Sunday, September 30, 2012

Today's links

1--Spain to Borrow $267 Billion of Debt Amid Rescue Pressure, Bloomberg

2--Cyber Attacks on U.S. Banks Expose Computer Vulnerability, Bloomberg

3--How to Erase a Debt That Isn’t There, NYT

4--The “Pauperization of Europe”, Testosterone Pit

5--Q2 2012 Flow of Funds Overview - Household Net Worth Declined, Corporate Cash Still High, economic populist

Corporate cash is now $1.728 trillion, a decline from Q1 of $21.5 billion. Corporations are still sitting on a boatload of cash, as shown in the below chart which adds up the flow of funds elements which comprise corporate cash

6--Chicago Fed Study Blasts the Lid Off of High Frequency Trading, economic populist

... Mr. Arnuk and Mr. Saluzzi say: enough. At their Lilliputian brokerage firm, they are tilting at the giants of high-frequency trading and warning — loudly — of the dangers they pose. Mr. Saluzzi was the only vocal critic of H.F.T. appointed to a 24-member federal panel that is studying the topic.

Posts from the blog that the two men write have been packaged into a book, “Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street are Destroying Investor Confidence and Your Portfolio,” (FT Press, 2012) which was published in June. They are even getting fan mail.
But they are also making enemies.

Proponents of high-frequency trading call them embittered relics — quixotic, old-school stockbrokers without the skills to compete in sophisticated, modern markets. And, in a sense, those critics are right: they are throwbacks. Both men say they wish Wall Street could go back to a calmer, simpler time, all the way back to, say, 2004 — before the old exchange system splintered and murky private markets sprang up and computers could send the Dow into 1,000-point spasms. (The bottle of Tums Ultra 1000 and the back-pain medication on Mr. Arnuk’s desk here are a testament to their frustrations.)

They have proposed solutions that might seem simple to the uninitiated but look radical to H.F.T. insiders. For instance, the two want to require H.F.T. firms to honor the prices they offer for a stock for at least 50 milliseconds — less than a wink of an eye, but eons in high-frequency time.

Incredible that a 50ms delay is met with so much resistance, but that's how much our stock market has turned into a gambling casino based on the nanosecond response time and skew of a NAND gate in some router. Not exactly investment. Odds are if such a delay is implemented, more bad software design will proliferate, either by trying to hid trades less than 50ms and others attempting to hit the picosecond next to that time interval in execution.

Occupy Wall street and others want transactional taxes to curtail Wall Street excesses, or as they call them Robin Hood taxes. These are small taxes that occur on every trade executed, raising revenue and disincentivizing high frequency trading as well as other types of short hold trading. Needless to say a Tobin tax, or a small fee for a certain number of trades executed in a short time window, would would place speed bumps on the great high frequency trading superhighway.

One thing that can be said, Wall Street is running amok unabated. Seems the great Financial Crisis of 2008 didn't change anything. History doesn't just repeat itself these days, it repeats itself over and over again in the space of 9 nanoseconds.

7--'For the Wealthy, a 28 Percent Solution', NYT

8--Real GDP growth and income inequality, 1929-2010, Jared Bernstein, "on the economy"

9--"Redistribution"; as American as apple pie, NYT

10--Increased MBS issuance could suppress the impact of QE3 on the economy, Housingwire

The third round of quantitative easing will raise the stock market by 3.1% and home prices by nearly 2%, assuming the program lasts through 2013, researchers at Deutsche Bank assert.
But not everyone agrees that the move with translate to helping the average American.
The Federal Reserve’s purchases of Treasuries and mortgage-backed securities will sum to $800 billion by the end of the year. The researchers say the purchases will hold longer-term Treasury yields about 50 basis points lower than they would otherwise.
“These financial market effects should eventually be passed through to more than a 0.6% boost to the level of gross domestic product over the next two years, enough to add about 500,000 jobs and reduce the unemployment rate by 0.3% points,” Deutsche Bank said in a research note.
But Deutsche Bank cautions that the expected impact of QE3 is dependent on the fraction of outstanding MBS the Fed ultimately purchases.

 Increased MBS issuance could suppress the impact of QE3 on the economy, although the Fed would certainly be willing to live with this outcome.

Still, an improved outlook for growth and earnings and lower borrowing costs should encourage business investment

QE3 to elevate stock market, home prices: Deutsche Bank

11--US MORTGAGE MEMO: New World Of MBS Buying By The Fed, MNI

It is true that the Fed is buying a good portion of the new supply that comes into the market from the mortgage originators. But the impressive profit taking from money managers is also bringing more bonds into the market.
Market sources also remind that this sector tightened sharply in anticipation of the Fed buying and it gapped tighter on the announcement of the fact.
In general, people think the market over shot on the upside and now it must find an equilibrium level. The big question is what that level should be.
People must also wait to see how the Fed's move affects mortgage rates and originator supply. These factors do not respond as quickly as the markets do.
The mortgage strategy team at Citi say based on current prepayment trends, the Fed's purchases each month ($40 billion from QE3 and about $25 billion from its ongoing prepayment reinvestment program) will absorb about 50% of the gross issuance which they peg at $130-140 billion per month.
Looking ahead, Citi says the market will be driven by potential profit taking, the performance of the dollar rolls and implied volatilities.
If rates stay around current levels, Citi thinks MBS could tighten further. But if rates selloff materially, MBS could struggle.
Citi also says potential supply could come into the market from paydowns on the GSE and foreign debt holdings but it suspects most will come from money managers who have been overweight awaiting QE3.

12--3 Reasons QE3 Won't Help Housing, Daily Finance

1. Banks aren't interested in stepping up mortgage writing. According to a report in the Financial Times, banks are already behind in the mortgage-writing department, and don't plan to hire additional staff to help process additional work. QE3 will help bloat prices of mortgage-backed securities, though, which will increase banks' profits through MBS sales. This has helped buoy stock prices of big banks like JPMorgan Chase (NYS: JPM) , Bank of America (NYS: BAC) , Citigroup, and Wells Fargo (NYS: WFC) . Of the group, Wells Fargo commands nearly one-third of the mortgage-writing business and should benefit the most from the current open-ended MBS buying spree.

Knowing this, there seems no incentive for banks to relax tight lending standards that have hamstrung many buyers. A recent report showed that more than half of all new loans written last month were sold to buyers with credit scores greater than 740 -- compared to 41% during the early 2000s. Even FHA rules seem to be tightening up: Despite the official line that prime loans start with a credit score of 660, the average score tallied for loan denials was 669, versus the 2001 average of 656.
2. Loans won't really become any cheaper. With banks being busy as bees and backed up with new and refinanced loan paperwork, there is no reason to expect them to pass on any lower rates to borrowers they don't want to see in the first place. With some banks, like Bank of America, stepping back from mortgage originations, competition is not fierce in the industry -- and, as some have noted, banks aren't required to offer rock-bottom rates to consumers.
Even if rates do drop, it will take months for the effects of QE3 to trickle down to borrowers, and it may not be enough to make a difference...An analyst from PNC Financial (NYS: PNC) predicts 30-year rates to fall to 3.5% by year's end, and probably another quarter percent beyond that, because of quantitative easing.
There's another reason banks don't want to lower interest rates for borrowers, and it has to do with MBS sales. The New York Times notes that banks make much more on bundled mortgage securities containing loans with higher interest rates, and they don't plan to change that scenario anytime soon.

13--FHA, freerate

Current FHA 30 year fixed mortgage rates are at 3.125%, FHA 15 year fixed mortgage interest rates are at 2.625% and FHA 5/1 ARM loan rates are at 2.625%. Down payments as low as 3.5% and flexible credit qualifying attracts many borrowers to FHA mortgages, especially first time home buyers. Funds for the down payment can come from FHA acceptable sources such as gifts and housing grants or loans. Non-traditional credit, such as utility payments, can also be used to receive approval. Since FHA closing costs (APR) are known to be high due to the upfront mortgage insurance premium and other FHA fees, these expenses can be added to the loan amount in most cases. FHA also allows payment through seller concessions that meet their guidelines. The FHA streamline refinance with no cash out is an FHA benefit that allows borrowers to refinance with no documentation and no need of an appraisal. Until the end of 2013, borrowers who have loans that were endorsed prior to June 1, 2009 can obtain the FHA streamline with reduced upfront and annual mortgage insurance premiums. To find out more information about the FHA streamline refinance and other FHA mortgages, submitting the online form will return a response almost instantly.

14--Long-term real yields hit another record low, punishing US savers, sober look

15--The Problem is a Collapsed Housing Bubble, Not a Financial Crisis, CEPR

It is remarkable how people keep insisting, in spite of all the evidence to the contrary, that the problem of the downturn is a financial crisis rather than simply a collapsed housing bubble. The latter story is simple. Housing construction was driven by bubble-inflated prices. When prices plunged, construction collapsed. Not only did we no longer have inflated prices to drive construction, we also had an enormous oversupply as a result of 5 years of near record rates of construction. From 2006 to 2009 construction fell by more than 4 percentage points of GDP, leading to a loss of more than $600 billion in annual demand.
In addition, the loss of $8 trillion in housing wealth lead to sharp falloff in consumption. While the housing wealth effect is a long-established and widely accepted economic phenomenon, most discussions of the financial crisis act as though this effect does not exist. The wealth created by the run-up in house prices led to a consumption boom as the saving rate fell to near zero. With the collapse of the bubble, consumption fell back as the wealth that has been driving it disappeared.

16--Austerity budgets imposed across Europe, WSWS

17--What is behind the global stock market rally?, WSWS

The boom in stock prices is an expression of a global redistribution of wealth from the bottom to the top. The social conditions of the working class have been driven relentlessly downwards, while trillions of dollars have been turned over to the banks, mainly for the purpose of financial speculation.

This process is particularly evident in the United States, the center of world capitalism and the center of the global economic crisis.

The three major stock indexes have nearly doubled in value since 2009, and the fortunes of the super-rich have risen accordingly. The richest 400 billionaires in the US had a net worth of $1.27 trillion in 2009. This already obscene figure shot up to $1.7 trillion in this year's list, an increase of 33 percent in just three years.

CEO pay has followed a similar course. The average CEO of one of the 350 largest US companies took home $12.14 million in 2011, up from $12.04 million in 2010 and $10.36 million in 2009, according to the Economic Policy Institute.

But for the working population, the situation is exactly the opposite. Between 2009 and 2011, the most recent year for which figures are available, the number of people in poverty in the United States grew by 2.6 million, to 49 million. Mass unemployment has been utilized as a lever to impose wage cuts in every sector of the economy

Saturday, September 29, 2012

Weekend links

1--61-year-old man shot dead in drug raid on wrong house, ABC News

2--U.S. Troops Deployed in Iraq Again , New American

3-Military Report Shows Afghan Surge Complete Failure; The Taliban insurgency is as strong as ever, Kabul is weak, and overall violence has not subsided, antiwar

4--Shiller Data Questions Housing Revival Power, Bloomberg

5--Bank Cyber Attacks Show Vulnerable Infrastructure, Bloomberg video

6--After Brisk Summer, Pending Home Sales Drop in August, CNBC

7--Deepening global recession, Business Recorder

8--New home sales dip, but prices scale five-year high. Reuters

9--Venezuela: Ex-US ambassador outlines intervention plans, green left

10--Immigrant Detention and the Private Prison Industry, immigration impact

11--Broker Sent Oil Prices to Eight Month High in a Drunken Stupor, oil price

12--Student-Loan Default Rates Rise as Federal Scrutiny Grows, Bloomberg

13--Poor US economic data suggest Q3 GDP may not be better than Q2, prag capitalism

14--Consumer Sentiment Cools During September, WSJ

15--Mortgage-Bond Selling Shows Anxieties Despite Fed Support, WSJ

16-US Envoy: Preparations Made for Attacking Iran, antiwar

17-Irving Fisher on debt deflation, macronomyblogspot

when the debt bubble bursts the following sequence of events occurs:
Assuming, accordingly, that, at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links:
1.Debt liquidation leads to distress selling and to
2.Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes
3.A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be
4.A still greater fall in the net worths of business, precipitating bankruptcies and
5.A like fall in profits, which in a "capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make
6.A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to
7.pessimism and loss of confidence, which in turn lead to
8.Hoarding and slowing down still more the velocity of circulation.
The above eight changes cause
9.Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest
." - (Fisher 1933)

18--Housing: Less supply does not necessarily mean higher prices, OC Housing News

For as long as records on delinquencies were kept, rarely did the rate exceed 2%. Currently, it is over 10%! To make matters worse, the delinquency rate for commercial banks is not declining as fast as delinquencies overall. Over the last two years, the rate dropped from from a peak of 11.2% to the current 10.2%. If lenders continue at that pace, it will take another 16 years for delinquency rates to get back to historic norms.

Are we really at the bottom?

To me it is a source of some consternation that more than 10% of all residential mortgages held by the banks are delinquent. What is the future of those borrowers and their properties. Isn’t it likely that many, if not most, of these properties will be distressed sales as either short sales or foreclosures? Won’t those sales pressure prices?

I consider loan modifications can-kicking. Few of these borrowers are going to permanently cure their loans and sell with equity. Lenders are merely hoping to delay their losses and hope prices will go up which will minimize the carnage. Unfortunately, the liquidation of these bad loans requires an MLS sale — an additional sale the market would not ordinarily absorb. These sales will serve as a drag on appreciation if not a cause of outright price declines. That isn’t what lenders fantasize about....

With ordinary goods and services, buyers are not limited in their ability to raise their bids. With housing they are. A precipitous drop in supply may prompt those few with the ability to bid higher to do so, but it may also serve to drastically reduce sales volumes, which is what’s happening here in the West. This is an important point because most pundits like this guy fail to understand (perhaps through willful ignorance) that less supply does not automatically mean house prices will go up...
There are several reasons to remain skeptical…. Goldman’s economics research team understands that much of the improvement in housing markets can be attributed to a fall in the percentage of distressed transactions, which accounted for 50% of sales in 2009 and has now fallen to 25%. (Read Steve Schaefer‘s piece, Why The U.S. Housing Recovery May Be Due For A Stumble for more on this).

And most of this reduction is entirely due to policy changes at the major banks to comply with the settlement agreement. Lenders simply stopped taking on more REO in hopes they can resolve these bad loans through short sales instead. When banks finally reach their quotas, likely by next spring, they will turn their attention to forcing out the committed squatters....

While the number of distressed sales vis-à-vis regular sales has fallen quite dramatically since March 2009, its decline was more moderate from May 2011 to May 2012, when it went from 31% to 25%. The historical average, though, is far away, at about 5%.

So not just are the bank’s residential loan delinquency rates more than five times historic norms, the share of distressed sales is also five times historic norms. That sounds like a recipe for a housing market bottom, right?

While Goldman expects the percentage of distressed sales to slowly tend toward this average, they understand this could take many years:

In our view, returning to a more normal proportion of distressed sales will take several years, given the large number of borrowers with negative equity, the large current delinquency and foreclosure inventory, and the long current foreclosure timelines.
In other words, the bank’s can-kicking is dragging this out

Thursday, September 27, 2012

Today's links

1--Oil consumption down, oil price

The American Petroleum Institute reported that U.S. petroleum deliveries were down to 18.6 million barrels per day. While this represents a 2.8 increase from the previous month, it reflects a 4.3 decline from the same period last year and marks a 15-year low for the month. Petroleum deliveries are an indication of market demand and the API's chief economist, John Felmy, said levels for August are indicative of a lacklustre economy.

"Given the nation’s weak employment situation, it’s no surprise petroleum demand was off," he said in a statement. "Contraction in the manufacturing sector probably also reflects the slipping numbers."

The U.S. rate of unemployment has stayed above 8 percent for 43 consecutive months, the longest period since World War II.

2--Philly Fed signals recession, Reuters

3--The impending war with Iran, WSWS

4--Is it moral to vote for Obama?, crokked timber

5--Massive Rallies in Venezuela Support Hugo Chavez’s Re-election, Venezuelanalysis

6--Fed Easing Only Helped Stocks, Not Economy, Trim Tabs

7--10-year Treasuries to fall to record 1.35%, Bloomberg (video)

8--2nd Quarter GDP revised down to 1.3%, Reuters

9--Durable Goods Orders Sink Even as Jobless Claims Fall, CNBC

10--Home sales fall in Calif, OC Housing News

Ever since Bill (calculated risk) called the bottom early this year, he has suffered from a confirmation bias. He interprets every news story bullishly. He could start writing copy for the NAHB or the NAr. His bottom call may prove prescient, but his attachment to that bottom call has created a confirmation bias that is seriously clouding his judgment. He is no longer impartial...

Sales will not improve until the inventory returns.
Distressed housing market data:
– The share of equity sales – or non-distressed property sales – compared with total sales grew to its largest level in four years. The share of equity sales in August increased to 62.2 percent, up from 59.5 percent in July. Equity sales made up 51.7 percent of all sales in August 2011.
– The share of REO sales statewide contracted further in August, while the share of short sales crept up slightly. The combined share of all distressed property sales fell to 37.8 percent in August, down from 40.5 percent in July and down from 48.3 percent in August 2011.
What looks like improvement on the distresses sales front is an illusion. The lack of distresses sales is not due to a lack of distressed loans that need to be processed..

11--Stresses in China's manufacturing sector point to further economic slowdown, sober look

12--Uh oh. Afghanistan going down the tubes, antiwar

Adding to the pessimism is a just-released reportby one of the most astute observers of the U.S. war, Gilles Dorronsoro, an Afghanistan expert at the Carnegie Endowment for International Peace (CEIP), who, among other things, predicts that the regime in Kabul“will most probably collapse in a few years” given current trends.
“Political fragmentation, whether in the form of militias or the establishment of sanctuaries in the north, is laying the ground work for a long civil war” that is likely to be fueled by competition among regional powers, according to his report, which also joined the call by a growing number of experts for Washington to open negotiations with the Taliban as soon as possible.
Indeed, a series of setbacks just this month have renewed questions about even the short-term viability of the U.S.-led strategy to keep the Taliban at bay while bolstering the central government enough to persuade key elements of the insurgency to negotiate rather than fight on.
In recent days, some of the most die-hard Republican supporters of U.S. intervention have suggested throwing in the towel early, particularly in view of the growing number of fatal “insider” attacks —51 so far this year — by uniformed Afghan personnel against U.S. and coalition trainers and soldiers.
The latest attacks prompted U.S. commanders to sharply curb joint operations by coalition and Afghan forces pending a massive re-vetting of the latter for possible Taliban sympathies

13--What’s So Special About Special Ops?, William Lind, antiwar

14--Ahmadinejad Condemns Israel’s ‘Continued Threats’ of War, antiwar

“The current abysmal situations of the world are due mainly to the wrong leadership of the world who have entrusted themselves to the devil,” he said, adding that allowing five countries to have veto power at the UN Security Council is “in no way acceptable.”...

Unilateralism, application of double standards, and imposition of wars, instability and occupation to ensure economic interests and expand dominance over sensitive centers of the world have served to be the order of the day,” he said. “Arms race and intimidation by nuclear weapons and weapons of mass destruction by the hegemonic powers have become prevalent.”

Wednesday, September 26, 2012

Today's links

1--Labor's Declining Share of Income and Rising Inequality, economists view

2----Ralph Nader: Obama’s a ‘War Criminal’, Info clearinghouse

3--Robert Shiller: Canada Is Becoming A Slow-Motion Version Of The US Housing Bust, Business Insider

4--Euro Update: The Perils of Pointless Pain, NYT

5--Managing shadow inventory – California home prices up 12 percent year-over-year while household incomes remain stagnant., Dr Housing Bubble

6--After Brief QE3 Fever, Inflation Expectations Cool, WSJ

7--In Europe, It’s Debt vs. Jobs, naked capitalism

8--Credit Markets are Reversing the QE3 Euphoria, sober look

9--About that housing recovery, pragmatic capitalism

 I’ve been saying we’d avoid a recession in 2012 for a long time now and the fact that housing stopped bleeding has played a big role in that call, but let’s not go crazy and start declaring victory in the real estate market when the evidence very clearly shows that real estate remains mired in a deep slump. It’s great that there are signs of life and it’s stopped collapsing, but let’s maintain some perspective here as well.

10--Philly Fed Flashes a Recession Warning, pragmatic capitalism

11--Europe strengthens repressive powers of the state, WSWS

12--U.S. Distrust in Media Hits New High, Gallup
Go figure

Tuesday, September 25, 2012

Today's links

1--Brace Yourself: 3rd Quarter Earnings Could Fizzle, Fiscal Times

If the analysts polled by Thomson Reuters have called it correctly, the third quarter of 2012 will be the first quarterly period since the economic recovery began in 2009 in which earnings growth rates for companies in the Standard & Poor’s 500 index will turn negative.

2--European Optimism Fades, naked capitalism
3--Wall Street Rolling Back Another Key Piece of Financial Reform, Rolling Stone
the Dodd-Frank Act among other things included a simple reform. It required the financial advisors of municipalities to do two things: register with the SEC, and accept a fiduciary duty to respect the best interests of the taxpayers they are advising.

Sounds simple, right? But Wall Street couldn’t have that. After all, if companies are required to have a fiduciary responsibility to cities and towns, how in the world can they screw cities and towns? The idea was a veritable axe-blow to the banks’ municipal advisory businesses.

4--Spain Recoils as Its Hungry Forage Trash Bins for a Next Meal, NYT

5--Canada New Home Sales Plunge 64 Percent; Lowest August on Record, Mish

6--QE3 enriches subprime mortgage bonds, Housingwire

The scarcity of agency mortgage-backed securities intensified by the Federal Reserve third round of quantitative easing is adding momentum to the non-agency subprime MBS sector rally.
Bank of America Merrill Lynch ($9.10 0%) MBS strategist Chris Flanagan says the impact of QE3 on securitized products is that the “rich get richer.” Portions of the market saw valuations stretched even prior to the Fed announcement, and “QE3 will suck out an enormous supply of bonds from the market,” he says.

Agency MBS spreads were already at historically tight levels, and one week later QE3 has dramatically enriched the agency MBS market: the current coupon spread to the 10-year treasury has declined by 54 basis points to an all-time tight of 6 basis points.
Unlike the significant tightening in agency MBS, the spillover to other sectors such as non-agency MBS was a less expected outcome of QE3. In fact, Flanagan points out, the non-agency MBS sector has been in major rally mode since May..

“Given our own belief that home prices will continue to recover, we think the housing data will continue to attract investors to the non-agency market,” says Flanagan, who maintains his preference for last cash-subprime, which “we believe offer attractive fundamental value given the improving housing picture.”

BofAML anticipates further tightening and that agency valuations will get richer as the Fed continues its buying spree for what he thinks will be up to two years.

Analysts expect $1.4 trillion in gross agency MBS originations in 2012 and that the Fed will buy agency MBS at a gross annualized rate of about $850 billion per year, or roughly 60% of all new originations.
Last week “showed us that it is officially game on in terms of access to supply,” Flanagan says

7--Obama's fiscal stimulus worked, Wa Post

if you look at the leaked memo that the Obama administration was using when they constructed their stimulus, you’ll find, on page 10 and 11, a list of prominent economists the administration consulted as to the proper size for the stimulus package. And there, on page 11, is Rogoff, with a recommendation of “$1 trillion over two years” — which is actually larger than the American Recovery and Reinvestment Act. So if they’d been following Rogoff’s advice, the initial stimulus would have been even bigger — not nonexistent.

As for Reinhart, I asked her about this for a retrospective I did on the Obama administration’s economic policy. “The initial policy of monetary and fiscal stimulus really made a huge difference,” she told me. “I would tattoo that on my forehead. The output decline we had was peanuts compared to the output decline we would otherwise have had in a crisis like this. That isn’t fully appreciated.”

8--I.M.F. Praises Central Banks, but Sees Slowing Ahead, NYT

9--Currency war warnings follow US Fed’s “quantitative easing”, Nick Beams, WSWS

Following the latest decision, in which the Fed gave an indefinite commitment to purchase mortgage-backed securities to the tune of $40 billion per month, the Brazilian finance minister, Guido Mantega, repeated his earlier warnings of a currency war.

Interviewed by the Financial Times last Thursday, Mantega said the US move was “protectionist” and could have drastic consequences for the rest of the world. “It has to be understood that there are consequences,” he told the newspaper. The Fed’s latest move would have only marginal benefits, he said. There was already plenty of liquidity in the economy but it was not going into production. The real purpose of the measures was to depress the value of the dollar and boost US exports, he added.

Mantega pointed to last week’s decision by the Bank of Japan (BoJ) to intervene in financial markets with its own version of quantitative easing as another sign of global tensions. “That’s a currency war,” he said.

In a move clearly aimed at pushing down the value of the yen and lifting Japanese exports, the BoJ decided to add $128 billion to its program of asset purchases. It cited the effects of “financial and foreign exchange market developments” as one of the reasons for its actions...

The US Fed’s rationale for its actions is that the injection of liquidity will lower interest rates and encourage investment, resulting in the creation of more jobs and a lowering of unemployment. But a recent Duke University survey of the chief finance officers of 887 large companies found that a lowering of interest rates would have virtually no impact on their decisions.

According to the Duke University analysts: “CFOs believe that ... monetary action would not be particularly effective. Ninety-one percent of firms say they would not change their investment plans even if interest rates dropped by 1 percent, and 84 percent said they would not change investment plans if interest rates dropped by 2 percent.”

In other words, so far as the real economy is concerned, the Fed’s actions are equivalent to pushing on a string. Indeed this is recognised within leading financial circles...

While the Fed’s measures have almost no impact on investment and jobs, they do give a boost to financial markets. Since the collapse of September 2008, the Fed has followed a clear agenda. The banks and finance houses, whose speculative activities, some of them of an outright criminal character, triggered the crisis, have been given endless supplies of ultra cheap money. Profits are being made through the elevation of the price of financial assets resulting from the injection of more money from the Fed.

However, the stagnation and outright recession in the real economy means that this process cannot continue indefinitely and the house of cards must collapse. The interventions by the world’s three major central banks—the US Fed, the European Central Bank and the Bank of Japan—means that rather than being able to provide further bailout money, they will themselves be dragged into the maelstrom.

10--Home Prices Climb Again, NYT

11--Fannie and Freddie revamp repurchases, FT

The new policies were announced on Monday by the companies’ regulator, Edward DeMarco of the Federal Housing Finance Agency. They include giving lenders a reprieve from possible “putbacks” if borrowers have made their monthly payments for the first 36 months of a loan and earlier reviews of possible underwriting breaches.
Putbacks have been among the main sources of concern for mortgage lenders including Bank of America, which have argued that Fannie Mae and Freddie Mac’s practices have caused it to deny many loan applicants due to fears that the government-backed groups could later force them to buy them back.
Other US agencies, including the Treasury department, had been trying to persuade FHFA to alter Fannie Mae and Freddie Mac’s policies.
Over the past six months, Fannie Mae and Freddie Mac requested that lenders repurchase nearly $19bn in soured mortgages. About $17.5bn in requests were outstanding as of June 30, securities filings show.

Monday, September 24, 2012

Today's links

 1--A durable recovery would be demand driven not supported by restricted supply, oc housing news

The current low-level mini-bubble in home prices is due to speculators ferociously outbidding one another to snatch up properties, prompting real estate owned (REO) and short sale sellers and lenders to sense increased action then demands higher prices as a result. …
As a result, speculators and lenders have artificially driven volume and prices up a bit, though only temporarily. In the process, they have created the illusion of increased demand where very little actually exists....

The truth is in the numbers: there were roughly half as many buyer-occupants as sellers in the second quarter of 2012, the speculators merely taking the seller’s risk position of locating that buyer-occupant (or interim tenant for lack of an immediate flip).
However, speculators will soon realize their investments aren’t paying off as expected. At some point in the second half of 2012, this mini-bubble will deflate and we’ll be back to square one, a point which may have already passed. Stay tuned for Q4 2012.

2--What the Fed Move Means, WSJ

The Fed says it plans each month to buy $40 billion of agency mortgage-backed securities, which are supported by government-sponsored enterprises such as Fannie Mae and Freddie Mac FMCC +1.92% . The Fed says the buying will continue until the labor market improves substantially.
Unlike mortgage-backed securities that hold jumbo or subprime loans, agency mortgage-backed securities carry at least the implicit backing of the government. That means that if the home market soured and owners defaulted on their loans, mortgage-bond holders would still get their money back.

3--Fed Recovery Doubts Spur Investor Bid for Treasuries, Bloomberg

4--A QE rally in search of Main Street confirmation, IFR

Everyone has learned, well, how to play the Fed easing game, and I’d say that the rule is not, as in the old days, “Don’t fight the Fed” but rather “Get in early and then get out.”
If we don’t see improvement in the underlying economy those expanded stock market multiples will begin to look pretty stretched. None of this is to say that that improvement can’t or won’t come, but it really looks as if counting on it is expecting the QE to work better this time, because it will be operating in an environment in which there is less panic and easier conditions.
The key question then is whether there is something special about the Fed’s commitment being open-ended. Will that give investors more faith, so that if the economy still looks sluggish in December they don’t sell stocks?
Possibly, but at that point we might have to accept that the law of diminishing returns still applies if you keep doing the thing which works less and less well.

5--Wage and Salary Growth is Accelerating, Trimtabs

6--Home Sales on Track to Hit 5-Year High, Realty check

7--Chicago Fed: Economic Activity Weakened in August, calculated risk

8--Ignore the Political Optimism, the Planet is in Trouble,

9--Former US President Carter: Venezuelan Electoral System “Best in the World”, global research

10--A Flaw in the QE Expectational Transmission Mechanism? Pragmatic capitalism

11--Currency war warnings follow US Fed’s “quantitative easing”, WSWS

Friday, September 21, 2012

Weekend links

 1--Ireland timelapse photo journal, The Atlantic

2--Consumer collapse draws nearer, Burning Platform

3--Time to Abolish the American Dream; The Waning of the Modern Ages, counterpunch

4--Most institutional investors believe QE will fail, Trimtabs

 Three years from today, what will be your opinion of the ECB’s unlimited bond buying and the Fed’s open ended purchases? No surprise to me, 77% are saying that the easings will be a complete failure that actually hurts the economies. Only 10% believe that it will be a modest success. Even worse 4% say they will be a big success. The rest say they are not sure.

 Despite this long term negative outlook by professional investors stocks are up 16% since the current form of easing was pre-announced early in June. What is going on? Is this crazy or am I crazy? I think we are living in a matrix reality where the global central banks can currently get away with artificially elevating asset prices via printing money.

 The other day I reported that everyone seems to believe that as long as the Fed agrees to print money forever, the stock market cannot go down. Forget the fact that there is no new investor money going into stocks. Forget the fact that the only buyer over the past year and half, companies who had been shrinking the float, buying back more shares then selling, have become net sellers. Companies are now selling more shares then they are buying for the first time since this past April. What happened this past April? Stocks started selling off, dropping 11% before this QE was pre announced early June.

 We can now add Japan to Europe and US central bank printing huge amounts of money. None of this means anything except maybe to keep stock prices elevated and help get Mr. Obama reelected.

5--France's economic conditions dim; Eurozone core growth in trouble, sober look

6--Here comes the kool aid: HELOC abuse projected to rise, OC Housing news

Home prices in the second quarter increased 2.2 percent from the previous three months, the best performance since the fourth quarter of 2005, according to S&P/Case-Shiller data. The lowest mortgage rates on record, a smaller inventory of available homes and a drop in distressed property sales have fostered the pickup.

7--Betting the house with the Fed – Stock market at levels last seen in December of 2007 – Examining what has changed and impact of Federal Reserve on housing. QE3 preemptive strike on fiscal cliff?Dr. Housing Bubble
The Case Shiller Index is 23 percent lower than it was in December of 2007.  As previously noted, home prices have started moving up in 2012 but this is largely a function of low interest rates (probably another reason for QE3) and stifled inventory.  The same issues of weak household income are popping up this time around.  That is why FHA insured loans are so popular during this recent move up with housing values.  Do not confuse this with a booming economy.  This is merely a system that is allowing more leverage with stagnant household incomes.

Take a look at the U6 measure of underemployment between 2007 and 2012.  In December of 2007 this was at 8.8 percent and today it is at 14.7 percent.  Again, you need to try to examine where this recent stock run has come from.  Take a look at government debt.  From 2007 to 2012 the Federal Government went from $9.4 trillion in debt to over $16 trillion.  A 70 percent increase in national debt resulted in GDP going up 9 percent over this half decade.

Take a look at the Fed balance sheet.  This is up a stunning 220 percent over the last five years.  So much for that being a temporary move.  With QE3 on the horizon they are likely to push this above $3 trillion.  This is why you are now seeing inflation stick in items like food, healthcare, education, and energy.  However household incomes are not moving up.

New home sales are down 39 percent from where they were in December of 2007.  Total household debt has deleveraged by 6.5 percent in this exact period.  Does this justify the current move in stock values?  Domestically it would appear this is not the case but remember many US companies now largely derive profits from abroad.

 8--Bank-Owned Sales Fall to Lowest Point Since April ’09, Seattle Bubble
Are banks withholding distressed inventory?
You be the judge.

9--Home Sales on Track to Hit 5-Year High, Realty Check

Sales of existing single family homes and condominiums beat expectations for August, rising to the highest level since May of 2010, when the government’s home buyer tax credit juiced sales temporarily. This time it could be argued that the government stimulus behind sales is record low mortgage rates, but that may not be all of it.

 Close to one third of the homes that sold in August went to buyers using all cash, despite average rates on the 30-year fixed sitting around 3.6 percent. Rates appear to have less of an impact than hoped. Witness mortgage applications to purchase a home fell 4 percent last week, even as rates fell to record lows on the Mortgage Bankers Association’s weekly survey.

“The strengthening housing market is occurring even with difficult mortgage qualifying conditions, which is testament to the sizable stored-up housing demand that accumulated in the past five years,” said the National Association of Realtors’ chief economist Lawrence Yun.

 With the August jump of 7.8 percent from July, Realtors now say they are confident that home sales for all of 2012 will hit their highest level in five years. They do warn that there are still “frictions” in the market, not the least of which are about 12 million borrowers who owe more on their mortgages than their homes are worth. These so-called “underwater” borrowers are largely stuck in place, unable to cover their debt and unable to move up.

 Bottom line, housing continues to recover, but the bounce still has to be put into the perspective of how much damage was done,” notes Peter Boockvar at Miller Tabak. “Looking specifically at single family homes, at a sales level of 4.30mm, it's back to where it was in 1998 and of course still well below the bubble high of 6.34mm in Sept '05.”

10--: Mortgage Rates Back To Record Lows, calculated risk
 First, from Freddie Mac: Mortgage Rates Back To Record Lows

    Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®), showing fixed mortgage rates at or near their all-time record lows helping to keep homebuyer affordability high. The average 30-year fixed rate mortgage matched its all-time record low at 3.49 percent, and the average 15-year fixed fell to a new all-time record low at 2.77 percent.

And from David Wessel at the WSJ: Depression Lessons: Should Fed Stand Down to Compel Congressional Action?

    As [economist James] Tobin put it in the American Economic Review in June 1965: “The monetary authorities should have tried harder to promote expansion in 1933-36 and 1937-40 — nothing would have been lost and something might have been gained. Throughout the period the authorities were too little concerned with deflationary risks immediately at hand and too much concerned to forestall the hypothetical future dangers of excess liquidity.”

    ... Friedman and co-author Anna Schwartz quote at length from a December 1935 technical memo from Fed files that made the case for tightening the credit spigot. ... The subsequent tightening by the Fed was, Friedman and Schwartz concluded, a mistake followed by “a failure to recognize that the action had misfired.”

11--MOST: “The reflation trade may not have long legs”,

Economic theory suggests that a highly dovish Fed should increase inflation premiums. The fact that inflation expectations have remained well behaved is very notable, in our view. They could yet keep moving higher, but the absence of a more significant jump suggests that the reflation trade may not have long legs.More relevant though is what inflation expectations say about growth. Growth and inflation are close cousins, and it’s doubtful that there will be a meaningful move higher in inflation expectations until the recovery appears more significant and durable. Given the modest move higher thus far, it doesn’t bode well for growth and thus the path for risk assets, in our view.

12--A Flaw in the QE Expectational Transmission Mechanism, pragmatic capitalism
“Inflation expectations can rise in the near-term without a long-term follow-thru in wage inflation. It’s my belief that people tend to spend out of current/expected income. So, if inflation expectations rise then there will only be a follow-thru spending effect if wages actually rise as a result (or subsequently rise to sustain current spending)....

 What you see is two big spikes in inflation in the last few years from QE1 and QE2.  But what you also see is a persistent decline in wages.  Ie, the spending power of consumers isn’t following through from the higher inflation expectations.  The result is weak demand and a weak economy.  Ie, QE worked in QE1 because we were in a deflationary spiral, but QE2 failed and QE3 is also likely to fail because it won’t result in a follow-thru in consumer spending because it lacks a transmission mechanism to cause a wage spike.”...

 inflation expectations surged when QE2 was unveiled.  And CPI rebounded briefly before it became clear that QE2 wasn’t causing the hyperinflation or even high inflation that many expected.  More recently, we have a spike in inflation expectations following QE3.

But look at the one constant through all of this – declining wages.  The impact of falling wages and the relationship with inflation is much clearer in figure 1, but the basic gist of the thinking here is that it doesn’t matter at all what near-term inflation expectations are if there isn’t a transmission mechanism for sustained translation of higher expected inflation into wage inflation which would be consistent with higher economic output and lower unemployment.

Instead, what we’re seeing is a glorious environment for corporations where they’re earning record profits, employees have no pricing power, margins are surging and the sagging demand from the weak consumer results in no urgency to boost wages or hire en masse.  And so the problem with QE is that there is no transmission mechanism through which it sustains high inflation expectations which lead to sustained wage inflation.  As Fed governor Evans said yesterday, fears of Fed-fueled inflation have been “consistently wrong.”  That’s because the transmission mechanism to cause sustained inflation is very weak.  Of course, the Fed isn’t just trying to generate inflation, but the environment they’re trying to create would certainly be consistent with higher inflation.  So in the near-term markets fret about “money printing” and hope for lasting impacts from “wealth effects”, but the expectations consistently fade without any lasting impact….

 13--Net worth of richest Americans soars by 13 percent in 2012, WSWS

14--Incomes Fell or Stagnated in Most States Last Year, WSJ

15--First Spanish Bailouts Conditions Revealed: Pension Freeze, Retirement Age Hike, zero hedge

Monday, September 17, 2012

Today's links

1--How Much Does the Fed’s Plan Really Help Main Street?, NYT

2--QE Won't Work Because There's No Demand For Credit, business insider

3--Investor euphoria as Federal Reserve launches QE3 risks turning sour, Project Syndicate

4--Is QE3 Yet Another Stealth Bank Bailout?, naked capitalism

5--Eugene Linden: In a World of Underpriced Risk, What Could Possibly Go Wrong?, naked capitalism

An IMF study of 124 banking crises concluded that regulatory forbearance, the term of art for letting impaired banks soldier on, found:

The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred... Also, the tiny margins at the zero bound mean that the short-term collateralized lending that supports money market funds and much of the shadow banking system can become unprofitable in the blink of an eye. Thus, ultralow rates, historically associated with the risk of inflation, can actually withdraw liquidity from the market, and produce a deflationary spiral.

6--Richard Koo explains why Fed is impotent, bloomberg

7--Cargill and Others Behind anti-Organic "Stanford Study", naked capitalism

8--HUSSMAN: Market Conditions Have Hit The Single Worst Point That We Have Ever Observed, business insider

9--Email From Lead Analyst, Weekly Petroleum Supply Team on Possibility of Recession, Mish

10--The effects of QE (chart), Big Picture

11--Slumping Durable Goods Orders & QE3, Big Picture

12--The Fed will be buying MBS at some of the richest valuations in recent history, sober look

13--Those pesky inflation surprises, sober look

Inflationary pressures, particularly food inflation, continue to percolate across some emerging markets nations. Central bankers don't like openly discussing the problem, fearing just talking about it could raise inflation expectations. But that does not make the problem any less real.

14--QE to prevent deflation?, econbrowser

I would judge QE3 to be a success if it resulted in lower real interest rates and higher expectations of inflation, both of which would slightly encourage additional spending today.
... think the correct interpretation of QE3 is that the Fed has unambiguously signaled that it's not going to re-run the Japanese experiment to see what happens when the central bank stands by and watches wages and prices fall even while unemployment remains very high. The Fed can and will keep U.S. inflation from falling much below 2%, and that may help a little. Investors should expect that, and not a whole lot more.

15--Economists Are Uncertain More Fed Moves Will Work, WSJ

16--After Fed yield moves to the fore, WSJ

17--Bernanke unbounded, WSJ

18--Fed's massive print run disguises deficit, WSJ

19--Latest moves by Fed and European Central Bank--Financial parasitism and looting are the “new normal”, WSWS


Wednesday, September 12, 2012

Today's links

1--Mortgage REITs' leverage poses significant risks to the overall mortgage market, sober look

So how is it that a mortgage product can generate some 30% return in a year when the universe of mortgages securities generated roughly 3.4% over the same period? The answer as always is leverage. Mortgage REITs are able to pay high dividends because of the tremendous leverage they maintain

2--Prop. 37: Will California be first state to label genetically modified food? , CSM

Proponents of Prop. 37, which is on the California ballot in November, say consumers have a right to know what kinds of food they are eating. But similar labeling laws have failed in 19 states

3--EU unveils banking union plan to tackle crisis, IFR
4--The Great Deregulator, smirking chimp

...before he left office Clinton signed off on the game-changing legislation that ended the sensible rules imposed on Wall Street during the Great Depression? It was Clinton who cooperated with the Republicans in reversing the legacy of FDR’s New Deal, opening the floodgates of unfettered avarice that almost drowned the world’s economy during the reign of George W. Bush.

How convenient to ignore the Financial Services Modernization Act, which Clinton signed into law to summarily end the Glass-Steagall barrier against the commingling of investment and commercial banking. Do the Democrats not remember that Citigroup, the first too-big-to-fail bank made legal by the law Clinton signed, became the $15 million employer of Robert Rubin, the Clinton treasury secretary who led the fight for the law that legalized the creation of Citigroup? Or that Citigroup—led by Sanford Weill, to whom Clinton gave one of the souvenir pens he used to approve that onerous legislation—went on to be a major player in the subprime mortgage swindles and had to be bailed out with more than $50 billion of taxpayer funds?

5--Regulatory Measures to Reduce Systemic Risk Are Proving to Be Ineffective, Possibly Counterproductive, naked capitalism

Understand what is happening here: clearinghouses are one of the major elements of Dodd Frank to reduce counterparty risks. But the banks are proposing to vitiate that via this “collateral transformation” which will simply create new, large volume counterparty exposures to deal with fictive clearinghouse risk reduction program.

6--As Paul Ryan Lines Up Behind Rahm, the Scheme to Privatize Chicago Schools Becomes Clear, Firedog Lake (Obama's righthand man leads the push to privatize public schools)

But it’s not that hard to see what this is about. Significant sections of the Chicago Public Schools system are starved for funds. They are putting 40-50 students in classrooms without air conditioning. The kids don’t have books or materials weeks into the term. And ultimately, the goal is to make those schools so poorly maintained, staffed and administered that they “fail,” allowing Rahm Emanuel and his hedge fund buddies to essentially privatize them:

What we’re seeing in Chicago is the fallout from Jonah Edelman’s hedge fund backed campaign to elect Illinois state legislators who supported an anti-collective bargaining, testing based education proposal giving Edelman the “clear political capability to potentially jam this proposal down [the teachers unions'] throats,” political capability he used as leverage to jam an only slightly less awful proposal down their throats. It’s a political deal that explicitly targeted Chicago teachers, while trying to make it impossible that they would strike by requiring a 75 percent vote of all teachers, not just those voting, for a strike to be legal. But more than 90 percent of Chicago teachers voted to strike.

It’s not just Jonah Edelman, though. Rahm Emanuel worked with a tea party group to promote Chicago charter schools and denigrate traditional public school teachers and their unions. Emanuel’s political allies have been caught paying protesters to show up at hearings on school closures. Every story you read about the greedy teachers (greedy? does that description fit the teachers you know?) has years of big money anti-teacher campaigning behind it, pushing us to believe that teachers, who bring work home every night and routinely spend their own money on school supplies and even food for their students, are overpaid, selfish, lazy. Now, all those narratives that the right wing has built up—anti-union narratives coming together with pro-privatization narratives—are being used against Chicago’s teachers.

Privatizing the services of public schools, or the entire schools themselves, has become big business. If it takes a standardized test to force that into being, if that becomes the data that “proves” the need for privatization, that’s what will get used.

7--Are Chinese Banks Hiding “The Mother of All Debt Bombs”?, The Diplomat

8--The troika's subjugation of Greece, WSWS

In a letter to Greece’s most important ministries, the Troika demanded a six-day work week, increases in the numbers of hours worked per day, new cuts to wages, and the abolition of labour regulations in Greece...

The president of the Federation of German Industries (BDI), Hans-Peter Keitel, said this openly to news magazine Der Spiegel on Monday. He wants to make the whole of Greece into “a kind of special economic zone” and provide them with “foreign EU personnel”. On this basis Greece will attract foreign investment, he claimed.

9--Obama and the teacher's strike, WSWS

The Obama administration’s pose of official “neutrality” in the strike is a fraud. Emanuel is Obama’s right-hand man. Since taking office, Obama has gone further than the Republicans in promoting charter schools and the privatization of public education. He has outdone his predecessor George W. Bush in scapegoating teachers and encouraging school closures and mass layoffs.

Public school systems nationwide, starved of funding as a result of the economic crisis, have eliminated more than 300,000 teaching positions since 2008. Obama has responded by tying meager federal funds to the elimination of restraints on charter schools and the implementation of test-based evaluation systems.

In this process, the trade unions—including the Chicago Teachers Union (CTU) and its parent organization, the American Federation of Teachers (AFT)—have been active participants. Whatever their occasional criticisms of Emanuel and other “reformers,” the unions have collaborated every step of the way. At every point they sacrifice the interests of teachers to maintain their political alliance with the Democratic Party.

10--Regulator Claims New Rules Will Loosen Mortgage Lending, Realty Check

Through the first half of 2012, lenders have had to repurchase a total of $41.95 billion in mortgages from Fannie and Freddie. (Read More: Fannie Mae COE: 'Comfortable' With Decision Not to Slash Mortgage Balances.)...

FHFA has released new guidelines that will go into effect on new loans starting the first of next year. Part of the new “framework,” is relief for lenders from mortgage repurchase obligations on loans where the borrower has made on-time monthly payments for 36 consecutive months. On refinances through the government’s Home Affordable Refinance Program (HARP), that term would be knocked down to 12 months. (Read More: Why Millions of Americans Still Can't Refinance Their Mortgage.)...

The FHFA is trying to get banks to lend, take more risk when they sell these loans to the GSE’s,” said FBR’s Paul Miller. “There is a huge problem with people with lower FICO scores not getting access to credit, so the GSE’s have come under a lot of criticism.”

Will it work?

“This will have minimal impact,” claimed Miller, who points to still huge put-backs in process on legacy loans from Fannie Mae, Freddie Mac and the FHA. Put-back risk is one of, if not the top reason lenders are not loosening mortgage credit availability.

11--Poverty and inequality are up. Median income, down, WSJ 

The lost decade continues. Median household income, adjusted for inflation, fell 1.5% in 2011, to $50,054. That’s 8.1% lower than before the recession and 8.9% lower than in 1999.

Inequality rose. Income inequality, as measured by the Gini index, rose 1.6% in 2011 from 2010, the first annual increase since 1993. Other measures of inequality also increased. The top 5% of earners—those making $186,000 or more—received 22.3% of all income in 2011, up from 21.3% in 2010.

Jobs are increasing, but pay is falling. The number of people with full-time, year-round jobs rose by more than 2 million in 2011, although it’s still well short of the pre-recession level. But the inflation-adjusted earnings of such workers fell by 2.5%

Poverty declined slightly. There were 46.2 million people living in poverty in 2011, for an official poverty rate of 15%. That’s down slightly—and statistically insignificantly—from 15.1% in 2011, after three straight years of increases. The poverty line for a family of four was $23,021 in 2011.

Two-fifths of the poor had jobs. Of the 26.5 million Americans living in poverty in 2011, 10.3 million had jobs, though only 2.7 million worked full-time, year-round. The other 16.1 million didn’t work in 2011.

Fewer people are living without health insurance. The ranks of the uninsured fell to 48.6 million in 2011 from 50 million in 2010. For the first time in the past decade, the percentage of people with private insurance didn’t fall, holding steady at 63.9%.

Immigrants were much less likely to have health insurance. One third of foreign-born residents—and more than 44% of non-citizens—lacked health insurance in 2011, compared to 13.2% of those born in the U.S. 30.1% of Hispanics were uninsured, compared to 11.1% of non-Hispanic whites, 19.5% of blacks and 16.8% of Asians

Tuesday, September 11, 2012

Today's links

1--Democrats and Republicans line up against Chicago teachers, WSWS

(Rahm) Emanuel is not just the mayor of Chicago, he is Obama’s right-hand man. There can be no doubt that he is coordinating his actions closely with the administration. Emanuel served as the president’s chief of staff before he left to run for the post of Chicago mayor.

A former investment banker, Emanuel is also a top figure in the Obama reelection campaign, having just stepped down as co-chair of the campaign to head fundraising efforts by Obama’s super PAC. The stated aim of the super PAC is to raise $150 million from multi-millionaire and billionaire donors.

The political connections between Obama and the Chicago establishment are innumerable. Obama’s education secretary, Arne Duncan, is the former CEO of Chicago Public Schools (CPS), where he initiated many of the anti-teacher policies now being expanded by Emanuel. Duncan headed the CPS under Mayor Richard Daley, the brother of William Daley, who replaced Emanuel as Obama’s chief of staff in 2001.

Emanuel has plans to shut down dozens of public schools and lay off thousands of teachers. At the same time, the city hopes to open 60 new charter schools in addition to the 100 that are currently operating. Many of the charter schools are owned and operated by Noble Charter Network, which has close ties to billionaire Hyatt Hotel heiress Penny Pritzker, a longtime supporter of Obama....

Romney’s running mate, Paul Ryan, was even more explicit in his support for Emanuel. “Rahm and I have not agreed on every issue or on a lot of issues,” he declared, “but Mayor Emanuel is right today in saying that this teachers’ union strike is unnecessary and wrong.” He added that “education reform is a bipartisan issue.”

Whatever their differences, when it comes to their hatred for the working class, the two parties are entirely united. The Republicans are no less aware than the Democrats that a defeat of the Chicago teachers’ struggle is essential for carrying out the bipartisan policy of dismantling public education. And after decades in which the class struggle has been artificially suppressed with the help of the trade unions, the ruling elite views any working class resistance as intolerable, if not criminal...

Over the last two years, the CTU has accepted mass layoffs, school closures, “turnarounds” and the dismantling of tenure and other workplace rights. In April of 2011, behind the backs of the membership, the CTU collaborated with the Illinois Democratic-controlled state legislature in the passage of the anti-teacher Senate Bill 7, which restricts the right to strike and expands the use of standardized tests. Earlier this year, the CTU accepted the lengthening of the school day as part of an interim agreement.

2--Striking teachers speak out in Chicago, WSWS

The Democrats and Republicans want working people to pay for the financial crisis, and teachers have been first on the firing line.”

3--'Underwater Mortgage' Refis Get Fresh Push in Congress, Realty check

With the revisions that were made and introduced today, we are glad to be able to support the bill to help additional segment of homeowners who had not previously been able to refinance at today's historically low rates,” said David Stevens, president and CEO of the Mortgage Bankers Association. “As it pertains to amendments, we will evaluate each one on its own merits.

4--As Low Rates Depress Savers, Governments Reap Benefits, NYT

...older Americans and other savers are just unintended casualties of policies aimed at other economic targets, particularly the policy making it easier for consumers and companies to borrow.

“If you care about the distribution effects of these policies, and being fairer to the elderly or other people, that seems to argue for carefully designed fiscal stimulus,” said Robert J. Shiller, an economics professor at Yale. “With fiscal stimulus you have more control over who gets taxed at what rate and so on. At least it’s more transparent anyhow.”

But, he added, “the whole reason we like using monetary policy is that it avoids those very political discussions of who gets taxed.”

5-- We Are Now One Year Away From Global Riots, Complex Systems Theorists Say, motherboard

6--University of Phoenix Tops Debt Slave Racket with 35,049 Student Loan Defaults (Top Public School has 786); Debt Slave Collection Business is Booming; Housing and Economic Implications, Mish

7--Housing on Mend, but Full Recovery Is Far Off, WSJ

8--More on the strike, CEPR

As Diana Ravitch, a one-time leading school "reformer" and assistant education secretary in the Bush administration, argues that charter schools on average perform no better than the public schools they replace. The main determinants of childrens' performance continues to be the socioeconomic conditions of their parents. Those unwilling to take the steps necessary to address the latter (e.g. promote full employment) are the ones who do not care about our children.

9--“Bin Laden Determined to Strike in U.S.”, economists view

The direct warnings to Mr. Bush about the possibility of a Qaeda attack began in the spring of 2001. By May 1, the Central Intelligence Agency told the White House of a report that “a group presently in the United States” was planning a terrorist operation. Weeks later, on June 22, the daily brief reported that Qaeda strikes could be “imminent,” although intelligence suggested the time frame was flexible.

10--How central banks contributed to the financial crisis, Vox

11--Consumer Debt Declines, Even as Student Loans Grow, WSJ

12--Augmented Misery Index: First Half of 2012, Peterson Institute

13--Vital Signs Chart: Americans Cut Back on Credit Cards, WSJ

14--Consumer credit falls unexpectedly in July, Reuters

Consumer credit fell in July for the first time in nearly a year as Americans reduced credit card debt, a worrisome sign for an economy that has struggled to create jobs.

Consumer credit shrank by $3.28 billion in July, the Federal Reserve said on Monday. That was well below the $9.1 billion advance Wall Street economists had forecast in a Reuters poll.

However, in a more positive sign, the Fed revised substantially higher its estimate for credit growth in June.

The data follows a report on Friday that showed U.S. jobs growth slowed sharply in August, setting the stage for the Federal Reserve to pump additional money into the sluggish economy as soon as this week.

15--French President Hollande outlines budget cuts, law-and-order policies in TV interview, WSWS

16--Cuts in US jobless pay, government layoffs throw 1.5 million more people into poverty, WSWS

17--Hollowing Out the Workforce, counterpunch

According to a study performed by the National Employment Law Project, 58 percent of all new post-recession jobs come with hourly wages between $7.69 to $13.83. A worker would need two of these jobs just to afford rent, food, and other basics.

The New York Times commented on the “new normal” of low wage jobs:

“The disappearance of midwage [living wage], midskill jobs is part of a longer-term trend that some refer to as a hollowing out of the work force, though it has probably been accelerated by government layoffs.”...

The Democrats’ attack on public employees confirms that this dynamic is being purposely done: over 600,000 public employees have lost their jobs since 2009. Most of these workers were paid a living wage and had health care and pension plans. Their private sector replacement jobs that Obama boasts about pay peanuts and more often than not have no additional health or retirement benefits. The Obama administration understands perfectly well that these public sector layoffs could have been prevented by government action, but undermining employment and the wages of public employees is one way to drive down wages for everyone else. Together these trends lower the need for taxes and raise corporate profits.

The attack on unions is yet more proof that the low wage syndrome is a self-induced illness: Democratic Party governors across the country have demanded major wage and benefit concessions from public employees. And while the Democrats blame the Republicans for being “anti-union,” the concessions demanded by the Democrats drastically weaken unions to the point that Republicans can finish them off....

Why is President Obama hell-bent on lowering wages for the U.S. workers? He was very clear about this in his acceptance speech, with his repeated reference to increasing U.S. exports for the world market. The rub, however, is that China, India, and other low wage countries also compete on this same world market, and the workers in those countries make horribly low wages. But in the last four years the U.S. corporations that aim to compete with these low wage nations have made spectacular “progress” in driving down the wages of their workers. Thus Obama can brag about his “achievement” of increasing U.S. exports.

Democrats and Republicans agree that no national jobs program should be implemented, that unions should be weakened or destroyed, that the public sector should be slashed and its workers’ wages cut. Both parties want U.S. corporations to compete better on the world market, requiring that U.S. workers make lower and lower wages. This is the fundamental economic issue being ignored in the mainstream media.

Monday, September 10, 2012

Today's links

1--Iraq Carnage: 107 Killed, 484 Wounded As VP Condemned to Death,

2--The Canadian Housing Bubble Nears Implosion, ETF Daily News

3--Weak China trade data raises Beijing spending stakes, Reuters

Weak Chinese trade data on Monday underlined the likelihood of more Beijing-backed spending to deal with the damage done to the domestic economy by firms cutting production, inventories and imports in the face of anemic global demand.

Imports fell 2.6 percent on the year in August, confounding expectations of a 3.5 percent rise. Exports grew 2.7 percent, below forecasts for a 3 percent rise in a Reuters poll.

Such weak data is grim news in a country where exports generate 25 percent of gross domestic product, support an estimated 200 million jobs and where analysts already expect the economy to have its weakest year of expansion since 1999.

4--The UK economy is in a "double dip" recession, with the longest recovery in recent history - and still nowhere close to the pre-recession GDP, Sober look

Worse than the Great Depression

5--The Tag-Along Market, Businessweek
Five years after the last market high, the remarkable recovery in markets still feels nervous, and a little synthesized.

6--Hungary Throws Out Monsanto AND The IMF, Automatic Earth

Hungary Destroys All Monsanto GMO Maize Fields

In an effort to rid the country of Monsanto's GMO products, Hungary has stepped up the pace. This looks like its going to be another slap in the face for Monsanto. A new regulation was introduced this March which stipulates that seeds are supposed to be checked for GMO before they are introduced to the market. Unfortunately, some GMO seeds made it to the farmers without them knowing it.

Almost 1000 acres of maize found to have been grown with genetically modified seeds have been destroyed throughout Hungary deputy state secretary of the Ministry of Rural Development Lajos Bognar said. The GMO maize has been ploughed under, said Lajos Bognar, but pollen has not spread from the maize, he added.

Unlike several EU members, GMO seeds are banned in Hungary. The checks will continue despite the fact that seed traders are obliged to make sure that their products are GMO free, Bognar said. During their investigation, controllers have found Pioneer and Monsanto products among the seeds planted

7--Troika demands lower wages, pensions, and regulations in secret memo to Greece, Yanis Varoufakis

8--It’s the (German) banks, stupid!, yanis varoufakis

Lest I be misunderstood, the Greek crisis, however monstrous by Greek standards, is in itself no more than an annoyance for Europe’s surplus countries. A gross sum of €200 to €300 billion could be restructured quite easily or at least dealt with somehow....

So, what is the Great Banking Conundrum that Europe is now facing? Put bluntly, Germany’s banks have not been cleansed of much of the worthless toxic paper of the pre-2008 era and, on top of that, are replete with bonds issued by the now insolvent peripheral member-states. French banks are in a similar state, with even more of an exposure to Spanish debt. Spanish banks are fibbing about the extent of their potential losses from falling real estate prices (which need to be added to their exposure to Portuguese and Spanish sovereign debt). Meanwhile, the ECB-system is massively exposed to the totality of this combination of stressed sovereign debt and unrelenting bank losses (actual and potential).

9--A Poor Argument for Poverty, economists view

After the tax and transfer system kicks in, however, the US has the highest poverty rate of all the countries in the sample

10--Labor participation for men in the US hit the lowest level on record; decline among younger men is particularly sharp, sober look

11--The Fed Is Expected to Launch QE3 Next Week ... Which Would Help the Rich and Hurt the Little Guy, zero hedge

12--Debt Collectors Cashing In on Student Loans, NYT

13--Cheerleading Wa Post wrong about NAFTA, CEPR

In reality Mexico had the slowest growing economy in Latin America over the last decade, but what do you expect, it's the Washington Post.

14--More scary stories from the WA Post, CEPR

Today Fred Hiatt celebrates Rhode Island's Treasurer Gina Raimondo, who cut public employee pensions while partially replacing them with 401(k) accounts that should mean millions of dollars in additional revenue for the financial industry. This is the sort of upward redistribution that the Post loves.

In the course of praising Raimondo, the Post throws in a few lines about the need to cut Social Security, trying to scare readers with talk of the program's $7 trillion deficit over its 75-year planning horizon. Are you scared, are you really scared?

Serious newspapers would put this measure in a context that readers could understand. They presumably know that none of their readers has any clue what $7 trillion means over the next 75 years means. On the other hand, the Post could have said the projected shortfall was equal to 0.5 percent of GDP, but hey, that probably doesn't sound scary enough.

15--Vital Signs Chart: More Auto Loans Going to Subprime Borrowers, WSJ

More car loans are going to risky borrowers. Nearly 12% of new auto loans went to subprime borrowers — those with credit scores below 620 — in the second quarter, the most since the market for risky loans dried up in 2008. Somewhat safer “outside of prime” loans — those to borrowers with scores below 680 — rose to 25.4% in the second quarter, up from under 17% in 2009.

16--Are things looking up?, prag cap

17--Debt-to-income ratios must be limited to prevent future housing bubbles, OC Housing

Areas which experienced the largest run-ups in household leverage tended to experience the most severe recessions as measured by the subsequent fall in durables consumption or the subsequent rise in the unemployment rate (Mian and Sufi 2010)....

Overall, the data suggests the presence of a self-reinforcing feedback loop in which an influx of new homebuyers with access to easy mortgage credit helped fuel an excessive run-up in house prices. The run-up, in turn, encouraged lenders to ease credit further on the assumption that house prices would continue to rise. Recession severity in a given area appears to reflect the degree to which prior growth in that area was driven by an unsustainable borrowing trend–one which came to an abrupt halt once house prices stopped rising (Mian and Sufi 2012).

I am quite relieved to see the federal reserve finally gets this. Their verbose explanation is a fancy way of saying lenders were running a Ponzi scheme.