Monday, December 31, 2012

Today's links

1---Should Japan "reflate"? , Noahpinion

2---2012: the year housing market manipulations paid off, oc housing

It looks like the bottom-callers of 2012 were right. Continued interference in the mortgage market by the federal reserve lowered mortgage interest rates to record low levels. Plus, changes in policy at the major banks held back the tide of foreclosures and greatly restricted the MLS inventory. Demand was up slightly, mostly due to investors as owner-occupants remained absent from the market. First-time homebuyer participation fell to very low levels. The small uptick in demand, fueled by record low interest rates, and the dramatic decline in for-sale inventories caused prices to bottom in 2012. It isn’t how the bottom callers thought it would happen (most predicted a surge in demand), but being right for the wrong reasons is good enough. It certainly beats being wrong for the right reasons like the bears were.

3---Now even top officials in the Kabul government vow to kill Americans, NY Post

The US military seems to be in denial about the breadth and scope of theinternal threats it faces in Afghanistan. While on the one hand it warns that the “major problem confronting the Soviets was the unreliability of the Afghan army,” it nonetheless appears Polyannish about its own prospects for partnering with the Afghan army. “U.S. forces can gain keen insights and lessons from the Soviet 10-year occupation of Afghanistan,” the Army handbook asserts. The same document goes on to claim that “in contrast” to the Soviet experience, “the United States and CF (coalition forces) have achieved great success in training and partnering with our ANSF (Afghan National Security Forces) counterparts.”

4---Did an invisible run on banks kill the economy?, Boston Globe

The problem behind the financial crisis was not what we think, says Gary Gorton. ...

Gorton is a scholar of financial crashes, and he doesn’t see the most recent meltdown or the one that kicked off the Great Depression as anomalies. Instead, he views the seven crash-free decades between the two as a rare period in which bank regulations were adequate to prevent catastrophic bank runs. And because no new rules have emerged to address the new kind of run that triggered the recent crisis, he says, we could be in for a repeat every few years.

5---Monti to lead coalition in Italian election, wsws

This will continue in 2013, even without new cuts. Istat writes: “Private consumption is expected to fall, reflecting a decline in households’ purchasing power and rising unemployment. In 2013, GDP growth is expected to decrease by 0.5 percent. Exports will be the main support of GDP growth… The contribution of domestic demand to output growth is estimated to be negative.”

Despite the disastrous economic impact of Monti’s policies, he retains the support of finance capital. He has re-directed massive quantities of cash to Italy’s creditors, and his savage cuts have cut labor costs sufficiently to boost Italy’s competitiveness and export revenues. Since Monti replaced Berlusconi as premier last year, the banks have signaled their approval by lowering the interest rate they charge on Italian state borrowing from 7.56 percent to 4.48 percent.

Monti’s comment that the “right-left axis” no longer applies to Italian politics reflects the sharp rightward turn of the entire Italian political establishment and points to the crisis of leadership in the working class. A former advisor to the Wall Street bank Goldman Sachs, Monti has a support base extending from the PD, which emerged from the Stalinist Italian Communist Party after the collapse of the USSR, to far-right “post-fascist” politician Gianfranco Fini. No party speaks for the deep opposition to EU austerity policies in the working class.

6---Dismal holiday sales belie talk of US “recovery”, wsws

US retail sales over the holiday shopping period grew at the slowest pace since the depths of the 2008 recession, according to a report released Tuesday by MasterCard Inc.’s SpendingPulse unit.

SpendingPulse tracks all retail sales in the form of credit card payments, cash and checks, excluding only restaurants and sales of autos, groceries and gasoline. It reported that over the eight-week period from October 28 through December 24, retail sales rose only 0.7 percent from the year before.

Amid a frenzied campaign in the media to spur consumer spending and various ploys by retailers, including beginning “Black Friday” super sales on Thanksgiving Day instead of the early morning hours of the following day, most retail analysts had predicted holiday sales would rise 3 to 4 percent. The general presentation was that a steadily improving economy would encourage consumers to spend more freely this season than in the past. But according to the MasterCard unit, sales grew by less than half the 2 percent rise in 2011.

Another firm that tracks retail sales, Customer Growth Partners, said 2012 looked to be the worst holiday shopping season since 2009. The firm’s president, Craig Johnson, said sales rose roughly 2.8 percent as compared to a 5.8 percent spurt in 2011. Customer Growth Partners bases its estimates on government data, information from retailers, and other sources.

7---A history of home values, NYT graph

8---The disappearing housing inventory – US housing inventory down over 50 percent from 2008. 5 million Americans not paying their mortgage or are in the foreclosure process., Dr Housing Bubble

Supply and demand. A basic fundamental point of any course in introductory economics. With housing most people go with what they see. Distressed inventory is a silent issue because you really do not know how deep problems are in a certain area unlike a home that is listed for sale with a big red sign in the front lawn. Yet we know that over 10,000,000+ Americans are currently underwater on their mortgages and another 5,000,000+ have stopped paying their mortgage or are currently in the foreclosure process. What people see however, is prices going up, available inventory going down, and their ability to buy more house expand courtesy of mortgage rates. Today I want to focus on the inventory side of the equation because it has fallen dramatically in the last few years and is causing bidding wars in certain metro areas....

This chart probably would surprise most that overall existing home sales are back to levels last seen in 2006 or at a similar rate to what we had in 1999. The population is much larger since that time and back in 1999 the 30 year fixed mortgage rate was closer to 8 percent. What we are really seeing more than anything is the lack of supply on the market plus massively artificial interest rates. Is this healthy? The bulk of people only see two things when they look at the housing market:
-1. What is my monthly payment
-2. What homes are available for sale
The mania that is unfolding right now has nothing to do with underlying solid economic fundamentals.

9---Oliver Stone: ‘US has become an Orwellian state’, RT

Sunday, December 30, 2012

Today's links

1---Stephen Roach On Why Abe's Aggression Won't Save Japan, zero hedge

The sad case of the American consumer is a classic example of how this plays out. In the years leading up to the crisis, two bubbles – property and credit – fueled a record-high personal-consumption binge. When the bubbles burst, households understandably became fixated on balance-sheet repair – namely, paying down debt and rebuilding personal savings, rather than resuming excessive spending habits.

Indeed, notwithstanding an unprecedented post-crisis tripling of Fed assets to roughly $3 trillion – probably on their way to $4 trillion over the next year – US consumers have pulled back as never before. In the 19 quarters since the start of 2008, annualized growth of inflation-adjusted consumer spending has averaged just 0.7% – almost three percentage points below the 3.6% trend increases recorded in the 11 years ending in 2006.

Nor does the ECB have reason to be gratified with its strain of quantitative easing. Despite a doubling of its balance sheet, to a little more than €3 trillion ($4 trillion), Europe has slipped back into recession for the second time in four years.

Not only is QE’s ability to jumpstart crisis-torn, balance-sheet-constrained economies limited; it also runs the important risk of blurring the distinction between monetary and fiscal policy. Central banks that buy sovereign debt issued by fiscal authorities offset market-imposed discipline on borrowing costs, effectively subsidizing public-sector profligacy....

Unfortunately, it appears that Japan has forgotten many of its own lessons – especially the BOJ’s disappointing experience with zero interest rates and QE in the early 2000’s. But it has also lost sight of the 1990’s – the first of its so-called lost decades – when the authorities did all they could to prolong the life of insolvent banks and many nonfinancial corporations. Zombie-like companies were kept on artificial life-support in the false hope that time alone would revive them. It was not until late in the decade, when the banking sector was reorganized and corporate restructuring was encouraged, that Japan made progress on the long, arduous road of balance-sheet repair and structural transformation.

US authorities have succumbed to the same Japanese-like temptations. From quantitative easing to record-high federal budget deficits to unprecedented bailouts, they have done everything in their power to mask the pain of balance-sheet repair and structural adjustment. As a result, America has created its own generation of zombies – in this case, zombie consumers.

Like Japan, America’s post-bubble healing has been limited – even in the face of the Fed’s outsize liquidity injections. Household debt stood at 112% of income in the third quarter of 2012 – down from record highs in 2006, but still nearly 40 percentage points above the 75% norm of the last three decades of the twentieth century. Similarly, the personal-saving rate, at just 3.5% in the four months ending in November 2012, was less than half the 7.9% average of 1970-99...

Massive liquidity injections carried out by the world’s major central banks – the Fed, the ECB, and the BOJ – are neither achieving traction in their respective real economies, nor facilitating balance-sheet repair and structural change. That leaves a huge sum of excess liquidity sloshing around in global asset markets. Where it goes, the next crisis is inevitably doomed to follow.

2---Real prices, and the price-to-rent ratio, are back to late 1999 to 2000 levels depending on the index, calculated risk

Case-Shiller reported the fifth consecutive year-over-year (YoY) gain in their house price indexes since 2010 - and the increase back in 2010 was related to the housing tax credit. Excluding the tax credit, the previous YoY increase was back in 2006. The YoY increase in October suggests that house prices probably bottomed earlier this year (the YoY change lags the turning point for prices).

3--Housing recovery?, investor place-

Housing sales aren’t being fueled by average folks looking to buy a home. Just 61% of buyers are purchasing primary residences, the lowest number since 2005 and down from 70% in 2008. Meanwhile, speculators accounted for 27% of housing sales. They’re buying homes to rehab and subsequently flip or rent

4---Mortgage Recovery Still Rocky, CNBC

Up to now the housing recovery had been fuelled by investors buying up thousands of distressed properties, the bulk of them in western states like Arizona, Nevada and California. This helped shrink supplies in those states and boost prices by double digits. While it may seem like the distress is quickly flying out of the market, that may not be the case just yet.

5---Banks Deeply Involved in FBI-Coordinated Suppression of “Terrorist” Occupy Wall Street, naked capitalism

If you had any doubts of the veracity of former IMF chief economist Simon Johnson’s depiction of the financial crisis as a “quiet coup,” a pre-Christmas release of FBI documents should put them to rest. While I linked to a discussion of the results of the Partnership for Civil Justice’s FOIA of FBI materials on Occupy Wall Street, I was remiss in not writing them up earlier. Both the Partnership for Civil Justice and Naomi Wolf at the Guardian (hat tip Scott A) provide good overviews. The PCJ also published the FBI documents it obtained.
If you’ve been following the story of the official response to Occupy Wall Street, it was apparent that the 17 city paramilitary crackdown was coordinated; it came out later that the Department of Homeland Security was the nexus of that operation. The deep FBI involvement is a new and ugly addition to this picture. Several impressions emerge from reading the summaries and dipping into the FBI documents:
The FBI deemed OWS to be a terrorist organization and went into “guilty until proven innocent” mode. Many of the FBI descriptions of possible OWS actions or those of affiliated organizations like Adbusters consistently look to have taken the most inflammatory snippets and presented them out of context.
The FBI also seems to believe that there is no such thing as peaceful protest, that any non-violent activity has the potential to turn violent and therefore should be treated as violent. One document to corporate “clients” warned:
Even seemingly peaceful rallies can spur violent activity or be met with resistance by security forces. Bystanders may be arrested or harmed by security forces using water cannons, tear gas or other measures to control crowds.
The banks were deeply involved in the effort to put down OWS. The executive director of the PCJ stated, “These documents also show these federal agencies functioning as a de facto intelligence arm of Wall Street and Corporate America.” Naomi Wolf adds:
The documents, released after long delay in the week between Christmas and New Year, show a nationwide meta-plot unfolding in city after city in an Orwellian world: six American universities are sites where campus police funneled information about students involved with OWS to the FBI, with the administrations’ knowledge (p51); banks sat down with FBI officials to pool information about OWS protesters harvested by private security; plans to crush Occupy events, planned for a month down the road, were made by the FBI – and offered to the representatives of the same organizations that the protests would target; and even threats of the assassination of OWS leaders by sniper fire – by whom? Where? – now remain redacted and undisclosed to those American citizens in danger, contrary to standard FBI practice to inform the person concerned when there is a threat against a political leader (p61)...
The rationale for this overkill was that OWS was a terrorist threat. That’s a striking contrast with the media depiction of the movement when it was in its encampment phase as a bunch of directionless hippies with no message. But the FBI response highlights how anything other than corporate or otherwise officially sanctioned assembly is no longer permitted in America

6---With all the Fed activity, there has been no QE in 2012, sober look
By definition, any policy of "quantitative easing" involves the expansion of bank reserves (by outright purchases of securities) and ultimately the monetary base. Neither has been expanded by the Fed in 2012.
7--On the Economics and Politics of Deficits, NYT
Evan Soltas of Wonkblog and Joe Weisenthal of Business Insider both make the same point, in more detail, that I tried to make in my series on ONE TRILLION DOLLARS: the current budget deficit is overwhelmingly the result of the depressed economy, and it’s not clear that we have a structural budget problem at all, let alone the fundamental mismatch between what we want and what we’re willing to pay for that people like to claim exists

8---Abuses Of Power Always – Always – Expand Beyond Their Original Application, Big Picture

9---New-Home Sales Rise to Highest Level in Two Years, WSJ

10---Spending by the federal government is boosting the country’s economic growth, WSJ

. U.S. government expenditures and investment rose at a 9.5% seasonally adjusted annual rate during the third quarter, following a year of declines. However, cuts in federal spending that are slated to kick in if the U.S. goes over the “fiscal cliff” could weigh on overall economic growth.

11---Consumer Sentiment Hits Lowest Level Since July, WSJ

12---The Dahiya doctrine is a military strategy in which the Israeli army deliberately targets civilian infrastructure as a means of inducing suffering on the civilian population, counterpunch

The Dahiya doctrine is a military strategy in which the Israeli army deliberately targets civilian infrastructure as a means of inducing suffering on the civilian population, making it so difficult to survive that fighting back or resisting occupation are no longer practical, thereby establishing deterrence. The doctrine is named after a southern suburb in Beirut with large apartment blocks. Israeli bombs flattened the entire neighborhood during the 2006 Lebanon War. But this doctrine is not a modern strategy for controlling populations. Nor is putting the people of Gaza on a “diet” new- subjugating an entire population through a combination of poverty, malnutrition, a struggle over limited resources, and violence is the American way, adopted by our closest allies, (and “the only democracy in the Middle East,” with the “most moral army in the world,”) the Israelis.

Dec 27th marks the 4th anniversary of the beginning of Operation Cast Lead, (the name derives from a popular Hannukah children’s song about a dreidel made from cast lead.) During this attack on Gaza, 1,417 people were killed (330 children), 4336 were wounded. 6,400 homes were destroyed. Hospitals, mosques, the power plant, and the sewage system were deliberately targeted.
Israel accuses Hamas of war crimes for shooting rockets without guidance systems indiscriminately into Israel. Israeli officials claim that “Hamas hides behind civilians” as a justification to bomb civilian population centers and infrastructure. Killing civilians in Gaza using precision munitions, is a war crime, no matter who is hiding behind them.

13---Robert Shiller: "Housing long term outloof still "fuzzy", bloomberg video

14---Canada’s housing crash begins, canadian business

In just one year, Vancouver house prices have dropped by 12%, and unit sales are plummeting in both Vancouver and Toronto. Here’s how the meltdown will play out this fall.

15---Charting the state of the U.S. economy, EPI's top charts
16---The soft landing, greater fool
17---ANALYST: Canadian Home Prices Will Plunge 25% From Here, Bus Insider
18---Losing faith in stocks, AP
19---Canada's dirty little sub prime loan secret threatens to sink housing market, peoples world
20---Savings Deposits Soar By Most Since Lehman And First Debt Ceiling Crisis, zero hedge
21---Corporate profits vs labor share of income, Atlantic
22---Top 2012 housing stories, from crash warnings to rent vs. buy, financial post
Consumers must be getting tired of hearing the experts cry wolf about rising interest rates and a housing crash.
Rates haven’t moved much if at all for most terms, if anything they’ve fallen and stayed put. Mortgages still hover around 3% for anyone willing to lock in for five years and consumers have been doing that more than ever — some even opting for a 10-year commitment.
As for the crash, is it happening? Sales have dropped sharply in some markets, Vancouver notably. But prices have remained relatively firm with the 25% drop predicted by many still not materializing. But even the real estate industry says price gains will be limited.

Thursday, December 27, 2012

Today's links

1---Tokyo Almost As Irradiated As Fukushima, washington's blog

 We’ve documented the spread of radiation from Fukushima to Tokyo for a year and a half. See this, this, this, this, this and this.
Unfortunately, as the following recent headlines from Ene News show, things are only getting worse:
  • Tokyo getting 5 times more radioactive fallout than prefectures closer to Fukushima
And we’ve previously noted that the radiation will spread worldwide (by water and air). For example:
A new study says that the West Coast will get slammed with radioactive cesium starting in 2015

2---The inner workings of house prices and housing markets (redux), oc housing

3---Mortgage Recovery Still Rocky, CNBC

Up to now the housing recovery had been fuelled by investors buying up thousands of distressed properties, the bulk of them in western states like Arizona, Nevada and California. This helped shrink supplies in those states and boost prices by double digits. While it may seem like the distress is quickly flying out of the market, that may not be the case just yet.

The percentage of mortgages 30 to 59 days past due rose just over 10 percent in the third quarter of this year from the previous quarter and is now up 3.6 percent from a year ago, according to a new report from the Office of the Comptroller of the Currency (OCC).
Seriously delinquent mortgages, defined as 60 or more days past due, remained unchanged from the previous quarter and are down nearly 11 percent from a year ago.

4---The echo housing bubble across the United States – Rising home prices in the face of stagnant household incomes. How the Fed is manipulating the monthly payment to keep home prices inflated., Dr Housing Bubble

I’ve gotten countless e-mails from people being outbid for homes that they would like to purchase to live in and start a family because a flipper or a big Wall Street fund is seeking a better yield got their first. This is a modern problem in our housing market. Remember Paulson on his knees begging Congress for the banking bailouts to help the working and middle class? So much for that because many of these same banks are offloading properties to other financial institutions so they can jack prices up and rent them out or flip them to Americans that actually bailed out the financial sector in the first place. Higher home prices do very little good if incomes are not rising. That was lesson number one from the first housing bubble.

5---MBS investors’ trade group moves to counter adverse put-back rulings, Reuters

6---It is time to once again start talking about this chart as for the first time ever the difference between deposits and loans has hit a record $2 trillion! zero hedge

...But that's just the beginning - the rabbit hole goes so much deeper...
Recall that as we have been describing for the past 3 years, a primary driver of "growth" in the US market, if not economy, has been the ability to transform asset and liability exposure off the books using various shadow conduits. The primary such conduit is and has always been repo funding (and various other forms of limited and/or unlimited rehypothecation made so popular after the collapse of MF Global). What repo does is it allows banks to exchange their holdings of Security X (in this case trasury) in exchange for nearly par cash courtesy of some custodian bank - and when it comes to the US non tri-party repo market there are only two: State Street and Bank of New York.

The biggest benefit of Repo financing is that the bank can still hold the original pledged security on its books for Fed "supervision" purposes, even as it obtains fungible cash equivalents via repo, cash which it can then use for whatever downstream purposes it desires such as purchasing stocks. This is where it gets confusing, and certainly confused our friends at Bloomberg who arrived at the wrong conclusion in their analysis.

A good summary of what really happens under the hood when account for repo comes from Citi's brilliant head of credit, Matt King, and his legendary note from September 5, 2008 "Are The Brokers Broken?" (which should be required reading for everyone), where he described the scheme as follows:

Paragraph 15 of the accounting rule FAS 140 stipulates that the amount referred to on the balance sheet statement need only be “collateral pledged to counterparties which can be repledged to other counterparties”. A further portion of the financial instruments owned – which is in many cases substantial – is reported in the 10-Q footnotes of “collateral pledged to counterparties which cannot be repledged”. An example might be tri-party repo, where until recently some custodians could not cope with the administrative complications of rerepoing received collateral. Although the assets themselves have always featured on the balance sheet, the fact that this non-repledgeable portion too is funded on repo is less widely appreciated. The combined volume – once it is arrived at – comes close to 50% of all financial instruments owned.
And this is where everyone loses the plotline, because the reality is that virtually half the balance sheet of US brokers can be repoed back to custodians, in the process leading to double, triple, and x-ple counting a single asset serving as deliverable collateral, and using and reusing (if need be), the cash proceeds, net of a token haircut (or no haircut in the case of English rehypotecation transactions), every single time purchasing riskier assets to generate a return on a return on a return of the original investment. In short: the magic of off-balance sheet accounting which allows brokers to abuse their already TBTF status and lever any underlying asset to the helt and beyond.

Think of Shadow Banking as your own in house synthetic structured product, allowing virtually unlimited leverage.

7---The Most Overlooked Statistic in Economics Is Poised for an Epic Comeback: Household Formation, Atlantic

Housing probably isn't going to snap back to its pre-bubble peak in the next year. But even normal growth in residential investment would be huge. If residential investment simply returns to its long-term average (going back to the 1990s), "it would add 1.7 percentage points to overall growth in the coming year," Neil Irwin reported for the Washington Post, which would put overall growth in the coming year at about 3.2% -- almost twice as strong as economic growth in 2011, the year that supplies most of these graphs' data.
Housing is the key. And it all starts with formation.

8---US investors exiting equity mutual funds, sober look
2012 was another rough year for equity mutual funds business. In spite of relatively strong stock market performance, retail investors continued to pull their money out. This trend has been in place for quite some time (see discussion), but has accelerated this year. The outflows from US equity mutual funds were roughly $154bn this year.

Source: ISI Group
9---The S.E.C. at a Turning Point, NYT

10--Canada's dirty little sub prime loan secret threatens to sink housing market, peoples world

11---The Soft Landing, The Greater Fool

Across Canada resales have dipped below year-ago sales levels for eight consecutive months. New home construction has tanked, and everywhere new project financing is drying up. Mortgage broker ranks have thinned dramatically, and suddenly it seems letting residential real estate suck up a third of the national economy was, er, a bad idea. At least if you’re going to purposefully deflate it.
So what’s this?

While making a big deal of capping CMHC mortgage insurance as it nears $600 billion – theoretically putting the brakes on high-ratio, high-risk 5%-down deals – F has now thrown a new $50 billion into the marketplace, but this time to the private sector. Companies like Genworth have just received a massive 20% hike in their allowable coverage, which means the federal government will guarantee $300 billion worth of that company’s debt, up from $250 billion.

In fact so quiet was this announcement, it wasn’t announced at all. Genworth revealed F’s little Yuletide yummy in a media release that helped its stock soar last week, jumping 3% in a single day. And why not? It’s a gift. New legislation about to take effect lets Genworth provide bulk insurance coverage at the same time CMHC is being pushed out of that market. It also allows Genworth to take money previously earmarked for a guarantee fund and use it, presumably for more high-ratio lending.
Already taxpayers are on the hook for over half the $1.2 trillion in residential mortgages outstanding in Canada. It’s been this ocean of money which banks can hand out without risk – knowing any default will be covered by fed-backed insurance – which helped push prices skyward. Should the housing market stall and crash back to earth, Ottawa would suddenly have a liability the size of the entire national debt to deal with.


Wednesday, December 26, 2012

Today's links

1--Administration Planning to Use Fannie and Freddie to Provide More Stealth Stimulus, naked capitalism

From the Wall Street Journal:
Under the proposal, Fannie and Freddie would be allowed to charge higher rates to borrowers in order to compensate for the risk of guaranteeing refinanced loans that are underwater and more likely to result in default. Some economists argue that those borrowers could be relatively good credit risks because they have been paying their mortgages through the financial crisis, and that Fannie and Freddie could turn a profit on such mortgages while helping the housing market.

But industry officials say such a program would work only if banks were given immunity from having to buy back any loans they refinance that subsequently default, and that such a shield would boost the risk for the taxpayer-backed companies

2---A Conservative Case for the Welfare State, NYT

3--More on QE, Big Picture

Federal Reserve Board Chairman Ben Bernanke said Thursday that a controversial $600 billion bond buying plan has contributed to a stronger stock market. “Our policies have contributed to a stronger stock market just as they did in March 2009 when we did the first iteration of this program,” Bernanke said at a Federal Deposit Insurance Corp. forum on small businesses. “A stronger economy helps small businesses more than larger businesses. Interest rates are higher but that’s mostly because the news is better. It has responded to a stronger economy and better expectations.”...
What Will The Federal Reserve Do?
In Septmber we noted that the median expectation in a survey of primary dealers calls for $500 billion of additional purchases heavily tilted toward mortgage-backed securities. If the purpose of QE is to push stock prices higher, then the Federal Reserve has to deliver at least $500 billion in purchases. Otherwise it will disappoint risk markets.
Despite promises by the US leadership, the Guantanamo Bay detention camp is still operating.
People are kept there without trial – in shackles and chains just like in the Middle Ages,” Putin remarked and now, he continued, people “who opened secret prisons and legalized torture during investigations” point out Russia's shortcomings.
U.S. holiday retail sales this year were the weakest since 2008, when the nation was in a deep recession. In 2012, the shopping season was disrupted by bad weather and consumers’ rising uncertainty about the economy.
A report that tracks spending on popular holiday goods, the MasterCard Advisors SpendingPulse, said Tuesday that sales in the two months before Christmas increased 0.7 percent, compared with last year. Many analysts had expected holiday sales to grow 3 to 4 percent.

In the end, even steep last-minute discounts weren’t enough to get people into stores, said Marshal Cohen, chief research analyst at the market research firm NPD Inc.

“A lot of the Christmas spirit was left behind way back in Black Friday weekend,” Cohen said, referring to the traditional retail rush the day after Thanksgiving. “We had one reason after another for consumers to say, ‘I’m going to stick to my list and not go beyond it.’

6---Americans Miss $200 Billion Abandoning Stocks, Bloomberg

7---Canada's real estate on shaky ground, globe and mail

8---Everything You Need To Know About the Economy in 2012, in 34 Charts, Atlantic

9---The push and pull of Canada's housing market, globe and mail
2004 to 2007

During this period the rules governing mortgage insurance were relaxed, making it easier to get a mortgage.

• Consumers were allowed to take more money out of their homes when they refinanced; up to 95 per cent of its value, up from 85
• Zero-down insured mortgages were allowed
• Lengths on insured mortgages were extended from 25 years to 40

After the U.S. subprime crisis takes its toll, Finance Minister Jim Flaherty starts tightening the rules. On July 9, he announces that effective Oct. 15:
• the maximum length of insured mortgages is cut to 35 years
• the minimum downpayment on insured mortgages is raised to five per cent

But the collapse of Lehman Brothers in September threatens to hammer bank lending and the economy. To keep it going, Flaherty announces the Insured Mortgage Purchase Program on Oct. 10. The program sees the government, via CMHC, buy nearly $70-billion worth of mortgage pools from the banks through 2009 and early 2010, so that they can lend more.

Flaherty gets back to tightening the rules, saying that while “there’s no clear evidence of a housing bubble,” he wants to be prudent and prevent one.

On Feb. 16, he announces that effective April 19:
• cuts the maximum amount that consumers can take out when refinancing their mortgages to 90 per cent of the value of the house
• tells banks to ensure that variable rate borrowers could effectively afford a fixed rate
• toughen up the rules for obtaining mortgage insurance on speculative investment properties


Further tightening. On Jan. 17, Flaherty announces that as of March 18:
• the maximum length of insured mortgages will be cut to 30 years
• consumers will only be able to borrow up to 85 per cent of the value of their homes when refinancing.

And, effective April 18:
• the government will no longer back mortgage insurance for home equity lines of credit, which had been skyrocketing.


The tightening continues. On June 21, Flaherty announces that as of July 9:
• Ottawa will no longer back mortgage insurance on homes that cost more than $1-million
• the maximum length of insured mortgages is cut to 25 years
• consumers can only borrow up to 80 per cent of the value of their home when refinancing

Friday, December 21, 2012

Today's links

1--The Fed vs. the Fiscal Cuts: Not a Fair Fight, NYT

2--Yanis Varoufakis: Will the Real Economy Rebound, Following Wall Street’s Resuscitation? And What of Europe?, naked capitalsim

3--The real meaning of rising home prices, marketwatch

The national median sales price of existing single-family homes hit $180,600 in November, 10.1% higher than a year ago, according to data released this morning by the National Association of Realtors. It marks the ninth consecutive monthly year-over-year increase, which last occurred from 2005 to 2006. Since January median prices have risen about 17%.

But experts say that spike is largely due to the limited number of homes on the market. There were about two million existing homes available for sale at the end of November, which equates to the lowest housing supply since September 2005, according to the NAR. With fewer homes to choose from, buyers intent on purchasing a property are more inclined to offer a higher price or engage in bidding wars, housing analysts say, which ultimately drives prices up.

The problem is this limited inventory underscores a weakness in the housing market: Many sellers have resisted putting their home up for sale, out of concern that it will sell for far less than they paid for it, says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla. That’s set off a domino effect. Because they’ve held off, supply has remained limited, in turn pushing prices up. “Prices have gone up in the last year because of this temporary, artificial market,” he says....

there’s a large backlog of homes that could hit the market in the next year or so, possibly pulling down prices of nearby properties or at least slowing down the pace at which home prices are rising.

4--- The year of bank fraud, Reuters

5--After Libor, arguments against financial regulation are a joke, Reuters

6---Kyle Bass you tube (Bond market armageddon?)

7---Consumer sentiment tumbles in December, Marketwatch

U.S. consumers’ sentiment tumbled in December, according to data released Friday, with concerns about the fiscal cliff more than offsetting lower gasoline prices and higher stocks.
The University of Michigan-Thomson Reuters consumer-sentiment gauge fell to a final December reading of 72.9 — the lowest level since July — from 82.7 in November, reports said Friday.

8---Mortgage Recovery Still Rocky, CNBC

Home prices and home buyer confidence are rising in tandem, as the housing recovery appears to be gaining steam, even into the winter months.
A drop in sales of distressed properties are largely to thank for both. Just under 34 percent of homes sold in November were either foreclosures or short sales, according to a new report from Inside Mortgage Finance. That's the lowest level in three years, down from a record high of nearly 46 percent in 2011.

"Current homeowners are continuing to drive the recovery of the housing market," according to IMF's latest HousingPulse. "In November, current homeowners accounted for 46.3 percent of the total home purchase transactions tracked. This was the highest level ever recorded in the HousingPulse survey and was up from 44.8 percent a year earlier." (Read More: Housing's Repo Man Is Back)
Up to now the housing recovery had been fuelled by investors buying up thousands of distressed properties, the bulk of them in western states like Arizona, Nevada and California. This helped shrink supplies in those states and boost prices by double digits. While it may seem like the distress is quickly flying out of the market, that may not be the case just yet. (Read More: Best US Housing Markets for Buyers and Sellers)

Much of that strength is driven by investor interest, as many distressed and non-distressed homes are purchased and transformed into rentals," says Stan Humphries, Zillow's chief economist, in the report. "This investor activity is contributing to very low inventory levels, which increases demand and helps drive up prices, particularly for less expensive homes in these markets."

9---House prices fall in 10 of Canada’s 11 major markets for first time since 2009, Financial Post


Thursday, December 20, 2012

Today's links

1--Rising prices and rising interest rates will slow housing market appreciation, oc housing
Housing Affordability Begins to Slide
It is a double edged sword, no doubt. Rising home prices are necessary for the overall housing market to recover and for more borrowers to get back above water on their mortgages. Rising home prices, however, cut into the historic affordability that was bringing more buyers back to the market in the first place....
Even with mortgage rates hovering near record lows, it doesn’t take much to send borrowers running for the hills.
A slight move up from 3.47 percent on the 30-year fixed to 3.50 percent, caused mortgage refinance applications to plummet 14 percent from the previous week, according to the Mortgage Bankers Association.
Despite the Federal Reserve’s announcement last week that it would purchase an additional $45 billion in Treasury securities per month as part of its continuing quantitative easing effort, rates increased in the second half of the week,” said Mike Fratantoni, MBA’s Vice President of Research and Economics....
“As a result, refinance applications dropped sharply to the lowest level in over a month.”
Applications to buy a home also dropped 5 percent week-to-week, indicating a still weak and rate-sensitive purchase market.

“A lot of money has been spent between OT [Operation Twist] and QE3 for very little incremental reward,” notes Peter Boockvar of Miller Tabak. “The true cost, yet to be determined, will of course occur when the likely market forced exit begins.”

2---US profits as share of GDP at all time high while wages and salaries at all time low,  Big Picture

3--Fed’s $4 Trillion Rescue Helps Hedge Fund as Savers Hurt, Bloomberg

Deepak Narula’s mortgage-bond fund is up 39 percent this year. George Sanchez’s monthly annuity payout is down 41 percent.

The near-zero interest rate the Federal Reserve charges financial firms, as well as securities purchases that will balloon the central bank’s balance sheet to almost $4 trillion next year, have made it easier for Narula’s $1.6 billion fund to thrive and more difficult for Sanchez, a former college library director, to enjoy retirement.
Chairman Ben S. Bernanke’s efforts to energize the U.S. economy since 2008 have been credited with rousing the housing market from a six-year funk, lowering the jobless rate and putting more money in the pockets of both mortgage lenders and borrowers. At the same time, Fed policy has been blamed for starving money-savers of income and boosting certain asset prices, widening the gap between the rich and the rest of the country, said Joseph E. Stiglitz, the Nobel Prize-winning Columbia University economist.
Monetary policy has been indirectly, surreptitiously helping the top and hurting the bottom,” Stiglitz said.

After two rounds of asset purchases totaling $2.3 trillion through June 2011, the central bank began so-called QE3 in September. QE stands for “quantitative easing,” in which the Fed buys securities to channel cash into the financial system.
The goal is to stimulate spending and boost lending, which is meant to generate more jobs. Bernanke said last week the central bank will purchase $85 billion of assets a month next year “to increase the near-term momentum of the economy.” That would bring its balance sheet to almost $4 trillion, up from $924 billion on Sept. 10, 2008, the week before the collapse of investment bank Lehman Brothers Holdings Inc. deepened the recession...

Twenty-two of the 24 commodities in the S&P GSCI Commodity Spot Index have gained since the recession ended in June 2009, with only natural gas and cocoa lagging. Corn more than doubled in price even before this year’s drought sent values soaring. Heating oil is up 77 percent and wheat 58 percent. That means higher energy and food prices for consumers like Arlene McGuirk.
“Prices are ridiculous,” said McGuirk, a 65-year-old in Sterling, Massachusetts, who, like Sanchez, supplements a fixed income with a diminished annuity. “People who say there’s no inflation never go grocery shopping.”...

The losers in monetary policy are the savers,” Rupkey said. “Their rates are at zero for four years with the promise of two-and-a-half more years of zero rates. There’s little hope for the savers out there.”
Mortgage borrowers, on the other hand, have never had it better. Bob ...

The boon for the banks rankles David A. Stockman, a former Michigan congressman and director of the U.S. Office of Management and Budget under President Ronald Reagan.
“The Federal Reserve is in the tank for Wall Street,” said Stockman, who headed auto-parts maker Collins & Aikman Corp. “That’s why the 1 percent are thriving on financial speculation while savers, workers and retirees are getting crushed by zero interest rates and inflationary food and energy costs. It’s damn unfair, and it doesn’t work either

4---Obama’s Vilification of Latin America, counterpunch

Yes, there have been abuses of authority in Venezuela, as in all of the hemisphere — as President Obama should know. It was Obama who defended the imprisonment without trial for more than two-and-a-half years, and abuse in custody, of Bradley Manning, which was condemned by the United Nations’ Special Rapporteur on Torture. It is Obama who has refused to grant freedom to Native American activist Leonard Peltier, widely seen throughout the world as a political prisoner, now in a U.S. prison for 37 years. It is Obama who claims the right, and has used it, to kill American citizens without arrest or trial.

Venezuela is a middle-income country where the rule of law is relatively weak, as is the state generally (hence the absurdity of calling it “authoritarian”). But compared with other countries of its income level, it does not stand out for anything in the realm of human rights abuses. Certainly there is nothing in Venezuela comparable to the abuses by Washington allies such as Mexico or Honduras – where candidates for political office, opposition activists, and journalists are regularly murdered. And much of the scholarly research on Venezuela under Ch├ívez shows that it is more democratic and has more civil liberties than ever before in its own history.

5---Calif housing bubble?, Dr Housing Bubble

California home prices experienced a big surge in 2012. This might fly in the face of stagnant household incomes but the incredible push for lower interest rates and reliance on low down payment FHA insured loans has brought many people off the fence. In Southern California home sales are up by 14 percent over the last year and the median price is now up by 16 percent. The median price is largely being pushed by the mix of home sales. Distressed properties are making up a smaller pool of sales. With low inventory, you have regular home buyers competing also with house flippers, big Wall Street buyers, and foreign money with limited supply on the market. The result has been to push home prices much higher making it more difficult for middle class families to afford a home. As we approach the end of 2012, let us look at the data for Southern California...

Another bubble brewing?
It is hard to believe how quickly prices are rising but when you look below the surface, you realize that this rush is coming via cheap money and hot money from other sources. Many investors looking to buy homes to rent out are now turning away from places like the Inland Empire because the yields are no longer attractive. Flipping can only go on as long as easy financing is in play. Foreign money will only continue so long as our economic growth is in play. The Fed keeping interest rates low has given the market a major boost but how will life be after the boost

Is another bubble in California possible? Absolutely. Prices are rising disconnected from household incomes. The only way we keep moving at the current pace is if all of the above groups continue to purchase: investors, flippers, foreign money, FHA loans, low Fed rates. Missing from the equation is household income growth but then again, this is repeating the history of the first bubble run.

6---Brrrrr! Russia's Killer Coldfront, RT

7---Interview with James K Galbraith, economist's view

NachDenkSeiten: One of the news items of the past few days is that American companies are leaving southern Europe – without necessarily intending to go back.
Galbraith: Yes. You have a situation where companies are going to leave when they consider the social situation as unstable, when they consider the medical care is not tenable, and their top employees don't want to stay there, when the schools aren't any good or it's too stressful for their kids, all of these things. But it's also just a question of whether there's any hope for a profit in the markets....
NachDenkSeiten: You said that the debt, as long as the debt is not repayable, that you should essentially write it off and take a much larger haircut at this point.
Galbraith: Yes, of course.
NachDenkSeiten: It's fairly controversial among many economists and politicians. The economist Gustav Horn, for example, says, no, that would disrupt everything, there'd be a domino effect
Galbraith: All debt crises end in a write-down, all of them. I don't know of a single example, except maybe when Mexico got a brief reprieve in 1978 when it discovered oil in the Gulf. But that's the only counterexample I can come up with. They all end that way, because once you've moved into a crisis, you are in a situation which gets worse as time goes on. So it's only a question of now or later.
NachDenkSeiten: How would you go about doing that. One idea would be for the ECB to buy up a lot of the outstanding bonds, and just letting them sit in the books.
Galbraith: So long as they are in existence at unsustainable interest rates, they are what an IMF economist in the 1980's described to me as an unfunded tax liability for the debtor. They just sit there, and they act as a burden on economic activity. You never know at what point you are going to have to actually dip into whatever later growth you might have in order to pay them off. So you have to get rid of them
8---Obama proposes cuts to social security, wsws

what is being worked out in the talks between Obama and Boehner is nothing less than the terms of a social retrogression of unprecedented dimensions. Using the concocted threat of a December 31 “fiscal cliff,” when some $600 billion in tax increases and spending cuts are scheduled to begin because of previous Washington agreements, the representatives of big business, Democratic and Republican, are proposing to begin the dismantling of the social reforms enacted in the 20th century.

The White House decision to propose cuts in future Social Security benefits is of enormous political significance. Social Security has long been characterized as the “third rail” of American politics—touch it and you die. Obama and Boehner are seeking to break this taboo and create a new political framework for imposing brutal austerity measures on working people.

Whatever the immediate outcome of the talks in Washington, whether or not a deal is reached before December 31, the overall direction is clear: entitlement programs like Social Security, Medicare and Medicaid are to be gutted. The only significant area of federal spending will be the military-police agencies required to defend the interests of the financial aristocracy—overseas against foreign rivals and revolutions, at home against the American working class.

9--UBS Libor-rigging settlement exposes pervasive bank fraud, wsws-

The Libor scandal has laid bare the rampant criminality in the operations of the world's major banks and exposed the fact that the so-called “free market” is rigged by the most powerful banks and corporations for their own profit.

The Libor rate, which is set daily in London under the auspices of the BBA, a private banking lobby, is supposed to reflect the average cost of loans between major banks. An estimated $800 trillion in financial products are linked to Libor. These include $10 trillion in mortgages, student loans and credit cards. About 90 percent of US commercial and mortgage loans are linked to the index.

Between 2005 and 2007, Barclays, UBS and other banks systematically inflated their borrowing cost estimates to the Libor board in order to drive up the Libor rate and increase their profits on derivatives linked to it. After 2007, when the global financial crisis intensified, the banks lowballed their submissions to Libor in order to mask their financial weaknesses and lower their borrowing costs.

By manipulating the rate upward, the banks robbed countless millions of people of billions of dollars in inflated loan costs. By manipulating the rate downward, they deprived states, cities, pension funds and retirees with fixed investments of untold billions in revenues from bond holdings...

In its report, the FSA said the total fines against UBS were larger than those imposed on Barclays because “UBS’ misconduct is, although similar in nature, considerably more serious… More individuals, including managers and senior managers, participated in or knew about the manipulation."

The FSA noted that UBS employees not only collaborated internally in falsifying Libor submissions, but the bank also “made corrupt payments of £15,000 per quarter to brokers to reward them for their assistance for a period of at least 18 months.”

The report cited specific exchanges, such as an email from September 18, 2008 in which a UBS trader told a broker at another firm: “if you keep [the Libor rate] unchanged today… I will f___g do one humongous deal with you… Like a 50,000 buck deal, whatever… I need you to keep it as low as possible… if you do that… I’ll pay you, you know, 50,000 dollars, 100,000 dollars… whatever you want ... I’m a man of my word.”
The FSA reported noted: “There
was a culture where the manipulation of the Libor and Euribor (the euro equivalent of the dollar-denominated Libor) setting process was pervasive. The manipulation was conducted openly and was considered to be a normal and acceptable business practice by a large pool of individuals.”

In an email published in relationship to last June’s Barclays settlement, one trader said that for every .01 percent Libor was changed, the bank would receive “about a couple of million dollars.”
Libor was created in 1984 to provide a common basis for valuing a broad range of complex securities, including interest rate swaps and derivatives, which had sprung up during the decade’s finance boom. In keeping with the global policy of deregulation and “self-regulation,” the Libor-setting process was placed under the control of the BBA, a private British banking lobby dominated by the most powerful London-based banks, and based on daily reports submitted by major international banks.

Given the scale and pervasiveness of the manipulation of Libor by virtually every major bank in the world, it is impossible to credibly claim that financial regulators and governments were unaware of the fraud that was being perpetrated. On the contrary, documents requested by a US House of Representatives committee and released last July by the Federal Reserve Bank of New York and the Bank of England, following the announcement of the Barclays settlement, showed that both institutions knew of the Libor-rigging as early as 2007.

10---Massacre at Wounded Knee anniversary Dec 29, history

11-- Dispelling the myth: Tax cuts DO NOT help the economy, Reuters

This September, the CRS followed up with a 65-year retrospective by Hungerford on whether tax cuts for the rich help the economy. "Analysis of such data suggests the reduction in the top tax rates (has) had little association with saving, investment, or productivity growth," he wrote. "However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution."

12---A projected 13.1 percent of workers will be unemployed at some point in 2013, EPI

New data show that 14.9 percent of the workforce was unemployed at some point in 2011, much higher than the official 2011 unemployment rate of 8.9 percent. How can this be? Each month, the official unemployment rate provides the share of the labor force unemployed in that month. But this understates the number of people who are unemployed at some point over a longer period, since someone who is employed in one month may become unemployed the next, and vice versa. So the official annual unemployment rate—which is actually the average monthly unemployment rate for the year—is much lower than the share of the workforce that experienced unemployment at some point during the year.

The figure below, from The State of Working America, 12th Edition (and updated with new data from the Bureau of Labor Statistics) shows both the official unemployment rate and the “over-the-year” unemployment rate—the share of workers who experienced unemployment at some point during the year. Using the ratio of the over-the-year unemployment rate to the official unemployment rate in 2011, we can project the over-the-year unemployment rate for 2012 and 2013. It is likely that 13.1 percent of the workforce, or more than one in eight workers, will be unemployed at some point next year.

13---World Bank fears fresh credit bubble in China on hot money flows, Telegraph

China and Asia’s tigers are roaring back to life and risk a fresh credit booms unless they can choke inflows of hot money, the World Bank has warned.

The Far East has shaken off the deep downturn earlier this year and looks poised to drive a fresh cycle of global growth in 2013. “China appears to have bottomed out,” said the Bank in its regional report.

Asia’s powerhouse economy will rebound with 8.4pc growth next year as credit stimulus and an infrastructure blitz by local governments gain traction, with knock-on effects through East Asia. The region as a whole will grow by 7.9pc, with Myanmar at last starting to catch up as undertakes “formidable reforms”.

The new risk is a return to overheating as ultra-loose monetary policies in the West trigger a “flood of capital into the region that could lead to asset bubbles and excessive credit growth” -- with the risk of sharp reversals later.

“Authorities should closely monitor developments on the capital account, especially in countries

By holding down the yuan - to boost exports - China is in effect importing a US monetary policy that is far too loose for its own internal needs, creating inflationary “blow-back”.This may not have mattered after the Lehman crisis when the Politburo deliberately boosted credit by over 30pc a year, but it has now become malign.

Wednesday, December 19, 2012

Today's links

1---Galbraith: Change of Direction, James K Galbraith

And the third great source of our problem is ideological. It is the neo-liberal idea that has given us deregulation and de-supervision; that has given us the notion that markets can function on their own without breaking down or blowing up. It is this notion as applied especially to finance. This is the great illusion of the last generation, and it fostered a form of economic growth that was intrinsically unstable and unsustainable. Why? Because it was based on declining standards for loans and on lax accounting of the proceeds of those loans. Or to put it in simple terms, it was based upon financial fraud, on the most massive wave of financial fraud that the world has ever seen. And the world has seen a lot of financial fraud. It was known to be such to the lenders at the time. This was true of housing loans in the United States made by the tens of millions that were known to the lenders as “liar’s loans,” as “ninja loans,” no income, no job, no assets; as “neutron loans” destined to explode leaving the building intact but destroying the people. This was known at the time. These were loans that had to be refinanced or they would default....

Rising inequality is often linked to these phenomena. But I think we should be clear about what the linkage is. It is not the case that inequality rose and people compensated for it by borrowing more so they could have a higher standard of consumption. This is not what happened. It certainly did not happen in the United States. What happened was, is that the lenders went out to find new markets often fostering fraudulent loans on low-information borrowers, poor borrowers, inner city home owners, for example, forcing those loans to be refinanced so that the recipient only saw a fraction of the debt with which they were ultimately saddled. And the inequality arose from the booking of fees on those loans. This is how bankers get rich. They make their money in this way. And you can see this in their tax statements and you can see it in the geographical distribution of income gains in the United States.
And when the extent of the fraud could no longer be concealed then there was panic and collapse. This happened both in the United States and Europe and it did damage to the financial structure that was, let me suggest to you, essentially irreversible. It destroyed the underlying basis for economic growth that had sustained us for some time. That is to say it destroyed the housing finance market in the U.S. and it destroyed the sovereign credit market in Europe. And because in Europe it destroyed the sovereign credit market, the effects fell on public services and on dependent populations. Millions of jobs of course were also lost in both continents. That was the collateral damage.

2---Shadow inventory projections for 2013 – Modified loans re-default and new foreclosures. The overall household formation equation., Dr Housing Bubble

3---QE til 6.5% Unemployment? How’s 2018 sound?, Big Picture

Source: Hamilton Project

4---Mexican Gov’t Slams US-Backed Military Approach to Drug War, antiwar

5---Housing Starts at 861 thousand SAAR in November, calculated Risk

6---Models Behaving Badly,  Robert Skidelsky,  Project Syndicate

The IMF has conceded that “multipliers have actually been in the 0.9 and 1.7 range since the Great Recession.” The effect of underestimating the fiscal multiplier has been systematic misjudgment of the damage that “fiscal consolidation” does to the economy.
This leads us to the second mistake. Forecasters assumed that monetary expansion would provide an effective antidote to fiscal contraction. The Bank of England hoped that by printing £375 billion of new money, ($600 billion), it would stimulate total spending to the tune of £50 billion, or 3% of GDP.
But the evidence emerging from successive rounds of QE in the UK and the US suggests that while it did lower bond yields, the extra money was largely retained within the banking system, and never reached the real economy. This implies that the problem has mainly been a lack of demand for credit – reluctance on the part of businesses and households to borrow on almost any terms in a flat market.
These two mistakes compounded each other: If the negative impact of austerity on economic growth is greater than was originally assumed, and the positive impact of quantitative easing is weaker, then the policy mix favored by practically all European governments has been hugely wrong. There is much greater scope for fiscal stimulus to boost growth, and much smaller scope for monetary stimulus.
The policies of ‘extend and pretend’ continue to slow foreclosure activity while ensuring foreclosures will play an important role in our economy for years to come,” said Sean O’Toole, Founder and CEO of Foreclosure Radar. “While we are grateful that the government has extended the relevance of our company, we recognize our customers will need additional tools to be successful in this market. I couldn’t be more excited about what we have coming soon in 2013. Current customers will get it first.Lenders are determined not to clear the market. Due to their double incentive to wait that I described above, they will continue to modify loans over and over again until either they have the capital reserves to absorb the write down or until prices reach the loan balances when they can foreclose and get all their money back.

California REO acquisitions down 16%

Despite the fact that prices are rising and inventories are critically low on inventory, banks actually took back fewer homes last month. The inventory shortages are becoming the new normal....

Notices are also declining

Lenders have greatly reduced their foreclosure filings over the last year despite the fact they have no shortage of delinquent squatters to foreclose on. It is a sign that banks are in no hurry to process California foreclosures due to the upcoming law changes on January 1....

Amend-extend-pretend continues. Lenders are in no hurry to process more foreclosures, and their liquidations still hang over the market. Over the last seven months, their snail’s pace of liquidations has created a dramatic and completely artificial shortage of supply which has caused prices to shoot upward. Expect more of the same going forward.


Tuesday, December 18, 2012

Today's links

1---Banks Seek a Shield in Mortgage Rules, NYT

2---NYSE Volume Chart is Deceptively Informative, Big Picture

3---US Federal Reserve expands “quantitative easing”, WSWS

The Federal Reserve is taking these steps in part because it foresees a significant deterioration in the US economy.

Last week, the University of Michigan said that its confidence index fell sharply in December to 74.5, down from 82.7 percent. The Institute for Supply Management (ISM), meanwhile, reported last week that its index of manufacturing activity fell to 49.5, the lowest level since July 2009....

This is a fraud. In fact, the Federal Reserve’s policy of providing unlimited free cash to the banks, all the while buying up the toxic assets on their balance sheets, has nothing to do with providing jobs to the unemployed....

US corporations are sitting atop a cash hoard that is estimated to be as much as $5 trillion dollars, while levels of investment have dropped to the lowest levels in years. Instead of putting people to work, banks and corporations are either hoarding or using the money to speculate.

The real goal of the Federal Reserve is to guarantee the continual profitability of Wall Street and the personal incomes of the super-rich.

First, the policy of zero interest rates guarantees the banks a profitable investment opportunity, at the very least by borrowing money at zero interest rates and using it to buy the government’s own debt.

Second, one of the stated aims of the quantitative easing program is to reduce interest rates on mortgages, and therefore prop up the US housing market. This is essential for inflating the values of “toxic” mortgage-backed securities, trillions of dollars of which remain on the balance sheets of the banks.

4---Spain Bad Loans Ratio Surges to 11.23% as Defaults Climb, Bloomberg

5---Underwater Homeowners Cannot Explain the Weak Recovery, CEPR

Remarkably, it seems from a Washington Post article that attributes the continuing weakness of the economy to the indebtedness of underwater homeowners, that many of the country's top economists have no better understanding of the economy today than in 2006.The claim is the drop off in consumption due to the debt burden of these homeowners explains the weakness of the recovery....

With 11 million homeowners underwater, the above calculation implies an increase in average annual consumption of between $9,500 and $15,000 a year. The median homeowner has an income of less than $70,000 a year. It doesn't seem likely that such a family would either have this amount of savings each year that they could instead decide to consume if they were no longer underwater in their mortgage or that they could borrow this amount on any sort of sustained basis. In short, the numbers in my calculation above almost certainly hugely overstate the economic impact of eliminating underwater mortgage debt.

In fact, there is no need to turn to implausible underwater mortgage debt explanations for the weakness of the economy. The economy is acting exactly as those who warned of the bubble predicted. We saw a sharp falloff of residential construction as we went from a near record boom, with construction exceeding more than 6.0 percent of GDP at the 2005 peak, to a bust where it fell below 2.0 percent of GDP. This meant a loss in annual demand of more than $600 billion a year.
We also saw a large falloff in consumption due to the loss of $8 trillion in housing wealth. The housing wealth effect is one of the oldest and most widely accepted concepts in economics. It is generally estimated people spend between 5 and 7 cents each year per dollar of housing wealth. This means that the collapse of the bubble would be expected to cost the economy between $400 billion and $560 billion in annual demand.

There is no mechanism that would allow the economy to easily replace the combined loss of between $1 trillion and 1.2 trillion in demand that would be predicted from the collapse of the housing bubble. Therefore it is hard to see why anyone would feel the need to look to explanations involving the indebtedness of underwater homeowners, the whole downturn is easily and simply explained by the collapse of the bubble.

In this respect it is worth noting that, contrary to the impression given by the article, consumption remains unusually high relative to disposable income, not low.

Source: Bureau of Economic Analysis and author's calculations.

As can be seen consumption as a share of disposable income is well above the level of the 60s, 70s, 80s, and even the 90s prior to the point where the stock bubble led to a consumption boom in the late 90s. If anything, we should be asking why consumption is so high, not why it is low. (Adjusted disposable income refers to the statistical discrepancy in the national income accounts.) In short, the underwater homeowner story is an explanation for a mystery that does not exist.

6---Keynes, Chuck

Written during the height of the depression, it offered a new explanation of the depression and the unemployment that plagued it. In addition to its timing, however, Keynes’ new theory probably also appealed to economists because it provided an alternative to the traditionally held view that unemployment can and should be eliminated by a drop in wage rates. Keynes alternative was politically and socially much more palatable to the intelligentsia, because the majority of the intelligentsia held the conclusion, claimed by the Marxist exploitation theory, that wages tend toward the minimum level required to maintain the subsistence of the workers. Thus, for economists to advocate that wages fall yet lower placed them in a seemingly morally indefensible position. Keynes new theory, on the other hand, conveyed a politically much more palatable solution to unemployment: according to Keynes, the solution to unemployment was a growth in government spending. The particular form of government spending advocated by Keynes was for the government to purposely adopt a policy of budget deficits; this he called “fiscal policy.”

7---Pam Martens on "wealth concentration", Wall Street on Parade

A study conducted by Edward N. Wolff for the Levy Economics Institute of Bard College in March 2010 made the following findings:
The richest 1 percent received over one-third of the total gain in marketable wealth over the period from 1983 to 2007. The next 4 percent also received about a third of the total gain and the next 15 percent about a fifth, so that the top quintile collectively accounted for 89 percent of the total growth in wealth, while the bottom 80 percent accounted for 11 percent.
Debt was the most evenly distributed component of household wealth, with the bottom 90 percent of households responsible for 73 percent of total indebtedness.
Wealth concentration in too few hands while the general populace is saddled with too much debt to buy the goods and services produced by the corporations, is a replay of the conditions leading to the crash of 1929 and the ensuing Great Depression.
Writing in his book, “The Worldly Philosophers,” Robert Heilbroner explained the situation leading up to the depression of the 1930s:
“The national flood of income was indubitably imposing in its bulk, but when one followed its course into its millions of terminal rivulets, it was apparent that the nation as a whole benefited very unevenly from its flow. Some 24,000 families at the apex of the social pyramid received a stream of income three times as large as 6 million families squashed at the bottom — the average income of the fortunate families was 630 times the average income of the families at the base…And then there was the fact that the average American had used his prosperity in a suicidal way; he had mortgaged himself up to his neck, had extended his resources dangerously under the temptation of installment buying, and then had ensured his fate by eagerly buying fantastic quantities of stock – some 300 million shares, it is estimated – not outright, but on margin, that is, on borrowed money.”
In both eras, Wall Street ceased being an allocator of capital to worthy enterprises and became an institutionalized system of rigged wealth transfer.