Monday, June 18, 2012

Today's links

1--Chart of the Day: The smoking gun showing how the ECB wrecked the Spanish economy, credit writedowns

The other Edward posted a thorough analysis of the situation in Spain this weekend. I recommend that piece, Rescue Me, highly. Here’s a chart that caught my eye.


The other Edward writes:

Well one thing should be clear by now, part of the responsibility for the situation lies with the ECB who applied (as they had to) a single size monetary policy even though this was clearly going to blow bubbles in the structurally higher inflation economies. And so it was, Spain had negative interest rates applied all through the critical years, and now we have the mess we have. (see chart)

Back in 2006 inspectors at the Bank of Spain sent a letter to Economy Minister Pedro Solbes complaining of the relaxed attitude of the then governor, Jaime Caruana (the man who is now at the BIS, working on the Basle III rules) in the face of what they were absolutely convinced was a massive property bubble. Their warning was ignored.


Negative real interest rates aka easy money have recently been re-labelled financial repression. Now in the aftermath of a property bubble, they are seen, not as emblematic of central banks’ blowing bubbles, but of central banks stealing net interest income from savers to bail out debtors.

Think of it this way, just after the Euro came into being, the German economy was in what I labelled a soft depression due in large part to Germany’s own post-unification credit excesses. So the ECB decided to prop up the German economy with low interest rates, rates that produced negative real interest rates and housing bubbles in Ireland and Spain. This was a policy designed to "bail out" the indebted German economy. We called it easy money then because it allowed massive speculation to be funded by cheap loans in credit markets. Now that the bubbles have popped, easy money has morphed into financial repression. But the goal is the same as it ever was: to "bail out" the indebted by ‘repressing’ interest income that creditors can receive.

The interesting bit about this policy is that economic policies right across the indebted developed economies have been extremely favorable to creditors in bailing financial institutions out of their lending excesses at taxpayer expense. Yet, at the same time, creditors are being savaged by the sharp downturn in net interest income due to the easy money policy we are now calling financial repression.

To me, these two policies are the signature hallmarks of our post-financial crisis economic policy making. And the two policies are in direct conflict with one another.

2--Greek Election Summary, Yanis Varoufakis

Greek voters gave their contradictory verdict: While 55% voted for parties that stood explicitly against the ‘bailout’ terms and conditions, a pro-’bailout’ government is about to be formed – such is the nature of Greece’s electoral system (which rewards the largest party with a bonus of 50 additional MPs in the 300 seat chamber). The New Democracy party will lead the government even though it is utterly clear that at least one in three of the voters who backed it think very little of the party and its leader but felt they had no option but to vote for them simple because the alternative, a Syriza government, might bring upon the nation the combined wrath of Berlin, Frankfurt and Brussels. This is as inauspicious a beginning for a new government with a mountain range of challenges as one could have imagined....

Let me explain why I stand convinced that a loosening of Greece’s bailout’s terms and conditions will be a terrible outcome for everyone: The Greek economy is well and truly broken. The circuits of credit are so badly damaged that even efficient, profitable firms have been cut out of the capital markets but also out of the international markets (as their suppliers will no longer accept the Greek bank guarantees without which Greek firms cannot import raw materials). These credit circuits will remain broken even under new terms and conditions, as I described them above. Neither the extension of repayments of the new loans to the insolvent state (which everyone knows will be defaulting again – this time to official creditors) nor the new loans will change this. Moreover, the new spending cuts, even if they are less than what was envisaged under Mk2, will give the forces of recession another boost. To cut a long story short, there is no doubt that such loosening up will simply prolong, without averting, the agonising death of the Greek social economy while, at the same time, depleting the dwindling stock of patience with the logic of bailouts in Germany, in the Netherlands, in Finland and in Austria

3--Fascinating Mortgage & Housing Data Points, The Big Picture

Foreclosure Details


-There have been an average of 1.6 million nationwide foreclosure starts per year for the past five years.

-Foreclosure starts nationwide increased on an annual basis after 27 consecutive months of year-over-year declines.

-Bank repossessions are still down 18% year over year. Voluntary foreclosure freezes and increasing pre-foreclosure sales are the primary factors.

-Distressed home sales, which include both foreclosures and short sales, had fallen substantially. They were down to 28% for April 2012 – significantly less than the 37% in April 2011.

-Distressed sales tend to be about 20% less than non-distressed sales.

With that as a background, I spoke with ace housing analyst Laurie Goodman of Amherst Securities. Goodman dazzled me with several astonishing statistics.

Let’s briefly look at two of these:
1) 2.8 million Americans are 12 months or more behind on their mortgages.

2) “Since 2007, 19% of all borrowers (~9 million borrowers) have gone >90 days delinquent on their mortgages, or have had their mortgage liquidated.


In other words, one in five people who held or qualified for a mortgage not too long ago would not todayThe 90 days delinquency on their credit reports prevents them from qualifying for a new mortgage.

This is a very significant data point to the idea of a housing turnaround. Why? Based on this delinquency alone, nearly all of these borrowers — about 9 million current homeowners — would be unable to qualify for bank loan today. That is 9 million potential home buyers who are effectively barred from the market due to their credit scores. Removing that many people as potential home buyers amounts to a a huge reduction in demand.

4--Greece as Victim, Paul Krugman, NY Times

Ever since Greece hit the skids, we’ve heard a lot about what’s wrong with everything Greek. Some of the accusations are true, some are false — but all of them are beside the point. Yes, there are big failings in Greece’s economy, its politics and no doubt its society. But those failings aren’t what caused the crisis that is tearing Greece apart, and threatens to spread across Europe....

No, the origins of this disaster lie farther north, in Brussels, Frankfurt and Berlin, where officials created a deeply — perhaps fatally — flawed monetary system, then compounded the problems of that system by substituting moralizing for analysis. And the solution to the crisis, if there is one, will have to come from the same places....

So how did Greece get into so much trouble? Blame the euro.


Fifteen years ago Greece was no paradise, but it wasn’t in crisis either. Unemployment was high but not catastrophic, and the nation more or less paid its way on world markets, earning enough from exports, tourism, shipping and other sources to more or less pay for its imports.

Then Greece joined the euro, and a terrible thing happened: people started believing that it was a safe place to invest. Foreign money poured into Greece, some but not all of it financing government deficits; the economy boomed; inflation rose; and Greece became increasingly uncompetitive. To be sure, the Greeks squandered much if not most of the money that came flooding in, but then so did everyone else who got caught up in the euro bubble.

And then the bubble burst, at which point the fundamental flaws in the whole euro system became all too apparent....

Consider, for example, what would be happening to Florida right now, in the aftermath of its huge housing bubble, if the state had to come up with the money for Social Security and Medicare out of its own suddenly reduced revenues. Luckily for Florida, Washington rather than Tallahassee is picking up the tab, which means that Florida is in effect receiving a bailout on a scale no European nation could dream of.


5--Obama deportations raise immigration policy questions, Reuters

President Barack Obama says he backs immigration reform, announcing last month an initiative to ease deportation policies, but he has sent home over 1 million illegal immigrants in 2-1/2 years -- on pace to deport more in one term than George W. Bush did in two.


The Obama administration had deported about 1.06 million as of September 12, against 1.57 million in Bush's two full presidential terms.

This seeming contradiction between rhetoric and reality is a key element of debate over U.S. immigration policy, and stakes are high for 2012's presidential election as Obama faces criticism from both conservatives and liberals.
In 2008, 67 percent of Hispanics voted for Obama over Republicans John McCain and Sarah Palin


President Barack Obama says he backs immigration reform, announcing last month an initiative to ease deportation policies, but he has sent home over 1 million illegal immigrants in 2-1/2 years -- on pace to deport more in one term than George W. Bush did in two.


6--For Many Immigrants, Policy Offers Joy and Relief, NY Times

Immigrants have helped build this society for many, many years, and I think it’s time that we were recognized and given a chance,” Ms. Cano, 46, said, tearing up as she spoke. “I know so many people whose parents brought them here illegally, who went to school and started working here. And now there is finally hope for them...

Vilma Berrios, who immigrated from El Salvador in 1975 and is now a citizen, voted for Mr. Obama in 2008. As she sat in MacArthur Park, another gathering place for immigrants, she spoke of her conflicted feelings.


She said she did not support Mr. Obama anymore, because so many people had been deported under his administration. But she added that if he followed through on the promises he made Friday, she would vote for him again.

7--"Lost in Detention": As Obama Admin Deports Record 400,000, Film Explores What Immigrants Face Behind Bars, Democracy Now

The Obama administration has released new figures showing U.S. deportations of immigrants reached a record high. The Immigration and Customs Enforcement says it deported nearly 400,000 people in fiscal year 2011, the highest total in the agency’s eight years. The data was released the same day a coalition of Latino and immigrant rights groups held a National Day of Action to protest Obama’s immigration policies. The protesters called for an immediate end to the "Secure Communities" program, which requires local police to forward fingerprints of every person they arrest to the U.S. Department of Homeland Security. More than one million immigrants have been deported during Obama’s tenure, even as efforts to reform immigration policy have languished. A new PBS Frontline documentary, "Lost in Detention," investigates the immigration program under Obama. We are joined by the award-winning broadcast journalist who led the investigation, Maria Hinojosa. [includes rush transcript]

8--Report: Thousands of U.S.-Born Kids Languish in Foster Care as Immigrant Parents Detained, Deported, Democracy Now

A new report looks at how thousands of U.S.-born children are being sent to foster care when their non-U.S. citizen parents are detained or deported. The Applied Research Center investigation, "Shattered Families: The Perilous Intersection of Immigration Enforcement and the Child Welfare System," finds there are at least 5,100 children currently living in foster care, who are prevented from uniting with their detained or deported parents. If nothing changes, researchers found some 15,000 more children may end up in foster care in the next five years. We speak with Seth Freed Wessler, the principal investigator of the report. [includes rush transcript]

U.S. Deportations Hit Record; Report Finds Immigration Program Disproportionately Targeting Latinos


Few figures show U.S. deportations of undocumented immigrants are at a record high. The Immigration and Customs Enforcement agency says it deported nearly 400,000 people in fiscal year 2011, the highest total in the agency’s eight years. In announcing the figures, ICE credited the growing number of deportations to programs like Secure Communities, which requires local police to forward fingerprints of every person they arrest to the U.S. Department of Homeland Security. A new report being released today has provided the most detailed picture to date on how Secure Communities has disproportionately targeted Latino communities in the United States. Citing government figures, researchers at the University of California-Berkeley law school and the Benjamin Cardozo School of Law in New York found that 93 percent of immigrants arrested under Secure Communities were Latinos, even though Latino immigrants account for only about two-thirds of undocumented immigrants in the United

States. The report also found that at least 680 United States citizens have been held under the program, in many cases for no apparent reason. Around a third of the 226,000 immigrants deported under Secure Communities have spouses or children who are U.S. citizens.


9--Growth of Income Inequality Is Worse Under Obama than Bush, naked capitalism

under Bush, the 1% captured a disproportionate share of the income gains from the Bush boom of 2002-2007. They got 65 cents of every dollar created in that boom, up 20 cents from when Clinton was President. Under Obama, the 1% got 93 cents of every dollar created in that boom. That’s not only more than under Bush, up 28 cents. In the transition from Bush to Obama, inequality got worse, faster, than under the transition from Clinton to Bush. Obama accelerated the growth of inequality.


The data set is excellent, it’s from the IRS and it’s extremely detailed. This yawing gap of inequality isn’t an accident, and it’s not just because of Republicans. It’s a set of policy choices, as Saez makes clear in his paper.

Looking further ahead, based on the US historical record, falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented and prevent income concentration from bouncing back. Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration until the 1970s....

It’s important not to overstate the conclusion. It’s not obvious that Obama’s policy framework is worse than Bush’s, only that the outcome is. After all, the losses suffered by the wealthy during 2007-2009 recession were less severe than those it suffered in the 2000-2002 recession, and most of the Great Recession happened under Bush (with a Democratic Congress). It’s possible that the Obama policy framework is a bit less bad, but he has been more successful at implementation because unlike Bush, he han’t face any pressure from Democrats. In other words, perhaps Obama’s policy thrust has just been implemented more fully, because the traditional opposition to plutocratic rule, the left, has been silenced. Perhaps it’s a competence issue. Or maybe you can chalk it all up to structural factors, though I suspect the JOBS Act and trade deals imply otherwise. Maybe he really is as conservative as these policy choices suggest. It’s hard to say.


Mitt Romney might be easy to jeer at for his wealth and arrogance, but Saez’s data suggests that Barack Obama is just as much the candidate of inequality.

10--Barney Frank: Obama Rejected Bush Administration Concession to Write Down Mortgages, naked capitalism

Here’s Barney Frank, in an exit interview recently in New York Magazine, revealing unwittingly that Obama during the transition rejected a Bush administration concession to write down mortgages. Here’s what Barney said.


The mortgage crisis was worsened this past time because critical decisions were made during the transition between Bush and Obama. We voted the TARP out. The TARP was basically being administered by Hank Paulson as the last man home in a lame duck, and I was disappointed. I tried to get them to use the TARP to put some leverage on the banks to do more about mortgages, and Paulson at first resisted that, he just wanted to get the money out. And after he got the first chunk of money out, he would have had to ask for a second chunk, he said, all right, I’ll tell you what, I’ll ask for that second chunk and I’ll use some of that as leverage on mortgages, but I’m not going to do that unless Obama asks for it. This is now December, so we tried to get the Obama people to ask him and they wouldn’t do it.

This is consistent with other accounts. There were policy debates within Obama’s economic team about what to do about the mortgage crisis. The choices were to create some sort of legal entity to write down mortgage debt or to allow the write-down of mortgage debt through a massive wave of foreclosures over the next four to six years. He choice the latter. That choice was part of what led to roughly $7 trillion of middle class wealth gone, with financial assets for the elites re-inflated.

Since I pointed out that the growth of income inequality under Obama is worse than that under Bush, many people have responded by saying that somehow this is not Obama’s responsibility, that it was an inherited crisis and structural problems that caused a widening of inequality. They simply do not want to accept that policy matters, or, if it does, that Obama had any choice in the policy choices he made.


In fact, crisis response is the single most significant policymaking time imaginable, because all structural barriers are swept away. Think about it – this was literally a deal offered by Hank Paulson – one guy – to Barack Obama, with a multi-trillion dollar impact. No 60 votes in the Senate. No hearings. No confirmations. Just a handshake, basically. In other words, policy does matter, and Obama had a variety of choices and leverage, and he did what he thought was best. He did not want to write down mortgages, even though he was offered that choice by the Bush administration and Barney Frank. So he didn’t.

So yes, Barack Obama is worse than George Bush on economic inequality. While Paulson didn’t want to write down mortgages, the single biggest factor in determining whether the American middle class has any stored wealth, Paulson was willing to do so in response to pressure. Barack Obama was not.

11--Obama’s Record-High Deportations Draw Hispanic Scorn, ABC News

The record-setting deportation of illegal immigrants under President Obama has drawn scorn from Hispanic Americans, despite recent administration efforts to temper the policy, according to a new Pew Hispanic Center study.


Fifty-nine percent of Latinos said they disapprove of the president’s approach to removing illegal immigrants, more than double the number who said they approved in Pew’s nationwide survey.

Among Latino registered voters, the sentiment was nearly as strong, with 52 percent disapproving of the Obama administration’s handling of deportations.

Since 2009, the annual average number of deportations has approached 400,000, according to the Department of Homeland Security. That’s double the annual average during President George W. Bush’s first term and 30 percent higher than the average when he left office.

Meanwhile, the flow of illegal immigrants into the United States has hit a decade low because of the down economy and stepped-up enforcement efforts....

President Obama has been forceful about the need to fix the broken immigration system comprehensively so that it meets America’s economic and security needs, but he cannot change the laws by himself,” White House spokesman Luis Miranda said.


“This Administration has made dramatic improvements by developing clear immigration enforcement priorities for the first time ever that include focusing on those with criminal records, a smarter approach from a law enforcement perspective that also better reflects our nation’s values.”

But whether Hispanic Americans will see and understand Obama’s policy changes – and approve – remains to be seen, Pew Hispanic Center associate director Mark Hugo Lopez said.

“We will continue to publish reports about how many unauthorized immigrants are in this country and likely will be asking in our next survey about the issue of immigration generally,” he said.

“We didn’t get into the prosecutorial discretion issue in this poll, we just asked more generally about how the Obama administration is handling deportations, and 59 percent of Latinos said they disapprove.”









































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