Evening Links 2-8

February 8, 2010

Housing rebound in Canada spurs talk of new bubble (Dvorak, WSJ) Last week Paul Krugman toasted the sobriety of Canadian banks. Among other things, he said that low rates aren’t enough to cause a bubble since Canadian rates are low and, well, they don’t have a bubble. If this article is to be believed, Krugman didn’t look closely enough. Banks may use less leverage in Canada, but low rates are encouraging households to borrow big — debt to disposable income is a bubbly 1.42x. Key quote in this piece is near the bottom, where a real estate agent notes that rising prices mean rents are only barely covering mortgage payments for real estate investments. The best definition of a bubble is when debt service payments finally eclipse rents. Then buyers/lenders are betting on continued appreciation, which can only be driven by still-easier credit. Canadian real estate appears to be headed in that direction.

Fed’s Bullard: Housing should be key in reg reform (Daly, Reuters) A good point. And the Fed should use its authority under HOEPA to make sure all mortgages are underwritten so that borrowers can make a full payment.

Fed group eyes insurance fund for repo market (Cooke/Comlay, Reuters) Insurance funds are dangerous. They have a habit of increasing moral hazard.

Fed to bare tightening plan (Hilsenrath, WSJ) Wouldn’t it be better to increase reserve requirements than to increase interest rates paid on excess reserves? The second plan pays banks to do something the Fed could simply require if it wanted to…

Hedge-funder sues to keep rent at $380 (Dealbook)

Red Mist: Who matters in China’s financial system is barely understood (Economist)

Madison WI bus driver highest paid city employee (Mosiman, WIStJournal) $159k….thanks to a great union contract.

The world capital of killing (Kritsof, NYT)

WW1 camoflauge to defeat Uboats (Twistedsifter) Fascinating.

Worst airline ad ever?

worst airline ad

Comments

Per the bus drivers high pay…while it is understandable that in these hard times folks are envious of union protected employees, it seems a bit strange to be tearing down the last ones standing, so to speak. Unions must come to agreements with employers, who are equally responsible for the high pay. Employers can lay off union employees and in order to get the high pay, the employees must work overtime.

Contrast this to the CEO who, with the cooperation of a very small group of people, the board of directors, gets paid without regard to any verifiable amount of work done, certainly not on an hourly basis, and we’ve seen, without regard to the performance of the company. We all know of the many expenses that have been charged off to the companies by the high-flyers. Cap a bonus and the money flows by a different route. A CEO gets canned at one company for a bad job and pops up at another, often with no loss in pay.

In the face of this, companies claim they must pay the going rate for the talent, yet we’ve seen how boards approve ever higher rates of pay as a matter of company prestige. The “talent” is often CEO in one place and bonus-approving board member in others.

So, union members may be surviving quite well, but those at the top are walking off with the store. They are also in a union, an invisible one, all the more powerful for being so.

Posted by Chicagoboy | Report as abusive
 

Running a company of size, even if you are only barely competent at it, requires a collection of talent and skill that only a fraction of people have. It also happens to frequently require long hours of work, well beyond the “Standard” 40 not only throughout the climb to the top, but even while at the top. Not hard physical work, but work all the same.

Driving a bus? You don’t even have to be able to read.

Posted by Beezlebufo | Report as abusive
 

The WWI ship camouflage–Razzle Dazzle–reminds me a lot of the so-called derivatives: You’re going after them, but you can’t see where they’re going.

Posted by Lilguy | Report as abusive
 

“Wouldn’t it be better to increase reserve requirements than to increase interest rates paid on excess reserves?”

Yup, but that wouldn’t stealthily recapitalize banks still stuffed with toxic assets. I think they’re counting on the complexity of the issue, and “exit strategy” headline to paper over the stealth handout.

Posted by Sharpie | Report as abusive
 

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