Opinion

Ben Walsh

from Counterparties:

Pink slips for Fannie and Freddie

Ben Walsh
Aug 7, 2013 22:08 UTC

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President Obama wants to eliminate a government-owned company that just made a $5 billion profit. More specifically, he wants to eliminate both Freddie Mac and its sister Fannie Mae by 2018, and replace them with a new "common securitization platform" for mortgage securities where private investors bear mortgage risk, not the government: “For too long, these companies were allowed to make big profits buying mortgages, knowing that if their bets went bad, taxpayers would be left holding the bag... It was ‘heads we win, tails you lose.’”

Sober Look thinks that Obama’s plan is a “hell of an undertaking”: 84% of the mortgage-backed securities issued so far in 2013 have been government backed. And, Sober Look says,  there’s no surefire plan to transfer that risk to private investors. House Republicans have proposed eliminating not just Fannie and Freddie, but also pretty much every form of government support for the housing market. There’s also bipartisan Senate bill that broadly mirrors the President’s preferences.

Megan McArdle notes that while the president says private investors should bear mortgage risk, he paradoxically wants to keep the 30-year mortgage alive and well. The 30-year mortgage is, Felix pointed out, a financial product that, without massive government support, would “never normally exist in the wild”, and which McArdle notes doesn’t really exist in other countries. In Canada, for example, people seem to get by just fine without them.

Abolishing the 30-year mortgage is an idea that’s been floating around the policy wilderness for years. And the mortgage interest tax deduction, a sacred cow of US domestic policy, continues to push Americans toward buying houses, and relatively well-off ones at that: half of federal housing assistance goes to families earning more than $100,000.

from Counterparties:

Bad to bad-but-not-terrible

Ben Walsh
Aug 2, 2013 21:22 UTC

There were two ways of seeing July’s jobs report: it was either bad or bad-but-not-terrible. The US economy added 162,000 jobs in July; the consensus expected more like 184,000. May and June’s job totals were also revised down by a total of 26,000 jobs, and the unemployment rate edged down to 7.4%. Here’s a breakdown of the reactions, with the caveat that the distinction between weak and not-particularly strong is in the eye of the beholder.

The bad:

Neil Irwin called it the “Groundhog Day of jobs reports” and Matt O’Brien remarked that job creation remains ploddingly consistent, just like it has been for two and a half years.

Unemployment may be ticking down ever so slightly, but employment isn’t rising. At the current three-month average of 175,000 new jobs a month, we won’t get back to a pre-recession number of jobs for 11 months, more than five years after the recession began. Even worse, if you take into account new people coming into the workforce (and you should), we won’t close the jobs gap for another 9 years. Another estimate by the Chicago Federal Reserve puts that number at five years, which puts the over-under on the return to full employment at between a decade and a decade and a half.

from Counterparties:

Wall Street’s thin white line

Ben Walsh
Jul 30, 2013 22:01 UTC

The ink on SAC’s indictment is barely dry, but Dylan Matthews argues that the entire case should be dropped. In fact, he writes, insider trading should be legalized. Laws against insider trading are “justified as providing an even playing field for small investors” despite the fact that a “playing field doesn’t exist”.

Bethany McLean looks at the history of the market-as-level-playing-field notion and concludes it “isn’t level, it never has been, and I’m not sure it can ever be”. Attempts to achieve fairness have all sorts of perverse effects, she writes, from the deteriorating quality of stock research, to financial folly by individual investors. “Nobody”, Matt Levine says, “goes around saying ‘let the little guy compete with trained neurosurgeons in neurosurgery’”.

John Carney, who has been, in his own tongue-in-cheek description, “an insane idiot on insider trading” for years, notes that the argument for legalizing insider trading isn’t new: it was first proposed in 1966 by academic Henry Manne. (The WSJ has a good summary of his arguments, or if you’re looking for something lighter, an animated bear.)

from Counterparties:

The fight for Dell

Ben Walsh
Jul 18, 2013 21:32 UTC

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Michael Dell is in an awkward position, and not just because earlier today a lack of shareholder support forced him to postpone a vote on his $24.4 billion, $13.65-a-share buyout proposal to July 24. Dell is trying to convince shareholders that the growth prospects of his eponymous company are limited. Supporting the founder’s buyout, write Reuters’ Nadia Damouni and Anna Driver, are investors who are “ready to cash out of a company increasingly vulnerable to a crumbling PC market and already a shadow of an earlier self that led the global market and stood as a model of industry innovation”.

Dell's gloomy pitch seems to be winning last-minute converts. Michael de la Merced reports that “a number of big institutional investors switched their votes to yes” last night, including Blackrock, Vanguard, and State Street. Some of those investors, Merced says, may have been waiting in hopes that a higher offer would materialize.

from Counterparties:

Banks’ problem with success

Ben Walsh
Jul 16, 2013 22:16 UTC

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Things are almost too good for US banks right now, Tom Braithwaite argues. Goldman Sachs is the prime example: it handily beat expectations for its quarterly earnings today, making $1.93 billion in profit. That’s double last year’s number. Wells Fargo’s second quarter earnings were $5.5 billion, up 20% from a year ago. And JP Morgan’s profits in the second quarter jumped 31% to $6.5 billion; the bank is now on track to earn $25 billion this year -- that’s basically $100 million every working day. Even the phrases “Citigroup earnings” and “soundly beat Wall St expectations” are now appearing in the same sentence.

The problem, Braithwaite writes, is that these are the exact banks who “have spent a lot of time, energy and money warning of the potential ill-effects of ramping up regulation”. Kevin Roose doesn’t think we should pay attention to what bankers had to say about regulation at all.

Being a CEO has never been more valuable

Ben Walsh
Jul 2, 2013 22:13 UTC

There are a number of reasons no one is particularly worried about wage stagnation among CEOs:

    Over the last 30 years, CEO pay increased 875%, according to the Economic Policy Institute

    In 2012, CEO pay at large companies rose 6.5%, according to Equilar

    The average ratio of S&P 500 CEO pay to employee pay is 204 to 1, according to Bloomberg (the ratio rises to 273 to 1 when companies outside the S&P are included).

First quarter growth goes from lackluster to dismal

Ben Walsh
Jun 26, 2013 16:57 UTC

The newest estimate by the Bureau of Labor Statistics says the US economy grew at an annual rate of 1.8% in the first quarter. Previously, growth was earlier reported to be 2.4%.

There were two main drivers to the downward revision: growth in consumer spending, which fell to 2.6% from 3.4%, and business investment, which fell to 0.4% from 2.2%.

There’s a chance that slower than estimated consumer spending in the first three months of 2013 may have improved in the second quarter (consumer confidence just reached its highest level in five years). Still, the 0.6 percentage point drop in first quarter growth is bad news for the US economy, where, as Sober Look put it, “the consensus seems to be that the US consumer will come to the rescue once again”.

from Felix Salmon:

Counterparties: Government’s governance problem

Ben Walsh
Jun 12, 2013 22:21 UTC

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The US and UK have a unique sort of corporate governance mess on their hands. Both countries are trying to deal with the complications of owning a multi-billion dollar financial institution, and are having a hard time doing so.

Britain’s problem is RBS, which the government owns 81% of as a result of 2008 bailout that ended up costing $71 billion. In the US, it’s Fannie Mae and Freddie Mac, the mortgage giants that have been under federal conservatorship since 2008.

from Felix Salmon:

Counterparties: Living longer with less

Ben Walsh
Jun 10, 2013 22:31 UTC

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Americans with $1 million in savings may be in for a dispiriting surprise -- they still haven’t saved nearly enough. The problem, reports the NYT’s Jeff Somer, is that bond yields have fallen and life expectancies have risen.

A  65-year old couple with a $1 million nest egg of tax-free municipal bonds that withdraws 4% per year, Somer says, has a 72% chance of running through their retirement savings before they die. The even larger problem is that the millionaire 65-year old couple is far from typical. The median household retirement account balance for Americans aged 55-64 is just $120,000.

from Felix Salmon:

Counterparties: America’s consistently dissatisfying jobs market

Ben Walsh
Jun 7, 2013 21:44 UTC

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America's jobs market seems to have found its boring, dissatisfying comfort zone.

The Labor Department announced today that the US economy added 175,000 thousand jobs in May. (Unemployment ticked up a notch to 7.6%.) Matthew O’Brien writes that this is basically the same thing that’s been happening for the past two and a half years. “There were 175,000 new jobs a month in 2011, 183,000 in 2012, and 189,000 so far in 2013.” Kevin Roose thinks “there's something to be said for this kind of quiet, steady progress”.

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