Crossing The Line
Readers suggested a topic on central bank responses to the housing bubble. “Is the world financial system truly on the brink of collapse, or is Soros being unduly alarmist? And do carpet bombs of newly-created liquidity from the major central banks, as we saw dropped out proverbial helicopters this past week, serve to increase or to decrease global financial stability?”
“What concerns me about dire pronouncements from top financiers is that they might serve as smoke screens for central bank discretion to bail out those who gambled foolishly and lost big. When the end of the world as we know it is at hand, the usual rules are abandoned, and massive wealth transfers can be made without raising any serious objections.”
A reply, “The world financial system has already collapsed. They are throwing clearly worthless government fiat promises at it in an attempt to keep fooling people into believing that global financiers are wealth creators instead of wealth destroyers. As time goes on more and more people will realize that despite their faith, they can’t actually eat those promises, nor gas up engines with those promises, or protect their homes against the elements with those promises, etc. That is the core problem that this current generation must resolve. This generation must eventually break down the Big Lie and call it a big lie. Only when such a thing is liquidated, can a real economic recovery begin.”
Another said, “Notice how anytime the business environment is in decline, we have reached an abyss. Especially if lots of free, easy money isn’t delivered to the Banksters to ‘loan’ out. If printing lots of money is such an easy solution, and we want to ’stimulate’ the economy, then why don’t we just credit everyone $5000 to their personal accounts, a simple matter of digital transfers, and let them go out and have a really jolly Christmas?”
“Using round figures of 80 Million eligible working age adults, that would be, let’s see…..80,000,000 x 5,000 = $400 Billion. Did I get that right? Seems like a pittance. And we’ve been dealing with bailouts in the Trillions. Let’s just give all the working families, and even the welfare recipients, and the retirees $5000 bucks each to ’stimulate’ the economy.”
“Why don’t we do it? Because it would just devalue the dollar and create a ‘temporary’ spurt in activity. It doesn’t create WEALTH. It transfers the wealth already created. The real reason for printing is controlling who will be the beneficiary of the transferred wealth. That is what this is all about.”
One had this, “When I lived in Mexico in the 70’s and 80’s year end bonuses (AKA aguinaldo) was mandatory. Everyone got 20 days extra pay, and yes, people did whoop it up over the holidays. I recall seeing people buying cases of booze, heading off to Acapulco or Cancun, etc. Back then government workers would get … now hold on to your hat … NINETY DAYS of bonus pay.”
“Because inflation was so high, no one held on to the cash. Some would buy appreciating assets with them, but most simply spent it, often for purchases that had been put off.”
And another, “Greenspan suggested it and GWB’s economics team did something along these lines. I believe the household-level helicopter drops amounted to about $2K a piece; my wife has a fine viola bow to prove the wealth effect that resulted. Note that the payroll tax cut is intended to serve a similar purpose, though it is obviously regressive.”
The Economist. “Many of the world’s financial and economic woes since 2008 began with the bursting of the biggest bubble in history. Never before had house prices risen so fast, for so long, in so many countries. Yet the bust has been much less widespread than the boom. In some countries, such as Australia, Canada and Sweden, prices wobbled but then surged to new highs. As a result, many property markets are still looking uncomfortably overvalued.”
“An optimist could therefore argue that our gauges overstate the extent to which house prices are overvalued, and that if markets are only a bit too expensive they can adjust gradually without a sharp fall. It is important to remember, however, that lower interest rates and rising populations were used to justify higher prices in America and Ireland before their bubbles burst so spectacularly.”
“Another concern is that Australia, Britain, Canada, the Netherlands, New Zealand, Spain and Sweden all have even higher household-debt burdens in relation to income than America did at the peak of its bubble. Overvalued prices and large debts leave households vulnerable to a rise in unemployment or higher mortgage rates. A credit crunch or recession could cause house prices to tumble in many more countries.”
From Reuters. “The U.S. Federal Reserve and other central banks must not succumb to calls for additional help from monetary authorities in the face of high budget deficits, two top Fed officials said on Friday. Using the Fed as a printing press to solve the U.S. deficit problem would unleash the ’sinister beast’ of inflation and ‘is not an option,’ Dallas Fed President Richard Fisher told the Dallas/Fort Worth Minority Supplier Development Council.”
“Fellow inflation hawk Philadelphia Fed President Charles Plosser told a conference at his bank’s headquarters that any attempt to ‘resort to the printing press’ to avoid budget trouble was doomed to failure and could lead to hyperinflation. ‘Despite the well-known benefits of maintaining price stability, there are increasing calls to abandon this commitment in both Europe and the U.S.,’ Plosser said, just two days after a coordinated international central bank action to provide dollar liquidity to global banks.”
“Part of the blame for the pressures on central banks to aid on fiscal problems goes to governments, Plosser said, which have failed to agree on how to bring budgets into balance. But central banks, including the Fed, also bear some responsibility for crossing the line into fiscal policy with actions during the financial crisis of 2007-2009, he added.”
“‘Central banks are under increasing pressure to act, both because fiscal authorities have been unable to make credible commitments to maintain fiscal discipline and because central banks have been willing to engage in actions that stray into the realm of fiscal policy — for example, purchasing assets of the housing sector,’ he said.”
“The Fed has kept short-term interest rates near zero for nearly three years, and signaled it would keep them there through at least mid-2013. Top Fed officials have also discussed further easing through large-scale purchases of housing debt. Plosser says he would oppose such a plan, which he sees as crossing the line into fiscal policy since it represents de facto credit allocation to a specific sector.”
“Fisher referred to a recent conversation with European Central Bank official Juergen Stark, who two days ago spoke at the Dallas Fed to warn about political pressures for the central bank to expand its role into fiscal policy. The United States, Fisher said Stark reminded him this week, has an even bigger debt burden than Europe.”
“‘We don’t want to be in a situation like Greece. We are headed that way, if we are not careful,’ Fisher said. ‘We are headed in the wrong direction, and if we don’t bring it under control, we are going to have social unrest.’”
http://in.finance.yahoo.com/news/china-leader-warns-unrest-due-084011780.html
‘The Chinese leadership’s law-and-order czar is warning that China is ill-prepared for social unrest generated by changes in the economy, in the latest sign that the government is worried about the consequences of flagging growth. The government needs better methods for dealing with “the negative effects” of the economy, Politburo member Zhou Yongkang said. Zhou called for innovative approaches to social management — a euphemism for a clutch of policies as diverse as stepped-up policing and unemployment insurance meant to dampen unrest.’
IMO, one of the reasons the PTB shifted the focus from housing prices to things like the ‘foreclosure crisis’ was to obscure the role of policy actions that lead to the bubble. The low interest rates, lack of oversight, and repeated injections of “liquidity” every time one of the negative consequences appeared.
If we ever had a real discussion about this, the first thing asked would be, why are we still making the same mistakes? Why are we spending billions to keep the GSEs around so they can make more housing loans with little down, at low rates?
Of course, this can only go on so long. The thing is, when it falls down we’ve all got a problem.
Physical unrest in China may also cause the Chinese government to lash out and take over Taiwan, crack down on dissent like the old days, and so on. But then it would also mean USA’s safe haven status (in the relative sense of course) would attract foreign capital.
As long as nukes don’t get lobbed ….
Here is a question that maybe a smart person can answer.
It seems to be common knowledge that there was a housing bubble and that it was created by Wall Street magical loans that were taken out by unsuspecting victims who had no idea what they were doing and can never pay back the loans that they were given by people who never cared if they were paid back because they knew they were going to be bundled into mortgage backed securities and sold to unsuspecting investors as AAA rated bonds. Is that close to right?
If that is close to right then why is it that most of the financial people in the media keep asking… When will house prices recover? Recover to what? Price levels that unsuspecting victims can never pay back? Loaned by people who never expect it to be paid back? I don`t get it.
“… then why is it that most of the financial people in the media keep asking … When will house prices recover?”
Because they are paid talking head sock puppets who never had a clue as to what was going on when prices exploded and do not have a clue now as prices are declining.
Other than that they are most like very warm, gentle and caring human beings.
“Sometimes I wonder whether the world is being run by smart people who are putting us on, or by imbeciles who really mean it.” - Mark Twain (supposidly)
“Because they are paid talking head sock puppets who never had a clue as to what was going on when prices exploded and do not have a clue now as prices are declining.”
I am not whatsoever amazed that MSM sock puppets are clueless about why prices are declining; what amazes me is that so many economists are clueless, as well.
Because the economists who tell the truth are marginalized and labelled “kooks”?
I personally prefer the “smart kook” label to the “stoopid sheep” label.
Of course, the original “kooks” are those weirdos who think that money should be something that central banks can’t create out of thin air…
There is a big disconnect between being aware that the bubble was caused by unsustainable lending and really understanding that this means that incomes of the general population (not average incomes as that is skewed by the hight end) would have to double (or more for some areas, maybe less for others) for the bubble prices to be a good deal.
They are also drinking the koolaid of “lower interest rates mean that people can actually afford higher prices long term.” We all know that it only works until you need to sell into a market making more rational lending decisions or as long as you can ignore that you will be paying $250K for an asset worth only $150K. Honestly, that wouldn’t be the worst thing in the world if selling meant that you had to trade a 4% interest rate for a 9% one, but those 9% rates aren’t here yet, or at least people aren’t thinking about them.
There are some really outstanding financial journalists that have finance or economics backgrounds. Most of the rest don’t have an instinctive understanding of the relationships embedded in the numbers and the lending environments. I think the reality will creep into the narrative over time. But it is going to take a very, very long time.
Not that the loan balance should be the deciding factor, but for people who didn’t refi in a nonrecourse state, they are going to think about it eventually. If the how-much-a-month calculation made it better to stay and pay the loan they have, they would be much more likely to do so.
“lower interest rates mean that people can actually afford higher prices long term.”
Isn’t this pretty much the Federal Reserve Board’s position? Consequently, we get to hear it 24/7 through their MSM propaganda campaign.
“Isn’t this pretty much the Federal Reserve Board’s position? Consequently, we get to hear it 24/7 through their MSM propaganda campaign.”
When you sit in a sports bar and almost every commercial on the big-screen is some law firm phishing for someone who was recently hurt then you know that profession is struggling and not to be trusted. Likewise when the fed reserve chairman is on television advocating sub-prime loans for the masses then you might as well write them off too. Our professional institutions are turning carnivorous.
‘It seems to be common knowledge that there was a housing bubble and that it was created by Wall Street magical loans that were taken out by unsuspecting victims’
Yes, that the crafted message we’re given. And notice that it skips over a few things. One is prices; the problem was not that they are too high. That’s how they manage to adopt a “policy” of keeping prices higher than they otherwise would be. In this, they use language like “stabilizing” instead of propping up.
Another part of redirecting the causes is it take the focus off of govt programs that “encourage” home ownership. In that way, the can perpetuate these programs and even expand them. And it makes the GSE life-support a must.
Then there is the role of the central bank. In this scenario, it takes no blame for keeping interest rates too low for too long. No blame for flooding the economy with printed money at every opportunity. Its little know regulatory failures of the banking sector go unexamined. And curiously, the fact it is owned by these same wall street corporations is left out too. So it is free to garner even more regulatory power, continue to give trillions to its banker buddies, and generally distort the economy on a scale never seen in history.
Oh, but aren’t the wall street villains now the center of bubble blame, and finally going to get their due? Hardly, notice they still profit mightily. They are still regularly handed many billions by an unaudited Federal Reserve. They still can openly borrow vast sums at nearly zero interest rates. Too big to fail hasn’t been repealed; it’s actually being solidified. And recently, two Goldman Sachs cronies took over Greece and Italy. (This thing is global, you know).
I’ve never said wall street wasn’t to blame. Just that this bubble cause and effect story they’ve cooked up largely serves the powers that be to avoid their blame and continue on with their misdeeds.
“… then why is it that most of the financial people in the media keep asking … When will house prices recover?”
The minute the MM acknowledges prices won’t “recover”, they also have to acknowledge the middle class in this country is bankrupt. Lots of folks have 30-years worth of mortgage payments on these places….as long as there’s hope prices will somehow bounce back, those mortgage payments keep coming.
“…the middle class in this country is bankrupt.”
Is this supposedly some kind of closely guarded secret?
Editorial
Been Down So Long …
Published: December 2, 2011
The unemployment rate dropped to 8.6 percent in November from 9 percent in October in the jobs report released Friday. The economy added 120,000 jobs and job growth was revised upward in September and October.
That’s better than rising unemployment and falling payrolls. Yet, properly understood, the new figures reveal more about the depth of distress in the job market than about real improvement in job prospects.
Most of the decline in November’s unemployment rate was not because jobless people found new work. Rather, it is because 315,000 people dropped out of the work force, a reflection of extraordinarily weak demand by employers for new workers. It is also a sign of socioeconomic decline, of wasted resources and untapped potential, the human equivalent of boarded-up Main Streets and shuttered factories.
The job growth numbers also come with caveats. More jobs were created than economists expected, but with the job market so weak for so long, that is a low bar. It would take nearly 11 million new jobs to replace the ones that were lost during the recession and to keep up with the growth in the working-age population in the last four years. To fill that gap would require 275,000 new jobs a month for the next five years. That’s not in the cards. Even with the better-than-expected job growth in the past three months, the economy added only 143,000 jobs on average.
And most of those new jobs are low-end ones. In November, for example, big job-growth areas included retail sales, bartending and temporary services. Teachers and other public employees continued to lose jobs, and job growth in construction and manufacturing were basically flat. Indeed, work — once the pathway to a rising standard of living — has become for many a route to downward mobility. Motoko Rich reported in The Times recently on new research showing that most people who lost their jobs in recent years now make less and have not maintained their lifestyles, with many experiencing what they describe as drastic — and probably irreversible — declines in income.
…
If you mean the aberration caused by the fact that the US was the only first-world country left standing at the end of WW2 then the middle-class has been bankrupt for more than a generation.
The illusion is new though.
“If that is close to right then why is it that most of the financial people in the media keep asking… When will house prices recover?”
Could it be that they don’t know much about anything, or that they got their jobs by how they looked or who they f’d?
Or could it be that the people in finance or economics that do know something and whose analyses aren’t tied to who’s paying them are given very little air time by the M$M?
What’s lost in all of this is whether prices are justified based on basics such as supply and demand and the wages and job security of the buyers. Questions that touch on those issues are rarely asked or answered.
The short answer is that “housing” has always lead the US economy in “growth”. When the Construction industry and related support industries is in decline, then the GDP just sits around or falls (currently it is artificially inflated with debt-induced govt. spending).
So we need to see construction rebound. It won’t when prices are below cost of construction, and we have surplus ‘inventory’.
Without rising prices, i.e., a ‘rebound’, investment in housing is flat or negative. Do you want to buy a house in a failing market (catch a falling knife)? People want to at least see some stability before making long-term investment choices, unless you are a gambler like myself.
And last, a large segment of the current owners are not able to spend or are afraid to spend as they don’t have an asset cushion for any unforeseen events. If your mortgage exceeds your current value, then you have ZERO assets, you are overly-indebted.
You can’t get credit. You might get a loan reduction, or a payment reduction but your ‘equity’ is still zero.
The deadbeats are keeping up the spending because their mortgage payments are zero, freeing up a lot of money, but that will end over the next couple of years. Then what?
If prices are still going lower, what is the driver for new “growth”.
If its not housing, we will need a really great new technology that drives investment. Real Investment. Not financial shenanigans.
And no, I don’t think Green Energy will be the answer. Especially if the government is choosing the winners and losers for capitalization……witness the OBAMA crony payouts for green energy…………all wasted money, unless you got some of it.
Its not the answer but here in nyc they have tons of training to be green workers…..yup manual labor for the barely functional crowd….maybe that’s its REAL purpose…
I don’t think Green Energy will be the answer
“It won’t when prices are below cost of construction, and we have surplus ‘inventory’.”
This is nothing more than a myth. A Housing Crime Syndicate lie. Look no further than the differential between new and used housing. Why is it that a 30 year old ranch is priced within 10%-15% of a new ranch on the same street?
The houses will never be paid off unless there is a total collapse[default] which is unlikely. That was the master plan of the money elite— debt slaves for life!
“…debt slaves for life!”
The retooled HARP effectively serves to lock in underwater homeowners into lifetime debt servitude, as they are stuck paying off high principle balance loans, while charging MBS owners for the principle writedowns.
I suppose it beats forcing the cramdowns on all taxpayers.
“…why are we still making the same mistakes?”
I can offer two possible reasons, closely related:
“‘We don’t want to be in a situation like Greece. We are headed that way, if we are not careful,’ Fisher said. ‘We are headed in the wrong direction, and if we don’t bring it under control, we are going to have social unrest.’”
I guess according to Fisher the problem in Greece is that the benefits of going down the debt drain were widely shared, so lots of people objected when the party ended, because they had something to lose.
In the U.S. on the other hand, the prime beneficiaries of the excess of spending over revenues are the rich, today’s seniors, and public employees. Therefore the masses are less likely to revolt when things are taken away, because they never got anything to begin with.
I guess that’s why it was OK to pass a prescription drug plan and progressive income tax cuts and to bail out the well paid workers in the auto sector and finance, but not OK to extend some health insurance help to younger workers and cut the payroll tax.
‘the masses are less likely to revolt when things are taken away, because they never got anything to begin with’
These bubbles (and the ongoing attempts to prop them up) drain resources from productive areas of the economy. IMO this is one reason there aren’t job opportunities, and young people know this.
http://www.guardian.co.uk/business/2011/dec/02/scotch-whisky-export-sales-asia-shortage
I would submit that what really pisses off the masses isn’t their own unhappiness, but rather the perceived happiness of others. China’s hedonistic fast-money crowd, whose graft and swindles are enabled by Party cadres who have abused their positions and authority (sound familiar?), are partying like it’s 1999, oblivious and indifferent to the plight of China’s floating army of marginalized migrant workers and the rural poor. When the next tsunami of Bernanke money-printing (QE III) fuels the next binge of speculative run-ups in the commodity market, setting off a soaring inflation in places like China, the seething masses there will be primed to explode.
“the seething masses there will be primed to explode.”
In more places than one.
The masses here remain as docile and lobotomised as ever. Pissing and moaning, then turning around and voting for the hand-picked favorites of the plutocrats and Wall Street’s Republicrat political subsidiary doesn’t count as “seething” in my book. It just makes you an idiot.
Or they just don’t vote. When you are only given two choices that come out of a process that is easily manipulated, you end up with the lesser of two evils. I heard an Occupy Wall Street guy say ‘we aren’t falling for the two party dictatorship.’ That’s getting a little too close to the root problem for the establishment, and notice how quickly they were shut down. Plus, allowing a bit of protest makes everyone think they live in a free society. And as an added bonus they got to use those tanks!
Ron Paul, who presented a clear alternative to the Republicrat duopoly’s Tweedle Dee/Tweedle Dum choice, dropped out of the race because he only had the support of about 5% of the electorate. His campaign was also run on a shoestring, since he relied on small donors instead of the who’s who of financial predators that backed Obama and McCain. ‘Mercans are manifestly too stupid to vote for someone who tells them the truth, as they demonstrated in ‘08 and will do again next November.
I’m more optimistic about the citizens of the US and even other parts of the world. I see things like the Tea Party, OWS, the Arab revolts, anti-globalism/Euro protests as signs of hope.
We are supposed to be deciding our future with ballots, not bullets. There is always the prospect that things will get so bad that the various citizenry will overthrow their govts. But that is a messy road, and my hope is that these “leaders” won’t push things that far.
The two party system in the US, in its current form, is undemocratic. The European Union is undemocratic. China is undemocratic. Arab kingdoms/puppet tyrants are undemocratic. These things need to change.
I am less confident. The current trend in the US has been for a growing entrenched bureaucracy with Education/Military/Financial/Health enclaves taking huge sections of government.
They have been increasing their stronghold in siphoning off greater and greater benefits at the expense of the private sectors. They are fighting now to keep them. So far they are winning.
Governments tend to become more repressive when they see “uprisings” in the streets. They don’t fix things, they bring out the tanks. They provide support for their beneficiaries.
Recently, someone posted about American detention for the Patriot Act and more recent designs by the House and Senate.
When you start saying the “wrong things”, when does that amount to a threat against the government? When are you an “enemy combatant”? Do you need to pick up a gun? Or is meeting with the wrong folks a crime? Gang member?
Member of the Communist party?
I think as things get worse, you will see more repression and more detainments. Forget freedom.
And who will be found guilty of crimes against the State?
OBAMA is always “looking forward”. No need to go investigate all these financial crimes. That’s in the past. We need to look forward. So, get with the program.
Descent is “unamerican”. you are either with us or against us.
Confidence?
I’m confident the two party whores will continue to be bought and paid for while the Global Banking Crime Syndicate continues to shovel cheap inflated dollars in all directions while maxed out suckers line up for more enslavement because they no longer have a choice.
Real revolution doesn’t start at the polling place.
The jury is still out on whether we will have hyperinflation or disinflation (particularly when we had several years of inflation in what we need and deflation in what we want…and what we need is not really a big chunk of our paychecks anyway yet).
The funny thing is that we could have five or ten more years of this “jury is still out on hyperinflation or disinflation” and that would buy us enough time to become “bulletproof,” relative to economic crises at least on an individual basis.
http://www.bloomberg.com/news/2011-12-02/-50-million-mf-global-commodity-account-gone-highridge-futures-fund-says.html
The more perceptive members of the population are starting to wake up to the confidence game played by the Wall Street-Federal Reserve looting syndicate. For decades these financial predators have gone for short-term outsized gains at the expense of long-term viability of companies or the larger economy. I’m guessing a lot of former MF Global “clients” a.k.a. marks are getting a hard lesson in the extent of the fraud and criminality perpetrated on Wall Street, under the noses of inept or complicit regulators and Corzine’s political cronies (like the one who was going to name him Treasury Secretary) who will ensure Corzine and his co-conspirators will get off with a slap on the wrist. The blatant misappropriation of “client” funds, done with impunity and no recourse for the bagholders, could set up a stampede out of hedge funds and similar rackets once the cattle take fright.
In the same way, I suspect that millions of Obama and McCain voters are going to undergo an abrupt de-zombification once the house of cards called the speculative economy comes crashing down around their ears, and the hyperinflation ignited by Zimbabwe Ben’s uncontrolled currency-printing and assumption of trillions in bankster liabilities ends up ravaging the “golden years” plans of the boomers and presenting the young with a “nuclear winter” jobs landscape.
“Greenspan suggested it and GWB’s economics team did something along these lines. I believe the household-level helicopter drops amounted to about $2K a piece…………….
Just to differ a bit.
I got NOTHING> The tax-breaks, like always, were directed to specific groups. In this case is was for families with children. If you couldn’t make deductions or get credits on your tax form, you got NOTHING. I paid the same in taxes.
It’s never fair. One group always benefits over some other under some claim to the “greater good”. or Social benefits, or crap like that.
Bad federal government policy: Robbing Peter to pay Paul.
Good federal government policy: Creating a level playing field, supported by an enforced rule of law, which supports all Americans’ rights to life, liberty and the pursuit of happiness.
The fair tax is no income tax. That’s the level playing field. The only reason they implemented the income tax in 1913 was for empire-building. We’ve become the self-appointed world cop shortly after that. Congress “shall have the power to lay and collect taxes.” But the framers meant taxation to be used for emergencies only. Example: The income tax exacted between 1861 and 1871 to finance the effort of the north in the Civil War. 1871 - emergency deemed over so they abolished the income tax.
98 year emergency?
“What the Fed did in 2008 was something new…”
It must have been, given that the DJIA tanked from over 14,000 at the start of October 2007 to below 7,000 in March 2009. It doesn’t appear the Fed’s efforts to supply liquidity in Fall 2008 had much heft, so far as the U.S. stock market was concerned.
Data provided in the article posted below on the average return to Treasurys following a coordinated central bank intervention is essentially meaningless for predicting their returns in the current situation, for at least two reasons:
1) Without conditioning on bond yields at the onset of crisis, one misses the fact that U.S. Treasury yields are already about as close to zero as they have ever been in history, limiting the potential for additional declines in yield necessary for Treasurys to outperform.
2) The only other possible avenue for Treasurys to outperform besides capital gains would be through income in the form of real yield, which is nominal yield - inflation (Fisher’s equation). But nominal yields are in the basement, and central bankers have openly expressed their fear of deflation, which makes a decline in the inflation rate an unlikely prospect.
WEEKEND INVESTOR
DECEMBER 3, 2011
How to Play the Rescue
By BEN LEVISOHN And JOE LIGHT
A little coordination can go a long way.
On Wednesday, the Fed joined with the European Central Bank and the central banks of England, Japan, Canada and Switzerland to make it easier and cheaper for banks to swap foreign currencies for dollars. (Separately, Chinese authorities reduced banks’ reserve requirements in a bid to stimulate lending and boost economic growth.)
After the Federal Reserve and five other central banks on Wednesday announced a joint effort to support the global financial system, stock markets around the world zoomed. The Dow Jones Industrial Average jumped 4.2%, its largest one-day spike since March 2009.
The question on investors’ minds is whether this latest rally has legs, or whether it will fade away like so many others in the past few months.
History could offer a clue. A Wall Street Journal analysis of market data provided by Elroy Dimson, Paul Marsh and Mike Staunton of the London Business School suggests the central-bank intervention might indeed be a turning point for the markets: U.S. and emerging-market stocks may be poised to outperform, while European stocks could be headed for more trouble. There is enough uncertainty to warrant a healthy dollop of Treasurys and cash in investors’ portfolios as well, for safety.
“There are possible positive catalysts that could paint a constructive picture for equities in 2012,” says Lisa Shalett, chief investment officer at Bank of America Merrill Lynch Global Wealth Management. “But at the same time we’re telling people they need to keep some money in cash until there’s better visibility.”
As government interventions go, the latest foray isn’t nearly as big as the Fed’s recent bond-buying programs or the Treasury Department’s Troubled Asset Relief Program of 2008. But it did signal that central banks are ready to head off the kind of liquidity crisis that could derail the global financial system.
Coordinated moves like the one on Wednesday are rare but not unprecedented. In 2008, the Fed entered into similar agreements with central banks to arrest a frenzied flight out of just about everything and into dollars. Central banks also moved following the terrorist attacks of Sept. 11, 2001, when damage to New York threatened to wreak havoc on the financial system.
Even as far back as 1931, the global banking community, through the Bank for International Settlements, tried to quell a crisis following the collapse of Vienna’s Credit-Anstalt, then that nation’s largest bank, by providing loans to Austria. The attempt was a case of too little, too late; the crisis soon spread to Germany and elsewhere, worsening the Great Depression.
History suggests the latest intervention could be good for certain asset classes. Over the past 80 years, central banks have joined forces at least seven times during financial crises, albeit in different ways and amid different circumstances from today’s.
On average, U.S. stocks had a real return of 9.1% in the three months following a coordinated intervention, 10.6% after a year and 24.5% after two years, according to the Journal’s analysis of the data provided by Profs. Dimson, Marsh and Staunton. The average annual return for stocks from 1900 to 2010 was 6.3%.
Treasurys, too, produced strong returns. They averaged 7%, 8.5% and 15.2% during the three months, one year and two years following an intervention, respectively, compared with an average annual return of 1.8% from 1900 to 2010.
Some major caveats are in order. The “swap agreements” announced on Wednesday and in 2007-08 don’t compare easily with interventions of the past. Central banks frequently have worked together over the years to prop up currencies—but moves designed to provide liquidity to the global financial system have been less common, notes Michael Bordo, an economics professor at Rutgers University.
“What the Fed did in 2008 was something new,” he says.
…
http://www.telegraph.co.uk/finance/financialcrisis/8932687/Portugal-raids-pension-funds-to-meet-deficit-targets.html
Portugal raiding pension funds to meet its deficit targets. Color that money gone. Private pensions are the last great unlooted repository of wealth in the US, and you better believe the kleptocrats and their Republicrat accomplices are going to fix that state of affairs.
Poof. Unfunded promises are coming home to roost.
I once read of a mafia-type guy who seized control of the ticket selling structure of a rock concert and sold two or three times the number of tickets the concert hall could hold. Riots ensued, natch.
There is a message here somewhere.
I doubt it. Yours truly would be locked and loaded and in the grounds of those lawmakers the very day they would pass such a law. Revolution is permissible via the first paragraph of the Declaration of Independence when the occupiers of our once Republic violate our individual rights to life, liberty, and property.
“… occupiers of our republic …”
We have met the enemy and he is us.
Good luck getting past their mercenary army. You’ll be dead before you’re even close enough to see the traitors.
Talk is cheap, Bill. They are ALREADY stealing our retirement accounts (at least, those that are invested in “dollars”) via currency depreciation, and I haven’t seen you in the streets yet.
Of course, “In Colorado” is right that you wouldn’t get anywhere near them before being taken out by their mercenaries.
“If printing lots of money is such an easy solution, and we want to ’stimulate’ the economy, then why don’t we just credit everyone $5000 to their personal accounts, a simple matter of digital transfers, and let them go out and have a really jolly Christmas?”
“Why don’t we do it?”
Somebody hasn’t been paying close attention as this has already been attempted several times in various forms over the past five years, with questionable success.
1. Bush era tax rebate (my wife’s lovely viola bow is a lasting memento of this bit of stimulus)
2. First-time home buyer tax credit
3. Social Security payroll tax rollback
4. Extended unemployment benefits
5. The lowest mortgage rates in a generation, supported by Fed intervention in the mortgage lending market
6. Underwater homeowner refinance programs
I am sure with a small amount of effort, HBB regulars could easily double the length of my list.
I find it odd that MSM articles on this underwater homeowner rescue program invariably neglect to mention who pays for it. I’m surprised the bond vigilantes don’t go into open revolt.
Originally published Friday, December 2, 2011 at 10:01 PM
Latest attempt to help underwater homeowners launches
Homeowners who have missed mortgage payments in the past six months need not apply. This is one of the first refinance programs that doesn’t require an appraisal to determine the value of the house.
By Mary Shanklin
The Orlando Sentinel
ORLANDO, Fla. — Matt Hamilton has dutifully paid the loan on his Maitland, Fla., house and a nearby rental condo, but until now he could not refinance them to obtain more-affordable interest rates because the properties are financially underwater.
“It’s been difficult because I’m so far in the hole that no one wants to refinance me,” said Hamilton, a product developer for Onlinelabels.com. “But if you look at my payment history, I am a safe risk.”
Starting this past Thursday, Hamilton and many other homeowners with “underwater” mortgages can apply for a new Fannie Mae and Freddie Mac refinance program geared for pretty much everyone who owes more on a home than it’s worth — including landlords and second-home owners.
The federal government’s previous foreclosure-prevention efforts, such as the Home Affordable Modification Program (HAMP), lowered the interest rates on mortgages of homeowners at risk of foreclosure because they had lost income.
But the new Home Affordable Refinance Program (HARP) is seen as a possible game-changer even for homeowners who are underwater, but who have stayed employed and continue making their payments.
Homeowners who have missed mortgage payments in the past six months need not apply. And not all the details — such as loan limits — have yet been disclosed. But this is one of the first refinance programs that doesn’t require an appraisal to determine the value of the house.
“It’s a reward for the responsible borrower who swallowed a bitter pill, but still kept moving,” said Travis BeMent, mortgage-loan originator for Home Loans Today of Orlando, Fla. “There are a lot of people out there ready to pounce on this.”
The program opens just as new reports show that more than half of the mortgaged homes in the Orlando area are saturated with more debt than they are worth. In all, 254,146 mortgaged homes in the four-county metro area are in that situation, according to a report released Tuesday by the mortgage-research company Corelogic.
Even though Orlando has a greater share of underwater homes than Florida overall or the nation as a whole, the percentage of “negative-equity” houses in the metro area actually decreased slightly during the third quarter: 51.6 percent of the mortgaged homes in Orange, Seminole, Osceola and Lake counties were worth less than their loans in the July-through-September period, down from 53.1 percent in the second quarter.
About 44 percent of the mortgaged houses in Florida, and 22 percent of those in the nation, were underwater in the third quarter, according to Tuesday’s report.
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Your tax dollars are hard at work helping underwater investors refinance their rental properties.
AJCHomefinder-sharing 7:51 p.m.
Tuesday, November 15, 2011
New program may rescue underwater borrowers
By John Adams
Major changes to the Home Affordable Refinance Program (HARP) were announced recently by the Federal Housing Finance Agency. The biggest change will allow some homeowners to refinance their homes, even though they owe more on their existing loan than their homes are worth.
No appraisal is necessary and there is no maximum loan-to-value ratio, meaning borrowers who are underwater on their current loan may be able to refinance and get a much lower interest rate and perhaps a shorter payback period.
This new program, dubbed “HARP Phase 2,” is targeted at so-called responsible borrowers who are current on their payments and have not been more than 30 days late in the past 12 months. To qualify, your existing mortgage must have been sold to Fannie Mae or Freddie Mac on or before June 30, 2009.
Another surprise in the administration announcement is the scope of potential beneficiaries. Borrowers no longer need be owner-occupants to have a chance of a new loan. This means that owners who have second residences or have moved to another home can still qualify.
It also recognizes, for the first time, that many of the preventable foreclosures belong to investors who are using the properties as rental homes for investment. In the past, relief has been restricted to owner-occupants.
In recent weeks, loan rates have been held down by a flight to safety from investors fleeing uncertainty in the EU. But that could change.
Because this new program is open to so many potential applicants, it is entirely possible that there will be a surge in refinance applications, resulting in higher interest rates.
Only borrowers whose loans are now owned by Fannie Mae or Freddie Mac can qualify for this program, and applicants need only supply verifiable evidence of an income source, but not an amount of income.
…
“applicants need only supply verifiable evidence of an income source, but not an amount of income”
Really? No indication of amount of income at all? I guess they are assuming that since people have to be current on the existing loan that they will be able to afford the new one, but that is one heck of a verification to leave out. Anyone who has been draining retirement accounts to make the payments may be unable to make the new payments long term.
“Anyone who has been draining retirement accounts to make the payments may be unable to make the new payments long term.”
No problem here, as the loans are federally guaranteed.
CIBT,
Why is it treasurys instead of treasuries? I’d ask my neighbor, Bill Gross, but he may not answer the door -
I suppose “Treasury” is (implicitly) an abbreviation for “Treasury bonds,” so it sort of makes sense to form the plural differently than for “treasury (treasuries).”
“I’m surprised the bond vigilantes don’t go into open revolt.”
The bond vigilantes can’t figure out anywhere else safe to move their money.
Revolt translates to bondholders moving their money into some other asset class.
Where else would they go right now?
Mortgage rates stay near record low
BY ASSOCIATED PRESS December 1, 2011 9:32AM
Updated: December 2, 2011 4:58PM
WASHINGTON — The average rate on the 30-year fixed mortgage hovered above its record low for a fifth straight week. Despite the great opportunity, few have the means or stomach to buy or refinance in the depressed housing market.
Freddie Mac said Thursday the rate on the 30-year home loan rose slightly to 4 percent from 3.98 percent the week before. Eight weeks ago, it dropped to a record low of 3.94, according to the National Bureau of Economic Research.
The average rate on the 15-year fixed mortgage was unchanged at 3.30 percent. Eight weeks ago, it too hit a record low of 3.26 percent.
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Dead people repay no credits.
More problems are found with home buyer tax credits
An audit shows the IRS has been sending notices to taxpayers that either inform them they owe no repayments on their credits when they actually do, or demand repayments from recipients who legally owe nothing.
By Kenneth R. Harney
November 6, 2011
Reporting from Washington—
Remember the federal tax credit programs offering $7,500 and later $8,000 to first-time home buyers? The credits were designed to deliver a jolt to the reeling housing industry, and they did: More than 4 million people applied for and have received nearly $30 billion worth of credits.
Most went to people who legitimately qualified for the credits, according to the Internal Revenue Service, the federal agency that administers them. But a series of audits by the Treasury’s inspector general for tax administration has documented foul-ups by the IRS, including credits granted to prison inmates and dead people, fraud schemes involving claimants who never bought a house and even credits for alleged home purchases by teenagers and children as young as 3.
But far more commonplace, according to auditors, were shortcomings by the IRS in distinguishing between taxpayers who were supposed to repay their credits over a 15-year period — as required under the original $7,500 program in 2008 — and people for whom there was no such requirement under later versions of the program allowing credits up to $8,000.
The IRS also had trouble determining whether recipients of the non-repayable credits might have violated rules by selling their homes before the three years of required residency and earning a profit on the sale.
Now a new audit has turned up still more home buyer tax credit problems. According to the inspector general, the IRS has been sending “incorrect” notices to thousands of taxpayers that either inform them that they owe no repayments on their credits when they actually do, or demand repayments from recipients who legally owe nothing.
The latest audit found that 61,427 homeowners were sent erroneous notices, including in part:
• 27,728 who bought homes in 2009 under the non-repayable program but were told to send in payments.
• 12,495 who received the 2008 version of the credit, which was essentially an interest-free loan, but were told no repayments are due.
• 832 dead people who were asked for repayments on their credits despite the fact that the law waives any repayment requirements for deceased taxpayers.
…
“‘Central banks are under increasing pressure to act, both because fiscal authorities have been unable to make credible commitments to maintain fiscal discipline and because central banks have been willing to engage in actions that stray into the realm of fiscal policy — for example, purchasing assets of the housing sector,’ he said.”
Plosser and Fisher are staking out a position in the historical record on central bank policy. They will be able to say ‘I told you so’ in case inflation turns out ‘much higher than expected’ due to central banks applying an excess of hair-of-the-dog monetary stimulus.
“Plosser says he would oppose such a plan, which he sees as crossing the line into fiscal policy since it represents de facto credit allocation to a specific sector.”
Some Fed bankers just can’t get on board with the notion that endless stimulus of the U.S. housing sector is the way out of recession.
“‘We don’t want to be in a situation like Greece. We are headed that way, if we are not careful,’ Fisher said. ‘We are headed in the wrong direction, and if we don’t bring it under control, we are going to have social unrest.’”
Occupy Wall Street Timeline
Sat Dec 3, 2011 6:54PM GMT
Quick Facts: Occupy Wall Street timeline
The following is the timeline of Occupy Wall Street (OWS) which began on September 17 in New York with a small number of young people pitching a tent in front of the New York Stock Exchange to protest against greed and graft on Wall Street and the ensuing ramifications on U.S. politics and economy. The movement has expanded nationally and drawn a wide variety of activists, including retirees, union members and laid-off workers. Many anti-war activists have also joined the protests.
December 2 (Day 77)
Media reports revealed Los Angeles police used nearly a dozen undercover detectives to infiltrate the Occupy LA encampment to gather information on protesters’ intentions before Police officers raided their occupiers on Nov. 30. Boston
A federal judge issued a temporary restraining order to block Oklahoma City from forcibly ousting Occupy protesters from a downtown park where they have bought daily permits to stay after hours. Rawstory
Occupy Philadelphia protesters vowed to continue their movement against corporate greed and economic inequality despite the demise of their tent city at City Hall, and they challenged the city’s assessment that their eviction occurred in a peaceful and orderly fashion. AP
According to a directive handed down to the protesters from Albany officials, all-night camping at Occupy Albany’s Academy Park headquarters were scheduled to end Dec. 22 at the latest.
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What i noticed as striking was where were the 20 something or hipster bands supporting OWS? where was Death cab for cutie, Modest mouse, fall out boy and the flavor of the week…almost no rappers either…….instead pete seeger and crosby and arlo guthrie.
Aging folk singers, drum circles, and layabouts aren’t going to impress the grifters. Organizing around politicians they can’t buy and throwing their Republicrat stooges out of office, on the other hand, will put the fear of God into them and their tools on Capitol Hill.
http://www.riseagainst.com/activism/
I would prefer OWWG (Occupy Woodrow Wilson’s Grave), for he was the one who pushed for the welfare / warfare / interventionist state and got it. He was the founder of it. Took the new income tax and ran with it like a looter runs.
I love how the FED officials blame the gov, they blame the people, but they don’t blame the banks or the FED.
Merkel: Financial crisis solution to ‘take years’
By Melissa Eddy, Associated Press
Updated 1d 13h ago
BERLIN – German Chancellor Angela Merkel pushed for stronger rules against overspending as the long-term answer to Europe’s debt crisis, saying fixes for the euro’s flaws need to be written into changes in the basic EU treaty.
Merkel’s stance, laid out Friday, could be part of what markets have greeted as an emerging plan for more effective action to contain the crisis, combined with more aggressive action by the European Central Bank to quickly lower borrowing costs for hard-pressed governments facing financial disaster.
Speaking to lawmakers in Parliament ahead of a crucial European summit next week, the German leader emphasized that tougher rules against running up debt were the only path forward — a process that could take years.
“The German government has made it clear that the European crisis will not be solved in one fell swoop,” Merkel said. “It’s a process, and this process will take years.”
But despite her insistence on long-term changes, the push by Merkel and French President Nicolas Sarkozy is being seen as one half of new efforts by European leaders to get a stronger grip on the debt crisis more than two years after it erupted in Greece.
The other half could be more short-term help from the ECB for heavily indebted governments, such as Italy. ECB President Mario Draghi on Thursday appeared to dangle an offer of new, extraordinary measures if political leaders at the Dec. 9 summit can answer his call for “a fundamental restatement of the fiscal rules.”
“Other elements might follow,” Draghi said, fueling speculation that the bank could step up its so-far limited program to buy government bonds issued by struggling countries.
That helps keep their borrowing costs down, but the bank has resisted plunging in with bigger purchases, saying it was up to governments to fix their finances and not look to the central bank for help avoiding painful decisions on cutting back spending and shaking up over-regulated economies.
But Draghi stressed the bond buys “can only be limited,” leaving analysts speculating he might have other forms of support in mind, such as extending more unlimited credit to banks having difficulty borrowing because of market fears they may suffer losses on the government bonds they hold.
The prospect of more ECB help has boosted markets, along with coordinated steps Wednesday by central banks to improve shaky commercial banks’ ability to borrow U.S. dollars to fund their operations.
The yield on Italian 10-year bonds fell to 6.48% on Friday from over 7% the day before, and stocks rose in Asia and Europe. Wall Street also opened higher in New York.
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