September 9, 2012

The Malinvestments Policies Inspire

Readers suggested a topic on the finance system and bubbles. “Let’s talk about the Wall Street/Bankster corruption machine that led to all the problems we have seen in this country and around the world since 1998. The stock bubble and the housing bubble were the result of Federal Reserve and Wall Street collusion. The major problem was the repeal of Glass-Steagle, allowing Wallstreet to turn the markets into a casino, mostly for themselves, with borrowed and leveraged money.”

“Central banks cause bubbles by creating massive amounts of ‘loans,’ with no collateral. This is how some people get fabulously wealthy. The other problem is state protection of their Fiefdoms. The Fed is there to provide the money whether they win or lose. What we have is crony capitalism at it’s worse, and neither party wants to break up the money-skimming operations because a portion of that money goes to them. It is the very definition of corruption.”

One said, “Quantitative easing is purported to enrich the wealthy. What is the mechanism by which it does this, if this is understood? And why don’t other classes invest the same way that they are (for those sufficiently non-poor to have funds to invest)?”

A reply, “1. It hammers the returns on safe investments like U.S. Treasurys and CDs. 2. It encourages and rewards reckless speculative financing in stupid investments like subprime mortgages, a form of gambling which favors investing by too-big-to-fail financial institutions which follow the ‘privatize profits / socialize losses’ business model. 3. Abysmally low returns on CDs and Treasurys are an effective way to socialize losses.”

“They never own up to the economic costs of the malinvestments their policies inspire.”

And finally, “Also it exports inflation to growing economies. Money flows around to the best return. And free money flows even faster becoming ‘hot money’ in the hands of ‘Whales’ or whatever they call rouge traders these days. Nice way to run a economy; not. I see free money as careless and stupid money I guess the Fed sees it differently.”

From State House News. “During a visit to a Dorchester neighborhood he said has been affected by foreclosures, Housing and Urban Development Secretary Shaun Donovan called on Congress Monday to pass three bills that he said would put money in the pockets of homeowners, thereby staving off foreclosures. Donovan said he hoped Congress would pass the bills in September rather than waiting for the lame duck session after the November elections. ‘There’s real urgency because nobody can say how long interest rates can stay this low,’ said Donovan.”

“Donovan said there had been a 55 percent increase in refinancing in Massachusetts once the Obama Administration allowed underwater owners with federally backed mortgages to refinance. He also said the financial benefits of easing the fiscal burdens for homeowners would offset the meager costs associated with the three bills. ‘There is nothing in these bills that would suggest we’re costing taxpayers money. In fact, it’s the opposite,’ Donovan said.”

The New York Times. “Wednesday’s report from the National Association of Realtors showed that average sales prices actually dipped slightly from June to July. This seeming contradiction — increasing demand but anemic growth in home values — could represent a new normal in the housing market, experts said. Real estate agents across the country cited the weak job market, stagnant wages and tight lending standards as continuing restraints on prices, despite pent-up demand and mortgage rates near record lows.”

“Joe Abbruzzese, a retired farmer from upstate New York, was in southwest Florida this week bargain hunting for a second home. ‘I wanted to get down here before the snowbirds arrive,’ he said. He was looking at five or six properties in the low- to mid-$100,000s before he left New York, but by the time he arrived in Florida only one was left. Mr. Abbruzzese said that while prices had increased in recent months, he was betting that they would rise still more after the presidential election restored some certainty to the country’s political course. ‘I think people are really scared right now; they’re not spending the money,’ he said.”

“Michael Parra, a real estate agent in Las Vegas, said investors who had been fueling the market with cash purchases were starting to get cold feet, fearing values would not appreciate further as long as incomes lag and jobs are scarce. ‘You’re going to have a catfish market,’ Mr. Parra said. ‘You know, catfish stay on the bottom and they occasionally jump up to the surface.’”

“Barbara Gargiulo, a real estate broker in northern New Jersey, said market conditions in her area varied widely. Montclair, she said, has only a two-month supply of houses on the market — far less than some of its neighbors. Still, she said, a house that sold last year for $620,000 sold again this year for $650,000, above its list price. ‘I think we’ll have some small little peaks, small little valleys, but in general we’ll see an upward curve over the next few years,’ she said.”

From Cincinnati.com. “Home sales shot up 13.6 percent in Southwest Ohio and 7 percent in Northern Kentucky last month compared with July 2011, Realtor associations reported. ‘Obviously, it has to do with interest rates,’ said Tom Hasselbeck, president of the Cincinnati Area Board of Realtors, which posted its 13th straight monthly sales increase. Fixed rates on a 30-year mortgage were well under 4 percent in July, although they’ve started to climb slightly.”

“Inventory in Southwest Ohio remained virtually unchanged from June, hovering around 12,000 active listings, the Cincinnati board said. ‘I think the fear of buying something and the value going down is dissipating,’ Hasselbeck said. ‘I don’t think buyers are worrying about that any more.’”

From CNBC. “Fed Chairman Ben Bernanke won the nickname ‘Helicopter Ben’ after he referred to a statement by Nobel economist Milton Friedman about fighting deflation by using a helicopter drop of money. Now, traders expect to see a money drop, with a better chance it will come when the Fed meets next week. Goldman Sachs economists quickly put the chances at above 50 percent that the Fed would announce a plan to purchase mortgage-backed securities and Treasurys, in an open-ended program that would be dependent on the progress of the economy.”

“Others agree that the Fed, if it acts, will look to give an added boost to the recovering housing market and keep rates low with mortgage purchases. ‘I wouldn’t say this seals the deal, but it does make it more likely they announce asset purchases next week,’ said JPMorgan economist Michael Feroli. ‘It probably will involve some mortgages.’”




Bits Bucket for September 9, 2012

Post off-topic ideas, links, and Craigslist finds here.