Sunday, September 2, 2012

Today's links

1--The scam of the century: Fannie unloads distressed homes to speculators at severe discount and provides lavish funding with derivatives, Businessweek

Private-equity investors including Blackstone Group LP (BX) and GTIS Partners are buying foreclosed houses to take advantage of prices that have fallen 34 percent from their July 2006 peak...

The 2,490 properties up for auction encompassed portfolios of 775 homes in Florida, 572 in Atlanta, 484 in Southern California, 341 in Phoenix, 219 in Las Vegas and 99 in Chicago, according to an offering document by Credit Suisse Group AG (CSGN), which managed the sale. About 85 percent of the properties already are operating as rentals, according to the document...

The total estimated value of the homes was about $330 million, according to three people who viewed offering documents available only to qualified bidders. They asked not to be named because bidders signed non-disclosure agreements....

The winning bids in the Fannie Mae auction were at least 90 percent of the homes’ estimated value, said five people with knowledge of the auction, who asked not to be named because they signed confidentiality agreements. The FHFA offered bidders “synthetic financing” to reduce the up-front capital required if they agreed to form a joint venture with Fannie Mae and share proceeds from the rental or sale of properties, the people said...

About 6 million U.S. borrowers will lose their homes in the next five years because of inability to pay their mortgages, creating demand for as many as 4 million new rental households, according to Scott Simon, head of mortgage bonds at Pacific Investment Management Co. in Newport Beach, California....

Single-family rentals are priced to deliver unlevered total returns in the range of 7.5 percent to 8 percent, or about 0.5 percentage point to 1 percentage point higher than institutional-quality apartments, according to a June 8 report by Ray Huang, senior associate at Green Street Advisors in Newport Beach, California. The uncertainty associated with the single-family asset class suggests returns for investors should be higher than the current level, he said.

2--The Finance Bomb, Rob Urie, counterpunch

3--The Soul Suckers of Endless Compromise, Tom Wright, counterpunch

4--Bernanke says the Fed can do more but…credit writedowns
5--(From the archive) Massive Debt Default, Dandelion Salad

The troubles at Bear and the danger they pose to the overall system were articulated in an article by Counterpunch editor, Alexander Cockburn in a November, 2006 article “Lame Duck: The Downside of Capitalism”:

“In a briefing paper under the chaste title, ‘Private Equity: A discussion of Risk and Regulatory Engagement’, the FSA raises the alarm.

“Excessive leverage: The amount of credit that lenders are willing to extend on private equity transactions has risen substantially. This lending may not, in some circumstances, be entirely prudent. Given current leverage levels and recent developments in the economic/credit cycle, the default of a large private equity backed company or a cluster of smaller private equity backed companies seems inevitable. This has negative implications for lenders, purchasers of the debt, orderly markets and conceivably, in extreme circumstances, financial stability and elements of the UK economy.”

Translation: It’s about to blow!

“The duration and potential impact of any credit event may be exacerbated by operational issues which make it difficult to identify who ultimately owns the economic risk associated with a leveraged buy out and how these owners will react in a crisis. These operational issues arise out of the extensive use of opaque, complex and time consuming risk transfer practices such as assignment and sub-participation, together with the increased use of credit derivatives. These credit derivatives may not be confirmed in a timely manner and the amount traded may substantially exceed the amount of the underlying assets.”(snip)

Translation: “The world’s credit system is a vast recycling bin of untraceable transactions of wildly inflated value

6--Romney=Bush, economist's view is interesting to read how thoroughly Romney has embraced Bush advisors:

Particularly striking is the degree to which Bush 43 foreign policy players have assumed leading roles in shaping policy for Romney.

Oh boy, more wars. And this is reassuring:

Cofer Black, a former top executive at the Bush-era security contractor once called Blackwater, is a top adviser to Romney on intelligence issues, shaping his views on subjects such as interrogations of terrorism suspects.

Reading that is tortuous. It's not just Romney, it's Ryan too:

And Dan Senor, who was a top official in the Coalition Provisional Authority in Iraq in the year after the invasion, is now at the right hand of vice presidential nominee Paul Ryan. Senor was also cited as one of the influential thinkers behind some of Romney’s controversial comments during his trip to Israel, when he said the innate superiority of Israeli culture is one reason the Israelis are doing better economically than the Palestinians.

So Romney and Ryan are taking Bush policies to heart, and trying to hide it from voters:

7--The Problem is Lack of Demand, economists view
8--'Changing Views of Globalization’s Impact', economists view

There is no question that over the last decade United States manufacturing has declined, taking away jobs and driving down wages for those who are still employed. Robert Atkinson and colleagues have a useful paper on this topic, showing that the loss of more than five million jobs in manufacturing in a decade was not primarily a technology and productivity story.

9--Jackson Hole Paper: Monetary Policy Redistributes Wealth, WSJ

10--The unintended consequences of QE: not what you think,

11--US consumer spending has been surprisingly brisk, sober look

12--Sentiment indicators point to a deepening recession in the Eurozone, including "core" economies, sober look

13--The Consequences of Easy Monetary Policy, investors insight

14--Britain's richest 5% gained most from quantitative easing – Bank of EnglandBank report to MPs reveals wealthiest boosted by QE and low base rate, but insists policy spared UK from even deeper slump, Guardian