. But monthly declines for February and March were "really staggering," he said. They indicate "a reflection of the true underlying demand, which is now apparent because most of the tax credit is out of the system, and it's being completely overwhelmed by supply."

Mr. Humphries now believes prices won't hit bottom before next year and expects they will fall by another 7% to 9%. Other economists revised their forecasts. In April, the chief economist at mortgage company Fannie Mae, Doug Duncan, said home prices in the second quarter would be 5.3% lower than the previous-year period, down from his earlier estimate of a 2.6% decline. The estimates, which are based on data from the mid-1990s on, come from a proprietary computer program that takes into account sale prices for nearby homes that appear comparable, the size and other physical attributes of the home, its sales history and tax-assessment data, Mr. Humphries says.

4--Why America’s ‘zombie consumers’ won’t be coming back to life soon, Globe And Mail

Excerpt: U.S. consumer spending rose only 2.7 per cent in the first quarter, down sharply from 4 per cent in the last three months of 2010. Which is no trivial matter, considering that the consumer accounts for about 70 per cent of the U.S. economy, down from 71.3 per cent at the precrisis peak. (The Canadian level reached 64 per cent last year, up from 56 per cent in 2000). The U.S. consumer share will continue shrinking until it returns to about the 66-per-cent level that prevailed for much of the last quarter of the 20th century, putting a big dent in GDP, prominent Wall Street economist Stephen Roach was saying the other day. "We’re only 20 per cent of the way there."

Annual growth in real U.S. consumption totalled close to 4 per cent before the financial crisis struck in 2007. If the current trend continues, it will be closer to half that amount, Mr. Roach said in Toronto before addressing a business audience gathered at Grano restaurant for its popular salon speakers series. "It’s not a pretty picture," added Mr. Roach, a Yale University fellow who made his considerable reputation as a long-time, often bearish, chief economist with Wall Street heavyweight Morgan Stanley, before turning his attention to China and other rising Asian economies.

Before the crisis, American consumption was soaring not because of income growth or rising employment but because "we levered an asset bubble. We extracted money from overvalued property. And that’s over. … Consumers are stuck with a legacy of excessive debt, inadequate saving, and facing high unemployment, higher underemployment, weak incomes and holding on to assets that are under water."

No wonder he declares that "the American consumer is toast." Higher exports and increased capital spending could help the U.S. economy weather the consumer’s demoralizing decline. "But I would say reduce your estimates of trend GDP growth in the U.S. over the next three to five years by at least one percentage point. That’s a big deal."

5--EU under pressure to slash ruinous Irish and Greek bailout bills, Guardian

Excerpt: Ratings agency Standard & Poor's increased the pressure after it suggested more radical measures would be required to make Greece's €327bn debt mountain sustainable, saying Athens may need to renege on 50% or more, implying big losses for investors. S&P downgraded Greece's credit rating further into junk territory – from BB- to B – sparking a furious riposte from the Greek finance ministry, which accused the agency of basing decisions on market rumours "that seriously cast in doubt [their validity]".

However, sustained efforts by the Athens administration to deflect criticism of its attempts to rejuvenate the economy have so far failed with international money markets sending the cost of insuring its debts up 19 basis points to a record 1,360, according to data provider CMA, signalling a 68% probability of default within five years. Swaps on Ireland reached an all-time high of 676 basis points, and contracts on Portugal also rose. The euro was down 0.4% at $1.4308, the lowest for three weeks, bringing its losses over the last four trading days to 3.8%, the biggest four-day drop since May 2010.

The EU executive attempted to calm the markets, saying it hoped for a decision within weeks on reducing the rate charged to Ireland to make Dublin's debt more sustainable. "The commission is clearly in favour of a rate cut," said Olli Rehn, EU commissioner for economic and monetary affairs. "The commission is against debt restructuring."

Yet Kenny, under intense pressure to strike an improved deal, told parliament a deal was only a matter of days away. "There is no doubt that a reduction in the interest rate on the monies we are borrowing from Europe would be a meaningful and appreciated measure," he said, before predicting it could be delivered at a eurozone finance ministers meeting next week.

6--Why Greece Should Reject the Euro, Mark Weisbrot, New York Times

Excerpt: Greek and European Union officials denied the report, but a threat by Greece to jettison the euro is long overdue, and it should be prepared to carry it out. As much as the move might cost Greece in the short term, it is very unlikely that such costs would be greater than the many years of recession, stagnation and high unemployment that the European authorities are offering.

The experience of Argentina at the end of 2001 is instructive. For more than three and a half years Argentina had suffered through one of the deepest recessions of the 20th century. Its peso was pegged to the dollar, which is similar to Greece having the euro as its national currency. The Argentines took loans from the International Monetary Fund, and cut spending as poverty and unemployment soared. It was all in vain as the recession deepened.

Then Argentina defaulted on its foreign debt and cut loose from the dollar. Most economists and the business press predicted that years of disaster would ensue. But the economy shrank for just one more quarter after the devaluation and default; it then grew 63 percent over the next six years. More than 11 million people, in a nation of 39 million, were pulled out of poverty.

Within three years Argentina was back to its pre-recession level of output, despite losing more than twice as much of its gross domestic product as Greece has lost in its current recession. By contrast, in Greece, even if things go well, the I.M.F. projects that the economy will take eight years to reach its pre-crisis G.D.P. But this is likely optimistic — the I.M.F. has repeatedly lowered its near-term growth projections for Greece since the crisis began.

The main reason for Argentina’s rapid recovery was that it was finally freed from adhering to fiscal and monetary policies that stifled growth. The same would be true for Greece if it were to drop the euro. Greece would also get a boost from the devaluation’s effect on the trade balance (as Argentina did for the first six months of recovery), since its exports would be more competitive, and imports would be more expensive...

Portugal just concluded an agreement with the I.M.F. that projects two more years of recession. No government should accept this kind of punishment. A responsible leader would point out to the European authorities that they have the money to support Greece with countercyclical policies (like fiscal stimulus), though they are choosing not to.

There is also the idea that Greece — as well as Ireland, Spain and Portugal — can recover by means of an “internal devaluation.” This means increasing unemployment so much that wages fall enough to make the country more internationally competitive. The social costs of such a move, however, are extremely high and it rarely if ever works. Unemployment has doubled in Greece (to 14.7 percent), more than doubled in Spain (to 20.7 percent) and more than tripled in Ireland (to 14.7 percent). But recovery is still elusive....

But the bottom line is that Greece cannot afford to settle for any deal that does not allow it to grow and make its way out of the recession. Loans that require what economists call “pro-cyclical” policies — cutting spending and raising taxes in the face of recession — should be off the table. The attempt to shrink Greece’s way out has failed. If that’s all that the European authorities have to offer, then it is time for Greece, and perhaps others, to say goodbye to the euro.

7--Foreclosures crush home prices, CNN Money

Excerpt: Home prices continued to plummet during the first three months of 2011, falling 4.6% from a year earlier.

The U.S. median price, according to the National Association of Realtors (NAR), dropped to $158,700 for a single family house. Condo prices fell even harder -- 10.4% to $152,900.

The median home price has now slumped 30% from its 2006 high of $227,100, and prices have fallen nearly 7% so far this year.

"We're seeing prices dropping faster than they did in 2010," said Pat Newport, an analyst with IHS Global Insight. "That's troubling. Falling home prices precipitated the recession and are slowing the recovery.

NAR blamed much of the latest price drop on sales of foreclosed properties. These "distressed" property sales accounted for 39% of the market, up from 36% from a year earlier....

The market for distressed properties may further expand over the next few months. Falling prices have sent more mortgage borrowers underwater, owing more on their mortgage balances than their homes are worth. That makes them more likely to default on loans.

8--Why CEOs Avoided Getting Busted in Meltdown, William Black, Bloomberg

Excerpt: The two great lessons to draw from this epidemic of fraud is that if you don’t look for it, you don’t find it and that wherever you do look, you do find fraud. The FBI was concentrating on retail banking, or individual borrowers and smaller lenders. But the big problems were being created in the wholesale end of the business, where loans were pooled, packaged, sold and securitized. Because the FBI only looked at relatively small cases, it found only relatively small frauds.

The FBI has been processing no more than 2,000 mortgage- fraud cases a year. There are two things to consider though: Not only were they the wrong cases to focus on, but they amounted to nothing in light of the estimated 1 million fraudulent mortgage loans made annually during the housing bubble years.
Deserted by Regulators

The FBI -- deserted by the banking regulators and undercut by the Justice Department -- was so desperate that it formed a partnership with the Mortgage Bankers Association in 2007. The trade association had created an absurd definition of mortgage fraud under which accounting frauds by a lender were impossible and bankers were the victims. By 2009 the financial crisis had become so acute that Treasury Secretary Timothy Geithner discouraged criminal investigations of the large nonprime lenders.

Nobel laureate George Akerlof and Paul Romer wrote a classic article in 1993. The title captured their findings: “Looting: the Economic Underworld of Bankruptcy for Profit.” Akerlof and Romer explained how bank CEOs can use accounting fraud to create a “sure thing” in the form of record short- term income, generated by making low-quality loans at a premium yield while making only minimal reserve allowances for losses. While it lasts, this fictional income allows the chief executive officer to loot the bank, which then fails, and walk away wealthy....

9--Global capitalism and 21st century fascism, Aljazerra

Excerpt: The global economic crisis and the attack on immigrant rights are bound together in a web of 21st century fascism....

The crisis of global capitalism is unprecedented, given its magnitude, its global reach, the extent of ecological degradation and social deterioration, and the scale of the means of violence. We truly face a crisis of humanity. The stakes have never been higher; our very survival is at risk. We have entered into a period of great upheavals and uncertainties, of momentous changes, fraught with dangers - if also opportunities....

Transnational capital has been able to break free of nation-state constraints to accumulation beyond the previous epoch, and with it, to shift the correlation of class and social forces worldwide sharply in its favour - and to undercut the strength of popular and working class movements around the world, in the wake of the global rebellions of the 1960s and the 1970s.

Emergent transnational capital underwent a major expansion in the 1980s and 1990s, involving hyper-accumulation through new technologies such as computers and informatics, through neo-liberal policies, and through new modalities of mobilising and exploiting the global labour force - including a massive new round of primitive accumulation, uprooting, and displacing hundreds of millions of people - especially in the third world countryside, who have become internal and transnational migrants.

We face a system that is now much more integrated, and dominant groups that have accumulated an extraordinary amount of transnational power and control over global resources and institutions.

Militarised accumulation, financial speculation - and the sacking of public budgets

By the late 1990s, the system entered into chronic crisis. Sharp social polarisation and escalating inequality helped generate a deep crisis of over-accumulation. The extreme concentration of the planet's wealth in the hands of the few and the accelerated impoverishment, and dispossession of the majority, even forced participants in the 2011 World Economic Forum's annual meeting in Davos to acknowledge that the gap between the rich and the poor worldwide is "the most serious challenge in the world" and is "raising the spectre of worldwide instability and civil wars."

Global inequalities and the impoverishment of broad majorities mean that transnational capitals cannot find productive outlets to unload the enormous amounts of surplus it has accumulated. By the 21st century, the TCC turned to several mechanisms to sustain global accumulation, or profit making, in the face of this crisis.

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