Saturday, May 17, 2014

Today's Links

1--The Case Against the Bernanke-Obama Financial Rescue, NYT
(New explanation for the weak recovery)

In a series of papers, Mr. Mian and Mr. Sufi gradually developed a theory of the boom and bust. They found evidence that lenders flush with cash had made increasingly risky loans. They found, for example, that lending volumes had risen fastest in areas where average incomes were actually in decline. This process continued until the borrowers started defaulting so quickly that the risks became impossible to ignore, and the loans dried up...

When housing prices crashed, people lost their equity, but their debts did not disappear. They cut back on consumption, and the economy fell into recession. And, importantly, the households with the largest debt burdens cut back the most. Mr. Sufi and Mr. Mian found that for every $10,000 decline in home values, families with high debt burdens reduced spending on autos by $300, while families with low debt burdens reduced spending on autos by just $100.
The housing crash, in other words, took away the greatest share of wealth from the part of the population that had been most likely to spend it. The point, Mr. Mian and Mr. Sufi said, was that the economy had crashed the financial system.
The Obama administration considered several ways to reduce mortgage debts during the heart of the crisis. It promised to pursue a few, too, including empowering bankruptcy courts to forgive debts, paying lenders and buying up loans. But ultimately, the administration adopted a limited aid program and gambled that an economic recovery would take care of the problem. Mr. Mian and Mr. Sufi are not particular about which method of reducing debt would have been best; their point is simply that the government, by failing to do more, inhibited the recovery.

Their research is now widely cited as demonstrating that the overhang of household debt contributed to the slow pace of the recovery; one such citation came in the 2012 Economic Report of the President. Alan Krueger, a Princeton economics professor who wrote the report and was then the chairman of the president’s Council of Economic Advisers, said he considered their work important for suggesting that in areas where the economic recovery was slow, “that weak demand was the source of their economic problems, not credit market failures.”...

There was more of an agreement in the past that in the face of aggregate shocks, debt would be forgiven,” Mr. Sufi said. “Go back to the Code of Hammurabi, and it says that if no rain comes, all the debts are going to be cleaned. Our problem with debt in the modern world is that that implicit agreement seems to have broken down.

2--Secular Stagnation in the Euro Area, NYT 
(Summary: The bogus secular stagnation argument)

a falling rate of growth (and) end of ever-increasing leverage.... which ...won’t come back even if the woes of austerity abate. And these flows were a big part of overall European demand before the crisis...Europe is extremely likely to have a significantly lower natural real rate of interest heading forward than it had in the past. This in turn suggests that it’s a really really bad idea to let inflation drift down, whether or not it turns into outright deflation.

3---Housing Is Recovering. Single-Family Homes Aren’t., NYT

The number of permits issued for single-family homes rose by a mere annualized 2,000 in April, whereas the number of units in so-called multifamily structures rose by 81,000. The same story applies for housing starts, where the number of single-family homes rose a measly 5,000, versus 124,000 for multifamily units.

In other words, if you think that this housing recovery involves any meaningful increase in the number of traditional, suburban single-family homes with a yard and picket fence, you have it wrong. The number of single-family homes started is well below its level of late last year and still at February 2013 levels. Multifamily construction, meanwhile, has been soaring throughout the last five years.

Parsing more detailed data available for the first quarter, Jed Kolko, chief economist of real estate firm Trulia, notes on Twitter that 93 percent of the multifamily construction was intended to be rentals, and 89 percent of the units were in buildings with 20 or more units.

There are a few stories one can tell of what’s going on here. One is a simple shift in consumers’ preferences. Perhaps more people are inclined to live in big cities, where pretty much all the housing available is in apartment towers and other multifamily structures

4--Bernanke Shocker: "No Rate Normalization During My Lifetime", zero hedge

In one dinner-table exchange with investors, Bernanke argued that fiscal tightening, constrained financial markets and lower U.S. productivity all point to lower real rates than would be considered normal for a long time to come.

 Based on trading in the massive Eurodollar futures market, investors have in recent months tempered expectations of rate rises in the years ahead; as it stands, they don't expect the fed funds rate to return to 4 percent until 2022. As recently as last September, futures markets signaled they thought this would happen by the end of 2018....

In other words, the bond market believes in the Japanization of America and another lost decade as the new normal low/no growth world slugs along with no escape velocity dreams anytime soon.

 Or even more clearly - it's about more than this cycle... the Fed's taper will run its course, the Fed will tighten rates and the economy will slump rapidly meaning the Fed will ease once again (and by then QE will have lost all credibility as anything but an asset inflation machine and along with it - the Fed's credibility)... the tumble in forward rates indicates the markets growing belief that the future growthiness looks very different from the dream priced into stocks

5---BlackRock: Russian Bond Market “Freezing Up” , Testosterone Pit

Let’s not be hypocritical about it,” an executive of Total, France’s global oil company, told the Wall Street Journal on condition of anonymity. “All oil majors seek a piece of the Russian cake because they all need to put their hands on new resources, new fields, and Russia is the largest cake that is reachable....”

These entanglements can put US executives in delicate situations, like sitting in a boardroom next to a “blocked person.” BP owns 19.75% of state-controlled oil major Rosneft, and BP CEO Bob Dudley is one of its directors. So he rubbed elbows with Rosneft’s president and major shareholder Igor Sechin, whose name graces the SDN list. But as US citizen, Dudley is barred from doing business with him, or with any entity in which Sechin has a direct or indirect interest of 50% or more, even if the entity itself is not on the list. And that problem is gnawing its way into the Russian bond market.
“The glue of sanctions is starting to dry,” Sergio Trigo Paz told the Financial Times. He is the head of emerging market fixed income at BlackRock, the world’s largest asset manager. “People thought sanctions were about visas for oligarchs wanting to visit Disneyland. But they are much more important.”

6--6 reasons treasury yields should be higher , sober look....

7---"I’m not fighting for fairness in the neo-Imperialism business." Ian Welsh

Institutions like the New York Times exist to control the acceptable range of political and social discourse: they are ideological bodies who help ensure change occurs largely within the spectrum amenable to current elites.  That is their job, and they are very very good at it....

The New York Times makes its money making sure that the ideological justifications for whatever the establishment wants to do are in place.....

Too many people in the West want only one thing: they want in on the evil gravy train.  They see that there is a scam going on, a scam that impoverishes millions and helps create and maintain rape factories like in the Congo, and their response is “I want in on that gravy train!  ....
But what they don’t want to do is drain the swamp.  They don’t want to change the way the world works so that having an iPhone doesn’t mean men and women in the Congo are being raped and murdered in a systematic fashion.  ...

If what people want is equal rights to profit from  a system which is profoundly evil, and whose function is to enrich a few people by impoverishing many many more while maintaining rape colonies, I’m out.  I’m not fighting for fairness in the neo-Imperialism business.  “The best people at maintaining our project of impoverishing people and screwing up the world, causing a great extinction event, should be chosen objectively, without regards to ethnicity, gender, age or sexual  preference” is not a hill I’m dying on.

8---Why the Financial Media and Housing Pundits Got It Wrong , oc housing

Housing internals are weak
Second, those housing pundits tend not to consider the “internals” of the  housing market. The internals tell the story for those who care to look.
In a normal cycle we would see the following:
90% mortgage buyers
40% of that first time home buyers
10% cash buyers
In this cycle, however we see the following:
67-70% mortgage buyers
27-30% first time home buyer
30% plus cash buyers for the past several  years
The internals show weakness in demand,  not strength. What if the number of cash buyers returned to a  normal 10% level of the market place?  2014 has a high percentage of cash buyers but the volume of sales are going down. With a lower percentage of cash buyers expected in the future, the number of mortgage buyers will need to increase just to maintain the current level of sales.
  1.       Too many low paying jobs...
  2. New home sales only account for 10% of the market
  3. Home prices are too damn high!
9---How many billion must the TBTF banks pay for their malfeasance? oc housing

The bailouts of the too-big-too-fail banks irritated me (and many others). I would have far preferred to see the architects of the financial catastrophe of 2008 lose their jobs, their wealth, their social status, and be demonized for their atrocious behavior. Instead, we bailed them out, allowed them to keep their ill-gotten gains, and put them back in charge of our financial system. It wasn’t right.
Further, this is being sold to Americans as a necessary evil; ordinary people were “saved” by bailing out the 1%. Since there is no way to test alternate realities, we have no choice but to accept their contention.

Personally, I don’t believe it.
We had other policy options, including nationalizing the banking system. Sweden did it, and it worked. Iceland did it, and it worked. Our financial elites prevented this cleansing from occurring, and now the bad debts still reverberate through our financial system. We have banks propping up home prices through can-kicking loan modifications in an attempt to recover on their bad loans, and today’s homebuyers have to pay higher prices in order to bail them out. How does that help the little guy?...

  • JPMorgan Chase and Barclays both have announced huge first-quarter trading declines—20 percent and 41 percent respectively—and others are expected to follow suit. Barclays said it will begin a massive layoff program in which it will lose 19,000 employees over the next two and a half years.
  • Fines from regulators continue to pile up stemming from crisis-era bad behavior. The latest domino looks to be Bank of America, which could have to pay a levy in excess of the $13 billion already extracted from JPMorgan.
  • Recent leaks in major publications indicate that Credit Suisse is nearing a settlement that will see it plead guilty to criminal charges for aiding its customers in avoiding taxes; BNP Paribas also faces possible sanctions from the U.S. for dealing with countries on an embargo list—with the end result likely being in excess of $1 billion in penalties.
All told, this is not a great time to be running a major global financial institution

10--Mortgage rates fall to 6-month low, HW

30-year fixed rate mortgage down to 4.2%

Americans increased their borrowing in the first quarter, but little of that stemmed from new mortgage lending, according to data released Tuesday by the New York Federal Reserve.
The New York Fed recorded an increase of $129 billion in national outstanding household debt in the first three months of the year, bringing the total debt level up to $11.65 trillion. It was the third straight quarterly gain.

Leading the increase was a rise in mortgage debt, which was up by $116 billion from the end of 2013, according to the bank. However, with originations dropping to $332 billion—the lowest level since the housing recovery started—there was little to celebrate on that front.
Among other issues—including an apparent lack of loan demand and tight credit restrictions—ongoing weakness in new lending can in part be attributed to younger consumers, who are already overburdened with debt and reluctant to take on more.

As economists for the New York Fed explain in a blog post for the bank: “One possible reason for the failure of student borrowers’ housing and auto consumption to return to pre-recession levels is the growing burden of student debt. ... Despite an 11 percent house price recovery over the course of 2013 and an increase in overall mortgage debt, thirty-year-olds with and without student loans continued to retreat from the housing market.”
Incidentally, student loan debt was up $31 billion over the quarter and remains second only to mortgage debt at a total of $1.11 trillion.

12--Bloodbath in Odessa guided by interim rulers of Ukraine, Voltaire
"The Atlanticist media stubbornly presents the crimes committed in Odessa on May 2 as the result of an accidental blaze, while the photos and video footage available leave no doubt that the victims were tortured and murdered before being burned. We bring you first-hand information on how the operation was organized and executed under the direct and personal authority of coup-appointed acting President Alexander Turchinov and Ukrainian-Israeli oligarch Ihor Kolomoiskiy.

The information provided below was obtained from an insider in one of Ukraine’s law-enforcement agencies, who wished to remain anonymous for obvious reasons. It is clear that there are people even within the interim administration in Kiev who are against what happened in Odessa on May 2 and throughout the whole country [1].
Ten days before the tragedy a secret meeting was held in Kiev, chaired by the incumbent president Olexander Turchinov, to prepare a special operation in Odessa. Present were minister of internal affairs Arsen Avakov, the head of the Ukrainian Security Service Valentin Nalivaychenko, and the secretary of the National Security and Defense Council Andriy Parubiy. Ukrainian oligarch Ihor Kolomoiskiy, the Kiev-appointed head of regional administration of the Dnepropetrovsk region, was consulted in regard to the operation.

During that meeting Arsen Avakov reportedly came up with the idea of using football hooligans, known as “ultras,” in the operation. Ever since his time as the head of the Kharkov regional administration he has worked closely with the fan leaders, whom he continued to sponsor even from his new home in Italy [2].
Kolomoisky temporarily delivered his private “Dnieper-1” Battalion under the command of law-enforcement officials in Odessa and also authorized a cash payment of $5,000 for “each pro-Russian separatist” killed during the special operation.

A couple of days before the operation in Odessa Andriy Parubiy brought dozens of bullet-proof vests to local ultra-nationalists [3]. This video shows an episode of handing the vests to the local Maidan activists in Odessa. Take note of the person who receives the load. He is Mykola Volkov, a local hard-core criminal who would be repeatedly screened during the assault on Trade Unionist House gun-shooting at the people [4] and reporting about the “incident” by phone to an official in Kiev [5]."

13--Lavrov interview, Kremlin

14--Uh-oh, the first quarter saw economic decline, not growth, HW

Do you know about the shrinkage?

Looks like HousingWire – and the Commerce Department – counted the chickens before they hatched.
It’s a contraction, not the 0.1% economic growth in the first three months of the year as first reported.
The news of this shrinkage comes after the government revised downward some key figures from the first quarter.
In late April, the Commerce Department said U.S. economic output grew at a seasonally adjusted annual rate of 0.1% in the first quarter.

But the newly revised figures such as the March trade data released last week, and revised data on retail sales and business inventories, show that the gross domestic product contracted for the first time in three years.
JPMorgan Chase (JPM) analysts peg the contraction at a 0.8% decline, while Barclays put the decline at 0.6%. Macroeconomic Advisers reported 0.7% to the Wall Street Journal.
So despite the trumped-up jobs report, which pushed the good news of a decline in the unemployment rate — even though that decline is driven entirely by people dropping out of the workforce — there aren’t signs things are picking up in the economy.
It's just more shrinkage.

15---Fake Ukrainian National Unity Talks, GR

  Vladimir Putin is ..popular at home. A May 10-11 All-Russian Center for the Study of Public Opinion (WCIOM) among 1,600 respondents in 130 cities, towns and villages showed his approval rating at 85.9%..
Congressional approval hovers around rock bottom. Last November it was 9%. Currently it’s several points higher.
Obama’s popularity barely stays above 40% most often. Months earlier, it hit an all-time 39% low. Maybe ahead it’ll plunge lower....

On May 15, RT International headlined “Kiev protégé allegedly behind Mariupol and Odessa massacres – leaked tapes.”
They surfaced online. They went viral. They’re on RT’s web site. They reveal “Kiev-appointed governor allegedly threaten(ing) an ex-presidential candidate who called for a referendum.”
“The official may also be behind the Odessa massacre and Mariupol shootings…”
Igor Kolomoisky is a Ukrainian oligarch. He’s Kiev-appointed Dnepropetrovsk governor. He has no legitimacy whatever.
Allegedly he threatened former independent presidential aspirant Oleg Tsarev. He demanded he leave Ukraine immediately.
He wrongfully accused him of involvement in shooting a National Guard soldier.
On April 29, he withdrew his presidential candidacy. He did so protesting Kiev putschists.
Kolomoisky said he and his family will be hunted down. They’ll be found. They’ll be killed.
“They put a $1million (bounty on his) head. They will go after you everywhere. Tomorrow they will look for your people.”
Oleg Noginsky heads Ukraine’s Suppliers of Customs Union. It’s involved in relations with its Russian, Belarus and Kazakhstan counterparts.
second leaked conversation involves him and someone called Yan Borisovich.
Noginsky said Kolomoisky “hired the guys in the Odessa (massacre). The situation went out of control.”
“Their task was to beat (anti-Kiev protesters) so they would be taken to the hospital and to destroy (their Kulikovo Pole Square) camp completely,” he said.
RT said 16 May 2 survivors were killed over the next three days. Noginsky accused Kolomoisky of involvement.
It’s not the first time he threatened Ukrainians irresponsibly, he added. Ukrainian parliamentarian Igor Markov was targeted.
Tsarev told Russian Man and Law TV host that Kolomoisky’s conversation was authentic. It doesn’t surprise.
It says more about Obama’s new friends. It reveals their fascist credentials. It shows what all Ukrainians face.

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