Commentaries

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from Rolfe Winkler:

More ammo for the bazooka

Treasury has reloaded its bazooka and stands ready to shock and awe the housing market.

Though, Standard & Poor’s/Case-Shiller data showed a fifth month of improvement yesterday, analysts still expect prices to fall 10 percent or more next year as various government supports wind down.

Political pressure ahead of midterm elections will likely force the administration to do something in response and Treasury’s Christmas gift of nearly unlimited support for Fannie Mae and Freddie Mac gives them a powerful weapon to do so.

But it will be a tough fight as artificial, government-sponsored demand dries up.

from Rolfe Winkler:

Lunchtime Links 12-29

Was the global financial crisis a mathematical error? (Steve Keen, Business Spectator) Keen's latest. Another great piece explaining the flaws of neoclassical economics. (ht Yves)

Not just Tiger's temptations (Glanville, NYT) Another great column from ex-Cub/Phillie Doug Glanville.

from Rolfe Winkler:

IMF: Bad lenders did more lobbying

An interesting piece of holiday research from the IMF ... A Fistful of Dollars: Lobbying and the Financial Crisis

Our analysis establishes that financial intermediaries’ lobbying activities on specific issues are significantly related to both their mortgage lending behavior and their ex-post performance. Controlling for unobserved lender and area characteristics as well as changes over time in the macroeconomic and local conditions, lenders that lobby more intensively (i) originate mortgages with higher loan-to-income ratios, (ii) securitize a faster growing proportion of loans originated; and (iii) have faster growing  mortgage loan portfolios. Our analysis of ex-post performance comprises two pieces of evidence: (i) faster relative growth
of mortgage loans by lobbying lenders is associated with higher ex-post default rates at the MSA level in 2008; and (ii) lobbying lenders experienced negative abnormal stock returns during the main events of the financial crisis in 2007 and 2008.

from Rolfe Winkler:

AT&T unsuspends online sales of iPhone in NYC

AT&T's iPhone problems keep getting worse. The phones are behaving so badly in NYC that AT&T tried surreptiously to discourage sales. From Jeffrey Bartash, Dow Jones:

In a holiday-shortened week, AT&T has spawned a raft of headlines on the Internet after the company halted online sales of the iPhone in New York City, at least temporarily. The phone is still available to New Yorkers in Apple (AAPL) and AT&T stores, however....

from Rolfe Winkler:

Sprott: Is it all a Ponzi?

In his latest missive to investors (pdf link here), Eric Sprott asks if our Ponzi economy is at risk of collapse. In fiscal 2009, foreigners scooped up $698 billion of Treasuries while the Fed upped its holdings by $286 billion. But the public debt increased $1.9 trillion. So who bought all the rest? According to Treasury, "other investors" bought $510 billion, up from just $90 billion in 2008. With the Fed's printing press turned off, the question for next year is whether "other investors" can buy more Treasuries than they did this year...

As we have seen so illustriously over the past year, all Ponzi schemes eventually fail under their own weight. The US debt scheme is no different. 2009 has been witness to spectacular government intervention in almost all levels of the economy. This support requires outside capital to facilitate, and relies heavily on the US government’s ability to raise money in the debt market. The fact that the Federal Reserve and US Treasury cannot identify the second largest buyer of treasury securities this year proves that the traditional buyers are not keeping pace with the US government’s deficit spending. It makes us wonder if it’s all just a Ponzi scheme.

from Rolfe Winkler:

Lunchtime Links 12-27

How overhauling derivatives died (Smith/Lynch, WSJ)

Debt ceiling raised $290 billion (Rogers, Politico) Another Xmas Eve vote. Dems had wanted to raise the ceiling at least $1.8 trillion to avoid having to raise it again before midterm elections, but they didn't have the votes. Congress has bought itself about 4-6 weeks of breathing room. Senate Repubs made a showing of not voting for the measure, but had they been in the majority, you can bet they'd have done the same to avert default.

At tiny rates, saving money costs investors (Strom, NYT) "Duh" is the obvious response to this piece. Savers have been getting hammered ever since the Fed started dropping rates two years ago. Yet it's well written and important to see in the paper of record. It makes the point that low rates are forcing many folks to chase risk. Low nominal rates would be fine IF the Fed were allowing the economy to delever/deflate as it clearly needs to. If the cost of goods/services is falling, then rates can be zero and savers still come out ahead. But the CPI has stayed positive, so savers lose. Of course punishing savers is precisely what economists like Paul "paradox-of-thrift" Krugman and Greg "confiscate-cash" Mankiw say is needed for the economy to recover. Krugman wants to steal savings via shock-and-awe deficit spending, i.e. future taxation. Mankiw would literally confiscate a portion of unspent savings.

from Rolfe Winkler:

Fannie/Freddie support increased

No better time than Xmas Eve to announce the expansion of the administration's housing slush fund. Previously, Fan and Fred each had a $200 billion credit line from Treasury. Though they've drawn only $111 billion so far, the administration thought it prudent to offer unlimited support ... to give the markets "confidence." Personally, I think the markets could do with a bit less confidence. Confidence leads to complacency, to chasing risk, to progressively easier credit terms that inflate bubbles.

In other words, stability creates instability.

By the way, read to the bottom for an interesting bailout factoid you may not have known, but first the story...  (Christie/Shenn, Bloomberg)

from Rolfe Winkler:

Evening Links 12-23

(Reader note 1: posting will be light through the weekend....taking a few days off)

(Reader note 2: Just saw Avatar, the IMAX 3D version. I highly recommend it.)

Food stamps altering how retailers do business (Maestri/Baertlein, Reuters) "At 11 p.m. on the last day of the month, shoppers flock to the nearest Walmart. They load their carts with food and household items and wait for the midnight hour. That's when food stamp credits are loaded on their electronic benefits transfer cards."

from Rolfe Winkler:

Lunchtime Links 12-22

Furlough alert 1--Yahoo imposes week long shut down (Vascellaro, WSJ)

Furlough alert 2 --City of Chicago to shut down Xmas Eve to save cash (CBS2)

TARP deadbeat list grows to 55 (Applebaum, WaPo) Up from 33 banks + AIG last quarter.

Mega-savant Kim Peek dies (Collins, Deseret News) Peek was the inspiration for "Rain Man." What a fascinating brain: "Scientists [recently] learned that Kim could hold a book within eight inches of his face and read the left page with his left eye, the right with his right eye at the same time. He devoured books that way." Much more in the article.

from Rolfe Winkler:

Rich Dad fears Dec 2010

The tax code has a particularly odd quirk next year. The estate tax, which has decreased steadily from 50% to 45 % over the past few years, will drop to zero in 2010. To get the repeal passed, however, Bush 43 agreed to a sunset provision that brings the tax right back in 2011.

Heirs face 45% tax on estates over $3.5 million today. On January 1, the amount goes to 0%. But on January 1, 2011, the tax ratchets back to 55% on amounts over $1 million.

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