Wednesday, August 7, 2013

Today's links

1---President Obama Comes Out for Subsidizing Mortgage Backed Securities, CEPR

Traveling to Phoenix on Tuesday, Obama is planning to call for a new system, built in part on government backing, that will enable wide access to 30-year mortgages, which are a rarity in other countries. That will require, officials said, some form of government guarantee that means lenders will be reimbursed by taxpayers in the event of a housing catastrophe like the one that occurred several years ago."

In fact, government backing is not necessary for 30-year mortgages, as is shown by the existence of the 30-year jumbo mortgages which are too large to be eligible for government guarantees. The interest rate on these mortgages is typically 0.25-0.50 percentage points higher than the interest rate on conforming loans that can be purchased by Fannie Mae and Freddie Mac.

So the story here is not really about the existence of 30-year mortgages, but rather the price. The program being pushed by President Obama effectively subsdizes mortgage interest rates by subsidizing mortgage backed securities. If the goal to make homeownership more affordable for moderate income people, this is an extremely inefficient way of doing so.

2---Slow down the deficit reduction or else, NYT

The central fact at the heart of any rational fiscal debate right now is that deficits are coming down fast, even as the economy remains depressed. The sharp decline in deficits means that the medium-term debt outlook is no longer remotely scary; indeed, even if you project out to 2030 it doesn’t look too bad. At the same time, sharply reducing deficits in a depressed economy, with interest rates up against the zero lower bound, looks like extremely bad macro policy.
So that’s what we should be discussing: do we want deficits coming down this fast?

3---IMF warns about "tapering", Financial Post

Unwinding a policy of record-low interest rates and US$85-billion in monthly bond-buying known as quantitative easing will be challenging even though the Fed has “a range of tools” to withdraw the stimulus, the IMF staff wrote in its annual assessment of the U.S. economy.
“Effective communication on the exit strategy and a careful calibration of its timing will be critical for reducing the risk of abrupt and sustained moves in long-term interest rates and excessive interest-rate volatility as the exit nears,” according to the concluding statement released today.

Such moves “could have adverse global implications, including a reversal of capital flows to emerging markets and higher international financial market volatility,” the staff said in the report.
Concern is already showing, with almost US$3-trillion that has been erased from the value of global equities since Fed Chairman Ben S. Bernanke said May 22 the central bank could scale back stimulus efforts should the job market outlook show “sustainable improvement

4--Boomerang Babies; A crisis in the making, naked capitalism

America’s young people have been hit so hard by the crappy economy that they can’t even get out the door. A fresh study from Pew Research reveals that 36 percent of Millennials — young adults ages 18 to 31 — are still living under their parents’ roofs (this includes college students who come home for breaks). Not since the 1960s have so many young people resorted to couch surfing with mom and dad, a record 21.6 million young adults last year.
This is a gigantic sign that something is going horribly wrong in our economy—something that will cost everybody.

The Wages of Recession
The U.S. has seen a significant uptick of young people unable to afford to move out on their own since the start of the Great Recession in 2007, when just 32 percent lived with their parents. And if you look beyond college years to the 23-28 range, the number living with parents leapt by more than 25 percent bewteen 2007 and 2011, according to the Census Bureau. Clearly, the ongoing jobs crisis is a major cause: 63 percent of Millennials had jobs in 2012, down from 70 percent in 2007. Young people continue to face a jobs crisis even as the economy improves, as Catherine Ruetschlin and Tamara Draut of the public policy think tank Demos have found. They are facing a deficit of 4 million jobs, with African Americans and Hispanics worst hit.

5---US growth and jobs figures point to continuing economic breakdown, wsws

Over the past three quarters the US economy has grown at an annualized rate of only 0.96 percent, exposing the claims of the Obama administration that a “recovery” is underway. The fact that the US economy is able to achieve a growth rate just one sixth of the post-World War II average indicates that deep structural changes have taken place within the American economy and anything approaching previous growth rates will not be seen again.

Some of these changes were highlighted in an analysis published by the Financial Times on July 24. Headlined “Corporate Investment: A Mysterious Divergence,” the article noted that there was an increasing disconnect between the level of profits and the rate of investment. This is decisive because, in the final analysis, investment—the purchase of new plant and equipment and the hiring of new workers to increase production—is the key driver of the expansion of the capitalist economy.
The article noted that up until the late 1980s, profits and net investment had tracked each other, both recording about 9 percent of GDP. But after that time, the figures began to diverge, with the gap widening significantly after 2009.

While pre-tax corporate profits are at record highs, amounting to 12 percent of GDP, net investment is barely 4 percent of output. This is despite the fact that the cost of equity capital is low, as are interest rates. Increased profits are not being used to expand production, as took place in the past, but are increasingly being used to finance stock buybacks, so as to increase the rate of return on shareholders’ capital.

Under what were once “normal” conditions, increased profits would lead to greater investment, higher production and an increase in wages, leading to an expanding market. Today, however, wages are falling as a share of GDP.

This result indicates that rising profits are no longer being produced by an expansion of the market, as they were in the past, but are increasingly the result of cost-cutting, as firms raise their bottom line by grabbing an increased share of a stagnant or contracting market from their rivals. In other words, the once “normal” process of capitalist accumulation—increasing investment leading to an expanding market, higher profits and further investment—has completely broken down.

Another major factor is the continuing impact of the financial crisis and the so-called “great recession,” which has delivered the greatest shock to the US economy since the Great Depression of the 1930s.
A recent study by staff at the Dallas Federal Reserve estimated that the financial crisis has cost the US as much as $14 trillion, equivalent to one year’s output by the entire economy

6---The more nefarious US foreign policy, the more it relies on media complicity, mark weisbrot, Guardian

Americans are shielded from the ugly consequences of US military power by our journalists' self-censorship

The episode was about the 1982 massacre in Guatemala. The story gives compelling eyewitness accounts of a horrendous slaughter of almost the entire village of Dos Erres, more than 200 people. The women and girls are raped and then killed; the men are shot or bludgeoned with sledgehammers; and many, including children, are dumped into a dry well – some while still alive – that would become their mass grave. The broadcast walks the listener through a heroic investigation of the crime – the first ever to win punishment for such murders. And finally, it provides a moving account of one survivor who was three years old at the time. Three decades later, while living in Massachusetts, he discovers his roots and his biological father as a result of the investigation. The father lost his wife and his eight other children, but he survived because he happened to be out of town on the day of the massacre.

The story makes it clear that this bloodbath was one of many:
This happened in over 600 villages, tens of thousands of people. A truth commission found that the number of Guatemalans killed or disappeared by their own government was over 180,000.
But there is one striking omission: the US role in what the UN Truth Commission in 1999 later determined to be genocide. The UN specifically noted Washington's role and President Clinton publicly apologized for it – the first and, to my knowledge, the only apology from an American president for US involvement in genocide. The US role in providing arms, training, ammunition, diplomatic cover, political and other support to the mass murderers is well-documented, and has gotten some more documentation and attention as a result of the recent trial of former military dictator General Efraín Ríos Montt, who ruled from 1982-83. (As Bhatt notes, the program states the US embassy had heard reports of massacres during this time but "dismissed" them; but this is very misleading at best – there are cables showing that the embassy clearly knew what was going on.)
In fact, one of the soldiers who participated in the Dos Erres massacre, Pedro Pimentel, who later was sentenced to 6,060 years in prison, was airlifted the day after the mass murder to the School of the Americas, the US military facility known for training some of the region's worst dictators and human rights violators.

It is astonishing that one of the worst genocides of the post-second world war era was allowed to reach its peak, just a couple of hours of flying time from the US mainland, with almost no media reporting on it. Here you can find investigative journalist Allan Nairn interviewing a Guatemalan soldier in 1982, who describes how he and his comrades murdered whole villages, as in Dos Erres. And yet, the major media ignored it, allowing Ronald Reagan to promote Ríos Montt as "a man of great personal integrity and commitment"....

Scott Wilson, who was a foreign editor at the Washington Post and covered Venezuela during the short-lived coup against the democratically elected government of Venezuela in 2002, stated in an interview that "there was US involvement" in the coup. Yet, this important fact never appeared anywhere in the Post, nor was it reported by any major US media outlets, despite considerable evidence from US government documents that it was true. Again, this is arguably the most important part of the story for a US audience – especially since it played a major role in poisoning relations between Washington and Caracas over the past decade and probably had a significant impact on relations with the whole continent of South America. But, as in the Dos Erres story, the US role in the crime is unmentionable.

The same is true for the US role in the coup that destroyed Honduran democracy in 2009. The Obama administration's considerable efforts to support and legitimize the coup government were not considered to be newsworthy by US journalists. (A program on Honduras was Bhatt's other shot at "This American Life", where it left the US-supported coup out of a picture in which it should have had a prominent place.) But this, too, is off limits for US media.

What would US foreign, military and so-called "national security" policy look like if the media reported the most important facts about it? There would be a lot fewer corpses abroad and returning home. And we wouldn't be cutting "meals on wheels" or other nutrition programs for the poor or elderly in order to sustain the world's most fantastically bloated military budget.

7---Freddie Mac takes the first step in transferring mortgage default risk to the private sector , sober look

8--Housing: Sharp uptick in supply smacks of desperation, mark hanson

9---Obama proposes allowing banks to dump bad private loans on taxpayers, oc housing

The good news is that there’s a bipartisan group of Senators working to end Fannie and Freddie as we know them. I support these kinds of efforts, and today I want to lay out four core principles for what I believe this reform should look like.
First, private capital should take a bigger role in the mortgage market. … I believe that while our housing system must have a limited government role, private lending should be the backbone of the housing market, including community-based lenders who view their borrowers not as a number, but as a neighbor

10--More Obama speech, CNBC

Applications to refinance are already down nearly 60 percent from a year ago, according to the Mortgage Bankers Association. Mortgage rates on the 30-year fixed rose from 3.5 percent in May to nearly 5 percent in July, settling now around 4.5 percent.
The government's Home Affordable Refinance Program has been successful, allowing more than 2 million borrowers, some with negative home equity, to take advantage of lower rat, but only borrowers with government-backed mortgages qualify.

That has left millions of borrowers out. Obama has pushed for more refinancing in the private mortgage market and will call for it once again. Senior administration officials, however, admit that "the window is closing given interest rates coming up over the last few months."

11---Between 2000 and 2010, immigrants accounted for almost 40 percent of new homeowners nationwide, ds news

To help responsible homeowners refinance, the president also backs three proposals, which are to streamline refinancing for borrowers with government-insured mortgages, waive closing costs for borrowers who refinance into shorter terms, and expand eligibility for refinancing for those without government-backed mortgage by creating special programs, according to the fact sheet. ....

The fact sheet stated that between 2000 and 2010, immigrants accounted for almost 40 percent of new homeowners nationwide, and account for over 80 percent of the growth in homeowners in California.

12---One chart, economist
Home-ownership rates are at their lowest since 1995
20130803_INC175
Source: Economist
Category: Financial Press



No comments:

Post a Comment