Mid-Year Predictions
What do you predict for the housing bubble and economy? A few from 6 months ago: “Everyone still tries to kick the can down the road. In Europe it does not work anymore. No more bailouts or stimulus in the US. The US goes into recession. Obama loses. Not by much. More war in the middle east. This time the US is not involved Housing continues to slide. China/Australia/Canada hit the wall. The US Dollar actually climbs quite a bit. Stocks get hammered. Cash (USD) is king. States actually take on insane public unions and win (they actually have no choice so this is an easy prediction). Manufacturing actually starts to come back to America. Solar and the green energy industry implode (again – easy prediction as they were never economically viable in the first place).”
Another posted, “I foresee the year of the default, with municipalities and pension funds throwing in the towel in a massive pile-on. We’ll see civil service strikes and marches, most likely joined by a second wave of OWS/TP sympathizers. Increasingly, the country will turn vegetarian as cattle and feed prices soar due to drought, corporate price fixing, and crop diversion to bio-fuels. Fast ‘food’ franchises will begin offering veggie burgers, curries and chilis in addition to whatever-it-is they pawn off on the oblivious feeder as ‘meat’ products.”
“Housing prices will continue to drop, though not as rapidly as in recent years. The underground RE economy will flourish and gain a certain legitimacy, as zoning laws are flouted and rental scams abound. Rental REITs will make a comeback after some enterprising syndicate touts it as an investment for Everyman and advertises it heavily in secondary markets a la Countrywide/Cash for Gold/cancer lawyers.”
“Chinese PACs will sway the Republican nomination toward Huntsman, but he’ll end up as the Secretary of State in the new Obama administration after Romney/Palin lose in a landslide. Or something.”
And another. “Very bad year in the EU zone. Possible breakup of the currency or massive monetization. Bad year in China. Desperate efforts to have an unsustainable thing going but basically fail. Commodities crash. Very bad year in India. Basically fail at every level. Moderately bad year in Russia. Moderately bad year in Brazil. Everything looks OK but the first derivative still portends doom for 2013. Especially bad year in Australia. Total crash. Bad year in Canada (you get to hear ‘we’re different’ more than a few times) and then you get a very bad 2013. Oddly enough, the US kinda muddles through it fine. (Logic is based on the ol’ ‘if you’re gonna devalue, devalue first.’)”
Then this, “Canada’s real estate continues into it’s bubble bursting. Mining hits a wall; commodity prices dive. Keystone gets the green light (or else Kitimat is approved). USA’s North Dakota becomes an energy giant. Five megawatt windmills start replacing 1.5 ones. Europe prints and prints and prints - inflation. US realizes it hasn’t been their domestic globals improving. New technologies show just how vast the offshore BC oil field is. First Nations people advance long term ownership of reserve based projects to 51% and do so by paying 51% of development costs. I hope someone eventually finds a solution to the housing crises. Not only Realtors will be called skallywags: so will Stock Shovellers.”
One said, “One thing I can say for sure is that it will be another year spent trying to find out how much debt governments can rack up without causing economic collapse. Another year spent trying to protect flawed debt markets which make so much money for politicians via their big donors. Will this be the year of the Black Swan? Stay tuned.”
And finally, “Once again, I’ll guess, they’ll do the things that will make things absolutely worse.”
From the weekend topics. “The White House wants us to share this. Key point: We’ve been talking to you about President Obama’s plan to cut through the red tape keeping millions of responsible homeowners from refinancing their mortgages, but we want to make sure your friends get the message, too. So we’ve put together a graphic that boils the President’s proposal down to the five things that everyone should know, and the information is all right here.”
“To which I say: Here in good ole Tucson, a lot of the responsible homeowners are also underwater on their mortgages. If they’re deeply underwater, they’re channeling their inner Nancy Sinatra and singing ‘These boots are made for walking, and that’s what they’re gonna do…’”
“In previous posts, I’ve noted the prevalence of ‘we’ll pay you a few thousand bucks to vacate’ notices on local houses that have been vacant for several months. In other words, day late, dollar short. Or, to use an agricultural analogy, barn door closed, horse gone.”
“Everyone still tries to kick the can down the road. In Europe it does not work anymore.”
Fail.
Eurozone crisis live: Bank bailout throws lifeline to Spain and Italy
• King calls for ‘real change’ in banking culture
• FSA chairman talks of ’shocking’ cynicism and greed
• FSA to ease liquidity rules for banks to kickstart lending
• EU summit agrees restructuring of Spain’s bank bailout
7.45am: Good morning and welcome back to our rolling coverage of the eurozone debt crisis. After Italy’s shock win over Germany in the football last night, has it also won some concessions with the summit agreement reached this morning after 13 hours of talks?
Italian prime minister Mario Monti is certainly hailing it as a triumph and couldn’t resist slipping in a dig about the football when he spoke to journalists this morning, saying: “It is a double satisfaction for Italy.”
Here’s a quick take on the agreement. The basic points are:
• EU leaders have agreed to use the eurozone’s bailout fund to support struggling banks directly. This will initially be used for Spain’s banking bailout but could also be used for Ireland.
• A eurozone-wide supervisory body for banks will be created.
• ESM loans to Spanish banks will not have seniority and so will not push other bondholders down the pecking order.
• Countries that want the bailout fund to buy their debt (therefore lowering their borrowing costs) will not be subject to Greek-style monitoring programmes. (That’s the second win Monti was referring to).
…
“FSA chairman talks of ’shocking’ cynicism and greed”
I am not shocked in the least by the cynicism and greed of these bankers, or shall I say financial terrorists. I am, however, absolutely disgusted and repulsed. They should be dealt with in the same manner as any other terrorist.
Most roads are not loops. They end at some point. The Fed and Congress think roads are Mobius strips. Father reality will show them otherwise.
Austerity America 2013.
Ironically, the more trouble the rest of the world has, the _less_ chance of austerity here in America.
One would hope. But in the Time or Newsweek article I read, at best Congress in the next few months will go part way on raising taxes and cutting spending and GDP will would probably be more like 1.2% rather than 0.2% in 2013. But by doing that they will make the suffering last longer.
Sadly, the white lower middle class male is unable to do simple math and analyze basic cause and effect in the current economic climate. Question: Who benefits from austerity? Answer: Wealthy bond holders since austerity keeps inflation low, meaning fixed interest payments are made with dollars not diluted by inflation. Inflation works for wage earners and home owners since the cost of a mortgage becomes a smaller and smaller percentage of your income as inflation drives up your salaries. Increased fiscal spending was the driver for all income growth under Reagan, Bush I, Bush II, and Clinton. Increased fiscal spending drives up demand. What is currently holding back economic growth is lack of demand, not increased debt. I realize that the reason lower income white males are in their current predicament is because they are not very smart. They think their fantasy of identifying with their super rich overlords makes them feel better. The swagger on display AM talk radio is enough to make you laugh yourself silly. But it will not pay the bills, feed their family, or help them attract and keep a wife or even a GF. Duh.
“China/Australia/Canada hit the wall.”
Gettin’ there.
P.S. My prediction: U.S. real estate will not prove to be decoupled when the China bubble collapses.
Barron’s Cover | SATURDAY, JUNE 30, 2012
Falling Star
By JONATHAN R. LAING | MORE ARTICLES BY AUTHOR
The Chinese economy is slowing and is likely to slow a lot more. Get ready for a hard landing.
After three decades of annual growth averaging 10%, China’s bullet-train economy is slowing markedly. Economic problems in Europe and the U.S. are stunting export growth, long the primary driver of China’s economic miracle. Growth in industrial production has likewise been decelerating for months. This year growth in gross domestic product could slip to 8%—and it may get a lot worse from there. Though recently announced interest-rate cuts and a ramp-up in the government’s already massive infrastructure spending could postpone the day of reckoning, to us it looks like the Great China Growth Story may be falling apart.
A comprehensive report by Nomura Global Economics issued late last year entitled “China Risks” paints at least one scenario in which China’s growth would fall in half to under 4%.
Already cracks are becoming more and more apparent in the seemingly adamantine façade of the Great China Growth Story that may well deter China from surpassing the U.S. in the near future—or ever. One can only remember the triumphalism extant about Japan’s prospects 25 years ago just before its economy went into a two-decade funk.
The most outspoken Sino-Skeptic is Wall Street short-seller Jim Chanos, who over the past several years has placed negative bets on the stocks of major Chinese banks, real-estate developers, and mining concerns, like Australia’s Rio Tinto (ticker: RIO) and Brazil’s Vale (VALE), which are major suppliers to the Chinese fixed-asset orgy. Never one to mince words, Chanos contends that China is headed for a hard landing of epic proportions because of its shaky financial system and an imminent collapse in its property market, which undergirds the entire economy. “I’m being conservative when I say that the coming bust in China’s real-estate market will be a thousand times that of Dubai,” he told Barron’s.
…
I would guess that the Canadian, and especially the BC, housing markets are much more tightly coupled to the Chinese economy than the US housing market. Haven’t they propped up the BC prices for a long time now?
Bloomberg News
Australia New-Home Sales Slow as Lower Rates Spur Little Demand
By Michael Heath on June 27, 2012
Australian sales of newly built homes slowed in May as interest-rate reductions failed to make an immediate impact on the nation’s property market, a private report showed.
…
Australian house prices declined in the three months through March in the longest losing streak in at least a decade. An index measuring prices for established houses in eight major cities dropped 1.1 percent last quarter from the previous three months, when it fell a revised 0.7 percent, the Australian Bureau of Statistics said in a May 1 report.
…
Looks like Australia is physcially running out of buyers, despite the low rates. This is precisely what happened in the US in late 2006.
At least it is common knowledge at this point that Canadian housing prices are in a bubble.
Canada’s housing market
TTime for a bigger needle
The latest attempt to prick a bubble
Jun 30th 2012 | Ottawa | from the print edition
CANADA’S reputation for financial regulation is starry. Its banks got through the crisis unscathed. According to Moody’s, a ratings agency, Royal Bank of Canada sits alongside HSBC and JPMorgan Chase in the top tier of global banks. And Canadian policymakers are old hands at pulling “macroprudential” levers of the sort now in vogue among rich-world central banks.
But questions still nag. Some say that Canada’s banks are flattered by a huge indemnity offered by Canada Mortgage and Housing Corp (CMHC), a public institution that insures mortgages with a loan-to-value ratio of more than 80%. CHMC’s book grew to C$567 billion ($557 billion) in 2011, up from C$345 billion four years earlier. And Canada’s housing market looks very frothy on some measures: The Economist’s analysis of price-to-rent ratios suggests that Canadian properties were about 75% above their long-run “fair value” in the first quarter of 2012 (see chart). Although less than 0.5% of CHMC’s mortgages are in arrears, such exuberance is a worry. The central bank recently labelled housing as “the most important domestic risk to financial stability in Canada”.
Repeated efforts by policymakers to take the heat out of housing have not had a noticeable effect. So on June 21st Jim Flaherty, the finance minister, had another go, his fourth in four years. Some of the new measures were cosmetic. Buyers of homes worth more than $1m have been able to get mortgage-default insurance from CMHC with a downpayment of only 5%. In practice, it is hard to find buyers in this bracket who do not have lots of equity in their homes. But after July 9th mortgages for homes of this value will not be eligible for CMHC coverage.
…
“The US Dollar actually climbs quite a bit. Stocks get hammered. Cash (USD) is king.”
Impressive!
The second article posted below raises a question: With net withdrawals from the U.S. stock market month-after-month, what props it up?
Yuan Posts Biggest Ever Quarterly Fall Versus Dollar
Published: Friday, 29 Jun 2012 | 6:11 AM ET
China’s spot yuan posted its largest quarterly decline against the dollar on record in April-June as the Chinese economy slowed and Europe’s festering debt crisis pushed the U.S. currency higher.
The yuan has appreciated 5 percent against the euro this quarter as the crisis in Europe has deepened, causing investors and central banks to increase dollar purchases.
The yuan declined 0.9 percent against the dollar in nominal terms so far this quarter, the biggest quarterly depreciation since the establishment of the China Foreign Exchange Trade System in 1994.
…
———————————————————-
Fund investors accelerate exodus from US stocks, seek more bond funds as safe haven
By Associated Press, Published: June 27
Investors are quickening their flight from U.S. stock mutual funds and into bond funds.
They pulled a net $1.85 billion from domestic stock mutual funds in the week ended June 20 while pouring $4.89 billion into bond funds, the Investment Company Institute said Wednesday.
Overall, total estimated inflows to long-term mutual funds were $4.56 billion for the week.
U.S. stock funds appear to be on a pace to register their 14th consecutive month of net outflows, with the pace of the exodus tripling from the previous week. Investors have yanked an estimated net of $12 billion from those funds in the last five weeks and more than $200 billion since April 2011. That was the last month that saw investors add more money than they withdrew.
…
“Very bad year in India. Basically fail at every level.”
ft dot com
India’s decade: the highest housing price rise in the world
June 28, 2012 11:40 am by Neil Munshi
Rats. Raw sewage in the streets. Garbage to go. These are but of a few of the quality-of-life issues that continue to afflict many parts of major Indian cities like Mumbai.
And yet, few Mumbaikars – or Delhi-ites – would be surprised to learn that India has seen the biggest rise in housing prices of any country in the world in the ten years from 2001 to 2011, according to a study released by Lloyds TSB International this week. They need only look at their rent check, or downpayment.
Prices in India grew a staggering 284 per cent over the 10-year period. Rounding out the top three were two more Brics: Russia, at 209 per cent and South Africa, at 161 per cent. China clocked in at 47 per cent, just below the UK’s 50 per cent, while Brazil didn’t figure in the study of 32 countries.
The reason for India’s astounding growth? A simple case of supply and demand – India has a whole lot of people and not very much housing – and economics: India’s GDP growth over the same period closely tracks the housing price growth, at 280 per cent.
That means more Indians have more money to spend on housing. But housing remains scarce for a few reasons, said Sandipan Pal, analyst at Motilal Oswal.
…
“The reason for India’s astounding growth? A simple case of supply and demand – India has a whole lot of people and not very much housing..”
Interesting how this massive population explosion sneaked up on every single country, resulting in a worldwide shortage of homes. I smell BS.
I think it is due more to the outsourcing of jobs from the US.
A bunch of poor people does not make for a housing bubble.
‘A bunch of poor people does not make for a housing bubble.’
The biggest price increases in the world currently are first India, second South Africa.
“A bunch of poor people does not make for a housing bubble.”
Doesn’t that depend on the availability of low-downpayment FHA financing?
In my part of L.A. I live among Indians. Some are impolite and I think it is due to the language barrier only. Many are polite when they speak English. I admire them and I know they work hard for their money. A good deal are educated professionals and pay their dues. I cannot praise them enough. I admire their ancient cultures. When I have time I will study India. A consultant friend of mine and his wife are from India. Very wonderful and generous people.
Invite some Indians that are Hindu and some that are Muslim to dinner and watch how wonderful they are.
Throw in a Dalit (”untouchable”) for extra fun!
I hear they work very hard at being polite while in western societies. They’re very self conscious and that’s a good thing. When they get back home, all bets are off.
The birth dearth among educated/highly skilled people will continue in all the developed nations as austerity kicks in. America’s austerity begins in January 2013 when significant tax hikes and spending cuts begin.
The first signs will begin in early November 2012 and Scrooge will get his best winter solstice wishes for sorrow as shoppers stay home and stay off the web.
I thoroughly enjoyed my 42 months of average annual gain of 13% in my 401k since the white guilt young man’s deity took office in 2009.
But cash will finally be king…until it is no longer king in five years or so.
“The birth dearth among educated/highly skilled people will continue in all the developed nations as austerity kicks in.”
Corollary: U.S. population growth is driven by peoples traditionally regarded as “minorities.”
ECONOMY
Updated May 17, 2012, 12:12 p.m. ET
Minority Births Are New Majority
In Demographic Watershed for U.S., Newborns Among Non-Hispanic Whites Are Surpassed by Others
By CONOR DOUGHERTY and MIRIAM JORDAN
For the first time in U.S. history, whites of European ancestry account for less than half of newborn children, marking a demographic tipping point that is already changing the nation’s politics, economy and workforce.
Among the roughly four million children born in the U.S. between July 2010 and July 2011, 50.4% belonged to a racial or ethnic group that in previous generations would have classified them as minorities, up from 48.6% in the same period two years earlier, the Census Bureau said Thursday. That was the first 12-month stretch in which non-Hispanic white children accounted for less than half the country’s births.
A Sizeable Minority
The percentage of Americans who are white (non-Hispanic) continues a steady decrease, especially among the youngest generation. See county-by-county data from across the U.S.
The 2008 election of Barack Obama as America’s first black president was in some ways emblematic of the nation’s changing face. But as the population evolves toward a more-varied mix that includes fast-growing Asian and Hispanic populations, the black/white divide that characterized the civil-rights movement has itself become a relic.
William H. Frey, a demographer at the Brookings Institution, says African-Americans are the largest minority among adults over 50. But for anyone younger—including the newborns forming America’s first “majority minority” generation—Hispanics are the second-largest population group after whites of European descent.
“It’s a major turning point for American society,” he said. “We’re moving from a largely white and black population to one which is much more diverse and is a big contrast from what most baby boomers grew up with.”
…
Actually, multiculturalism is a good buffer against collectivism. That is why I like multi-racial communities.
I wasn’t complaining, just making a prediction. Other than the high crime rate, I actually enjoyed living in Richmond, CA for several years, primarily due to the extreme cultural diversity.
No problem Professor, I did not detect any complaining at all, just a stating of the facts.
just a stating of the facts.
Careful with that. You might drive away a liar or two.
High crime rate in Diversity Country, eh? What a surprise.
I just read an article dated in March that says in the worst case, GDP will be 0.2% in 2013 due to the austerity in January.
I think many people are looking at defense cuts and ignoring the other cuts, so they think they will do fine. However the payroll tax cuts expire. The extended unemployment benefits will end. Other entitlements will be sharply cut, including food stamps.
My colleague continues to insist on buying $80 bottles of wine. I will stick to California’s Trader Joes, which averages to about $2.16 per bottle. The amount of savings left goes to cash!
Anticipating three to six month engineering gigs in various spots around the U.S. for the next four years. But I think I will still be bringing income. I have well over a year worth in cash and 52-week T Bills, the latter which I laddered to mature evenly every four weeks. I have about seven years more of living expenses tied up in savings bonds, ten year notes and TIPS, and municipal bonds.
Interesting to notice over the past year 52-week T-Bill yields have gradually increased from around 0.1% to 0.2%.
“I will stick to California’s Trader Joes, which averages to about $2.16 per bottle. The amount of savings left goes to cash!”
Let’s plan to share a bottle of TJ’s wine at a future HBB gathering!
It’s a deal Professor!
And from what I understand, Combotechie, ScDave, and SDGreg are from around Southern California as we had a HBB chat once at a “StarYucks” restaurant in Torrance a few years ago. Combo was into cash back then as now. I have to practice saying “Poof” because I think cash will be king in a few months.
I go to that Starbucks regularly only because it’s close, but I somehow like Peet’s fresh brewed more. Peet’s is too far from where I hang out.
Peet’s is too far from where I hang out.
I enjoyed a cup of Peet’s at California
Renter’sOwner’s home a couple of weeks ago. She claims she first heard about it from me.scdave is from Northern Cali….
Also a Peetnik.
I am game for a HBB SoCal Meetup. I’m in the San Fernando Valley, but happy to travel to South Bay or even OC.
Can you guys make it to San Juan Capistrano? I tend to think of that as a midpoint between LA and SD, and it is a lovely place to hang out with good restaurants and a historic Mission to provide a backdrop for a meetup. If you have better suggestions, fire away.
Yeah on a Saturday or Sunday of course. Won’t be available the weekend of July 14/15.
Count me in too; Let me know when and where.
The client has an important meeting next week and it should hint at whether there are projects in the future. Also my supervisor is aware my contract expires within two months. So I will probably know in a month whether I can stick around for an HBB meeting in the South Bay or not. Maybe we can meet further south like in Laguna Niguel to be halfway toward PB.
I need a month advance as I book flights to Phoenix ahead of time.
Population and recession
Europe’s other crisis
Recession is bringing Europe’s brief fertility rally to a shuddering halt
Jun 30th 2012 | VIENNA | from the print edition
EUROPE’S crisis is worse than it looks. As if the continent’s troubled financial markets and economy were not a big enough burden, a decade-long (and largely unnoticed) improvement in its fertility rate seems to have come to an abrupt end.
Of the 15 countries that have reported figures so far this year, 11 saw falls in their fertility rates in 2011 (the fertility rate is the number of children a woman can expect during her lifetime). Some of the biggest declines occurred in countries hardest-hit by the euro crisis. Spain’s fertility rate fell from 1.46 in 2008 to around 1.38 in 2011. Latvia’s fell from 1.44 to below 1.20. Tomas Sobotka of the Vienna Institute of Demography points out that, in these countries, the fertility rise of the previous ten years has been wiped out in three. Big declines also occurred in Nordic countries that do not have fast-rising unemployment or big cuts in state spending. Norway’s fertility rate fell from 1.95 to 1.88 in 2010-11; Denmark’s from 1.88 to 1.76. But whether countries have high fertility rates, like Britain, or low ones, like Hungary, the trend is similar: a ten-year fertility rise stopped around 2008 as the economic crisis hit, and started to slide in 2011 (see chart 1).
In the markets, three years is an age; in demography, it is the blink of an eye. Nine months at least must pass between an event and a corresponding change in the birth rate. Demographic statistics also tend to lag by a year or so. To see such a change in trend so soon after the start of recession is remarkable. But although there is a link between hard times and family formation, its nature is controversial. Adam Smith thought that economic uncertainty was bad for fertility. Others argued that recession increases births, by lowering the opportunity cost of children and encouraging women to have babies they wanted anyway during periods of unemployment.
Europe’s recent experience supports Smith.
…
Europeans love their socialism and OPM. But they realistically know that future generations will pay for it. They do not want their own children to pay for socialism. Let the neighbor’s kids pay. Hence the drop in birth rate.
That’s silly. I will assume you are joking. After all, how much sense would it be for me to say, “Let the neighbors’ kids pay” to protect my kids from paying, and then for me to HAVE NO KIDS?!? That’s utterly ridiculous. It’d mean I’m protecting some souls from being born into my wonderful family. What kind of protection is that?
All around the contemporary world, under capitalism, feudalism, communism, socialism, democracy, autocracy, theocracy, birth rates are sensitive to economic conditions. The vast majority of people don’t want the time drain and financial expense of children if they feel under pressure to maintain their current standard of living when they don’t even have children.
IAT
“…birth rates are sensitive to economic conditions. The vast majority of people don’t want the time drain and financial expense of children if they feel under pressure to maintain their current standard of living when they don’t even have children.”
That reflects the attitude of wealthy people who decide not to have children. What interests me is that low-income groups and nations have higher birth rates than higher-income groups and rich nation citizens these days.
If birth rates are all about economics, then what’s up with that?
Catholics with access to birth control is the reason. Birth control is easy to obtain in Europe, even in the countries where it is illegal.
Bomb thrower,
In developing countries as soon as women get a bit of power, birth rates go down. And by power I’m talking about, say, $5 dollars a week that isn’t taken by men for booze. It takes very little money for women to be able to act on their preference for fewer children.
Of course, the Bush II administration undercut U.S. support for birth control in developing countries because 1 penny out of 10 dollars might find its way to an abortionist. Although U.S. aid personnel were not allowing such expenditures, there is no way to avoid local corruption. This is true whether the locale is SF (and so you have substandard steal being passed off as good for the new bay bridge) or some developing country. And, evidence suggests this is why whatever gains were being made on population growth in many developing countries were undone in the last decade or so.
Oh well.
IAT
What interests me is that low-income groups and nations have higher birth rates than higher-income groups and rich nation citizens these days.
Hasn’t it always been that way, PB? Education correlates inversely with fertility rates; that correlation is far stronger than anything to do with economics.
Education, however, is directly correlated with economics. The pathway through which education matters for fertility has a whopping big river running from education to more financial opportunity/higher earnings to fertility.
In short, who wants to divide $5 among 5 kids when they can divide $10 among 2? With education the $10 salary (i.e., double the former norm) becomes possible. Without education only the former lower salary is possible. And, in that system kids become a resource for labor and old-age support, further motivating high fertility.
Of course, when, like in the US, we decouple education from earnings, people with more education just stop having any kids at all.
IAT
Modus ponens?
Predictions:
1) Audit-the-Fed bill will continue to advance in Congress until it passes.
2) A future Fed audit will reveal the Fed has recently undertaken an unprecedented level of command-and-control economic intervention which strays far outside their policy mandate.
‘Audit the Fed’ bill advances in House
By Stephen Dinan
The Washington Times
Wednesday, June 27, 2012
Rep. Ron Paul, Texas Republican, speaks at the University of California at Berkeley on Thursday, April 5, 2012. (AP Photo/Ben Margot)
The House oversight committee voted Wednesday to demand a broad audit of the Federal Reserve system by congressional investigators - a major move lawmakers said is designed to bring accountability to the murky workings of the independent board.
The bill was sponsored by Rep. Ron Paul, the Texas Republican who turned the push for an audit into a powerful campaign slogan and whose criticism of the Fed’s monetary policy drew hundreds of thousands of voters into the political process.
It passed by voice vote, signaling the growing sense among lawmakers that the time has come for a full review. Committee members said they hope for a vote in the full House next month, and the legislation has been sponsored by 263 members, virtually assuring its passage.
“Clearly the Fed must be made too big to fail, and too big to fail requires a considerable amount of oversight,” said Rep. Darrell E. Issa, California Republican and chairman of the committee.
…
“Clearly the Fed must be made too big to fail, and too big to fail requires a considerable amount of oversight,”
Rep Issa clearly does not understand the Fed. It is _impossible_ for it to fail.
The Fed can print an unbounded amount of money and use it to buy as many safe assets as it needs; in other words, it can manufacture essentially any level of revenue that it wants/needs.
It is impossible for it to fail, except politically.
Yes, the stock market is experiencing a net outflow and because of the fund community now joining retail small caps are being trounced.
So smallcaps are Reverse Splitting to take advantage of this contrived equity loss - some from 750 to 50 ratios !
Where is the SEC, OSC, Dow, TSX etc ? Regulators? Don’t even begin to believe that !
Do you think they will keep at 50 when the economy rebounds ? What do you think they will do with all those extra Contributed Equities ?
Stock Shovellers should be investigated more on a proactive basis than a reactive one.
A mid-year prediction on the employment situation:
1) The U.S. jobs picture will continue to hover south of tepid and north of terrible.
2) The Fed will invoke some form of stimulus (”not QE”?) later this summer in response.
3) Republican party operatives will accuse the Fed of using economic stimulus to help reelect Obama.
Jobless Claims in U.S. Hovered Last Week Near Year’s High
By Michelle Jamrisko and Shobhana Chandra on June 28, 2012
Applications for jobless benefits hovered last week near the highest level of the year, showing continuing weakness in the U.S. labor market.
Claims for unemployment insurance payments decreased by 6,000 to 386,000 in the week ended June 23, according to Labor Department figures issued today in Washington. The revised 392,000 claims in the previous week matched the most this year. The Bloomberg Consumer Comfort Index also showed growing apprehension over the state of the economy.
Concern about the European debt crisis and the so-called fiscal cliff that the U.S. faces at the end of this year may prompt employers to keep payrolls lean, limiting the hiring needed to boost consumer spending. A 57-cent per gallon decrease in gasoline prices since early April is providing some relief, helping offset concern the job market is weakening by allowing employed Americans to stretch their paychecks.
“We’re going to see consumers be cautious over the next few months,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who projected 385,000 claims. “Spending is going to be soft, and I think it’s because of the job market. The labor market is not creating the wage income necessary.”
…
“We’re going to see consumers be cautious over the next few months,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who projected 385,000 claims. “Spending is going to be soft, and I think it’s because of the job market. The labor market is not creating the wage income necessary.”
I’m trying to reconcile this with all the articles this Spring about the booming RE market all over the country.
As January 2013 gets closer, the public will see more articles at a quicker rate about the 2013 tax hikes and spending cuts. The little real estate recovery of the first half of this year, if there was one, will be more than offset by renewed drops in sales and prices. The decline in house prices will gather momentum in 2013 and will be evenly scattered through Ametica, wherever you see federal offices and installations, not only in defense and defense contractors, but federal offices to do with HUD, welfare, social security, Medicare, etc. Entitlement recipients in many cases will have the window slammed shut in front of them. No more OPM. Unemployment bennies gone for many.
Yes consumers will be cautious.
Recently I significantly cut my contribution to my 401k in favor of investing post tax in stocks to get the lower capital gains tax rate. Well I am just saving those same funds now in cash. Plan to be buying individual stocks again in April 2013, three months into AA (American Austerity).
You know it has to happen. The road down which the can has been kicked ends at some point: 2013.
In Fall 1980 I happened to be taking my first course in economics. During that course we discussed many things, including the Great Depression. We especially discussed the policies put in place to put money in people’s pockets so they would spend and restore the functioning economy. Social security, unemployment benefits, provision for parents of children, and such were seen as supporting NOT the direct recipient but, instead, the (usually small) businesses in the communities where the direct recipient would spend the money. (Post-1980 research suggests those provisions, while helpful, were not enough — they needed to do more, and the war led to the massive debt-spending that was needed).
In 1980 Reagan was elected president, and in Spring 1981 the major rollback of those benefits began. At the time, in the second semester of that econ class, I said in class, “Hey, won’t this undo all the protections against another Great Depression?”
Fast forward 30 years or so. It took longer than expected, but, well, the goal has finally been accomplished — the U.S. is vulnerable to a Great Depression (some say we are in one now), and most people have so little money that they are completely unable to resist any initiative those with the money may desire. Mow down this farm to put up tract housing? Fine. Pump water underground to get out natural gas, causing earthquakes? Cool. Monkey with the genetics of food and refuse to tell you which products have been “adjusted”? Okay. Send your kid to die in another war just so the wealthy can have a speedier yacht and low energy costs? Absolutely.
That’s why wealthy people don’t prefer widespread prosperity. Widespread prosperity undermines the ability of the wealthy to control over everything, because prosperity gives people time and space and confidence to play a role in deciding the future of their communities. That’s why wealthy people have been fighting against every aspect of U.S. society that might provide everyman and everywoman with a financial cushion and some modicum of security for decades.
Judging from Bill in LA’s false consciousness, and the massive problems now confronting the U.S. and the world, looks like they won that war.
Welcome to Feudal America.
IAT
PS–I know Bill in LA says he has a lot of money. As long as the wealthy don’t do something drastic, he does. But, what’s to stop the wealthy from doing something drastic? Their own interest suggests they will do something drastic that will make your 52-weeks of t-bills amount to a hill of beans. And, with everyone around you approaching abject poverty, how do you think you’ll be able to successfully resist any drastic action by the truly wealthy?
The truly wealthy don’t book flights to Phoenix ahead of time. The truly wealthy don’t fly first class. The truly wealthy fly private plane. And they may be about to eat your lunch. After all, for which demographic have they stopped their rapacious behavior? I have yet to discern any community, racial group, gender, ethnicity, religion, political view, or anything that has been spared their confiscatory behavior. Good luck trying to be the first.
IAT
Don’t put all your eggs in one basket. Those who do not diversify are no better than the FBs who bought a house in Phoenix or LV between 2003 and 2007.
People here tend to keep assuming I am 100% into x: x being T-bills, gold, stocks, municipal bonds, series I savings bonds, pork bellies, u-name-it. Wrong!
Diversify all you want. They want everything, so . . ..
IAT
So you expect the government to take everything you have? You are not a “progressive” then. You must hate government. Wait…I’m a libertarian too!
What’s with the labels? Maybe it is better to talk about ideas.
Also, I didn’t say anything about government taking anything. You think the Fed is part of the official government? You think Goldman Sucks is part of the government?
The logic of democracy is that average people can vote and in this was government reflects their interests, not ONLY the interests of the powerful. On a good day this is how democracy works. On a bad day the powerful have neutered all the checks and balances, and run roughshod over the poor which, after they are done, is almost everyone.
The people of this nation have not had many good days the last few decades. So, to rant against this “government” is to miss the point — the wealthy control this government. To them, government is armor. Why focus on the armor of the wealthy? Government is armor because it deflects your blows from what should be their true target. Government gets dinged, and the wealthy continue to laugh at you.
Focus on the real movers and shakers — the wealthy (you know, those who fly in private planes).
And, again, avoid labels and talk about ideas, the actual content of what is and/or should be done. You’ll have a much better chance understanding what’s going on if you do.
IAT
The truly wealthy have enough money to outlast all of the rest of us. It is like a game of high stakes poker. They can keep betting until we run out of money and then win because we can no longer call.
If Bill Gates loses half his fortune, he is still in the top 0.0001%. If BILA loses half, he can survive half as long without income. Longer than the most of the rest of us, but probably not the rest of his life. Until you reach the point where you can pay your bills on less than the interest you can earn on your savings/investments, you can get in trouble in fairly short order.
“The truly wealthy have enough money to outlast all of the rest of us. It is like a game of high stakes poker. They can keep betting until we run out of money and then win because we can no longer call.”
I’ve seen examples of this in my personal circle since we moved to SD in the mid-2000s. One trust fund heir we know plopped down close to $1.4 million for the home they bought when they moved to our area. The current market value shown on Zillow and epraisal is about the same. Taken at face value, they have lost money on this home, as they presumably had to pay transaction costs at purchase, and would have to incur some more to realize a sale price of $1.4 million currently. But it matters not in the least to them, as $1.4 million is a drop in the bucket compared to the size of their inheritance. If the market for similar homes dropped another 20% (a loss of $280,000 plus transaction costs if they had to sell), it wouldn’t matter in the least, as $280,000 is a drop in the bucket compared to their permanent income.
By contrast, a $280,000 loss would represent a decade’s worth of savings down the drain to the typical middle-class San Diego household.
That’s my point. A lot of people think they are wealthy because they have what they regard as assets. But the truly wealthy don’t think in terms of 1 or 2 houses, or having a years worth of T-bills. The truly wealthy think in terms of multiple estates, and having a lifetime’s worth of assets.
The problem is that many people think they are wealthy and thus they vote as if they are wealthy, leaving the truly wealthy grinning everyday.
I admit, though, there’s precious few good options for voters now. It wasn’t always that way. But, decades after the Reagan revolution, we are, basically, screwed.
Have a nice day.
IAT
“By contrast, a $280,000 loss would represent a decade’s worth of savings down the drain to the typical middle-class San Diego household.”
Wow. I had no idea the typical middle class household in San Diego could save $28k per year. Apparently, San Diego is doing very well.
“Wow. I had no idea the typical middle class household in San Diego could save $28k per year. Apparently, San Diego is doing very well.”
I should have stated that better; I was trying to be conservative, but you are quite right: with a median income (for single filers) recently reported at $36,802, San Diegans are lucky if they can cover basic living expenses, much less save a nickel, much less $28K a year.
Do not confuse consumer spending with the rapacious greed of the 1%’ers as they gobble up housing stock in their bid to own everything in the world.
‘the rapacious greed of the 1%’ers’
What happened to OWS? What about the predictions of the big 2012 summer? But don’t go earn any money on Monday, cuz that would make you greedy.
What happened to OWS?
There will be protests at the conventions this summer, but not at the level of last fall. The Long Hot Summer isn’t over yet
“…the 1%’ers as they gobble up housing stock in their bid to own everything in the world.”
As a middle-class renter, I am happy for them to gobble up ongoing losses in housing. I don’t plan to buy one (if ever) until they sell for pennies on their inflated 2006 prices; meanwhile, let the 1% keep on dancing so long as the music keeps playing!
I’m trying to reconcile this with all the articles this Spring about the booming RE market all over the country.
Only a few explanations that I can think of:
- lending is loosening
- the wealthy are buying RE in bulk for cash
- people are stupid
Any that I missed?
“- lending is loosening
- the wealthy are buying RE in bulk for cash
- people are stupid”
Realtors Are Liars!
Oh yeah—how could I forget that one!
RAL, daily reminders are apparently required once again…
I foresee the year of the default, with municipalities and pension funds throwing in the towel in a massive pile-on.
Stockton bankruptcy resulted from common reckless borrowing
By Daniel Borenstein
Staff columnist
Posted: 06/29/2012 11:22:14 PM PDT
Updated: 06/29/2012 11:22:15 PM PDT
After Stockton on Thursday became the nation’s largest city to seek bankruptcy protection, government officials up and down California should look at their own debts and ask if their communities could be next.
The city of nearly 300,000 had been locked in state-mandated talks with creditors since February to see if it could avoid the drastic march to federal court. When talks failed, bankruptcy became the only reasonable alternative.
Officially, Stockton cannot pay its bills. But that’s the symptom not the cause. It’s like someone who runs up so much debt on a credit card that he can’t even make the minimum monthly payment. The problem isn’t the inability to make the latest payment; it’s the thoughtless borrowing that created the total obligation.
In Stockton’s case, that debt was huge, about $1.1 billion. While declining tax revenues from an imploding housing market left the city short on cash, it had been irresponsibly digging its financial grave for nearly two decades:
Retiree health care. Since the 1990s, the city had been promising free health insurance to any city retiree who had worked a month and to that person’s spouse.
The program should have been prefunded by setting aside money as the benefits were earned. Instead the city waited to pay for the health insurance until after workers retired. The latest actuarial report says the current value of the future unfunded benefits was $417 million.
On Wednesday, the city notified retirees that it would only pay a small portion of their health insurance costs starting Sunday, and would end the program in a year. That’s one way to get rid of the debt, but retirees who had counted on the health insurance will now be left to fend for themselves.
Pensions. Stockton, like most California public agencies, offers its police and firefighters a pension plan that pays 3 percent of top salary for every year on the job. Other city workers are eligible for a plan that pays up to 2.4 percent of top salary for every year on the job.
The program is administered by the California Public Employees’ Retirement System, which has unrealistically forecast investment earnings and underestimated pension costs. As a result, Stockton’s plan, like most in CalPERS, is badly underfunded. The city has borrowed money, by issuing bonds, to reduce its CalPERS shortfall.
When all the debts are accounted for, the pension program had only about 59 percent of the funds it should have, with a deficit of about $538 million.
…
“The program should have been prefunded by setting aside money as the benefits were earned. Instead the city waited to pay for the health insurance until after workers retired. The latest actuarial report says the current value of the future unfunded benefits was $417 million.”
By the way, this is how Social Security is funded as well (’pay-as-you-go’):
…
If the demographics of the population were stable, then a pay-as-you-go system would not have demographically-driven financing ups and downs and no thoughtful person would be tempted to compare it to a Ponzi arrangement. However, since population demographics tend to rise and fall, the balance in pay-as-you-go systems tends to rise and fall as well. During periods when more new participants are entering the system than are receiving benefits there tends to be a surplus in funding (as in the early years of Social Security). During periods when beneficiaries are growing faster than new entrants (as will happen when the baby boomers retire), there tends to be a deficit. This vulnerability to demographic ups and downs is one of the problems with pay-as-you-go financing. But this problem has nothing to do with Ponzi schemes, or any other fraudulent form of financing, it is simply the nature of pay-as-you-go systems.
…
…until somebody doesn’t get paid what they put in.
Prediction: After a great deal of wailing and gnashing of teeth, plus a few more front-page articles in the Financial Times of London and other prominent financial newspapers, the Libor scandal will blow over with little consequence to the operation of the global banking cartel.
Financial Times
Libor scandal
From WORLD 4:51pm
Cameron orders review of interbank rates
Barclays ©PA
PM resists calls for full public inquiry
Analysis The gathering storm
Libor firestorm engulfs Diamond
Editorial Shaming the banks into better ways
SFO opted against probe into Libor
Q&A What went wrong with a benchmark rate?
From COMPANIES 9:36pm
Barclays ignored warnings on rate rigging
Failure to act raises heat on leadership
Osborne urged to toughen banking reform
BoE governor calls for revamp of Libor
Libor firestorm engulfs Diamond
RBS chief to forgo bonus after glitch
I will be pleasantly surprised if I turn out to be wrong on this prediction.
Hopefully this is the very beginning of a long-term change. So long as the investment banksters have in place programs to screw the average citizen of the free world, let’s turn the tables and demand that crooks high up in the banking system are rooted out.
July 1, 2012, 5:07 p.m. EDT
Barclays chairman to step down: reports
By William Spain, MarketWatch
CHICAGO (MarketWatch) — The chairman of Barclays PLC could resign as soon as Sunday following a huge fine levied on the bank for its manipulation of interest rates, according to multiple reports in the British media.
Marcus Agius will step down as he prepares to be questioned this week by members of the British Parliament over actions that led to the imposition of a $456 million fine, the reports said. It was levied last week to settle a probe into attempted manipulation and false reporting relating to two benchmark interest rates that form the basis for hundreds of trillions of dollars of transactions.
Chief Executive Bob Diamond and trio of other executives have agreed to give up bonuses this year due to their “collective responsibility as leaders.” Diamond also noted that the activities by the bank’s traders “fell well short” of its standards.
…
A better title would be “Ariz. homebuilders worry about paying a decent wage to attract LEGAL workers”
———————————
Ariz. homebuilders worry about labor shortage
Associated Press via San Francisco Chronicle | Saturday, June 30, 2012
PHOENIX (AP) — Some leaders in Arizona’s homebuilding industry are concerned about a potential labor shortage following the Supreme Court’s decision to uphold part of the state’s controversial immigration law known as SB1070.
The bill’s passage two years ago led thousands of illegal immigrants to pack up and leave. That was when the housing market had crashed, but now the market is recovering.
The Supreme Court on Monday upheld the provision in the law that allows police to try to determine the immigration status of people they stop or arrest if they have a reasonable suspicion that they’re in the country illegally. That worries some in the homebuilding industry who fear that workers will be too fearful to show up in large numbers.
Although both builders and subcontractors have long maintained that they check workers’ immigration papers, they know that papers can be fake, and some contractors might not be as vigilant as others.
Andy Warren, president of Scottsdale-based Maracay Homes, said he thinks that people from other parts of the U.S. will learn of job openings here and move for the work.
Whether what remains of SB 1070 keeps some needed construction workers out of Arizona won’t be known for months.
“A better title would be “Ariz. homebuilders worry about paying a decent wage to attract LEGAL workers”.”
I agree with you. These Republican CEO’s aren’t being honest. They’re cheats.
They brought this on themselves. During the bubble years when contractors were making money hands over fist they got greedy. They could have afforded to pay legal Americans a decent wage, instead chose to pay below market wages by hiring workers that they knew were not legal, and therefore they push down wages, and in some instances, not even pay ANY wages.
Prediction: Islamic extremists will continue destroying antiquities not representative of their own cultural tradition until they are stopped dead in their tracks.
Timbuktu world heritage site attacked by Islamists
Al-Qaida-linked Ansar Dine group destroys mausoleums and tombs with pick-axes at centuries-old site in Mali
Reuters in Bamako
guardian.co.uk, Sunday 1 July 2012 01.17 EDT
Prediction: Megabank, Inc will continue screwing over its shareholders, overpaying its managers, and wreaking various forms of financial havoc on the lives of Lilliputians.
The Buzz
All markets and investing news all the time
Big banks are big mess. Run away!
By Paul R. La Monica
June 28, 2012: 12:38 PM ET
Why yes. The London Whale hedging loss is indeed bigger than a bread box.
The fun never ends with JPMorgan Chase (JPM). Shares fell nearly 4% Thursday following reports that the loss tied to its bad hedge (or is it a trade?) may now be $9 billion.
This should not come as a big surprise to anyone following the story. JPMorgan Chase CEO Jamie Dimon first said back in May that the loss was $2 billion. And not long after that, experts were claiming that the loss would grow. In fact, my colleague Maureen Farrell spoke to people two weeks ago who suggested that the loss could be as high as $8 billion. Perhaps Dimon needs to go back in front of the Senate and House again?
Will the loss reach 11-figure levels? Perhaps. But you know what? It almost doesn’t matter at this point. When JPMorgan Chase reports its second quarter results on Friday, July 13 (beware of ladders, black cats and London Whales!) many (including Fortune’s Stephen Gandel) think that Dimon will essentially kitchen sink the quarter. The bank will get all the worst of its losses out of the way so it can move forward.
That would probably be a smart move. But the JPMorgan Chase drama further hammers home a point I’ve been making repeatedly for a while: the big Wall Street banks are all opaque black boxes that should be avoided. Some traders got suckered tempted into buying the big bank stocks as they were surging in the first quarter of the year on the hopes that things were improving in the U.S. and Europe.
But with concerns about the U.S. job market resurfacing, there are legitimate worries that credit quality could start to decline. And we still don’t know with any certainty whether big banks can withstand a chaotic Lehman-like event in Europe. Sure, a Greece exit from the euro now seems to be far less likely, but growing worries about the financial health of Spain and Italy dwarf the fears of more problems in Greece.
Investors still don’t really know just how much exposure the Wall Street giants have to Europe. It’s one thing to look at their holdings of sovereign debt. But that’s not the whole picture. The still murky world of credit default swaps and derivatives could easily burn the big banks.
…
It would be quite amusing to see things spiral out of control for JPMorgan Chase, and for them to go the way of Lehman Brothers.
It’s not gonna happen, because they are the biggest of the too-big-to-fail U.S. banks.
Canada is a big bubble itself and the only things that keeps us up the water are banks. The situation resembles to me 2008-2009 in US, just before everything started to collapse.
The other problem is indebtness of the Canadians. I belong to a 17 per cent group of people between 25-34, who haven´t taken any credit (quoted from Three quarters of Albertans are in debt!).
How are we supposed to live our lives with big debt burden on us? Our payments for studies, housing, cars etc. are part of the big bubble. 2013 will be just the beginning of the real problems for our generation.
John
I think we Canadians, despite Realtards, Stock Shovellers, and Banksters should consider ourselves in a very good position.
If you live in Alberta - go to the tar sands, work for a year and make $120,000 plus at almost anything there - Do you know how many people in the world would love to be able to do that. Just don’t buy one of those 4X4 diesel duallys !
We have so much energy in this country, raw materials, secondary industry, farming, fishing, you name it. We have honest laws and a government willing and capable to enforce them. I am sure you are a proud Canadian - just lift your spirits.
Best of all we have a very large percentage of extremely well educated (university level and tradesmen) people like you. You have an excellent future in this country.
We just don’t have oranges and we can get them from our friends in the south.
Happy Canada Day to you, and Happy Fourth of July to the USA.
Both are futures are interwoven and will be brighter than ever.
In the 1990s when I was a wage slave, a younger colleague told me he used to work in Canada. He said the tax rate was 70%. I remember reading something about how they determine the “tax rate.” it is a combination of a provincial rate and national rate.
It would be like a Californian earning over $200,000 saying his tax rate is 45%.
Does Canada have sales taxes, dividend taxes, or capital gain taxes?Canada and the U.S. Might be close in rates after all.
“How are we supposed to live our lives with big debt burden on us?”
Sounds like there is plenty of plankton in the water to feed Canadian banking whales, just as in the good ole’ U.S.A.
Predictions on U.S. federally-funded mortgage lending:
1) The FHA will indefinitely continue to make federally-guaranteed low-downpayment loans to buyers with marginal credit histories.
2) These loans will go into default over the next five years at much higher than average rates.
3) Taxpayers will pick up the expense of high default rates, by making good on the federal guarantees of principle.
4) Lenders who participate in the program will make out like bandits.
5) Many more “Save Our Homes” bailout programs will be created in the coming years to save the buyers who were encouraged to use FHA loans to buy overpriced houses.
Can anyone from inside the Beltway who understands why DC-insiders, like the writer who penned this screed, think loose FHA lending standards are an effective policy, despite having sent nearly one million borrowers since 2007 on the path to mortgage default, please enlighten us?
I’m brimming with curiosity about who stands behind these policies?
Federal Housing Administration rescinds tough new rules on mortgage applicants
By Kenneth R. Harney, Published: June 28 | Updated: Friday, June 29, 3:55 AM
In a policy switch that could be important to thousands of applicants seeking low-down-payment home mortgages, the Federal Housing Administration has rescinded tough new credit restrictions that had been scheduled to take effect July 1.
The policy change would have affected borrowers whose national credit bureau files have one or more collections or disputed-bill accounts where the aggregate amounts were $1,000 or greater. Some mortgage industry experts estimate that if the now-rescinded rules had gone into effect, as many as one in three FHA loan applicants would have had difficulty being approved.
Under the withdrawn plan, borrowers with collections or disputed unpaid bills would have been required to “resolve” them before their loan could be closed, either by paying them off in full or by arranging a schedule of repayments. In effect, if you couldn’t resolve the outstanding credit issue, you might not be able to obtain FHA financing.
The rescinded policy would have replaced more lenient rules allowing loan officers to discuss the accounts with applicants and determine whether they represented material risks that the borrower might fail to make the mortgage payments.
Disputed bills are commonplace in many consumers’ files but may not indicate serious credit risk. Rather, they might simply be a disagreement between merchant and customer over price, quality of the product or the terms of the credit arrangement. Open collection accounts are also common but tend to be viewed more ominously by lenders since they often indicate nonpayment over an extended period. Unpaid creditors frequently charge off unpaid accounts, then sell the files to collection agencies that pursue the customer and report nonpayments to the national credit bureaus: Equifax, Experian and TransUnion.
Critics of the policy complained that it tilted the scales too heavily in favor of creditors and disproportionately harmed FHA’s traditional core borrowers: low- to moderate-income families, first-time buyers and minority groups. Other critics argued that the policy would not help FHA weed out serious credit risks since private lenders already are doing so by imposing their own credit score and other restrictions on applicants, known as “overlays” in the mortgage industry.
…
It’s effective policy because it buys votes.
The reality is that while some FHA borrowers default, there are far more who do not, and that without the FHA, they would never have bought the home.
I know many on this board think they are worse off for owning (and I’m sure there are many cases where they are worse off), but you may have a hard time convincing them of that.
In any event, I’m guessing that the bulk of FHA borrowers over the past several decades are happy that they got the loan.
To sum up, the FHA is less about people standing up clapping for it…it is more about the fact that whoever kills the program loses an enormous number of votes.
Even though you may wish you never brought the spiked punchbowl to the party in the first place, you are a fool to remove it if it is surrounded by drunk idiots.
Taking away the punchbowl may be difficult, but that doesn’t mean that it isn’t the right thing to do.
Is it really better to let the drunk idiots drive home loaded, killing both themselves and innocent by-standers?
I agree with you PIC. I’m not fooled into believing we have enough politicians left that are willing to do the right thing despite them not getting re-elected for it. It seems politicians job #1 today is getting re-elected.
As it is, I think the only politically possible way to take away the punch bowl will be on a long glide path, so that by the time people figure out the punch bowl is no longer spiked, they have forgotten who started to dilute the booze.
That said, don’t believe that greed needs government assistance. Spain has no government mortgage assistance, yet they had just the same bubble. Did any other countries need government assistance to have their housing bubbles?
The bigger culprit by far is the Fed with ultra-low interest rates–they distort people’s incentives. I was offered a jumbo (non-agency), 30-year fixed rate loan at 3.875% on Friday. The only government agency involved there is the Fed.
I’m not fooled into believing we have enough politicians left that are willing to do the right thing despite them not getting re-elected for it.
Too true, Rental Watch. Too true.
As it is, I think the only politically possible way to take away the punch bowl will be on a long glide path,
Your “long glide path” is a great idea—allowing those who voted for it to escape the wrath, since the pain will not be felt for a long time. Unfortunately, our politicians don’t seem to have the stones even for that.
How do tax-paying Americans feel about having your tax dollars get funneled by the FHA into the hands of tax deadbeats?
2009 stimulus sent $1.44 billion to tax cheats ineligible for the money
June 27, 2012
Joel Gehrke
Commentary Writer
The Washington Examiner
At least 6,200 people delinquent on their taxes received $1.44 billion of mortgage insurance from President Obama’s 2009 stimulus, the Government Accountability Office reports, despite their ineligibility for the money under federal rules.
According to the GAO, “many individuals with tax debt take advantage of government programs, such as federal loan insurance, thereby reaping benefits from these programs while failing to pay their own taxes.” The bipartisan group of senators — three Republicans, two Democrats — who asked the GAO to conduct its study of the mortgage insurance program noted that the $1.44 billion went to people who owed a combined $78 million in unpaid taxes.
“Our analysis likely understates the amount of unpaid federal taxes because IRS data do not cover individuals who fail to file tax returns or who understate their income,” the GAO added. One person who owed $10,000 in taxes received $700,000 in mortgage assistance through the stimulus.
“The stimulus spending program was ill-conceived, with far too little oversight,” said Sen. Chuck Grassley, R-Iowa. “It shouldn’t surprise anyone, unfortunately, that tax dollars have gone to tax cheats.”
GAO attributed to the abuse of the program to “shortcomings in the capacity of [the Federal Housing Administration's] required documentation to identify tax debts.”
“We need to do more, not less, to help America’s housing recovery and keep people in their homes,” said Sen. Carl Levin, D-Mich. “But we can’t allow tax cheats to benefit from important federal programs. The FHA should, as GAO suggests, strengthen protections to make sure assistance goes to those who qualify.”
Speaking of mid-year predictions, doesn’t a PMI below 50 predict contraction ahead?
China HSBC PMI Hits 7-Month Low of 48.2 in June
Published: Sunday, 1 Jul 2012 | 10:43 PM ET
By: Reuters
China’s factory activity shrank in June at the fastest pace in seven months as new export orders tumbled to depths last seen in March 2009, a private sector survey showed, underlining the risk of a lurch lower for the Chinese economy.
The HSBC Purchasing Managers’ Index (PMI) fell to 48.2 after seasonal adjustments, its lowest since November 2011, and little changed from a flash, or preliminary, estimate of 48.1. The final reading in May was 48.4.
June was the eighth straight month of a reading below 50, the threshold dividing expansion from contraction in the survey methodology.
…
1. Europe continues to kick the can in incremental steps…no Euro breakup by year end…no one leaves the Euro…yet;
2. European economy gets worse, which impacts China more than the US, but it isn’t pretty here either;
3. US either slips into shallow recession, or narrowly averts one. Job situation is less severe than GDP numbers would indicate (companies never overhired in the first place from the last recession, and retained their best employees then);
4. At least one more state changes laws to slow foreclosures–market improves following that change;
5. At least one state makes some change to speed up foreclosures–market softens following that change;
6. Construction jobs are added to the economy in the last 6-months of the year at a much greater rate than other types of jobs;
7. Phoenix price increases slow considerably from the recent rate of increase (although Case Schiller shows price increases to continue to accelerate since their data lags).
8. A greater divergence begins to show in the data for housing, where some markets are clearly doing better…others continue to do poorly.
The dollar is still the currency of the world as long as that holds up the impact on the US will always be less then other wealthy nations.
That said, of course job growth and a willingness to help small business (1 to 500 employees especially) will dictate, if the present Administration is retained then I feel the whole country takes a step backwards for the next 4 years and we stay stale with very high nation debt?