Friday, March 8, 2013

Today's links

1---Norway Cracks Down on Mortgage Debt to Fight Bubble Risk, Bloomberg

As central banks in the U.S., Japan and the euro area keep interest rates at unprecedented lows to aid growth, some of the world’s richest countries like Norway, Switzerland and Sweden are battling overheated housing markets fueled by cheap money. Norway’s central bank has kept its main rate at 1.5 percent since March last year as policy makers try to balance an overheated housing market against keeping krone gains in check.

Low interest rates have contributed to imbalances in the housing market that the FSA says can’t go unfettered any longer. Banks’ internal risk models have also failed to capture the threat of losses that the development has caused, according to the regulator.

“We endorse the Finance Ministry’s view that risk weights in the banks’ internal risk models do not sufficiently capture the underlying relevant risk on residential mortgage lending, particularly the systemic risk involved,” Baltzersen said

2---The Life and Legacy of Hugo Chavez, venezuelanalysis

3---Return of the housing bubble, Macleans

Around the world, housing is fuelling a whole new frenzy of speculation and unrealistic optimism...

America’s housing market suddenly seems to be springing to life once more. Nationally, prices jumped more than 12 per cent in January over the previous year, the largest increase since 2006. Prices are up in more than 100 cities, according to real estate data firm Zillow, with increases above 10 per cent in more than 47 major centres.

They’ve been led by massive, some say speculative, booms in areas like Florida, Arizona and California that were the hardest hit in the financial crash. Local buyers are competing with private equity firms who have spent an estimated $8 billion snapping up foreclosed homes to turn into rentals....

 the new real estate boom is once again looking to be a global phenomenon. Swiss bank UBS warned in December that its national “real estate bubble index” had hit its highest point in 20 years, prompting the government in February to require Swiss banks to hold more capital reserves. Home prices in Norway have quadrupled over the past decade, even adjusted for inflation, with the International Monetary Fund warning the country’s housing market may be overvalued by 20 per cent. Home prices in Hong Kong are up more than 160 per cent since 2008, with the IMF warning of a “risk of an abrupt correction.” Even Ireland, where prices fell more than 40 per cent at the depths of the crash, reported its largest price increase in December since its housing market collapsed...

The idea of a lasting rebound in house prices also ignores the lessons of history, the Yale economist Shiller says in an interview. “There are people who want to say that it has turned around,” he says. “I’m a little on the pessimistic side. There’s too much history of long declines in asset prices after big financial catastrophes.” It is also worth noting that there’s no clear reason why house prices should be taking off now in the U.S. Unemployment actually rose in January, while consumer confidence dropped to its lowest levels in more than a year.

Shiller has charted American home prices from 1890 to 1990 and found that when adjusted for inflation, prices didn’t actually go up at all over the entire 100 years. Add in the cost of maintaining a home and the fact that buyers tend to prefer new properties to older homes and Shiller says in the long run housing makes a pretty lousy investment.

4---Palast on Chavez, Truthout

In Caracas, I ran into the reporter for a TV station whose owner is generally credited with plotting the coup against the president. While doing a publicity photo shoot, leaning back against a tree, showing her wide-open legs nearly up to where they met, the reporter pointed down the hill to the "ranchos," the slums above Caracas, where shacks, once made of cardboard and tin, where quickly transforming into homes of cinder blocks and cement.

"He [Chavez] gives them bread and bricks, so they vote for him, of course." She was disgusted by "them," the 80 percent of Venezuelans who are negro e indio (black and Indian) - and poor. Chavez, himself negro e indio, had, for the first time in Venezuela's history, shifted the oil wealth from the privileged class that called themselves "Spanish," to the dark-skinned masses.

While trolling around the poor housing blocks of Caracas, I ran into Arturo Quiran, a local merchant seaman, and no big fan of Chavez. But over a beer at his kitchen table, he told me,

"Fifteen years ago under [then-President] Carlos Andrés Pérez, there was a lot of oil money in Venezuela. The 'oil boom' we called it. Here in Venezuela there was a lot of money, but we didn't see it."

But then came Hugo Chavez and now the poor in his neighborhood, "get medical attention, free operations, x-rays, medicines; education also," he said. "People who never knew how to write, now know how to sign their own papers."

Chavez's Robin Hood thing, shifting oil money from the rich to the poor, would have been grudgingly tolerated by the US. But Chavez, who told me, "We are no longer an oil colony," went further - too much further, in the eyes of the American corporate elite.

5---Top Bankers: Too Much Central Bank Easing Is Becoming Dangerous, washingtons blog

the heads of many of the world’s biggest banks are saying that the amount of liquidity which the central banks are flooding into the economy is becoming dangerous.
Agence France-Presse reports:

An influential group of leading world banks warned Thursday that central banks are pumping out too much easy money and markets risk becoming dangerously addicted to ultra-low interest rates.

The Institute of International Finance, which groups 450 banks, said that if central banks continue to flood money into the global economy, then any future bid to get it under control could itself destabilize the financial system.

“These conditions — quantitative easing, very low interest rates — cannot last forever, but the risk is that financial markets have become addicted to them,” it warned.

“The longer central bank liquidity is relied on to hold things together, the more excesses and distortions are being accumulated in the financial system. An eventual unwinding of these excesses will become a destabilizing risk event.”

IIF deputy managing director Hung Tran said that central bankers should be aware of “the unintended consequences of their actions” and make clear how they expect to adjust monetary policy over the long term.

“This would help lessen the risk of large swings in financial markets,” he said.

US Federal Reserve chief Ben Bernanke last week downplayed worries that liquidity was fueling fresh bubbles in financial markets. But he added that the Fed — which has held its key rate near zero since the end of 2008 — was monitoring the situation.
 
6--- Roubini; Problems with Fed's exit strategy, Bloomberg video

7----'Six-Fold Increase in College Tuition over the Last 30 Years', economists view
Via ThinkProgress:
...CNN Money reports:
Average tuition costs – the amount students paid in tuition and fees after state and institutional aid was taken into account — rose by 8.3% to an average of $5,189 in the 2011-12 school year ,the State Higher Education Executive Officers Association reported. In the previous academic year, students paid an average of $4,793.
At the same time, state and local funding for operating expenses, research and student aid fell by 9% to $5,896, the lowest level in 25 years, said association president Paul Lingenfelter.
The upward trend is likely to continue in 2013, since state governments plan to spend 10.8 percent less on higher education this year than they did in the year prior to the Great Recession. ... The decrease in funding has contributed to the six-fold increase in college tuition over the last 30 years. ...
We're headed in thewrong direction.

8---The War On Entitlements', economists view
http://economistsview.typepad.com/economistsview/2013/03/the-war-on-entitlements.html

Dean Baker's blog is called "Beat the Press," but he praised this effort (the original is quite a bit longer, and makes additional points):
The War On Entitlements, by Thomas Edsall, Commentary, NY Times: ...Currently, earned income in excess of $113,700 is entirely exempt from the 6.2 percent payroll tax that funds Social Security benefits... Simply by eliminating the payroll tax earnings cap — and thus ending this regressive exemption for the top 5.2 percent of earners — would, according to the Congressional Budget Office, solve the financial crisis facing the Social Security system.
 
9---The Market Speaks,  Paul Krugman,  NY Times

Four years ago, as a newly elected president began his efforts to rescue the economy and strengthen the social safety net, conservative economic pundits — people who claimed to understand markets and know how to satisfy them — warned of imminent financial disaster. Stocks, they declared, would plunge, while interest rates would soar. Even a casual trawl through the headlines of the time turns up one dire pronouncement after another. ...
Sure enough, this week the Dow Jones industrial average has been hitting all-time highs, while the current yield on 10-year U.S. government bonds is roughly half what it was...
O.K., everyone makes a bad prediction now and then. But ... the important point ... is that they came from people who constantly invoke the potential wrath of the markets as a reason we must follow their policy advice. Don’t try to cover America’s uninsured, they told us; if you do, you will undermine business confidence and the stock market will tank. Don’t try to reform Wall Street, or even criticize its abuses; you’ll hurt the plutocrats’ feelings, and that will lead to plunging markets. Don’t try to fight unemployment with higher government spending; if you do, interest rates will skyrocket.
And, of course, do slash Social Security, Medicare and Medicaid right away, or the markets will punish you...
 
10---Still in Search of Expansionary Fiscal Contraction, econbrowser

The revisions in Euro zone and UK GDP figures have confirmed the lackluster performance in economies where rapid fiscal consolidation has been implemented. In the Euro zone, estimated growth has now been negative for five quarters. And in the UK, revised figures indicate negative growth for 2012Q4. In contrast, the US has exhibited continued, albeit modest, growth.

11----Jeremy Stein, The risks of QE and zirp---"chaing yield", De long

It is Stein's judgment that right now whatever benefits are being provided to employment and production by the Federal Reserve's super-sub-normal interest rate policy and aggressive quantitative easing are outweighed by the risks being run by banks that are reaching for yield....


As I understand Jeremy Stein's view, it goes more or less like this:
Bankers want profits. Bankers fear reporting losses, for a bank officer who reports a loss is likely to lose his or her job. And a bank has costs above and beyond the returns on its portfolio. For each dollar of deposits it collects, a bank must spend 2.5 cents per year servicing those deposits.

In normal times, when interest rates are well above 2.5 percent per year, banks have a normal, sensible attitude to risk and return. They will accept greater risk only if they come with returns higher enough to actually diminish the chances of reporting a loss. But when interest rates fall low enough that even the most sensible portfolio cannot reliably deliver a return on the portfolio high enough to cover the 2.5 cent per year cost of managing deposits, a bank will "reach for yield" and start writing correlated unhedged out-of-the-money puts so that it covers its 2.5 percent per year hurdle unless its little world blows up. Banks stop reducing their risk as falling returns mean that diversification and margin can no longer be counted on to manage them but instead embrace risks. They are not gambling for resurrection--they are not insolvent. But they are gambling for job tenure--and they do so in ways that regulators are unlikely to be able to catch.

In the late 1980s, when the savings and loans of Texas found themselves underwater, they mobilized their senators to get them regulatory forbearance so that they could use risk, chance, and the government's guarantee of their deposits to try to refloat themselves. If they did not try, they would be shut down. If they won, good. And if they lost--well, that was the government's problem. They lost--and the government had to set up the RTC and ride out the 1991 recession.

Stein's contention is that the same processes are now growing in America's commercial banking sector, growing larger with each year that interest rates remain at their current super-sub-normal levels.

It is Stein's judgment that right now whatever benefits are being provided to employment and production by the Federal Reserve's super-sub-normal interest rate policy and aggressive quantitative easing are outweighed by the risks being run by banks that are reaching for yield.

I do not know why this is Stein's judgment. I do not know how I would go about making such a judgment. I do think that Stein's arguments are one more reason that we ought to have a much more aggressive and expansionary fiscal policy--that we should not be satisfied with the current macroeconomic situation not just because of the out-of-equilibrium sub-normal level of employment, but also the out-of-equilibrium sub-normal level of interest rates--and a more aggressive and expansionary monetary policy via a higher inflation target as well.

12----Bernanke versus Stein, economists view
http://economistsview.typepad.com/economistsview/2013/03/bernanke-versus-stein.html 
 
Neil Irwin has anice summary of this debate:
Jeremy Stein, a Fed governor since last May ... argued in a Feb. 7 speech that there are already signs of overheating in the markets for certain kinds of securities, including junk bonds and real estate investment trusts that invest in mortgages. And if those or other potential bubbles get so large that if they popped the whole U.S. economy could be in danger, he argued, there is a case for using the Fed’s most blunt tool to combat them—raising interest rates across the economy.
Stein isn’t ready to do that just yet ... but some of his colleagues are... The nub of the argument ... is that when financial bubbles arise, it’s hard to know with certainty where they are and how big a risk they pose, so it’s not enough for regulators to try to stamp them out. Higher interest rates may be a blunt tool, but at least you know they will be effective. If the last 15 years have taught us anything, it is that financial bubbles can wreak huge damage to the economy, so it’s worth it to try to nip them in the bud.
The two most powerful Fed officials have offered, in speeches Friday night and Monday morning, what amounts to a riposte to these arguments. “Long-term interest rates in the major industrial countries are low for good reason,” Chairman Ben Bernanke said Friday evening... “Premature rate increases would carry a high risk of short-circuiting the recovery, possibly leading–ironically enough–to an even longer period of low long-term rates.”
 
13---Hated by the Rich, Adored by the People: Hugo Chavez, counterpunch
 
14---North Korea ends non-aggression pacts with South, cuts hotline, RT
 
15---Patrick Cockburn on "The Surge", counterpunch archive 2008
 
The perception in the US that the tide has turned in Iraq is in part because of a change in the attitude of the foreign and largely American media. The war in Iraq has now been going on for five years, longer than the First World War. The world is bored with it. US network television maintains expensive bureaus in Baghdad but little of what they produce gets on the air. When it does viewers turn off. US newspaper bureaus are being cut in size. The result of all this is that the American voter hears less of violence in Iraq and might suppose that America’s military adventure there is finally coming good.
 
An important reason for this optimism is the fall in the number of American soldiers killed. The 30,000 US soldiers wounded in Iraq are seldom mentioned. This has happened because the war which was being waged against the American occupation by the Sunni community, the 20 per cent of Iraqis who were in control under Saddam Hussein, has largely ended. It did so because the Sunni were being defeated not so much by the American army as by the Shia government and the Shia militias.....

In so far as the surge has achieved military success it is because it implicitly recognizes America’s political defeat in Iraq. Whatever the reason that President Bush decided to invade Iraq and overthrow Saddam Hussein in 2003 it was not to place the Shia Islamic parties in power and increase the influence of Iran in Iraq. Yet that is exactly what has happened.

The surge only achieved the degree of success it did because Iran decided to back fully the government of prime minister Nouri al-Maliki. It had played a central role in getting him appointed in 2006. It negotiated a ceasefire between the Iraqi government and the powerful movement of Muqtada al-Sadr in Basra at the end of March. It got him to call his militiamen off the streets there and again two months later in the Sadrist stronghold of Sadr City. It is very noticeable that in recent weeks the US has largely ceased its criticism of Iran. This is partly because of American preoccupation with Russia since the fighting began in Georgia in August. But it is also an implicit recognition that US security in Iraq is highly dependent on Iranian actions.

Gen Petraeus has had a measure of success in Iraq less because of his military skills than because he was one of the few American leaders to have some understanding of Iraqi politics. In January 2004 when Gen Petraeus was commander of the 101st Airborne Division in Mosul I asked him what was the most important piece of advice he could give to his successor. He replied that it was ‘not to align too closely with one ethnic group, political party, tribe, religious group or social element.’ But today the US has no alternative but to support Mr Maliki and his Shia government and to wink at the role of Iran in Iraq. If Senator McCain supposes the US has won a military victory, and as president acts as if this was true, then he is laying the groundwork for a new war.

16---From El Salvador to Iraq: Washington's man behind brutal police squads, uruknet

17---Revealed: Pentagon's link to Iraqi torture centres, uruknet

18---The Battle of Baghdad, Cockburn archive counterpunch 2007

At first the Shia were very patient in the face of atrocities. Vehicles, packed with explosives and driven by suicide bombers, were regularly detonated in the middle of crowded Shia market places or religious processions, killing and maiming hundreds of people.

The bombers came from al-Qa’ida, but the attacks were never wholeheartedly condemned by Sunni political leaders or other guerrilla groups. The bombings were also very short sighted since the Iraqi Shia outnumber the Sunni three to one. Retaliation was restrained until a bomb destroyed the revered Shia al-Askari shrine in Samarra on 22 February, 2006.

The bombing led to a savage Shia onslaught on the Sunni which became known in Iraq as ‘the battle for Baghdad’. This struggle was won by the Shia. They were always the majority in the capital, but by the end of 2006 they controlled 75 per cent of the city. The Sunni fled or were pressed back into a few enclaves, mostly in west Baghdad.

In the wake of this defeat there was less and less point in the Sunni trying expel the Americans when the Sunni community was itself being evicted by the Shia from large parts of Iraq. The Iraqi Sunni leaders had also miscalculated that an assault on their community by the Shia would provoke Arab Sunni states like Saudi Arabia and Egypt into giving them more support but this never materialized.

It was al-Qa’ida’s slaughter of Shia civilians, whom it sees as heretics worthy of death, which brought disaster to the Sunni community. Al-Qa’ida also grossly overplayed its hand at the end of last year by setting up the Islamic State of Iraq which tried to fasten its control on other insurgent groups and the Sunni community as a whole. Sunni garbage collectors were killed because they worked for the government and Sunni families in Baghdad were ordered to send one of their members to join al Qai’da. Bizarrely, even Osama bin Laden, who never had much influence over al Qa’ida in Iraq, was reduced to advising his acolytes against extremism.

Defeat in Baghdad and the extreme unpopularity of al Qa’ida gave the impulse for the formation of the 77,000-strong anti al-Qa’ida Sunni militia, often under tribal leadership, which is armed and paid for by the US. But the creation of this force is a new stage in the war in Iraq rather than an end to the conflict.

19---Take The Zero-Hedge Test, cassandra


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