Friday, December 20, 2013

Today's Links

1---The "Taper" Fizzle, naked capitalism

The Fed seems reluctant to recognize that low interest rates no longer provides much stimulus to the economy because the housing model, which was the main transmission channel in past recoveries, is broken (See Matt Stoller’s Fordham Fordham Urban Law Journal article, The Housing Crash and the End of American Citizenship, for a long-from discussion). Low household formation, high debt levels among the young (and student debt as senior debt!), distrust of housing (rational given predatory servicing and undue emphasis on “housing as an investment”) and ironically, the success of the “prop up housing prices” effort limiting affordability all contributed to the limited impact of QE (not that I am certain it would have worked even then; the Bank of Japan was first to experiment in the late 1980s with using the wealth effect to boost consumption, and we know how that movie ended).

The Fed also weirdly never seemed to get that banks aren’t lending primarily because there is little demand for loans among small businesses (they borrow to exploit opportunities, which are few in the new normal, unless you are in a countercyclical enterprise) and because banking has become so concentrated. The central bank has happily allowed banks to become fewer and bigger even before the crisis. But megabank run their branches like stores, and allow manager little discretion. That means they don’t engage in character-based lending and aren’t able to use local market intelligence to inform small business lending decision. The result is that they’ve pretty much ceded that business to community banks and credit unions, but they aren’t as big a channel as in the old days when there was more diversity in banking and the bigger banks had some participation in this sector.

QE did nothing??

There are two things that are particularly odd about all the tapering talk — two things that are tied up with one another. The first is that there is talk at all. If tapering evidently makes rather little difference to the markets and the economy then why do the press and financial analysts talk about it endlessly? The answer to this is rather simple: it is the nature of the press and wider society to talk about people and institutions that are perceived to wield power…

The second thing that was rather odd about all the tapering talk was the constant reference to the supposed fact that it had never been done before, that we were entering uncharted waters and that it was hard to predict what effect such tapering might have. This was just complete and utter rubbish.
In actual fact, as I noted on FT Alphaville back in April, a far more extreme version of tapering was undertaken by the Japanese central bank (JCB) in early 2006. In this period the central bank didn’t just slow the rate of purchases as the Fed are now doing but instead shrank their balance sheet. And what were the effects? I cannot find any serious effects in the data.

As I noted in that post there was no obvious correlation between QE and inflation or the exchange rate or GDP growth. The shrinking of the JCB’s balance sheet also appears to have had no effect on the stock market which continued to rally until the onset of the financial crisis in late-2007/early-2008.

So, why is no one reporting on this? Surely this should be a worthy news item. Given that barrels upon barrels of ink that are expended daily reflecting on the significance of the taper surely the press should be interested in considering a far more substantial move away from QE. Not really. That would be the equivalent of revealing that the emperor has no clothes.

2---Fed's Balance Sheet Rises To Record $4.01 Trillion, zero hedge

3---The Fed bought about 90% of new, eligible mortgage-bond issuance in November, Bloomberg

The Fed bought about 90% of new, eligible mortgage-bond issuance in November, up from roughly two-thirds of such bonds earlier this year, according to data from J......Fed's Mortgage Role Expands 12/19/13 Nordic Deal Activity Expected ... 12/18/13 Fed's 'Very Dovish Tapering' S... More quote details and news » & Co. The Fed's large role in the mortgage market means that even as it reduces its bond purchases, the market could enjoy considerable support from the central bank in the near term.
Mortgage rates stood at 4.6% last week for the average 30-year, fixed-rate mortgage, according to the Mortgage Bankers Association. Rates had been as low as 3.6% in May.....
The Fed's role in the mortgage market hasn't received much attention because it has transpired at the same time that investors have been focusing on how and when the central bank would wean the market from its extraordinary support.
Analysts said it also adds to the list of reasons for why the Fed was more inclined to begin reducing its bond purchases. Research analysts at J.P. Morgan last month suggested that the Fed wouldn't be able to delay tapering of mortgage-backed securities much longer because "there simply may not be enough bonds to buy," ....
If they buy up all of the gross issuance, then the liquidity in the market starts to suffer," said Matthew Jozoff, head of securitized-products research at J.P. Morgan, referring to dealers' ability to buy and sell mortgage bonds.
The Fed's plan to purchase at least $35 billion in mortgage securities in January compares with market-wide net mortgage-bond issuance of about $18 billion a month in recent months, said Mr. Jozoff.
A related concern is that the private sector infrastructure for buying and selling mortgage bonds could atrophy.
"If you end up becoming the entire market, then it's that much harder to hand that back over to the private sector," said Charles Himmelberg, mortgage strategist at Goldman Sachs Group ....
One major goal of the Fed's bond-buying program has been to push down mortgage rates to revive the U.S. housing market. Home prices nationally have risen by more than 10% this year, according to the S&P/Case-Shiller home-price index, as low rates fueled demand for a shrinking supply of homes.
Sales of new and existing homes, up sharply earlier this year, have risen at a slower pace after interest rates jumped in June.
Despite taking initial steps to reduce its asset purchases, the Fed "will be still expanding our holdings of longer-term securities at a rapid pace," said Federal Reserve Chairman Ben Bernanke at a news conference on Wednesday. "We're not doing less," Mr. Bernanke said. "I would dispute the idea that we're not providing a lot of accommodation to the economy."
The Fed's reach has been enhanced by its practice of reinvesting the proceeds of its maturing mortgage bonds in its $1.48 trillion portfolio, adding another $15 billion to $20 billion in new monthly mortgage-bond purchases.
The Fed has increased its holdings by $553 billion over the past year. It is on pace to add another $220 billion in purchases in 2014, according to estimates from Credit Suisse.
Meanwhile, mortgage issuance by government-controlled Fannie Mae FNMA -0.96% Fannie Mae ....                                and Ginnie Mae, a U.S. agency, fell 59% from a year earlier in November to $82.3 billion, a two-year low, according to industry newsletter Inside Mortgage Finance
"With supply dropping off, if you don't reduce the dollar amount that you're purchasing, then the percentage amount is going up," said Mr. Himmelberg of Goldman Sachs. "It makes it hard not to taper," he said.
6---Maestro's mistake, economists view
There ends the plus side of the Greenspan ledger. On the minus side, Greenspan’s reputation has suffered from two big mistakes. The first was his failure to see the importance of the housing bubble and the dangerous vulnerability of the financial mechanism that supported it. Had he done so and punctured the bubble promptly, the economy would have been spared the prolonged weakness that it is still suffering. The second was his deep-seated conviction that the unregulated financial system was self-stabilizing, that the self-interest of all those clever and experienced participants with a lot of their wealth at stake would keep the accumulation of risk within tolerable bounds. So he promoted deregulation and financial consolidation (as did others, of course) and, when this simple faith proved wrong, allowed disaster to strike. I think that the first mistake may be partially excusable, but the second mistake was a catastrophe, and it was not an accident. 
He praised the Sudanese government and human rights organizations for working to secure the release of prisoners at Gitmo, which has been called “the GULAG of our times” by Amnesty
In November, a 19-member task force concluded in a 269-page report, entitled 'Ethics Abandoned: Medical Professionalism and Detainee Abuse in the ‘War on Terror', that since September 11, 2001, the Department of Defense (DoD) and CIA ordered medical professionals to assist in intelligence gathering, as well as forced-feeding of hunger strikers, in a way that inflicted “severe harm.”
Gitmo officials announced earlier this month that the US military will no longer disclose to the media and public whether prisoners at Guantanamo Bay are on hunger strike, explaining that "the release of this information serves no operational purpose."
This decision has deprived detainees of an effective means of protesting the conditions of their detention

8---US academics approve boycott of Israeli universities, wsws

Alan Dershowitz, Harvard law professor and outspoken defender of torture, denounced the ASA “for singling out the Jew among nations,” “applying a double standard to Jewish universities” and “complicity with the oldest and most enduring prejudice.” The substance of his argument consisted of pointing his finger at China, Russia and Iran and asking why they were not boycotted.

These attacks merely repeat the well worn slanders of anti-Semitism that are employed ceaselessly by the Israeli government and its Zionist supporters to silence any discussion of Tel Aviv’s violence and oppression against the Palestinians and its relentless acts of military aggression in the region.
According to ASA members, the attacks have been backed up with hate mail, threats and talk of legal action against the association.

It is evident that Jewish members of the ASA played a prominent role in supporting the resolution. In a statement endorsing the action, Eric Cheyfitz, Cornell University professor of American Studies, wrote: “I am a Jew with a daughter and three grandchildren who are citizens of Israel. I am a scholar of American Indian and Indigenous studies, who has in published word and action opposed settler colonialism wherever it exists, including of course the Palestinian West Bank, Gaza, and East Jerusalem.”

The initiative came under implicit criticism from what on the surface may seem a surprising source. Speaking at the memorial service for Nelson Mandela in South Africa, Palestinian Authority President Mahmoud Abbas, while saying that the PA backs a boycott of products made in the Israeli settlements on the occupied West Bank, declared: “But we do not ask anyone to boycott Israel itself. We have relations with Israel, we have mutual recognition of Israel.”

9---Japan by the Numbers: Nikkei Up 50% This Year , Bloomberg

10--Blackstone's rental revolution, Bloomberg

Blackstone is at the vanguard of a historic move to centralize the business of renting single-family houses in the U.S. after the real-estate crash, which left in its wake more than 7 million foreclosed homes and families lacking the credit to buy again.

Investors from multibillion dollar hedge funds to individuals buying as few as 10 properties have acquired more than 1 million homes in the past three years. Most started out paying cash; now, as the bet on rental housing turns into an industry, big landlords are benefiting from access to financing at a time when banks remain reluctant to lend to homebuyers, putting ownership out of reach for many Americans, especially blacks, Hispanics and people under 40. ...

creating bonds....(Uh, oh)

11---Sales of Existing Homes Decline Annually for First Time in 29 Months, DS News
Existing-home sales dipped on both a monthly and annual basis in November, marking the first year-over-year decline in sales in nearly two and a half years.

12---Congress Kills Principal Reduction By Allowing Tax Break to Expire, HW
A law offering homeowners a tax break when a portion of their mortgage debt is forgiven through a loan modification, short sale or foreclosure is about to expire, leaving thousands of homeowners in limbo.
The U.S. Senate failed to pass legislation designed to extend the Mortgage Debt Relief Act — a development that suggests potential tax complications lie ahead for certain homeowners.

13---Calculated Risk Spins Housing Data, cal risk

Another key point: The NAR reported total sales were down 1.2% from November 2012, but conventional sales were probably up from November 2012, and distressed sales down. The NAR reported that 14% of sales were distressed in November (from a survey that isn’t perfect):
Nine percent of November sales were foreclosures, and 5 percent were short sales.
Last year the NAR reported that 22% of sales were distressed sales. So total sales were down slightly, distressed sales down sharply and conventional sales were up. That is a positive sign.

14---Why HELOC Resets Will Undermine Any Housing Recovery, Keith Jurow

15--Abenomics: Big business, labor unions agree to pursue wage hikes, JT

16--Sales of bank-owned homes surge, Diana Olick

Institutional investors, who drove the distressed sales market over the past few years, dropped off earlier this year, faced with bidding wars in some of the previously hot markets. Now they appear to have revived interest.
Their purchases represented 7.7 percent of all home sales in November, up from 6.3 percent a year ago. This may be because price gains are slowing down, and more inventory is coming on the market.
"We have seen an uptick in REO offerings, which is a little surprising for this time of the year," said Rick Sharga, executive vice president at
Sharga said his company, which auctions off properties online, got 3,000 REOs last week that had never been marketed before. "We are seeing more properties sold at trustee sales, and we are seeing more properties that are coming from servicers priced to sell at trustee sales."
(Read more: Homes get makeovers as more mortgages are back in black)
Previously, mortgage servicers had put foreclosed properties up for sale at the full value of the loan, but those usually went back to the bank, as investors sought a larger discount. Ironically, as prices are rising, servicers are discounting the homes more.
In turn, the share of all-cash sales is rising again. While the Realtors put it at 32 percent of all sales, RealtyTrac, which may get more data on distressed sales, puts the share at 42 percent, the highest level since it began tracking all-cash purchases in January 2011.

17---Equity withdrawal caused the housing bubble?, HW

Fisher referenced a recent Federal Reserve Bank of Dallas report, which claims the Texas housing market stayed afloat during the recession because of an existing state law that limited home equity borrowing

18---12-17 Housing “Bubble 2.0″; Same as “Bubble 1.0″, only different actors, Mark Hanson

19---Khodorkovsky Trial and the Real Issue Behind It, Israel Shamir

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