Sunday, February 17, 2013

Today's links

1---Equal Opportunity, Our National Myth, Joe Stiglitz, NYT

  President Obama's second Inaugural Address used soaring language to reaffirm America's commitment to the dream of equality of opportunity...
The gap between aspiration and reality could hardly be wider. Today, the United States has less equality of opportunity than almost any other advanced industrial country. Study after study has exposed the myth that America is a land of opportunity. This is especially tragic:... there is near-universal consensus that inequality of opportunity is indefensible. ...
And:
How do we explain this? Some of it has to do with persistent discrimination. ... Of course, there are other forces at play, some of which start even before birth. Children in affluent families get more exposure to reading and less exposure to environmental hazards. Their families can afford enriching experiences like music lessons and summer camp. They get better nutrition and health care, which enhance their learning, directly and indirectly. ...
In some cases it seems as if policy has actually been designed to reduce opportunity: government support for many state schools has been steadily gutted..., especially in the last few years. Meanwhile, students are crushed by giant student loan debts that are almost impossible to discharge, even in bankruptcy. This is happening at the same time that a college education is more important than ever for getting a good job. ...
And increasingly even a college degree isn't enough; one needs either a graduate degree or a series of (often unpaid) internships. Those at the top have the connections and social capital to get those opportunities. Those in the middle and bottom don't. The point is that no one makes it on his or her own. And those at the top get more help from their families than do those lower down on the ladder. Government should help to level the playing field.
Americans are coming to realize that their cherished narrative of social and economic mobility is a myth. ... Without substantial policy changes, our self-image, and the image we project to the world, will diminish...
 
2---Time to invest in infrastructure, ASCE

Better Summary Infographic
ASCE’s Failure to Act economic report series shows the economic consequences of continued underinvestment in our nation’s infrastructure, and the economic gains that could be made by 2020 in terms of GDP, personal disposable income, exports, and jobs if we choose as a country to invest in our communities.
The culminating report was released on January 15, 2013 and presents an overall picture of the economic opportunity associated with infrastructure investment and the cost of failing to fill the investment gap.
ASCE finds that with an additional investment of $157 billion a year between now and 2020, the U.S. can eliminate this drag on economic growth and protect:

  • $3.1 trillion in GDP, almost the equivalent of Germany’s entire GDP
  • $1.1 trillion in U.S. trade value, equivalent to Mexico’s GDP
  • 3.5 million jobs, more than the jobs created in the U.S. over the previous 22 months
  • $2.4 trillion in consumer spending, comparable to Brazil’s GDP
  • $3,100 in annual personal disposable income

  • 3--Still a lie, antiwar.com

    The result was a reign of terror: murder, rape, arson, demolition of churches, chapels and cemeteries – all directed not just against the Serbs, but also the Gorani, Romany and even Albanians who weren’t fully on board with KLA rule. NATO “peacekeepers” looked the other way, while the Western media – which had spun tall tales of “100,000 dead” and “rape camps” and “genocide” to help justify the war – shrugged the terror off as “revenge attacks.” In a particularly vile twist, Albanian repression was thus turned into “proof” that Albanians had been repressed.

    The terror culminated in March 2004, with a pogrom one UN official compared to Kristallnacht, when 50,000 or so Albanians systematically torched Serb villages and tore down churches. In the aftermath, the propaganda machine went into overdrive, arguing that the pogrom ought to be rewarded with independence. And so it was.

    In 2005, Bush II embraced the Balkans policy of his defeated challenger, and pledged support for the “Kosovian” cause. The UN whitewashed the pogrom and stopped insisting on “standards before status.” When opposition from Belgrade and Moscow stalled the independence creep, the Empire had the leadership in Belgrade replaced, and sidelined Moscow by having the Albanians declare independence unilaterally....

    there is still power to be gained from breaking Serbia. In the 1990s, the Empire’s propaganda apparatus manufactured an image of the Serbs as arch-villains, whose atrocities supposedly spurred the noble West into finding its moral compass and embarking on humanitarian crusades. This paved the way to a world without rules, governed by the strongest, who have the right to invade anyone, anywhere.
    By making a public spectacle of Serbia’s humiliation, the Empire seeks to maintain hegemony as long as possible, sending a message to the rest of the world that resistance is futile. Judging by the Muslim world, however, the message didn’t take.

    4--U.S. Signals Support for Japan’s Yen Policy, NYT

    (Bernanke's anti-market statement of approval for flooding sytem with cheap money)

    “The United States is using domestic policies to advance domestic agendas,” Mr. Bernanke said, speaking in a gilded and colonnaded chamber in the Kremlin to a round table of the world’s leading central bankers and finance ministers, in addition to President Vladimir V. Putin of Russia.
          
    “We believe that by strengthening the U.S. economy, we are helping to strengthen the global economy as well,” Mr. Bernanke said. “We welcome similar approaches by other countries.” He said he endorsed an earlier statement at the meeting from Christine Lagarde, the director of the International Monetary Fund, who had said the risk of a currency war was “overblown.”
          
    The global recovery has become unbalanced, Ms. Lagarde said in her statement to the group. Developed countries are swooning, while the emerging markets bounced back quickly, and yet such countries, including Russia, have been critical of the stimulus efforts of the developed nations. Japan’s devaluation of the yen is “sound policy,” she said.
           
    “The international monetary system can function effectively if each country follows the right policies for their domestic economies,” she said, ultimately lifting the tide of the global marketplace.
    Ms. Lagarde did caution that too bald a ploy to prop up exports would not count as a justified weakening of a currency.
     
    Germany’s finance minister offered a contrarian view, saying that countries should not use easy money to avoid reducing their deficits over the long term, with measures like reducing government waste.
    The Russian finance minister, Anton Siluanov, the host of the meeting, has also been pushing for a strong statement against competitive devaluations in the final communiqué from the forum, expected Saturday. Mr. Siluanov said in his opening remarks that a statement endorsing market mechanisms to set exchange rates would “find a place in the communiqué.”
    That reiterated the position of a statement issued by the Group of 7 earlier this week. But it now seems a watered-down version is more likely
    .
    Because loose monetary policy encourages economic growth while also helping exports, critics of such tactics say these are distinctions without a difference.
     
     
    While institutional money can finance these properties “better than Mom and Pop investors in the current tight mortgage credit environment, this would likely change as the economy continues to recover and mortgage availability goes up,” Sandeep Bordia, head of residential and commercial credit strategy at Barclays Plc wrote in a report this month.
    Whether the single-family rental market grows from “a $10 to $20 billion market to a $100 to $200 billion market” will depend “on how successfully institutional investors are able to execute over the next few years,” Bordia said.

    Highly Fragmented

    Transactions involving investors jumped 75 percent in November from a year earlier in 25 metropolitan areas tracked by Radar Logic Inc. It’s a market that could total 12 million homes, JPMorgan analysts led by Anthony Paolone wrote in a note last month.
    “The single-family rental business is highly fragmented and management-intensive, just like self-storage,” said Michael Knott, a managing director at Green Street Advisors, a Newport Beach, California-based firm that tracks REITs. “However, two bright spots about storage seem to be lacking in this new endeavor: it may be harder to scale than storage and it certainly has much greater capital expenditure requirements.”
    Blackstone, the largest U.S. private real estate owner and the only firm with more homes than Hughes, has spent $3 billion on rentals, Jonathan Gray, Blackstone’s global head of real estate said today at a Credit Suisse Financial Services Forum in Miami. Blackstone said last month it spent $2.7 billion on 17,000 properties, accelerating purchases as prices rose faster than anticipated.

    Blackstone Warehousing

    The New York-based firm, which started buying single-family houses last year, has bought so quickly it’s “warehousing” more than half of the inventory as it completes purchases, renovates and rents the properties, Gray said in January.
    Colony Capital LLC, a Santa Monica, California-based firm headed by Thomas Barrack, has bought more than 8,000 homes, the third most after Schwarzman and Hughes

    6---(From the archive)  AOL’s Real Estate blog, “‘Shadow REO’: As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest“, naked capitalism
    http://www.nakedcapitalism.com/2012/07/realtytrac-corelogic-confirm-housing-bear-thesis-85-90-of-reo-being-held-off-market-meaning-tight-inventories-are-bogus.html#dlF2tL8YXT66H1KV.99
    As many as 90 percent of REOs are withheld from sale, according to estimates recently provided to AOL Real Estate by two analytics firms. It’s a testament to lenders’ fears that flooding the market with foreclosed homes could wreak havoc on their balance sheets and present a danger to the housing market as a whole.
    Online foreclosure marketplace RealtyTrac recently found that just 15 percent of REOs in the Washington, D.C., area were for sale, a statistic that is representative of nationwide numbers, the company said.
    Analytics firm CoreLogic provided an even lower estimate, suggesting that just 10 percent of all REOs in the country are listed by their owners, which include mortgage giants Fannie Mae and Freddie Mac as well as the Federal Housing Administration. As of April 2012, 390,000 repossessed homes sat in limbo, while about 39,000 were actually listed for sale, said Sam Khater, senior economist at CoreLogic.
    Daren Blomquist, vice president of RealtyTrac, said that he was surprised by his company’s finding, especially since a similar analysis in 2009 found that banks were attempting to sell nearly twice as much of their REO inventory back then.
    And the article presents the obvious conclusion, that keeping homes off the market is leading to higher prices than you’d see if they were put up for sale:
    In fact, if lenders turn their REO release valve to full blast, the deluge of foreclosures cascading onto the market could plunge the country into a recession, said Thomas Martin, president of consumer advocacy group Americas Watchdog.
    “If they let the dam essentially break. It could be a catastrophic disaster for the U.S. economy,” he said, predicting that some major banks would fail and home prices would nosedive by 20 percent.
    That doomsday scenario has many industry professionals supporting lenders’ tactics of holding onto most of their REOs. Otherwise, they would be “causing the floor to fall out from underneath the entire market,” Faranda said. He added that banks don’t have the manpower to push the paperwork required to put all their foreclosures on the market.
    Of course, the discussion focuses on how much price manipulation is justified, as opposed to the real problem: we have had, and continue to have, far too many foreclosures and far too few mortgage modifications. But the solution seems to be to zombify the housing market rather than make servicers change their ways.

    7---'Shadow REO': As Many as 90% of Foreclosed Properties Held Off the Market, Estimates Suggest, AOL real estate

    8---Manipulating the market and gouging the public is a strategy that works, firedog lake

    One of the main reasons for the alleged recovery in housing prices comes from this constraint on supply. With fewer and fewer homes on the market, the bidding for what’s left available goes higher. Prices rise and distressed sales fall (because the distressed sales are kept off the market). There are other factors, but shadow REO of up to 85-90% is a huge one that doesn’t play into most analyses.
    There are all kinds of reasons for this. Lenders have to book a loss when they sell a property, and can keep the loss off their books until that time. So this is a classic extend and pretend move. But there’s more. While these homes may be in disrepair (roof damage, mold, plumbing, etc.) when vacated and need to get brought back into a salable form, the bigger issue is that properties still technically in foreclosure are subject to something called “property preservation.” The servicer does inspections of the property and collects fees. And there are indications that they are making thousands of dollars per property, in some cases thousands a MONTH, by abusing property preservation fees. The investors are getting fleeced by this penny-ante scheme. It’s not on the level of foreclosure fraud as a whole, but it shows another way the servicers benefit from foreclosure, by larding on fees after the eviction but before the sale.
    But I see the major issue as Yves Smith does, with the creation of artificially “tight” inventories boosting the housing market.
    But we’ve seen so much evidence that the inventories that the commentators are looking at are misleading it isn’t funny. Banks were attenuating foreclosures even before the robosigning scandal broke. In the states with real housing distress, banks will take foreclosures up to the stage of actually taking title from the owner, and let it sit in limbo for a protracted period. But in addition to delays in real estate being taken into REO, there is also evidence of banks simply not putting real estate owned by securitizations, the GSEs, or the banks themselves, on the market, thus keeping it out of visible inventories. For instance, numerous NC readers report they see vacant homes, want to make an offer, and can’t find out who to contact to do so. That is a pretty strong sign that those homes are also not in official REO inventories [...]
    Of course, the discussion focuses on how much price manipulation is justified, as opposed to the real problem: we have had, and continue to have, far too many foreclosures and far too few mortgage modifications. But the solution seems to be to zombify the housing market rather than make servicers change their ways.
    This has to be included in the great housing market recovery or not debate. We appear to have banks keeping inventory off the market deliberately to gouge prices upward and give the impression of recovery. And so far it’s actually working

    9---Iraq is worse off now, NS

    The greatest weapon of mass destruction turned out to be the invasion itself. Over the past ten years, Iraqis have witnessed the physical, social and economic destruction of their country – the aerial demolition of schools, homes and hospitals; the siege of cities such as Fallujah; US-led massacres at Haditha, Mahmudiyah and Balad; the biggest refugee crisis in the Middle East since the ethnic cleansing of Palestine in 1948.

    Between 2003 and 2006, according to a peer-reviewed study in the Lancet medical journal, 601,000 more people died in Iraq as a result of violence – that is, bombed, burned, stabbed, shot and tortured to death – than would have died had the invasion not happened. Proportionately, that is the equivalent of 1.2 million Britons, or six million Americans, being killed over the same period. In a typically defensive (and deceptive) passage in his memoirs, Blair described the Lancet report as “extensively challenged” and said its figures were “charged with being inaccurate and misleading”. Sir Roy Anderson, the then chief scientific adviser to the Ministry of Defence, told ministers in an internal memo that its methods were “close to ‘best practice’” and the study design was “robust”....

    Despite the bloodshed, isn’t their nation better off as a result of the war? Not quite. “Let me clear it up for any moron with lingering doubts,” wrote the Iraqi blogger known by the pseudonym Riverbend on her blog Baghdad Burning in February 2007. “It’s worse. It’s over. You lost... You lost every sane, red-blooded Iraqi when the Abu Ghraib pictures came out... You lost when you brought murderers, looters, gangsters and militia heads to power...”

    10----Foreclosures Fall Due to New Laws, CNBC

    Foreclosure activity continued to drop in January, led by dramatic changes in the state that once led the nation in foreclosures. A new law in California, the "Homeowner Bill of Rights," makes it much harder and potentially more costly for banks to foreclose; hence they are suddenly finding alternatives.
    "The new law imposes fines of up to $7,500 per loan for filing of multiple unverified foreclosure documents. As a result, the downward foreclosure trend in California accelerated into hyper speed in January, decisively shifting the balance of power when it comes to the nation's foreclosure activity," said RealtyTrac's Daren Blomquist....

    States that require a judge in the foreclosure process, like Illinois and New Jersey, saw big January jumps in foreclosure auctions (sales back to the bank or to an investor), but non-judicial states saw the biggest increases in newly started foreclosures. In Nevada, where new legislation slowed the process dramatically last year, foreclosure starts were up 87 percent from a year ago.
    While the numbers can be parsed in many ways, the bottom line is that while fewer borrowers are getting into trouble, an enormous backlog of distress is still moving through the foreclosure system, in some places quite quickly, and in others ever more slowly. Until the overall numbers come down to a more normal level, any speculation on overall price stability is risky at best.

    11---Financial Crisis Cost Tops $22 Trillion, GAO Says, Huffington Post

    The 2008 financial crisis cost the U.S. economy more than $22 trillion, a study by the Government Accountability Office published Thursday said. The financial reform law that aims to prevent another crisis, by contrast, will cost a fraction of that.

    "The 2007-2009 financial crisis, like past financial crises, was associated with not only a steep decline in output but also the most severe economic downturn since the Great Depression of the 1930s," the GAO wrote in the report. The agency said the financial crisis toll on economic output may be as much as $13 trillion -- an entire year's gross domestic product. The office said paper wealth lost by U.S. homeowners totalled $9.1 billion. Additionally, the GAO noted, economic losses associated with increased mortgage foreclosures and higher unemployment since 2008 need to be considered as additional costs.

    12---Wall Street's fascination with rentals, Dr Housing Bubble

    Locking up supply for years to come
    There was an interesting piece discussing this trend with JPMorgan diving into the rental party:
    “(Bloomberg) New York-based JPMorgan, whose private bank oversees $877 billion, started pooling investments from its clients in mid- 2012 into a partnership to purchase distressed properties, betting that prices will rise over the next several years and provide investors with income from renters along the way, said Lyon. The firm uses a third-party manager to find homes, buy and manage them, he said, declining to name the firm.
    The goal is to sell the houses within three to four years in one of three ways: through an initial public offering of a real estate investment trust, a sale to an existing REIT or to an institutional buyer such as a pension fund, Lyon, who’s based in San Francisco, said. Clients will receive a share of any price appreciation depending on the size of their investment.”
    I find this interesting. First, we know that banks have prolonged the foreclosure process although it has somewhat improved in the last year as banks are selling into the current momentum




       

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