Thursday, October 25, 2012

Today's links

1--The Central Fact that Folks Don’t Get about Fannie and Freddie’s Role in the Crisis, New economic perspectives

Fannie and Freddie’s managers bought enormous amounts of endemically fraudulent liar’s loans for the same reasons that the investment banks did – it maximized their bonuses...

Conservatives, of course, assume that Fannie and Freddie must have sharply increased their purchase of nonprime loans beginning around 2005 because of their “affordable housing” requirements. The investment banks, which had purchased hundreds of billions of dollars of liar’s loans and subprime paper, were never subject to the Community Reinvestment Act (CRA) or any other affordable housing goal. They purchased nonprime paper because of its yield and grotesquely inflated credit rating. Indeed, they often purchased their own collateralized debt obligation (CDO) securities because doing so was a “sure thing” that was guaranteed to maximize reported (albeit fictional) near-term income and the officers’ bonuses. The investment banks’ controlling officers became wealthy by causing “their” investment banks to purchase massive amounts of nonprime paper without any affordable housing goals – so it should be no surprise that Fannie and Freddie’s controlling officers eventually mimicked their fraud strategy....

The other point is that the reason that liar’s loans proliferated was to allow the lenders to pretend that the borrower had sufficient income to repay the loan by inflating the borrower’s reported income. The famous mortgage industry study [PDF version] of liar’s loans found that 90% of the loan packages inflated the borrowers by at least 5% and that 60% of the loan packages inflated the borrower’s income by more than 50 percent.

2--Work sharing in Germany lowers unemployment, CEPR

In spite of having comparable growth, the unemployment rate in Germany is more than 2 full percentage points below its pre-recession level. By contrast, the unemployment rate in the United States is 3.3 percentage points above its pre-recession level. The difference is that Germany encourages employers to reduce workers' hours rather than lay them off. The result is that many workers are putting in fewer hours, but still have jobs in Germany. The government makes up for most of the lost pay with money that would otherwise have gone to unemployment benefits.
While close to half of the states have work sharing programs as part of their unemployment insurance program, the take-up rate is very low. The Obama administration has attempted to increase take-up by having the federal government pick up the cost for the next two years. (This measure was attached to the bill that extended the payroll tax cut.) However, because most state budgets are so flush, there has been little interest in getting this money from the federal government.

3--Shadow inventory is growing, OC Housing News

September delinquencies skyrocket 7.72%, foreclosure filings decline 20.4%, shadow inventory grows

4--Obama institutionalizes state assassinations, WSWS

The Obama administration has created a new extra-legal system known as the “disposition matrix” to institutionalize the selection and targeting of enemies of the US state for assassination, according to an article published Wednesday in the Washington Post.

The Post reports that the system is “designed to go beyond existing kill lists,” creating a centralized data base that contains “the names of terrorism suspects arrayed against an accounting of the resources being marshaled to track them down, including sealed indictments and clandestine operations.”

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