Thursday, February 23, 2012

Today's links

1--Housing's Dilemma: There's Not Enough To Buy, CNBC

Excerpt: today the National Association of Realtors reported that inventories of homes for sale in January fell to 2.31 million, the lowest supply since March, 2005. Rather than pushing home prices higher, they are still down, 2 percent, from a year ago.

The Realtors noted that 35 percent of all home sales were distressed (either foreclosures or short sales). Investor demand is high, they say, even claiming that a recent program initiated to sell the foreclosures of Fannie Mae and Freddie Mac in bulk to investors is unnecessary.

“Based on the swiftness of how REO (bank-owned) properties are moving in the market, it may not be needed,” said NAR chief economist Lawrence Yun. He did admit that such a program would also take away thousands of potential listings from Realtors.

Banks are ramping up the repossessions, as the so-called “Robo-signing” foreclosure paperwork scandal is fading and a settlement with federal and state governments has been reached. But they are not going to flood the market with these properties, for fear of losing pricing power. That’s why we are now starting to see bidding wars in some of the hottest distressed markets....

As I wrote last week, organic, non-distressed sellers are making up less and less of the overall housing market. That does not a healthy housing market make. Without good, move-up homes available, the market cannot see real price appreciation.

2--A Political Establishment in Freefall--Greece Lurches to Left Amid Radical Austerity, Der Speigel

Excerpt: A radical austerity drive has triggered the biggest political upheaval in Athens since the end of the military dictatorship in 1974. So far, it is leftist parties who have benefitted the most from the debt crisis. The deeply divided left, however, would likely be unable to form a stable coalition....

Nevertheless, it would be a mistake to think that a united left could win the next election and ensure a stable parliament starting in the late summer. The Greek left is deeply divided.

Standing Up for the Euro

"Coalitions are difficult," says Tsipras. An engineer who has been politically active since his school days and later became the leader of a radical student organization, Tsipras might be willing to form a coalition with the KKE, but he can't. Although the Communists, like his party, are opposed to the loan agreements with the troika, they also -- true to their latter-day Stalinist traditions -- want out of NATO, out of the EU and, of course, out of the euro zone.

3--'EU Has Not Yet Faced the Whole Sad Truth About Greece', Der Speigel

Excerpt: The left-leaning Berliner Zeitung writes:

"The Greeks won't be spared one bit: The state will make further cuts, and wages will sink along with pensions. The only thing that will rise is taxes. But while the Greeks face a sad future, the euro zone is taking a step forward. Its problem wasn't a single country's misbehavior, but rather the fact that Greece isn't a special case. Every country in Europe has taken on billions in new debt and been deemed unstable by the financial markets. It's for this reason that the danger exists that the 'Greek virus' could spread to other countries and destroy the euro zone."

"The new rescue measures reduce this danger. The other countries get time to demonstrate that they're safe places to invest. Europe gets time to put together new bailout funds. In short: Europe has bought itself time to isolate its Greece problem. But the Greeks' own problems are just beginning."

The left-leaning Die Tageszeitung writes:

"Who's actually being rescued? Certainly not the Greeks. They will soon have to live with substantially lower wages, reduced worker protections, worse health care and a massive sale of state assets. That's what the international troika wanted, and Finance Minister Wolfgang Schäuble and his colleagues forced it through with lots of threatening and often injurious gestures. … It was an inconsiderate diktat, not a generous offer of help."

"From the beginning, Berlin has emphasized only austerity and contraction -- when Greece urgently needs investment and growth. Sure, the 'adjustment program' also includes structural reforms intended to help the economy, but it'll be at least two years until they start to take effect. The danger that Greece will descend into political and social chaos in the meantime is greater than ever."

4--Chart of the Day: What’s Inflating in the US Consumer Basket, credit writedowns

Excerpt: Think groceries and gas are going up? You're right! (See chart)

5--Greek deal: More pain for workers, no end to Europe’s crisis, WSWS

Excerpt: Working people are suffering a social catastrophe. Unemployment is above 21 percent, and almost 50 percent for youth. Some 150,000 jobs are to go in the public sector in the next two years, while social spending and pensions have been slashed. Wages in Greece have fallen by 30 percent. Now the minimum wage is being cut by 22 percent, 35 percent for young workers. Even so, EU and IMF officials admitted that wages must fall even further to restore “Greek competitiveness”.

The crisis is so severe that workers are going without pay for months, amid rising poverty and homelessness. Greek manufacturers are paying cash for imported raw materials because they cannot obtain credit....

An “enhanced and permanent presence” of debt inspectors is to be put on the ground in Athens—the de facto enforcement of demands, led by Dutch Finance Minister Jan Kees de Jager, for the troika to be given a “permanent position” within Greece.

To seal this dictatorship of finance capital, EU ministers are demanding that the Greek constitution is rewritten to enforce its austerity measures. As it stands, the constitution cannot be revised for a further year, although the interim coalition government of New Democracy, Pasok and the extreme right LAOS party, is expected to promise such a revision...

The latest bail-out package is broadly acknowledged to be a “suicide pact”, by which the Greek population is subject to ever greater penury while the troika prepare contingency plans for a supposedly “orderly default.”

6--Fed's liquidity drives the stock market, Pragmatic Capitalism

Excerpt: The Fed’s Permanent Open Market Operations (POMOs) have a bigger effect on pushing stock prices up and down than most people would like to believe. The financial media like to convince us that what moves the market up and down are earnings news, employment reports, or concerns about Greek debt. But this week’s charts reveal that the Fed’s thumb on the scale has a big effect.

The New York Federal Reserve Bank is the agency conducting these POMOs on behalf of the Federal Reserve, and the NY Fed kindly publishes a lot of data about them. They even give us a schedule of intended operations up to a month ahead of time, telling us the dates and projected amounts of the purchases and sales that they will be doing as part of Operation Twist. That lets us have a road map for when those actions will have an effect on stock prices, and this chart is one that we have shared frequently with readers of our Daily Edition...

During QE1 and QE2, all of the POMOs were purchases of Treasury and agency debt, pushing money into the banking system and taking debt instruments out of the hands of the banks. That extra money went to work by pushing up stock prices, at least for as long as the additional money was flowing into the banking system. At the ends of each of those rounds of QE, the market responded like a heroin addict going through withdrawal. But rather than go back to the same well one more time with a QE3, the Fed decided in September 2011 to implement Operation Twist, which is an effort to change the shape of the Treasury yield curve by purchasing longer term debt and selling short term paper....

But now we are entering into a period when that leading indication says things should get a little bit rockier. And the POMO schedule says that some big sales are coming up, events which will take money out of the banking system.

7--The Decline In Inventory Right Now is NOT a Good Sign, The Big Picture

Excerpt: Old scenario: Declining Listing Inventory = declining housing prices ease their decline, prices stabilize or prices rise.

However over the last year, listing inventory fell sharply in many markets yet sales were generally anemic or showing nominal increases. In the NAR numbers, non-seasonally adjusted sales were up 1.4% year over year (using NSA since inventory is also NSA) yet inventory was down 21.2%. Inventory was clearly not declining because sales were overpowering the amount of listing inventory that was available.

Then why is inventory declining?

The answer to this question was not considered in the recent prediction of a market bottom.

New scenario: Declining Listing Inventory = fall in seller confidence and the sharp decline in distressed inventory entering the market

From NAR…

Total housing inventory at the end of December dropped 9.2 percent to 2.38 million existing homes available for sale, which represents a 6.2-month supply2 at the current sales pace, down from a 7.2-month supply in November.

“The inventory supply suggests many markets will see prices stabilize or grow moderately in the near future,” Yun said. – National Association of Realtors

We are seeing unusual declines in many markets I keep tabs on such as:

Baltimore, MD Down 21.6% YOY

Washington, DC Metro Down 35.8% YOY

Las Vegas Down 12.9% YOY

Broward County, FL Down 35% YOY

Miami-Dade Down 40% YOY

ReMax National down 25.7% YOY

Phoenix ( down 48% YOY

Boise City, Idaho ( down 41% YOY...

I think the sharp drop in many US housing markets (and this has been happening for much of 2011) has to do with three key reasons:

A large swath of foreclosure volume was artificially delayed.

Seller confidence has waned after the pounding it took last fall.

Low interest rates extended by the Fed for the next two years have removed any sense of urgency.

Declining foreclosure volume is one of the key reason inventory levels are dropping. The 1/3 decline in foreclosure volume in 2011 has resulted in a sharp drop in foreclosure inventory resulting in a sharp drop in total inventory. Distressed sales have been running at about 30% of total sales nationally for a few years but fell to about 20% in 2011. With a 2 million more homes expected to go into foreclosure over the next 2 years, a year long internal review of procedure after the 2010 “robo-signing” scandal and the 50 State AG settlement with the largest services/banks, distressed inventory is expected to rise sharply over the next several years....

The drop in inventory as a phenomenon may or may not pass quickly but one thing is clear – weird changes in market behavior happen for a reason – I don’t see declining inventory as a particular sign of strength in the housing market.

8--Greece and Those Wild & Crazy Guys at the ECB, Dean Baker, counterpunch

Excerpt: Last week I got the answer when I had occasion to meet with a high-level EU official. There is no economic reasoning behind the troika’s positions. For practical purposes, Greece and the other debt-burdened countries are dealing with crazy people. The pain being imposed is not a route to economic health; rather it is a gruesome bleeding process that will only leave the patient worse off. The economic doctors at the troika are clueless when it comes to understanding a modern economy.

The basic story of the crisis countries is simple. Their economies became uncompetitive with the rest of the eurozone in the last decade as inflation in these peripheral countries outpaced inflation in the core eurozone countries of northern Europe, most importantly Germany. This created a large gap in price levels that caused peripheral countries to run massive current account deficits.

In some countries, like Greece and to a lesser extent Portugal, the current account deficit corresponded to excessive public-sector borrowing. In Spain and Ireland the current account deficit was associated with a massive private-sector borrowing boom.

The remedy for this situation is obvious, even if getting from here to there may not be simple. The peripheral countries have to regain competitiveness by having their prices fall relative to prices in the core countries. If these countries still had their own currencies, this could be accomplished quickly through a devaluation of the currencies of the peripheral countries....

The people in Greece and peripheral countries must wake up to the fact that they are not dealing with reasonable people at the other side of the negotiating table. The notion of leaving the euro cannot be a pleasant one, but the troika is giving the peripheral countries little choice

9--Christina Romer: We Need A Regime Change at the Fed, economist's view

Excerpt: Here is Romer discussing the implications of this article for today:

What we learned from the Temin and Wigmore paper is that one way out of a recession at the zero lower bound is by changing expectations. To do that, often what is needed is a very strong change in policy – something economists call a “regime shift”. The most effective way to shake an economy out of a terrible downturn when we’re at the zero lower bound is an aggressive change in policy that makes people wake up, say “this is a new day” and change their expectations. What the Fed has done since early 2009 is much more of an incremental change.

In other words, the Fed has failed to appropriately manage expectations and so we are stuck in a slump. And I am not convinced that it is now doing any better with its new long-run forecasts of the federal funds rate. So what in the current environment would rise to the level of a "regime shift"? What would change expectations enough to catalyze a broad-based recovery in aggregate demand? Here is Romer's answer:

I think that what the Fed needs instead is a regime shift. A number of economists have suggested that the Fed adopt a new framework for monetary policy, like targeting a path for nominal GDP. If the Fed adopted such a nominal GDP target, they would start in some normal year before the crisis and say nominal GDP should have grown at a steady rate since then.

Compared with that baseline, nominal GDP is dramatically lower today. Pledging to get back to the pre-crisis path for nominal GDP would commit the Fed to much more aggressive policy – perhaps more quantitative easing and deliberate actions to talk down the dollar. Such a strong change in the policy framework could have a dramatic effect on expectations, and hence on the behavior of consumers and businesses.

Such a regime shift would require Bernanke to man up and have his own Volker moment, as previously noted by Romer. It would be a huge change and that is the point. A big shock to public expectations, one that would meaningfully change the expected path of future aggregate nominal spending, could be created by a public commitment to a nominal GDP level target. This is just the medicine the U.S. economy needs right now.

P.S. No, a nominal GDP level target would not unmoor long-run inflation expectations and it would not depend on a bank lending to work.

10--John O’Brien: Mortgage Settlement Fails to Address Banking Criminal Enterprise, naked capitalism

Yves here. The release by San Francisco county assessor-recorder Phil Ting of a study of document irregularities in foreclosures has put a spotlight on the failure of Federal banking regulators and state officials to do anything beyond cursory examinations of servicers’ bad practices. If a country official with limited resources can show that there are widespread abuses, what is the excuse of state and Federal officials for their failure to understand the depth and severity of these problems?

As Dave Dayen has pointed out, it was two county registers of deeds, Jeff Thigpen in Guiford County, North Carolina, and John O’Brien of South Essex County, Massachusettes, who were the first to look at their own records to see how extensive the frauds were. O’Brien has called his office a “crime scene” and refused to register any more fraudulent deeds. He also performed a study of his own, and the results were released in June 2011. As Dayen reported, the study found widespread failures and apparent fraud, just like the later San Francisco exam:

Register John O’Brien revealed the results of an independent audit of his registry. The audit, which is released as a legal affidavit was performed by McDonnell Property Analytics, examined assignments of mortgage recorded in the Essex Southern District Registry of Deeds issued to and from JPMorgan Chase Bank, Wells Fargo Bank, and Bank of America during 2010. In total, 565 assignments related to 473 unique mortgages were analyzed.

McDonnell’s Report includes the following key findings:

• Only 16% of assignments of mortgage are valid

• 75% of assignments of mortgage are invalid.

• 9% of assignments of mortgage are questionable

• 27% of the invalid assignments are fraudulent, 35% are “robo-signed” and 10% violate the Massachusetts Mortgage Fraud Statute.

• The identity of financial institutions that are current owners of the mortgages could only be determined for 287 out of 473 (60%)

• There are 683 missing assignments for the 287 traced mortgages, representing approximately $180,000 in lost recording fees per 1,000 mortgages whose current ownership can be traced.

Below, John O’Brien gives us his views on the mortgage settlement.

By John L. O’Brien of the Southern Essex District Registry of Deeds – Salem, MA

When you enter my registry you see a sign that reads “The deeds tell the story.” Before the big banks took it upon themselves to corrupt the land recordation system, the deeds used to tell a happy story, one in which people purchased a home and lived “the American Dream.” Today, however they tell a different story one of greed, fraud, and forgery. By now everyone in Massachusetts knows what I have been doing over the past two years to expose and stop the schemes by the Mortgage Electronic Recording Systems, Inc. and their shareholder banks. The accuracy and integrity of the land records in my registry are of the upmost importance to me.

Just this past week the Attorney Generals of this country said they will enter into a deal with the 5 largest banks who have agreed to stop robo-signing, provide principal reductions of between 20 to 25 thousand dollars to a million underwater homeowners. This amount will in no way solve the housing crisis that we are faced with nor even begin to turn our economy around. In addition, the settlement suggests that approximately 750,000 people who have had their homes taken by foreclosure using fraudulent documents will receive a check for $2,000. As Yves Smith has said, “that amount is the new penalty for forgery.” This is merely a slap on the wrists to these lenders. It is my opinion that this deal has been crafted for the banks and by the banks. It is not in the best interest of the consumer, the homeowner, or the taxpayer. Simply put, I do not trust these lenders who have flooded my registry with over 32,000 fraudulent documents to do the right thing. Those homeowners who now have a corrupted title are looking for answers. This deal gives them none. The illegal activity by the banks is nothing shy of a criminal enterprise, where they crossed state lines using the United States Postal Service to deliver the instruments that were fraudulent and contained forgeries.

I will continue to pursue my request for Federal and State grand juries to be impaneled to hold the CEO’s of these banks liable for the crimes that have been committed under their watch. The only thing missing in this illegal scheme that MERS and the big banks came up with was a gun and a mask. I will continue to expose this fraud and work everyday to make sure that the taxpayers are fully reimbursed for the over $44 million dollars in lost recording fees in my district alone by institutions who still believe fees are “for thee but not for me.” A message needs to be sent to these banks that they may think that you are too big to fail but they are not too big to go to jail.

We need a common sense approach in order to get this economy running again. I strongly believe that the hardworking homeowners who have struggled to stay current on their mortgages should be able to refinance there homes, quickly at a fixed rate of 3%. A true national program with these terms would lower payments and infuse millions into our economy immediately.

Let’s not forget that foreclosures benefit no one. When a bank auctions off a home for less than is owed, that becomes the “comp” for the neighborhood. Simply put, your home and those of your neighbors are worth less. It makes far better sense to work with struggling homeowners and to take whatever action is needed to keep people in their homes.

Unless we face the facts and approach this with common sense we will be talking about the same issues a year from now and I am not sure we can wait that long.

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