Lunchtime Links 7-1

July 1, 2009

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The cautious approach to fixing banks will not work (Martin Wolf)  Bank stocks are back up; that must mean the financial system is healing, right?  Wrong.  In fact, the government’s patchwork rescue efforts have left us worse off.  One big problem: banks have gotten bigger.  JP Morgan took over WaMu and Bear, BofA got Merrill and Countrywide, and Wells Fargo bought Wachovia.  Institutions that were too big to fail, in fact, got bigger.  Yes, there have been some positive developments: banks have stopped lending and raised equity capital. Even if leverage hasn’t fallen much, at least it’s stopped growing.  But that’s not enough.  Until the financial system drastically shrinks, the rest of the economy will continue to be held hostage.

Too big to fail is too big (William Buiter)  Picking up Wolf’s cue, economist Buiter has some smart recommendations for shrinking banks.

Florida wants to turn tax credits into downpayments (Orlando Sentinel)  The federal gov’t is offering an $8,000 tax credit to first time home-buyers.  That helps cut the cost of purchasing a home, but not until next year when buyers file their tax returns.  Florida wants to provide financing to convert the tax credits into downpayments up front.  Buyers would, in effect, be able to put 0% down in many cases.  Builders love the idea, of course.  If lenders agree to participate, the builders can market $0 down houses.  They will if FHA backs the loans.  (ht Implode-o-Meter)

How (and why) athletes go broke (Sports Illustrated)  Long, but very interesting.

Matt Taibbi responds to Goldman Sachs (True/Slant)  Earlier we linked to Taibbi’s piece blaming Goldman for creating the big bubbles.  Goldman responded, indirectly.  Now Taibbi comes back at them.  In fairness, it’s not fair to blame Goldman and not the whole banking complex.  Goldman just happens to come out on top more than others.

Don’t get fooled again (Eliot Spitzer)  Writing in Slate, Spitzer makes the argument made here last week:  “The Fed clearly botched banking regulation once already.  So why does Obama want to give it more power?”

Bank takeover plan said to require capital from banks (Bloomberg)  Sheila Bair needs private equity money to help recapitalize the banking sector.  But she wants to impose rules on PE investors who want to invest.  She’d force them to stand ready to contribute additional capital, and to impose minimum holding periods so that PE shops can’t loot and flip.

Construction Spending Declines in May (CalculatedRisk)  A nifty chart in this post.  Note how private NON-residential construction spending has only just started to fall.  CR says to look for a collapse in late 2009.

S.F. Fed Chief tells inflationists to pipe down (Naked Capitalism)  Ed Harrison analyzes Janet Yellen’s most recent speech.  The inflation/deflation argument continues to rage.  The deflation view seems ascendant; but the big risk is what William Buiter calls a “sudden stop,” the situation where you could see a mix of high inflation (a dollar crisis that makes imports suddenly more expensive) and crippling deflation (as the financial sector collapses and wealth disappears).

Get with the program….


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In regards to the first time homebuyer credit. I was a tax accountant and a person I know from the business gets referrals from a mortgage broker to amend 2008 tax returns to include the credit so they get the refund now.

The accountant can’t believe some of the people’s returns he is seeing and their salaries, and how big of mortgages they are getting…



Posted by James | Report as abusive