Saturday, January 12, 2013

Today's links

1-- "Growth" is reduces deficits, not austerity, naked capitalism

CBPP’s austerity plan would do the opposite. It is a weapon of mass economic destruction.

The deficit fell because we improved our recovery through the “automatic stabilizers.” These stabilizers do not need new legislation to create them, so they act “automatically” to respond to a recession (or inflation). In a recession, the stabilizers work in a counter-cyclical (stimulus) fashion to make recessions less severe and long-lasting. The stimulus program expanded this stimulus. As economic growth increases due to the increased demand, unemployment falls and revenues rise while expenditures for the unemployed fall. The result is that the federal budget deficit falls. Had we followed Geithner’s advice and inflicted austerity we would be back in recession and facing growing deficits.
Obama’s next statement about Geithner and Lew compounds the harmful myth of austerity.
And we’ve begun to reduce our deficit through a balanced mix of spending cuts and reforms to a tax code….
No, the U.S. was reducing at a moderate clip its deficit as a percentage of GDP due to economic growth. Stimulus increased that growth and acted to reduce future budget deficits. The overall reduction in the deficit (from 10% to 7% of GDP) is very large and the cumulative reduction in the size of the deficit that Obama achieved relative to the increased deficits that Geithner’s and Jacob Lew’s preferred austerity myths would have inflicted are in the trillions of dollars. To the extent that Obama has made (net) “spending cuts” and tax increases in response to the Great Recession he has slowed our recovery and likely increased our deficit (to list only two of the six harms characteristically inflicted by austerity).

2---Untold History: The Coup Against Wallace and What Might Have Been, naked capitalism (video)

3--Middle-class Greeks to fork out over 40% of annual salary in tax, RT

4---Flag fury: Police injured in Belfast as ‘Union Jack’ protests enter 40th day (VIDEO, PHOTOS), RT

5---Wall Street thanks you for your service, Tim Geithner, Guardian

First the treasury secretary propped up the big banks with public spending. Then he backed their agenda: cuts to public spending

During his tenure as head of the New York Fed and then as treasury secretary, most, if not all, of the major Wall Street banks would have collapsed if the government had not intervened to save them. This process began with the collapse of Bear Stearns, which was bought up by JP Morgan in a deal involving huge subsidies from the Fed.
The collapse of Lehman Brothers, a second major investment bank, started a run on the three remaining investment banks that would have led to the collapse of Merrill Lynch, Morgan Stanley, and Goldman Sachs if the Fed, FDIC, and treasury had not taken extraordinary measures to save them. Citigroup and Bank of America both needed emergency facilities established by the Fed and treasury explicitly for their support, in addition to all the below market-rate loans they received from the government at the time. Without this massive government support, there can be no doubt that both of them would currently be operating under the supervision of a bankruptcy judge.

Had it not been for Geithner and his sidekicks, therefore, we would have been permanently rid of an incredibly bloated financial sector that haunts the economy like a horrible albatross....

We know how to recover from a financial collapse: the issue of whether we do so simply boils down to political will.
This is demonstrated clearly by the case of Argentina, which had a full-fledged collapse in December of 2001. After three months of freefall, its economy stabilized in the second quarter of 2002. It came roaring back in the second half of the year and had made up all of the lost ground by the middle of 2003. Its economy continued to grow strongly until the 2009, when the world economic crisis brought it to a standstill. There is no reason to believe that our policymakers are less competent than those in Argentina: the threat of a second Great Depression was nonsense

6--Triple-dip looms for UK after 'horrible' setbacks, Independent

7---Failure of Epic Proportions": Treasury Nominee Jack Lew’s Pro-Bank, Austerity, Deregulation Legacy, Democracy Now

Former bank regulator William Black and Rolling Stone’s Matt Taibbi join us to dissect the career of Jack Lew, President Obama’s pick to replace Treasury Secretary Timothy Geither. Currently Obama’s chief of staff, Lew was an executive at Citigroup from 2006 to 2008 at the time of the financial crisis. He backed financial deregulation efforts while he headed the Office of Management and Budget under President Bill Clinton. During that time, Clinton enacted two key laws to deregulate Wall Street: the Financial Services Modernization Act of 1999 and the Commodity Futures Modernization Act of 2000. Black, a white-collar criminologist and former senior financial regulator, is the author of "The Best Way to Rob a Bank Is to Own One." A contributing editor for Rolling Stone magazine, Taibbi is the author of "Griftopia: A Story of Bankers, Politicians, and the Most Audacious Power Grab in American History."...

And then the Clinton administration, in league with Greenspan, in league with Phil Gramm, and with one of the important architects of all of this being Jack Lew, squashes Brooksley Born to destroy the proposed regulation and to pass something, the Commodity Futures Modernization Act—talk about a dishonest phrase—that not only said, "You, Brooksley Born, cannot go forward with this particular regulation," the statute actually said, "We hereby withdraw all regulatory powers to protect the nation, period. From the federal government, from the state and local governments, we exempt you from the gambling laws. We exempt you from the boiler room laws to prevent fraudulent operations." It’s one of the most extraordinary abusive things in the world, heavily involved with AIG’s ability to produce not just the disaster at AIG, but the disaster of credit—of the CDOs that blew up a larger portion of the world. And those CDOs would not have been possible without these credit default swaps.
So, this is a guy who designed the disaster, participated in the disaster on Wall Street, was made rich by it. We haven’t talked about the fact that he got a huge bonus for destroying—helping to destroy the world at Citicorp. And he got it through the bailout of Citicorp by the U.S. government. So he produces disaster, profits from the disaster, we pay him bonuses for causing the disaster, and then we have the absurdity of the president of the United States saying that this is a man with a track record of unmitigated success. It is exactly the opposite, in terms of finance. He is a worthy successor to Tim Geithner, in that he has screwed up everything substantively he has ever touched.

8--- Obama Scorecard: Foreclosure programs aid 1.4 million homeowners, housingwire

9--Krugman on Moyers, PBS

10--Has quantitative easing had its day?, Guardian

QE's failure to power recovery is clear, but the US and UK remain wedded to the policy to stifle debate about fiscal policy...
 
QE has served, first and foremost, to socialise the losses of the financial systems of the two countries at the centre of the financial crisis, the US and the UK. In contrast to the publicly fought over Troubled Asset Relief Program (TARP), QE contributed far more to achieving that objective and did so without the fuss and melodrama of Treasury secretaries going on bended knee before House speakers to beg its passage.

Some find consolation in the thought that at the very least QE prevented the economies of these two countries from falling into outright depression. In reality, two other things accomplished this. First, unlike in the 1930s, the "automatic stabilisers" – government spending and transfers – formed a floor beneath which the economy could not fall. Second, there were mild fiscal stimuli. But their end now threatens to send economic activity south again in both economies.

Indeed, insofar as QE was part of a wider set of policy choices that focused on relieving financial institutions of their irresponsibly extended loans but not the households and firms, QE ensured that a highly leveraged private sector would be unable to borrow, whether to invest or consume. It would also ensure that the resulting demand conditions would deter even the comparatively unleveraged from borrowing to invest.

So we shouldn't assume that QE will power a recovery. It probably won't. As Keynes pointed out, under certain conditions (such as those today: rock-bottom interest rates, poor demand outlook, heavily leveraged firms and households) credit easing would amount to little more than "pushing on a string". So why are Bernanke and Carney seeking to tie recovery even tighter to monetary policy with their innovations in QE precisely when its failure to power recovery is clearer than ever?

It's because without some action on their part, public discussion is bound to turn towards the alternative: a vigorously expansionary fiscal policy, with massively increased state investment in the economy. This option lies just below the surface of public discourse: the neoliberal triumph of recent decades was never able to entirely eradicate it from public discourse and memory. But as long as the public can be kept believing that monetary policy will achieve some semblance of growth, later if not sooner, that the economy's managers are busy refining monetary policy tools to accomplish that, fiscal policy can be that much more effectively kept out of the picture.

In effect the public in both these countries is being told that they cannot get recovery unless the banks give it to them. And keeping recovery hostage to the financial system is tied up with something very fundamental. Announcing the failure of monetary policy is to displace that holy of holies – the private sector – from its current centrality in our understanding of the economy and admitting that government action and expenditure, probably on a large and unprecedented scale, is necessary for recovery.

11---Shadow banking: Economics and policy priorities, VOX

12---Shinzo Abe: Not the Keynesian you think he is, noahpinion

To sum up: Once again, I think that Abe's appearance as a bold Keynesian experimenter is a cover for a program of traditional mercantilism and corporatism. I guess we'll see how well that program works.
 
 
The housing bubble has burst, and few will emerge unscathed...

A housing correction—or, possibly, a crash—is no longer coming. It’s here. And you don’t have to own a tiny $500,000 condo in downtown Toronto or a $1.3-million bungalow in Vancouver to get hurt. With few exceptions, the impact will be indiscriminate as the euphoria of rising house prices is replaced by fear. The only question now is how bad things will get. If the decline picks up speed, as many believe it will, there could be a nasty snowball effect. Construction jobs will be lost.
Homeowners will end up underwater. Consumers may stop spending. “I’m getting very nervous,” says David Madani, an economist at Capital Economics, who has been predicting a drop in housing prices of up to 25 per cent in Canada. “I know I’m a bear, but the housing market itself has the potential to put us in a recession, let alone what’s happening in Europe and the U.S.”

Canada could be setting itself up for a devastating one-two punch: a painful domestic housing slump just as Canada’s export and resource-driven economy is hit with falling global demand. The most acute threat is the U.S. debt crisis, which, if handled poorly, could tip the world’s largest economy back into recession, taking Canada along with it. Meanwhile, Europe remains mired in a recession and concerns about China’s growth persist. “I feel like Canada is in the path of a perfect storm here,” Madani says. Other than housing, “the key pillar of strength is our booming resource sector,” says Madani. “If you take that away, it’s just going to knock the lights out.”

The sudden cooling in Canada’s housing sector seemingly struck without warning. As recently as last spring, bidding wars were common in many Canadian cities as were the “over asking!” stickers agents slapped on “for sale” signs. The peak may have been reached in March when one Toronto bungalow made headlines after selling for $1.1 million, more than $420,000 above the list price.
Eight months later, the story has been reversed. And not just in Toronto and Vancouver. In Victoria, existing home sales were down by 22 per cent in November from a year earlier. In Montreal, sales were down 19 per cent last month. Ottawa’s sales were down nine per cent and Edmonton’s were down six per cent. With all those houses lingering on the market, prices dipped in 10 of 11 big cities across the country between October and November, according to the Teranet-National Bank index. It was the first such drop since 2009.

14---U.S. may expand mortgage refinance program: WSJ,  Reuters

The U.S. government is considering expanding its mortgage refinancing program to include borrowers whose mortgages are not backed by Fannie Mae and Freddie Mac , the Wall Street Journal reported, citing people familiar with the discussions. (http://link.reuters.com/mej84t)
The refinancing program now being considered also seeks to include "underwater" borrowers who owe more than their homes are worth, the Journal said.

The proposal would also transfer potentially riskier loans held by private investors to the government-sponsored mortgage entities Fannie Mae and Freddie Mac, the paper said.
Such a move would require congressional authorization to temporarily change the charters of Fannie Mae and Freddie Mac, according to the Journal.
About 22 percent of all homes with a mortgage, or around 10.8 million homes, down from 12.1 million last year, were worth less than the outstanding balance at the end of June, the Journal said, citing data from CoreLogic.

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.

Officials at the U.S. Treasury could not be reached for comment by Reuters outside of regular U.S. business hours.
Combined with Fannie Mae and Freddie Mac, which buy loans and repackage them as securities for investors, Washington's footprint in the market has grown to account for nearly nine of every 10 mortgages.

15---Global housing bubbles in perspective – Canadian housing bubble never corrected. China leading the pack in global real estate mania., Dr Housing Bubble

was trying to find a time in history where the world experienced correlated housing bubbles and could not find a time similar to the one we are living in when it comes to real estate. The reason for this is central banking policy around the world is very similar. Think of the Federal Reserve, European Central Bank, and Bank of Japan. There is interesting data highlighting the magnitude of global housing bubbles that actually makes US home prices look modest. One of the biggest challenges I see right now is when people use large area data (i.e., US, county, etc) and then transfer this to a small area that is clearly facing a mania. There are many areas that are seeing home prices now selling for 8 to 10 times the typical household income of those in the area (the US is now at a solid 3 to 3.5). So let us examine those global housing bubbles first.

Global real estate mania
Without a doubt, China is experiencing the biggest housing bubble of all. There is little question about this. You are also seeing spillover money from China creating ancillary bubbles in places in Canada.

Now why did we experience this global housing mania? Part of it has to do with easy banking policies mimicking one another. If you think that all of this came at no cost just look at the balance sheet of big central banks:
Developed-economies-balance-sheets
Central
Central banks have boosted their balance sheets from $2 trillion in 2008 to being on path to reaching $6 trillion this year. The Fed alone is inching closer to $3 trillion especially if they continue with QE3 and their mortgage backed security purchasing plan. It is very clear that the Fed became the bad bank to induce this housing boom and went as far as to take off MBS from the hands of these banks. Yet overall, the US on aggregate looks to be getting in line with prices....

In 2000, the average sales price of a Toronto home was roughly $240,000. Today it is up to $465,000. Canadian cities like Vancouver and Toronto have seen absolutely no correction and are benefitting from hot money from abroad. US home prices as you can see from the Case Shiller data above, are now tracking closer to the overall inflation rate.
Those thinking that there are no more housing bubbles simply need to look at a few other countries but also at more specific cities were flippers are back in force. Those thinking that global independent investors are buying up these securities are poorly mistaken. It is obvious that central banks are eating this stuff up but the question is, how long can this go on for?

16---Pooched, greater fool

Not a day goes by that the mainstream media isn’t yapping away about the latest evidence of a housing disaster in slow motion. The meme is out there. By the end of this year, mortgages will cost more and houses will cost less. Soon the big cities will be following the regions and the smaller centres, where housing deflation’s been a fact of life for months already and buyers have been voraciously vultching....

Big Banks were giving away downpayments to young hornies with no money until two months ago, encouraging mindless borrowing with 2.99% Specials or routinely allowing liar loans and robo-appraisals. Lax lending standards in Canada, along with gutter interest rates, are the two reasons household debt has soared along with the cost of a bung in Red Deer – something not lost on others.
Like The Economist, which just blew the doors off the notion Canada is a prudent place where risk went to die.
The international publication has published a global comparison of real estate affordability. We fail.
The two measures used are the price-to-rent ratio and the ratio of home prices to disposable income per citizen. Price-rent for homeowners is like price-earnings for stock investors, roughly equating rents to profits. Remember the dot-coms with their high share prices and microscopic earnings? That’s like buying a $2 million house and only getting two grand a month from the tenants. Why the heck would you do it?
So how did we do? Hmm. Sucked. Housing in Canada is overvalued by a massive 78% – the worst showing in the world (Hong Kong is only 69% too expensive) – while Japan came in at the other extreme, with real estate undervalued by more than a third....

CHART
The US, interestingly enough, is still a bargain despite prices rising at over 4% a year. Houses are 7% cheaper than they should be, and 20% below fair value, based on American incomes. By the way, in terms of what Canadians earn, the analysis suggests real estate here should fall in price by 34%.
Overvaluation is especially marked in Canada, particularly with respect to rents (78%) but also in relation to income (34%). Mark Carney, the country’s central-bank governor, who is soon to jump ship to join the Bank of England, where he takes over from Sir Mervyn King in July, may have shown good market timing with his move to London as well as a deft hand in negotiating his lavish remuneration.
 
 
The Obama administration is considering expanding its mortgage-refinancing programs to include borrowers whose mortgages aren't backed by the government and who owe more than their homes are worth, according to people familiar with the discussions
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one proposal being considered would also transfer potentially riskier loans held by private investors into the taxpayer-supported mortgage giants Fannie MaeFNMA 0.00% and Freddie MacFMCC -1.69% .
About 22% of all homes with a mortgage, or around 10.8 million homes, were worth less than the outstanding balance at the end of June, according to CoreLogic. That number has fallen from 12.1 million at the end of last year as home prices have picked up, but around 10% of all homeowners with a mortgage are still deeply underwater.
Fannie and Freddie own or insure about half of all home loans, and most underwater borrowers with their backing can refinance to get a lower mortgage rate as long as they are current on their loans. That initiative has benefited holders of more than 330,000 underwater mortgages through October this year, up from around 60,000 in all of 2011. "It has been unbelievably successful," said Scott Simon, who heads the mortgage-backed securities group at Pacific Investment Management Co., or Pimco, a unit of Allianz SEALV.XE +0.67% .
Officials at the Treasury Department and the White House now would like to include borrowers who have been locked out because their loans aren't backed by the firms. Those loans are held by private lenders or investors, and some of them were issued by subprime lenders and bundled into securities by Wall Street firms.
...

Because such a move would transfer billions of dollars of these mortgages to the government-backed mortgage companies, it would require congressional authorization to temporarily change Fannie's and Freddie's charters. 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.
Fannie and Freddie "have already proved that they really weren't good at pricing higher-risk assets" during the housing bubble, said David Stevens, chief executive of the Mortgage Bankers Association. "What gives us the belief they can price it better today?" Allowing the firms to "reload up their balance sheets...will ultimately be a taxpayer expense," he said...

The Congressional Budget Office has estimated that allowing borrowers with above-market interest rates to refinance could save households around $2,600 annually, and that it could also reduce the risk that a small number of borrowers ultimately default on their mortgages, limiting foreclosures. Some borrowers with loans that aren't guaranteed by Fannie or Freddie might not benefit from refinancing, however, because they have adjustable-rate mortgages that are currently at low rates....

A second proposal under discussion by the administration would reduce rates for underwater borrowers through mortgage modifications. The proposal wouldn't require legislation, and would allow borrowers to qualify for a reduced rate under the existing Home Affordable Modification Program, or HAMP.
Currently, homeowners can have their loans reworked through HAMP only if their mortgage company deems that they are at "imminent" risk of defaulting. The new proposal would redefine "imminent default" to include borrowers who are deeply underwater on their mortgage.

18--Recent climate change research points to a growing global crisis, wsws

The report is imbued with a necessary urgency. Humanity has the creativity and technology to overcome the challenge global warming poses to modern society. All that stops such developments are the nation-state system and the drive for private profits. As Leon Trotsky noted in 1940, “mankind is suffering from the contradiction between the productive forces and the too-narrow framework of the national state.” The crisis of global warming exemplifies this statement.

19--US consumer financial board issues pro-bank mortgage rules, wsws

The US Consumer Financial Protection Bureau (CFPB) on Thursday issued new rules for mortgage lenders and banks which, in the guise of upholding consumers’ rights, will strip most borrowers of the ability to sue in court against predatory lenders.
The CPFB was established as an “independent” arm of the Federal Reserve Board under the Obama administration-backed Dodd-Frank banking overhaul law, passed in 2010. The CFPB was touted by the administration and its liberal and “left” supporters as the crowning achievement of a law that supposedly imposed the “toughest” regulations on the banking industry since the 1930s.
In fact, Dodd-Frank was an exercise in damage-control, enacted in the aftermath of the 2008 Wall Street crash to shield the banks from any serious repercussions for the fraudulent and illegal practices that plunged the US and world economy into the deepest crisis since the Great Depression. Dodd-Frank imposed token restrictions on certain of the most egregious forms of financial swindling, while allowing the banks to continue their speculative activities and actually increasing the power of the biggest banks.
It was the legislative counterpart to the multi-trillion-dollar bailout of the banks at taxpayer expense....

Some consumer advocates sharply criticized the new rules. Alys Cohen of the National Consumer Law Center gave a statement to the CFPB hearing in Baltimore in which she declared: “The safe harbor the bureau has afforded for prime loans provides absolute shelter to lenders who knowingly make unaffordable loans, in direct violation of congressional intent.” As a result, she added, “new abuses will flourish.”

She pointed out that the new rules do not ban “yield spread premiums”—bonus payments by banks to brokers who convince borrowers to take out needlessly expensive loans. “The Consumer Financial Protection Bureau’s qualified mortgage rule invites abusive lending,” she concluded.

The financial crash was the outcome of a Ponzi scheme in which lenders pushed exotic and high-cost sub-prime loans on unwitting consumers who could not afford them. The banks bought the loans and turned them into mortgage-backed securities and collateralized debt obligations, selling these “structured financial products” to banks and speculators around the world. Government regulators blessed the scam and the credit-rating firms gave the toxic securities and CDOs top ratings.

Not a single CEO or high-ranking bank official has been prosecuted, let alone convicted and jailed, for these criminal activities that brought the housing market and financial system to the verge of collapse and precipitated a social catastrophe for hundreds of millions of workers in the US and around the world. Not a single Wall Street bank has been seriously penalized, let alone broken up or taken out of private hands.

Under these conditions, there is no credibility to government pretences of protecting consumers and policing the bankers. Financial machinations and outright crimes are not mere excesses of an otherwise healthy economic system. They are embedded in the very foundations of the capitalist system, whose mortal crisis takes the form of parasitism and criminality.

 

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