Evening Links 2-8
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)
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?