The Housing Bubble

“The problem seems to be more dire on Florida’s west coast, where, for example, All Children’s Hospital in St. Petersburg reported that 30 percent of its NICU babies are suffering from NAS. One or two a month are delivered at St. Mary’s, Wingkun estimates.”

Good god, what is the matter with these people. I fear for the future of this country with the way our “breeding” is going. The higher your IQ, the more likely (it seems, I don’t have the research to support this) you are to have no/few children. We are breeding for lack of intelligence. Does this mean, 1000 years from now, that we will have less intelligent people than we do today? If so, that’s a very scary thought.

BTW, I don’t equate drug abuse (note that I didn’t say “use”) with intelligence. But, in many cases, they correlate closely, especially when you’re talking about pregnant women who continue to use drugs.

Time for that grubby little OWS outfit to return to Mom’s basement the invisible hand has everything under control.

At Liberty Mutual, accounting to no one

Before we get to the news today, and there is news today, I’d like to offer some unsolicited advice to Ted Kelly: Fire the advisers who coined the phrase “accounting issues’’ to justify your $50 million a year compensation package.

Seriously, off with their heads.

Accounting issues? Phantom stock? Make believe stock options? As Kelly explained this to the Globe’s Todd Wallack on Friday afternoon, he nonchalantly waved his hand around like he was trying to remember the name of his favorite new cheese at a gourmet shop in Osterville. What’s the big deal?

Here’s his problem, though: Phantom stock and phony options still add up to nearly $200 million in very real United States currency, all of which he took out of Liberty Mutual in his last four years as chief executive. Those “accounting issues’’ are also known as “bank deposits,’’ and nothing Kelly says, nothing he does, will change that.

The only phantom anything are the dividends that never got paid to the policyholders that actually own Liberty Mutual. What these owners got were rate hikes, while Boston and Massachusetts residents gave the company $46.5 million in tax breaks, all to help fund an utterly grotesque level of executive pay.

Which is why Kelly and the new chief executive, David Long, sounded a little north of ridiculous when they told Wallack (for the record, nobody over there calls me back) that Kelly’s absurd compensation payout was warranted by his performance. When exactly did we lose the concept that chief executives are expected to do well, and when they meet high expectations, they’re not supposed to be paid more in a day than 95 percent of their employees earn in a year?

Friday’s performance revealed that these guys are so out of touch that they truly, honestly believe they’re worth that million a week, or $192,000 a day, or $24,000 an hour - and can’t for the life of them imagine that you don’t. They actually believe the system is fair, the one they stacked with interlocking boards of directors of like-minded people paid a couple of hundred thousand dollars a year to approve each other’s pay.

http://articles.boston.com/2012-05-02/metro/31521297_1_phantom-stock-liberty-mutual-executive

Yesterday, from MikeinBend:

It is in my best interest to put the savings into a house so they don’t get taken by some other emergency in our lives. I agree but it seems strange to hear from the “stay away from housing” crew to buy a house; with all my savings mind you.

HBB is not the “stay away from housing” crew; we are more like the “stay away from mortgages” crew. I don’t think anyone on HBB has advocated against buying a house outright to live in it.* You need to make this distinction.

When you buy a house outright, you are NOT losing all of your savings, mind you. That money still exists, because you’re living in that money. You’re using that money to not pay rent. But what if you spend your savings on your magical college degree and still get no job? Then you really lost your savings. And guess what, the next day, you still have to pay the rent.

—————
*well there are exceptions. If you bought a house outright in 2005 then you overpaid. But even then you wouldn’t be in the hole; your pile would just be smaller.

I’m trying to recall if May Day protests have normally occurred around U.S. cities in recent years, or is it different this year, now that many folks are working through the anger phase of the financial collapse?

Violence mars protests in downtown Seattle
By The Seattle Times
Published: May 02. 2012 4:00AM PST

Police escort a protester in downtown Seattle on Tuesday. Seattle Mayor Mike McGinn says he’s making an emergency declaration allowing police to confiscate items that can be used as weapons following violent May Day protests that left storefronts and car windows shattered.
Erika Schultz / The Seattle Times

Wind and rain began driving a few May Day protesters away Tuesday evening, hours after a cluster of about 75 demonstrators dressed in black and carrying poles interrupted peaceful marches to smash windows and clash with police in Seattle’s downtown retail core.

Swarms of police on bikes and in riot gear had attempted to corral the early afternoon demonstrators with batons and chemical spray, but the protesters quickly dispersed. Some reintegrated into the crowd, shedding their black clothes, Mayor Mike McGinn said at a news conference, and by early evening there had been only eight arrests.

But by evening, the protests had swelled to thousands of people; the vast majority remained peaceful.

After the early afternoon violence, McGinn issued an emergency order banning items that could be used as weapons, and authorized police to pre-emptively seize the five-foot poles demonstrators used.

“My direction to the police is that I expect them to respond to lawbreaking swiftly and aggressively,” McGinn said.
…

Are any Republicans clamoring for DeMarco’s head over F&F principal reductions, or is it strictly a Democratic effort?

And I notice that some newspaper articles mention the $3.8 bn infusion of tax dollars needed to generate $1.7 bn in “savings” while others (like this article, for instance) conveniently omit it.

Calls for mortgage assistance get louder in Washington

The director of the Federal Housing Finance Agency is under pressure to allow principal reductions for loans under Fannie and Freddie after disclosures that one cost-saving plan was scrapped.

Edward J. DeMarco, the acting director of the FHFA, has resisted a push by the White House, congressional Democrats, housing advocates and attorneys general of California and other states to implement a principal reduction program at Fannie and Freddie. (Scott Eells, Bloomberg / March 28, 2012)

By Jim Puzzanghera, Los Angeles Times
May 1, 2012, 6:50 p.m.

WASHINGTON — Pressure is mounting on a key federal regulator to allow Fannie Mae and Freddie Mac to reduce loan principal amounts for struggling homeowners, after disclosures that a plan to do that was scuttled even though it was aimed at saving taxpayer money and helping to heal the housing market.

Fannie Mae officials in 2009 supported principal reductions in some cases and crafted a pilot program that would have cost only $1.7 million to implement but could have provided more than $410 million worth of benefits to homeowners, according to internal company documents cited by two House Democrats.

However, the pilot program set to start a year later was abruptly canceled, apparently for ideological reasons, Reps. Elijah E. Cummings (D-Md.) and John F. Tierney (D-Mass.) said in a letter Tuesday to the acting director of the Federal Housing Finance Agency.

Edward J. DeMarco, the acting director, has resisted a push by the White House, congressional Democrats, housing advocates and attorneys general of California and other states to implement a principal reduction program at Fannie and Freddie.

The FHFA has overseen the giant mortgage financing companies, which own or back 60% of the nation’s home loans, since they were seized by the federal government in 2008 as they bordered on bankruptcy. Taxpayers have provided $188 billion to keep them afloat.
…

It sounds to me as though only one of the two parties is vociferously supportive of F&F principal reductions. Does anyone have evidence of any Republican support whatever?

I’m also curious whether anyone can provide historical evidence of success in strong-arming independent regulators during election years.It seems as though DeMarco has the option of running out the clock on this unruly and highly public political pressure by continuing to study the merits of principal reductions for another six months.

U.S. housing regulator fires back in mortgage flap

U.S. Housing and Urban Development Secretary Shaun Donovan announces February 9, 2012 in Washington that the federal government and 49 state attorneys general have reached a $25 billion agreement with the nation’s five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses. REUTERS/Gary Cameron

By Margaret Chadbourn
Tue May 1, 2012 7:23pm EDT

(Reuters) - The regulator for Fannie Mae and Freddie Mac fired back on Tuesday against claims from Democrats in Congress that he is standing in the way of letting the two U.S. housing finance giants forgive mortgage principal because of ideology.

In a sharply worded response to Elijah Cummings, the top Democrat on the House of Representatives Oversight Committee, Federal Housing Finance Agency Director Edward DeMarco defended his agency’s position on loan write downs.

DeMarco has long maintained that allowing the two government-controlled mortgage firms to write down loan principal would needlessly drive up the costs of their taxpayer bailout, which has already reached more than $150 billion.

He has said distressed borrowers could obtain as much relief through measures that are less costly, such as loan forbearance, although his agency is studying an Obama administration plan that increases financial incentives in an effort to encourage the two companies to forgive loan principal.

“The fact that FHFA continues to consider principal forgiveness alternatives … belies any ideological tilt on our part,” DeMarco said in a letter to Cummings and Representative John Tierney, a Democrat from Massachusetts.

“I strongly disagree with any characterization of FHFA’s work or motives as anything but in keeping with the professionalism expected of this agency,” DeMarco wrote.

DeMarco was responding to a letter from the two lawmakers in which they pressed him to release internal company documents they said would show that principal reduction programs proposed as early as 2009 might have reduced losses at the two companies.

Fannie Mae and smaller rival Freddie Mac, which support about 60 percent of all new U.S. home loans, were taken over by the government in September 2008.

“Based on the documents we have obtained, it appears that the shared equity principal reduction pilot program should have been implemented years ago, and the failure to do so may have resulted in unnecessary losses to U.S. taxpayers,” Cummings and Tierney wrote.

Cummings has led a charge by congressional Democrats to pressure FHFA to allow the companies to pursue principal write-downs for borrowers who owe more on their mortgages than their properties are worth.

In their letter, Cummings and Tierney cited documents they claimed showed that Fannie Mae officials “concluded several years ago, after substantial study and review, that principal reduction programs could save the company and U.S. taxpayers money by dampening the number of foreclosures,” even when compared with alternatives such as principal forbearance.
…

May 1, 2012, 12:28 p.m. ET

Fannie Mae Studied Loan Writedowns With Wells, Citi - Regulator
By Alan Zibel and Nick Timiraos
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones) — Mortgage giant Fannie Mae (FNMA) explored pilot loan-writedown programs in 2009 and 2010 with Citigroup Inc. (C) and Wells Fargo & Co. (WFC) but ended them due to “complex operational issues,” a housing regulator told U.S. lawmakers.

The general counsel of the Federal Housing Finance Agency, Alfred Pollard, sent a letter last month to House Democrats explaining Fannie Mae’s decision not to move ahead with trial loan writedown programs that the government-controlled mortgage finance company explored in 2009 and 2010. The letter was obtained Tuesday by Dow Jones Newswires.

The housing regulator has been under pressure from Congressional Democrats and the Obama administration to reconsider its opposition to loan-writedown programs. In the letter to Rep. Elijah Cummings (D., Md.) and Rep. John Tierney (D., Mass.), members of the House Oversight Committee, Pollard said that the pilot writedown programs, “to the extent they were begun, ended due to complex operational issues involving system changes, accounting considerations and the interest level of Fannie Mae’s partners.”

Wells Fargo’s program got further along, with several hundred borrowers receiving writedowns. But it had data-entry problems, as Fannie Mae’s software system doesn’t allow for principal writedowns, Pollard’s letter said. In addition, borrowers who received writedowns performed no better than those who didn’t.

Fannie Mae made the decision on its own not to implement the Citi pilot, citing concerns over costs and operational challenges, Pollard’s letter said. Fannie then proposed different pilot that Citi wasn’t able to accommodate. Representatives of Citi, Fannie, Wells Fargo and FHFA didn’t comment.

Cummings, the top Democrat on the House’s oversight panel, has been persistently critical of Edward DeMarco, the acting head of FHFA, pressing him to enact principal reductions and calling for DeMarco’s ouster.

On Tuesday, Cummings and Tierney wrote to DeMarco saying that documents obtained by his committee “show that Fannie Mae officials strongly supported the concept of principal reduction and fully evaluated its risks and benefits as they obtained the necessary internal approvals to finalize the program.”

For example, they excerpted a November 2009 presentation to a Fannie Mae risk panel about the Citi writedown pilot. It said the “business case for shared equity is strong” and that “underwater borrowers will perform better on a modification that reestablishes equity.” And they also found out that more than 50 executives at both companies met in April 2010 to “finalize timelines for the program, identify outstanding issues, and review the program’s integrated test plan.” The program was suspended that July, the lawmakers said.
…

Oh, the agonie$, oh, the pain$!
We’ve been tax $lapped and we can’t get up! Help us repubicans, …Hurry! Help!
We’re $uffering $o!

The bottom 95% of Americans have seen debt levels balloon compared to their earnings over the past 20 years or so, as falling incomes made them more dependent on credit to maintain their lifestyles.

The New American Dream
Debt inequality is the new income inequality:
By Tami Luhby @CNNMoney May 2, 2012 / NEW YORK (CNNMoney)

In 1983, the bottom 95% had 62 cents of debt for every dollar they earned, according to research by two International Monetary Fund economists. But by 2007, the ratio had soared to $1.48 of debt for every $1 in earnings.

The bottom 95% had incomes of roughly $160,000 or less in 2007, including capital gains.

And then there’s the top 5%. Their debt-to-income level actually fell during the same period, from 76 cents of debt for every dollar earned in 1983, to just 64 cents in 2007.

And experts say the picture hasn’t changed much since then.
Getting off government assistance

The debt divide is a result of the growing income gap between the wealthiest Americans and everyone else. The top 5% saw their share of total income rise to 34% in 2007, up from 22% in 1983. This excludes capital gains, which pump up the income of the rich even more since they are more likely to invest.

The wealthy had so much extra money lying around that they channeled it back into the financial system, making more credit available to the rest of the nation.

The Economist: IT’S DIFFERENT IN CANADA

Canada’s housing market
Look out below
After years of lecturing America about loose lending, Canada now must confront a bubble of its own
Feb 4th 2012 | TORONTO | from the print edition

IN FEW corners of the world would a car park squeezed between two arms of an elevated highway be seen as prime real estate. In Toronto, however, a 75-storey condominium is planned for such an awkward site, near the waterfront. The car park next door will become a pair of 70-storey towers too. In total, 173 sky-scrapers are being built in Toronto, the most in North America. New York is second with 96.

When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug about the purported prudence of their financial and property markets. During the crash, Canadian house prices fell by just 8%, compared with more than 30% in America. They hit new record highs by 2010. “Canada was not a part of the problem,” Stephen Harper, the prime minister, boasted in 2010.

Today the consensus is growing on Bay Street, Toronto’s answer to Wall Street, that Mr Harper may have to eat his words. In response to America’s slow economic recovery and uncertainty in Europe, the Bank of Canada has kept interest rates at record lows. Five-year fixed-rate mortgages now charge interest of just 2.99%. In response, Canadians have sought ever-bigger loans for ever-costlier homes. The country’s house prices have doubled since 2002.

Speculators are pouring into the property markets in Toronto and Vancouver. “We have foreign investors who are purchasing two, three, four, five properties,” says Michael Thompson, who heads Toronto’s economic-development committee. Last month a modest Toronto home put on the market for C$380,000 ($381,500) sold for C$570,000, following a bidding war among 31 prospective buyers. According to Demographia, a consultancy, Vancouver’s ratio of home prices to incomes is the highest in the English-speaking world.

Bankers are becoming alarmed. Mark Carney, the governor of the central bank, has been warning for years that Canadians are consuming beyond their means. The bosses of banks with big mortgage businesses, including CIBC, Royal Bank of Canada and the Bank of Montreal, have all said the housing market is at or near its peak. Canada’s ratio of household debt to disposable income has risen by 40% in the past decade, recently surpassing America’s (see chart). And its ratio of house prices to income is now 30% above its historical average—less than, say, Ireland’s excesses (which reached 70%), but high enough to expect a drop. A recent report from Bank of America said Canada was “showing many of the signs of a classic bubble”.

The consequences of such a bubble bursting are hard to predict. On the one hand, high demand for Canada’s commodity exports could cushion the blow from a housing bust. And since banks have recourse to all of a borrower’s assets, and Canadian lending standards are stricter than America’s were, a decline in house prices would probably not wreck the banks as it did in the United States.
…

wsj dot com
May 1, 2012, 11:03 p.m. ET

China April Housing Prices Slide For 8th Straight Month

SHANGHAI—Housing prices in 100 major cities in China were lower for the eighth consecutive month in April, China Real Estate Index System said Wednesday.

The data provider said a survey of property developers and real-estate agencies showed the average home price in April was lower at CNY8,711 a square meter, compared with CNY8,741 in March and CNY8,767 in February.

The survey, which the company compiles together with online real-estate brokerage SouFun Holdings Ltd., SFUN -0.61% is widely watched after China scrapped a national property price index in February last year.

China Real Estate Index System said property prices in 29 cities rose in April compared with the previous month, while prices in the rest of the 71 cities posted a decline.

Compared with a year earlier, the average price of a new home in April registered a decline for the first time since last June, dropping by 0.71%, according to the survey by SouFun Holdings.

Average home prices in 10 major cities, such as Beijing and Shanghai, fell 0.4% to CNY15,391 a square meter in April from a month earlier; on a year-on-year basis, prices declined for a fourth consecutive month in April, down 2.6% from a year earlier.

The Chinese government since 2010 has mounted a campaign to bring down housing prices to head off social unrest, with moves ranging from restrictions on second-home purchases to pushing banks to redirect lending away from developers and toward affordable-housing projects.

Sales and prices have started declining in some cities, putting pressure on property developers and local governments.

Wasn’t 120K the ADP payrolls number last month as well?

Economic Report Archives | Email alerts

May 2, 2012, 9:11 a.m. EDT
Hiring slows as ADP reports 119,000 new April jobs
By Ruth Mantell, MarketWatch

WASHINGTON (MarketWatch) — Hiring has slowed down, with private-employment gains in April the weakest in seven months, according to a report released Wednesday by payrolls-processor Automatic Data Processing Inc.

Private-sector employment increased 119,000 in April, the lowest result since September, led by the service-providing sector and small and medium businesses, according to ADP. The April gain is down from average monthly employment increases of about 200,000 in the first quarter of 2012, according to ADP.
…

anyone got any good pesonal financial software recommendations for the mac.

i want to stay away from mint.com for security reasons.

i know quicken is the big boy on the block but i read somewhere that the mac version is much more limited than the pc version.

thanks for any advice.

Just wanted to insert this little find:
“Moreover, you can take cash early without penalty from a regular IRA, but not a 401(k), to pay for higher education, make a down payment (of up to $10,000) on your first house.”

Polly,
If I transfer $10K directly into our escrow acct from my IRA (I’m 55) will that constitute part of the down payment, even if we are putting down 100%? Or can they disqualify it, when they see no MID? I would love your opinion.

Polly
Thank you. That was kind of you to respond last night to my inquiry. I’ll dig into the IRS publication. I have a feeling this is a gray area. Our situation is unique.

Future prospects for Treasurys improve without bound.

Still better, the weak economic data which is fueling the Treasury rally also lends support to the Fed’s case that QE3 is needed to keep the recovery on track. Once they announce QE3, it’s a sure thing that Treasury bonds will rally yet again!

May 2, 2012, 10:39 a.m. EDT
U.S. 10-year yields touch 3-month low
More weak U.S. data fuels interest in Treasury bonds
By Deborah Levine, MarketWatch

The unemployment rate across the 17 euro-zone countries rose to match a record high in March and the area’s manufacturing sector contracted at the sharpest pace in over two years. Photo: AP

NEW YORK (MarketWatch) — Treasury prices added to gains on Wednesday, pushing 10-year yields down to a three-month low, after ADP said U.S. private employers added fewer jobs in April than many analysts expected.

Yields on 10-year notes, which move inversely to prices, fell 3 basis points to 1.91% from 1.93% before the data. A basis point is one one-hundredth of a percentage point.

The benchmark security’s yield level is near its lowest since early February.

Thirty-year-bond yields decreased 4 basis points to 3.11%.

Yields on 5-year notes fell 2 basis points to 0.81%.

Yields are back to multi-month lows as investors worry about the outlook after the Federal Reserve’s bond-purchase program ends, U.S. fiscal and tax policy remain undecided and Europe’s sovereign debt problem and recession stay in the spotlight.

“The second half of the year is going to be more difficult that the first half as stimulus wears off, we’re looking at potential tax increases and a weakening global economy, particularly in Europe,” said Mark MacQueen, co-founder of Sage Advisory Services, which oversees $9.5 billion in assets.
…

Housing price supports (backing bad loans) is welfare for Wall Street.

If house prices go down, NAR itself will get more business.

@AZ Slim-

I was speaking with a gentleman yesterday who works in Phoenix, and he was telling tales of changes in the housing market (foreclosures no longer being sold at big discounts at auction, volumes of homes at auction falling, median home prices rising, builders building and selling, builders buying land, etc.).

Are you hearing any of this from where you are?

Here it is:

http://minnesota.publicradio.org/features/npr.php?id=151709227

That is a text and there is audio available.

Some Housing Markets Rebound, But Bargains Scarce
by Ted Robbins, National Public Radio

Tease:

Arizona is home to one of the nation’s extraordinary turnarounds. The Phoenix-area median home price rose 20 percent over the past year — 6 percent in March alone. And Tucson was recently named the nation’s best market for investors. But the easy money has already been made.

The Federal Reserves media proxies and henchmen have brainwashed the public, Third Reich style.

Spent the week amblin’ / camping / hiking / hosteling / beach room renting, along the San Luis Obispo / Morro Bay / Los Osos triangle.

Oh my my, they’re building saftey depo$it boxe$ [aka: $tudent Hou$ing] like crazy man at Cal-Poly!

Everyone & their 3rd cousin$ still like to figure that their small lot, horribly landscaped, $tucco shack$ are worth every dollar & beyond for their $450,000 / $550,000/ $650,000 / $750,000+++++ $ingle Depo$it a$king price$

[all day bicycle rental @ the hostel was $10.00 per day. $5.00 all day / all transportation ticket got us to the beachs lickety split. Awesome eatery's & the Thursday night Farmers market was way cool!]

Beautiful area iffin’ ya have a job & a comfortable RV

European Stocks Decline as U.S. Payrolls Report Misses Estimates
Peter Levring

May 2 (Bloomberg) — European stocks declined for the second time in three days after reports showed that U.S. employers added fewer payrolls than forecast and euro-area unemployment rose to a 15-year high.

Vestas Wind Systems A/S slumped to an almost nine-year low after saying it’ll spend more money on turbine maintenance. Banco Santander SA led banks lower as European sovereign-bond yield spreads over German bunds widened. UBS AG, the biggest bank in Switzerland, jumped 3.5 percent after first-quarter results beat analysts’ estimates.

The Stoxx Europe 600 Index lost 0.5 percent to 257.18 at 4:30 p.m. in London, after earlier climbing as much as 1 percent. The benchmark gauge rose 0.4 yesterday after a report showed U.S. manufacturing expanded in April. All western European markets except the U.K., Ireland and Denmark were closed yesterday for May Day Holiday.

“The employment growth continues, though at a moderate pace,” Ralf Umlauf, head of floor research at Helaba Landesbank Hessen-Thueringen in Frankfurt, wrote in e-mailed comments. “With regard to the Friday publication of the official jobs report, the indications are mixed. It seems there is a slight potential for disappointment.”

U.S. companies added the fewest number of workers in seven months in April, a private report showed. Employment increased by 119,000 following a revised 201,000 gain the prior month, according to figures from Roseland, New Jersey-based ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for a 170,000 advance.
…

Housing Prices Are Falling

New Mortgage Monitor came out today from LPS:

http://www.lpsvcs.com/LPSCorporateInformation/CommunicationCenter/DataReports/Pages/Mortgage-Monitor.aspx

The most meaningful chart is still on page 9, IMHO, showing non-current loan rates by state, and differentiating judicial and non-judicial. AZ fell by 0.5% from the prior month (from 9.6% to 9.1%). CA fell by 0.3% from the prior month (9.6% to 9.3%). “Normal” is ~5%.

Judicial states are still a mess, and not getting better as of March 31, 2012.

Karl Denninger shouldn’t beat around the bush so much.

“The attempt to reinflate the Ponzi bubble that burst in 2008 has failed. Worse, it appears that we we may be weeks to months at most from broad financial market recognition of this failure — and if so, we’re about to have one hell of a crash and this time there are no policy actions available that will make a difference in the outcome.”

http://market-ticker.org/akcs-www?post=205445

I broke my rule at work today. I told someone what I pay in rent, and they walk away horrified.

-OT

The great Gregg Allman got a clean bill of health from Dr. McCoy and will will be doing another SpaceShot tour this year. Go Gregg!

http://www.cbsnews.com/8301-31749_162-57425889-10391698/gregg-allman-passes-heart-tests-ready-for-book-tour-and-summer-concerts/

Some of the cheapest homes in Central NY are in beautiful areas but lack jobs. Here is an example. Look at the taxes at very low end looking kind of a big house.

http://www.cnyhomes.com/Listing/Search/info.cgi?mlnum=S263985

ft dot com
May 2, 2012 7:54 pm
Our central bankers are intellectually bankrupt
By Ron Paul

The financial crisis has fully exposed the intellectual bankruptcy of the world’s central bankers.

Why? Central bankers neglect the fact that interest rates are prices. Manipulating those prices through credit expansion or contraction has real and deleterious effects on the economy. Yet while socialism and centralised economic planning have largely been rejected by free-market economists, the myth persists that central banks are a necessary component of market economies.

These economists understand that having wages or commodity prices established by government fiat would cause shortages, misallocations of capital and hardship. Yet they accept at face value the notion that central banks must determine not only the supply of one particular commodity – money – but also the cost of that commodity via the setting of interest rates.

Printing unlimited amounts of money does not lead to unlimited prosperity. This is readily apparent from observing the Fed’s monetary policy over the past two decades. It has pumped trillions of dollars into the economy, providing money to banks with the hope that this new money will spur lending and, in turn, consumption. These interventions are intended to raise stock prices, lower borrowing costs for companies and individuals, and maintain high housing prices.

But like their predecessors in the 1930s, today’s Fed governors behave as if the height of the credit bubble is the status quo to which we need to return. This confuses money with wealth, and reflects the idea that prosperity stems from high asset prices and large amounts of money and credit.

The push for easy money is not new. Central banking was supposed to have ended the types of periodic financial crises the US experienced throughout the 19th century. Yet US financial panics have only got worse since the centralisation of monetary policy via the creation of the Fed in 1913. The Depression in the 1930s; the haemorrhaging of gold reserves during the 1960s; the stagflation of the 1970s; the dotcom bubble of the early 2000s; and the current recession all have their root in the Fed’s loose monetary policy.

Each of these crises began with an inflationary monetary policy that led to bubbles, and the solution to the busts that inevitably followed has always been to reflate the bubble.

This only sows the seeds for the next crisis. Lowering interest rates in an attempt to forestall a recession in the aftermath of the dotcom bubble required massive credit creation that led to the housing bubble, the collapse of which we still have not recovered from today. Failing to learn the lesson of the bursting of both the dotcom bubble and the housing bubble, the Fed has pumped trillions of dollars into the economy and has promised to leave interest rates at zero through to at least 2014. This will only ensure that the next crisis will be even more destructive than the current one.

Not content with its failed attempts to prop up the US economy, the Fed has set its sights on bailing out Europe, too. Through currency swaps, it has committed to offering potentially hundreds of billions of US dollars to the European Central Bank and we cannot rule out the possibility of direct intervention.

The Fed’s response to the crisis suggests that it believes the current crisis is a problem of liquidity. In fact it is a problem of poorly allocated investments caused by improper pricing of money and credit, pricing which is distorted by the Fed’s inflationary actions.

The Fed has made banks and corporations dependent on cheap money. Instead of looking for opportunities to invest in real products that will serve the needs of consumers, Wall Street awaits the minutes of each Federal Open Market Committee meeting with bated breath, hoping that QE3 and QE4 are just around the corner. It is no wonder that long-term investment and business planning are stagnant.
…

January 2012
12 Cities Where Home Prices Have Fallen Most

In recent years, the cities with the steepest decline in home prices were the “usual suspects” — notably cities in California, Nevada, Arizona or Florida, where home prices boiled up during the boom and evaporated in the bust. Home prices in most of those cities have stabilized (and some of them now appear on the list of cities with the greatest price increases for the past year).

Most of the cities that made the desultory dozen list peaked late compared with the national market, finally done in by the recession’s high rate of unemployment and foreclosure. Most of them still have an oversupply of inventory, although many have recently seen rising sales.

All of the metropolitan areas we’ve ranked have a population of at least 200,000. Change in home prices reflects the one-year period through September 30, 2011, when the national average was -2.6% and the median home price was $171,250. We also report the change since the national peak in home prices, in the second quarter of 2006. Sales and inventory numbers were drawn from the most current market reports (October or November 2011). Unemployment rate is as of October 2011, when the national average was 8.5%. Foreclosure rate is as of September 30, 2011, when the national average rate was 1 of every 213 housing units, or 0.47%.

Find out which 12 metro areas have housing markets where home prices have fallen the most.
…

May 1, 2012, 4:47 PM

Plot Thickens on Mortgage Write-Down Debate
By Alan Zibel and Nick Timiraos

Fannie Mae conducted small tests to forgive debts of homeowners who owed more on their mortgages than the properties were worth in 2010. But the mortgage-finance company didn’t expand the pilot programs after concluding the programs were difficult to operate and the benefits weren’t clear, according to a letter from the firms’ federal regulator.

The letter, released Tuesday, disclosed that Fannie developed pilot loan write-down programs with Citigroup Inc. and Wells Fargo & Co. in 2009 and 2010 but they either didn’t launch or barely got off the ground.

Fannie’s loan-forgiveness pilot programs, “to the extent they were begun, ended due to complex operational issues involving system changes, accounting considerations and the interest level of Fannie Mae’s partners,” Alfred Pollard, the Federal Housing Finance Agency’s general counsel, wrote in a letter to Reps. Elijah Cummings (D., Md.) and John Tierney (D., Mass.).

The letter, written in April, was released as the regulator considers whether to accept new funds made available by the Treasury Department to allow some troubled homeowners to receive principal forgiveness.

Messrs. Cummings and Tierney have for months accused the FHFA’s acting director, Edward DeMarco, of obstructing efforts to forgive debts of under-water borrowers. They have been probing Fannie’s pilot programs since earlier this year, when a former Fannie employee called attention to the issue.

They suggested in their own letter Tuesday that the FHFA shelved the Citi pilot for ideological reasons. “This was not merely a missed opportunity, but a conscious choice that appears to have been based on ideology rather than Fannie Mae’s own data and analyses,” the lawmakers wrote.

Mr. DeMarco quickly took issue with the lawmakers’ assertions.

“Having just received a copy of your letter regarding principal forgiveness, I wish to convey my disappointment with this letter, the failure to contact FHFA to address your concerns, and the release of selective elements of the proprietary and confidential materials you received,” he wrote. “I strongly disagree with any characterization of FHFA’s work or motives as anything but in keeping with the professionalism expected of this agency.”
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