Thursday, November 15, 2012

Today's links

1--Weekly Initial Unemployment Claims increased sharply to 439,000, calculated risk

The DOL reports:
In the week ending November 10, the advance figure for seasonally adjusted initial claims was 439,000, an increase of 78,000 from the previous week's revised figure of 361,000. The 4-week moving average was 383,750, an increase of 11,750 from the previous week's revised average of 372,000.
The previous week was revised up from 355,000.
 
2--FHA Nears Need for Taxpayer Funds, WSJ
 
The Federal Housing Administration is expected to report this week it could exhaust its reserves because of rising mortgage delinquencies, according to people familiar with the agency's finances, a development that could result in the agency needing to draw on taxpayer funding for the first time in its 78-year history.
 
Such a report would likely set off a political fight over the government's role in housing, as it raises the prospect of billions of dollars being added to the U.S. government's effort to stabilize the hard-hit sector in the aftermath of the 2008 financial crisis, which already includes $137 billion spent to bail out Fannie MaeFNMA +3.00% and Freddie MacFMCC +4.10% . Together with Fannie and Freddie, federal agencies are backing nearly nine in 10 new mortgages.

The New Deal-era FHA, which doesn't actually make loans but instead insures lenders against losses, has played a critical role helping the housing market by backing mortgages of borrowers who make down payments of as little as 3.5%—loans that most private lenders won't originate without a government guarantee. The FHA accounted for one third of loans used to purchase homes last year among owner occupants
.
Though the agency guarantees fewer mortgages than either Fannie or Freddie, it now has more seriously delinquent loans than either of the mortgage-finance giants. Overall, the FHA insured nearly 739,000 loans that were 90 days or more past due or in foreclosure at the end of September, an increase of more than 100,000 loans from a year ago. That represents about 9.6% of its $1.08 trillion in mortgages guaranteed....

In each of the last three years, Obama administration officials have shot down the idea that the agency would draw on the Treasury, except under the most dire home-price forecasts. As recently as this past February, when the White House's budget forecasts showed that the FHA was in the red by nearly $700 million, officials said pending legal settlements with large banks would plug that hole....

Most of the agency's losses now stem from loans made as the housing bust deepened. About 25% of mortgages guaranteed in 2007 and 2008 are seriously delinquent, compared with about 5% in 2010.
Throughout the downturn, the FHA has struggled with calibrating the balance between protecting taxpayers and providing credit. Economists have argued that constricting the agency's role amid the housing crisis would only have exacerbated losses across the board.

"We would be talking about Great Depression II instead of the Great Recession," said John Burns, who runs a homebuilding consulting firm in Irvine, Calif.

"They stepped in at a time when the other instruments of policy weren't available. You couldn't lower interest rates enough to get people to obtain private mortgages," said Douglas Holtz-Eakin, president of the American Action Forum, a conservative economic think tank, and a former director of the Congressional Budget Office...

The FHA has ratcheted up insurance premiums repeatedly in recent years to offset rising losses.
But officials have resisted other steps that could have shut borrowers out of the market. HUD, for example, hasn't implemented a regulation that it proposed 2½ years ago to limit the amount of cash that sellers could contribute for borrowers closing costs, which would have limited borrowers' debt levels

3--PR at its Worst: IEA Spins Oil Stats to Make US Top 'Oil' Producer, oil price

4--Mortgage rates hit new all-time low, Housingwire

Mortgage rates continued to decline last week with the 30-year, fixed-rate mortgage hitting a new all-time low of 3.34%. That is down from 3.40% a week earlier and a drop from 4% last year, according to the latest Freddie Mac Primary Mortgage Market Survey.

Rates fell again to record lows as consumer confidence picked up and wholesale prices declined, the government-sponsored enterprise said.
The 15-year, FRM hit 2.65%,

5--Eurozone slips back into recession, CNN

6--Deepening economic crisis in Japan, WSWS

Little more than 20 years ago, Japan was being held out as the new economic model destined to become the wave of the future for global capitalism. Today, it faces a mounting economic crisis, providing a stunning refutation of the claim that China or other so-called “emerging markets” can form the basis for a stabilisation of the world economy.

This week it was announced that its economy, the third largest in the world after China and the US, had contracted at an annual rate of 3.5 percent. It now faces the prospect of entering a recession—defined as two consecutive quarters of negative growth—for the fifth time in the past 15 years

In August and September, eight of Japan’s nine export categories showed a year-on-year fall. Business investment also fell by 3.2 percent for the quarter, the sharpest fall since the 5.5 percent decline in April-June 2009.

The economic contraction is most marked in the country’s major corporations, whose iconic brands once enjoyed a dominant global position. The electronics goods manufacturer Sharp issued a statement earlier this month that there was “material doubt” that it would be able to stay in business after suffering a second year of record losses. The company has been forced to mortgage its headquarters building and is selling overseas factories, as well as cutting wages and jobs for the first time since 1950.

7---The FHA is giving loans to Ponzis to reenter the housing market, oc housing news

FHA gives those who defaulted on homes another chance
The FHA is a major source of cash for so-called rebound buyers, but the bankrolling of borrowers who contributed to the last housing bubble is raising concerns.
8-Spain Will be Forced to Choose, Michael Petis, Mish
In the great debate over the economy we sometimes forget the simple arithmetic of economic rebalancing. This arithmetic, like it or not, severely limits the options open to Spain.

t is easy and popular to blame the greed of the Spanish and the stupidity of the government for the mess in which Spain has found itself, but the policies Germany put into place in the late 1990s guaranteed that Germany, a country that had run massive trade deficits in the 1990s, would run equally massive trade surpluses in the subsequent decade.

Because once they joined the euro the rest of Europe had no control over the value of their currencies and the level of their interest rates. It was inevitable that European countries that had joined the euro with a higher-than-average level of inflation would be forced to respond to German trade surpluses either by forcing up unemployment or by running the large trade deficits that corresponded to Germany’s trade surplus. No other choice was possible.

These deficits, as a matter of economic necessity, had to be financed with loans from Germany, leaving Spain with an enormous debt burden. Just as Spain could not run a trade deficit without borrowing from abroad, Spain can only repay its debt if it runs a trade surplus. What is more, since rich Spaniards are taking enormous amounts of money out of the country in order to protect themselves from the debt crisis they know is coming, the Spanish trade surplus must be large enough to accommodate both flight capital and debt repayments.

In practice there are only three ways Spain can achieve a sufficiently large trade surplus. The first way requires that Berlin reverse those policies that forced a German trade surplus at the expense of its European neighbors. Berlin must cut taxes and increase spending so much that Germany runs a trade deficit large enough to allow Spain to run the opposite surplus, which it must do if it hopes to repay the debt.

If Germany does not move quickly to reverse its trade surplus, Spain only has two other ways of creating a trade surplus in spite of German recalcitrance. One way requires that Spanish wages are forced down by many years of high unemployment. This will allow Spain to run a sufficiently large trade surplus.

Spain’s second option is to leave the euro and devalue. This will immediately force down prices and wages relative to Germany.

Neither option will be easy, but it is important that we realize that if Germany doesn’t adjust, Madrid has no choice but to pick one or the other. Both options will cause debt to soar in real terms, and will probably force Spanish businesses, and even the government into default. But in both cases Spain will begin running large trade surpluses.

As much as leaders in Madrid, Brussels, and Berlin hate to admit it, these are the only three options open to Spain. Any policy proposed by policymakers that is not consistent with one of these three ways will be impossible to achieve
 
9--Preserve Benefits (but) Cut Gouging and Inequities, Ralph Nader, counterpunch

As economist Dean Baker has written, we don’t need to cut Social Security benefits (already solid for the next 25 years) whether in money or later age eligibility.

Congress could also simply raise the social security tax on incomes above $115,000, increase the minimum wage, inflation adjusted, to that of 1968! And adopt other long-overdue improvements such as disability enforcement efficiencies. The initiatives will move the trust fund to sustainability for the next 75 years.

The deep bias of public dialogue here, whether in such reborn deficit-reduction commissions as Simpson-Bowles or in the general media is revealed in the use of the word “entitlements.” It is only used to apply to Medicare, Medicaid and Social Security, which involve recycling peoples’ tax dollars. It is not used to describe the massive corporate entitlements shoveled out daily to business welfarists in the form of subsidies, bailouts, giveaways, tax loopholes, debt revocations, loan guarantees, discounted insurance and other aid to dependent corporations. Why? Power produces privileges.

When 30 large companies, such as Verizon and General Electric, make a total of $160 billion in U.S. profits from 2008-2010 according to the Citizens for Tax Justice and pay NO federal income taxes there is a substantial loss of revenue to the U.S. Treasury. Two thirds of corporations pay no income tax on their profits under the Swiss cheese tax code.
 

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