Saturday, December 8, 2012

Today's links

1--The U.S. Immigration Detention Boom, ACLU (shocking graphic)

2---Merkel's abysmal record, Guardian

3--Consumer Credit in U.S. Rose More Than Forecast in October, Bloomberg

Consumer credit in the U.S. increased more than forecast in October, led by another jump in borrowing for student loans and autos.
The $14.2 billion gain followed a revised $12.2 billion advance in September, Federal Reserve figures showed today in Washington....

Non-revolving debt, such as that for college tuition or auto purchases, climbed $10.8 billion in October after surging $14.4 billion in September.

Auto Sales

Automobile demand continues to add to economic growth. Cars and light trucks sold at a 15.5 million annual rate in November, the most in almost five years and up from a 14.2 million pace the prior month, according to Ward’s Automotive Group.
Lending by the federal government, which is mainly for educational loans, increased by $6.9 billion in October before adjusting for seasonal variations, today’s report showed

4---Government Bond Ponzi Bubble Has To Bust, Trimtabs

Here’s what Krugman is missing. The main buyers of government bonds have been the big global banks, and there is only one reason they keep buying government bonds. if they don’t keep buying they will go broke as will the government.

These are the same institutions that have been bailed out by the US, European and Japanese central banks. How have the central banks bailed out the big banks? Simple, The central banks “bought” all the big banks toxic loans in exchange for newly printed paper.

So when these governments sell new bonds, one guess who are the big buyers? You are correct if you guessed that the same banks that were saved by the government now regularly buy all the government bonds being sold in order to keep the financial fraud intact.

5-Austerity Economics Doesn’t Work: We're All Keynesians Now, economists view
http://economistsview.typepad.com/economistsview/2012/12/austerity-economics-doesnt-work-were-all-keynesians-now.html

Today, Duncan Black/Atrios/Eschaton observed:
We're All Keynesians Now: All the "fiscal cliff" nonsense is just acknowledging that contractionary policy is contractionary. That all the serious people have been advocating contractionary policy for years seems to have been lost. Maybe we take the next step and learn that expansionary policy is expansionary.
That's a pretty good introduction to this post from John Cassidy:
It’s Official: Austerity Economics Doesn’t Work, by John Cassidy: With all the theatrics going on in Washington, you might well have missed the most important political and economic news of the week: an official confirmation from the United Kingdom that austerity policies don’t work. ...
One of the frustrations of economics is that it is hard to carry out scientific experiments and prove things beyond reasonable doubt. But ... what has been happening in Britain amounts to a “natural experiment” to test the efficacy of austerity economics. ...
That austerity has led to recession is undeniable. ... If all the pain he has inflicted had transformed Britain’s fiscal position, his policies could perhaps be defended. But that hasn’t happened. ...
For the purposes of the natural experiment, the U.S. can be thought of as the control. In adopting a fiscal stimulus of gradually declining magnitude over the past four years, the Obama Administration has administered what was, until recently, the standard medicine for a sick economy. As one would have expected on the basis of the textbooks, the American economy, while hardly racing ahead, has fared considerably better than its British counterpart. ...
Let’s go over that one more time. Having adopted the policies of Keynes in response to a calamitous recession, the United States has grown more than twice as fast during the past three years as Britain, which adopted the economics of Hoover (and Paul Ryan). Meanwhile, the gaping hole in the two countries’ budgets has declined at roughly the same rate, and next year the U.S. will be in better fiscal shape than its old ally.
 
6--Bid to Write New Rules for Funds Gains Ally, NYT

In 2008, investors withdrew billions from the funds, requiring the Treasury Department and the Fed to step in with guarantees, after a leading fund’s share value dropped below $1, an occurrence known as breaking the buck.
The fund industry has waged a costly lobbying campaign against any changes, at one point buying an ad over the subway entrance used by S.E.C. employees. Industry executives have said that rules put in place in 2010 were adequate to shore up any weaknesses in the funds; regulators have said those rules did not go far enough 
 
 
 
Single-family rentals will remain a long-term opportunity for private-equity funds and institutional money managers even as the U.S. housing market recovers, analysts and investors said at a conference today.
“We think this is a multiyear opportunity and there should be growth,” Jade Rahmani, an analyst with Keefe, Bruyette & Woods Inc., said at conference in Scottsdale, Arizona, organized by Information Management Network. “There should be adequate supply.”
Private-equity firms including Blackstone Group LP (BX) andColony Capital LLC are raising as much as $8 billion to buy as many as 80,000 single-family homes to manage as rentals, taking advantage of rising demand for leasing and property prices that are about 30 percent below their peak, according to Rahmani. Blackstone is spending about $100 million a week on single-family homes, Chairman Stephen Schwarzman said on an Oct. 18 earnings conference call.
Investors can buy rental properties for the long-term cash flow or to resell in a few years as housing prices recover, said Gary Beasley, a managing director at Waypoint Homes, which has acquired more than 2,500 properties in California, Arizona,Illinois and Georgia.
Waypoint, which received a $245 million line of credit from Citigroup Inc. in October, expects to increase its portfolio to 10,000 residences worth about $1.5 billion by the end of 2013, Beasley said. The Oakland, California-based company is developing a staff to acquire, fix up and manage the properties it buys, he said.
“We’re long-term greedy,” Beasley said.

Tight Credit

While demand is increasing from buyers who want to occupy the properties they purchase, strict lending standards are keeping many would-be homeowners out of the market, Beasley said.
An index of pending home resales climbed 5.2 percent in October from the previous month, exceeding the highest estimate in a Bloomberg survey of economists, figures from the National Association of Realtors showed today in Washington. The median price of an existing home sold last month jumped 11 percent from a year earlier to $178,600, the steepest annual increase since November 2005, according to the group.
Household formations increased to an annual pace of 1.15 million in the third quarter, driving down the vacancy rate for rental homes to its lowest level since 2002, while the rate for owner-occupied properties dropped to 1.9 percent, a level last seen in 2005, according to the Census Bureau.
“It’s a massive asset class,” Beasley said. “One year ago, there was almost no institutional capital. Today, there’s $6 billion to $8 billion. Two years from now, we’ll be where multifamily was in the early ’90s.”

9---Unemployment at 7.7%--What does the data say, Mish

Average hourly earnings has been falling for years and lagging CPI inflation since September 2009. Simply put real wages have been declining. Add in increases in state taxes and the average Joe has been hammered pretty badly....

In the last year, the civilian noninstitutional population rose by 3,733,000. Yet the labor force only rose by 1,354,000.

Those "not" in the labor force rose by 2,380,000 to 88,883,000.

The massive rise of those "not" in the labor force is primarily economic weakness, not demographics. Actually, older workers are returning to the work force because they cannot afford retirement....

Were it not for people dropping out of the labor force, the unemployment rate would be well over 10%....

The official unemployment rate is 7.7%. However, if you start counting all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc., you get a closer picture of what the unemployment rate is. That number is in the last row labeled U-6.

U-6 is much higher at 14.4%. Both numbers would be way higher still, were it not for millions dropping out of the labor force over the past few years....

Long-term unemployment remains in a disaster zone with 40% of the unemployed in the 27 weeks or longer category. Median duration of unemployment has been rising for 3 months while the average has been hovering right around 40 weeks for a year....

the drop in the unemployment rate over the past two years is nothing but a statistical mirage. Things are much worse than the reported numbers indicate.

10---Fannie Mae sells 700 repossessed homes in bulk auction, Bloomberg

Fannie Mae's first auction of foreclosed homes to be managed as rentals sold for $78.1 million, or 96 percent of the properties' estimated value, the Federal Housing Finance Agency (FHFA) said.
The purchase, of 699 homes in Florida, was the first to be completed in Fannie Mae's auction of almost 2,500 repossessed properties in six states. The buyer was San Diego, Calif.-based Pacifica Companies. The homes had a total value of $81.5 million, including joint-venture financing from Fannie Mae, according to a transaction summary
.....
Fannie Mae, the government-sponsored mortgage company that owned 109,000 foreclosed properties as of June 30, offered the homes for auction in February. The other properties are in Georgia, Illinois, Arizona, California and Nevada.
The FHFA will announce the winning bidders of homes in other areas in the coming weeks after the transactions are completed, according to the statement. The 541 properties in Atlanta weren't sold, the agency said.
Colony, a Santa Monica, Calif.-based investment fund headed by Tom Barrack, and Cogsville Group, a New York-based company led by Don Cogsville, were the top bidders for other Fannie Mae portfolios, four people with knowledge of the transactions said in July.
Pacifica, which will manage the Florida properties, paid $12.3 million for its share in a joint venture with Fannie Mae, which will get 90 percent of cash flow until it receives $49.3 million, according to the transaction summary. After that, Fannie Mae's share will drop to 50 percent of cash flow.
Pacifica will also receive 20 percent of gross rental income as a management fee.

11---Fannie Mae Begins Marketing Foreclosed Homes as Rentals, WSJ

The program is designed to test the market for larger sales of foreclosed properties that haven’t yet been converted to rentals. Fannie is starting off by selling homes that were already rented out when the company acquired the property through foreclosure.
Investors and nonprofit groups will be able to bid on homes in eight locations, including Los Angeles and Riverside, Calif., which account for around 23% of the units being marketed, and Atlanta, which accounts for 21%. The other locations include Southeast Florida (15%), Phoenix (14%), Las Vegas (9%), Florida’s west coast (7%), Central and Northeast Florida (7%), and Chicago (4%)....

Real estate agents, particularly in California, have been critical of the idea. Last week, the National Association of Realtors’ top economist, Lawrence Yun, questioned the need for the foreclosure-rental program arguing that there are plenty of buyers for foreclosures.

12--Hedge Fund Blackstone Buying $100 Million in Foreclosed Homes Every Week, Firedog Lake

13--The circular trade: -Banks provide financing to PE firms that buy banks homes, WSJ

Waypoint Real Estate Group LLC, a major investor in U.S. foreclosed homes, has secured a $65 million loan from Citigroup Inc. C +1.67% to help add to its portfolio of properties, according to people familiar with the matter.
Bankers and investors said the debt-financing deal is a milestone for the burgeoning business of renting out houses that were previously in foreclosure.
Waypoint, an Oakland, Calif., investment firm, is working with Citigroup on a bigger, longer-term financing deal that is expected to close in the coming weeks, the people said.
Investors have spent billions of dollars in recent months snapping up foreclosed homes, betting they will profit from the rental income the properties produce.

14---News Leaks of $1 Billion Blackstone Investment in Foreclosed Properties… Just in Tampa Bay, firedog lake

I’ve been obsessed lately with the growing evidence of the next speculative housing bubble – the mass quantities of distressed and foreclosed properties being scooped up by hedge funds and other institutional investors, who plan to rent them out for a few years. We see the shift to single-family home rentals in the American Community Survey data for 2011, so this shift is already a year old. But investors, envisioning a bottom in the market and capitalizing on public policy to sell off the inventory, have pushed into this space in a big way in 2012, providing almost the entire margin of the modest recovery this year.

While banks still resist extending credit to many borrowers, they are getting paid off for their REO (real estate owned) property in cash – even while they are extending the loans to the investment firms, so they can build the capital to purchase the homes. Banks would also participate in the proposed securitizations of rental revenue that would get sold off to another class of investors. So you see banks playing all sides of this bet. It’s not that banks are holding back a housing recovery by denying credit – they’re goosing a housing recovery through selling off properties to speculative firms. Anyway, those non-investor deals have a habit of falling through – selling off properties to hedge funds and private equity firms is easy money

15---Has MBS become a crowded trade?, sober look
 
Primary dealers net holdings of MBS (mostly agency) hit another record. Employing a hole in the Volcker Rule (see discussion) dealers are making a bet that the Fed will be there to take this paper off their hands. What if the dealers are wrong?
 

As discussed earlier (see this post), the Fed isn't jumping to buy large amounts of MBS at this juncture. The central bank's balance sheet as well as bank reserves and the monetary base have plateaued. Furthermore the headline employment numbers (with the exception of construction) show a marked improvement (see this post from Lee Adler). Both surveys of US employment are on the right path.
 
16---Goldman cuts US Q4 GDP forecast to 1% (annualized), sober look
 
17---Fed lowers mortgage rates without "printing money", sober look
 
The Fed remains in a holding pattern. Just as comparison, take a look at the pace of MBS purchases during QE1 in 2009 versus the current pace of expansion.
 
18---Japanese election mired in nationalism and militarism, WSWS
 
19---“Obama, your bitch is our dictator.”, WSWS
 
As during last year’s uprising against Mubarak, Washington is backing its Egyptian stooge regime. The White House issued a statement saying that President Barack Obama “welcomed President Mursi’s call for a dialogue with the opposition, but stressed that such a dialogue should occur without preconditions.” The statement continued: “The president noted that the United States has also urged opposition leaders to join in this dialogue without preconditions.”
Protesters mocked Mursi as a tool of US imperialism. The British Guardian reported that one protester carried a placard reading: “Obama, your bitch is our dictator.”
 
20---UK Autumn budget: Austerity without end for workers, WSWS
Britain’s Chancellor George Osborne announced that the government was extending its austerity measures to 2018 in his budget statement Wednesday, unveiling a further assault on welfare, pensions and teachers.
Thus far the Conservative-Liberal Democrat coalition has set a total austerity package of £155 billion—of which 60 percent has yet to feed through. Public spending has been slashed, public sector wages frozen, pensions raided, with welfare suffering the burden of the cuts.
According to the Guardian, the coalition measures were already the “longest and sharpest austerity programme imposed on any big rich country since 1945.” Osborne added a further £5 billion of cuts and extended their duration into the next parliament...

Wednesday’s budget underscored that this is an economic war against the working class, the objective of which is to drive down wages and living standards to the global benchmark set in China and India.

Osborne claimed that his budget would ensure that “those with the most contribute the most—and they will”. In reality, at the centre of his budget was an escalation in the assault on welfare. He announced cuts in social benefits totaling £14.2 billion, in addition to the £18 billion already implemented.

Tens of thousands are being forced off welfare benefits, or made to take part in bogus “workfare” programmes, while housing and invalidity benefits are being slashed.....

According to estimates, the share of national income spent by the state is predicted to be 39.5 percent in 2017-18, down from 48 percent in 2009-10. Osborne announced additional cuts in departmental budgets of 1 percent this year, and 2 percent the next, while local government budgets are to be cut by a further 2 percent in 2014.

His claim that the National Health Service and education will be exempt from cuts is worthless. Earlier this week, the UK Statistics Authority confirmed that government’s claim to have increased NHS spending in England are false, and that “expenditure on the NHS in real-terms was lower in 2011-12 than it was in 2009-10.”

As for education, Osborne declared that the government was ripping up national pay bargaining for teachers. Headteachers are already able to set wage rates in Academies and so-called Free Schools, which have some form of private sponsorship. This is to be extended across the state sector. The government is intent on using teachers as the testing ground for a broader offensive to drive down wages and conditions.

Again, Osborne’s claim that only teachers will be affected by the move, and the civil service and the National Health Service will be protected, is a lie

21--The destruction of health care in Greece, WSWS

22---Tepid US jobs report points to ongoing slump, wsws

The Labor Department reported Friday that the United States added 146,000 jobs in November, barely enough to keep up with population growth. The net payroll increase was below the average monthly number for the past two years of 150,000.

The US unemployment rate fell to 7.7 percent, down from 7.9 percent in October, but only because 350,000 people left the labor force. The labor force participation rate fell 0.2 percentage points to 63.6 percent.

A more accurate indication of the state of the US economy and the social conditions facing broad sections of the population than the jobless rate—itself very high by historical standards—is the fact that over the past year the number of people not in the labor force has grown by 2.4 million, from 86.7 million to 89.2 million.

Friday’s report also significantly revised downward the payroll figures for the two months preceding the elections. The figure for new jobs in September was cut from 148,000 to 132,000, and that for October was downwardly revised from 171,000 to 138,000.

“At this rate of job growth, it will take more than 10 years to return to the pre-recession unemployment rate,” noted Heidi Shierholz, an economist at the Economic Policy Institute.

23---Fed Exit Plan May Be Redrawn as Assets Near $3 Trillion, Bloomberg

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