Lunchtime Links 2-2

Feb 2, 2010 19:13 UTC

Homeownership rate falls to 2000 level (CR) At 67.2% it’s still way overstated. Home “ownership” is a misnomer in cases when the owner has withdrawn mortgage equity or when the price of the home has fallen below the principal value of the mortgage. A better measure of homeownership, I think, is just to look at total owner’s equity as a % of household real estate. The most recent Fed Flow of Funds report (page 104, line 50) puts the figure at just 37.6%

U.S. could extend bank fee beyond 10 years, Geithner says (Di Leo/Crittenden, WSJ) The proposed tax on non-deposit liabilities should be permanent, and should target ALL liabilities, including repos. Deposits are guaranteed via FDIC. While that insurance is dramatically underpriced (witness the cash-strapped state of the DIF) at least banks pay something for it. Non-deposit liabilities are also effectively guaranteed, for the biggest banks anyway, via the promise that none which is too big will be allowed to fail. To counter moral hazard, this implicit guarantee must be taxed in order to offset any benefit derived from lower funding costs.

Must-Read: What’s a college degree really worth? (Pilon, WSJ) A lot less than you think, as argued here before. This piece is well-written with lots of good data!

AIG derivatives staff said to forgo $20 million in retention bonuses (Katz/Son, Bloomberg) They’re still well-paid, but this is better than nothing I suppose.

Deficits as a national security issueSanger NYT & Seib WSJ — Good to see prominent columnists picking up the thread. A refresher on the Suez Crisis of 1956 offers helpful background.

Rising FHA default rate foreshadows foreclosure crush (ElBoghdady/Keating, WaPo) Key line: “the FHA projects that it will pay out claims to lenders on one out of every four loans made in 2007 — the worst rate in at least three decades. The claim rate should be nearly the same on the vastly larger volume of loans made in 2008.”

Goldman spokesman’s most withering rebuttals (Daily Intel) Methinks he doth protest too much…

North Korea propaganda, with translations (nikopop)

VIDEO — Reporter filing report on the blindfold half court shot, makes own impossible shot (fox4)

Trader caught taking a break…


A better way to state the point you are trying to make would be to exclude from the “homeownership rate”, the percentage of homeowners who have mortgages that exclude the value of their homes. That is not the same as total owners equity as a percentage of household real estate that you cite from the Flow of Funds Data (e.g., some real estate has no mortgage against it).

However, not every homeowner that is underwater will necessarily ‘walk away’ so even that statistic must be haircut in order to arrive at the appropriate figure for the percentage of american households who have a desire to “own” versus “rent” their dwelling.

Posted by Hookahboy | Report as abusive

Buffett lets public down…again

Jan 21, 2010 18:29 UTC

The public has always seen in Warren Buffett a different kind of capitalist, an honest observer providing sound financial advice regardless of his personal interests. But is he?

When it comes to his own holdings Buffett seems to use a carefully cultivated reputation for financial rectitude to feather his own nest.

On Wednesday he came out against Obama’s proposed bank tax, but his comments were inconsistent. On one hand he’s always maintained banks needed to be bailed out, yet he opposes ways to make them pay for it. At this point, financial giants in which Buffett has large stakes — Wells Fargo, Goldman Sachs and General Electric — all benefit from an implicit too-big-to-fail government insurance policy. How can Mr. Buffett, an insurance executive, argue that it’s inappropriate to charge them for it?

This is just the latest example of Buffett talking his book.

Buffett also lobbied for and profited greatly from the bailouts. He invested in Goldman, he said, with the expectation that Congress would “do the right thing” by passing the Troubled Asset Relief Program. In other words, it was a bet on a bailout.

Later he mocked the stress test, which forced over-leveraged banks to raise needed capital. This was bad for Buffett because it diluted his stakes in banks.

Less well-known is that Buffett was the first to propose a private-public partnership structure in order to rescue troubled banks. In a letter to Hank Paulson in the fall of ’08, cited in Andrew Ross Sorkin’s recent book, Buffett pitched his idea for a “public-private partnership fund” that would use public debt to finance private bets on toxic assets. When Tim Geithner rolled out a similar plan a few months later, it was widely panned as a giveaway to banks.

Buffett later complained about bailouts in his annual letter to Berkshire investors, saying that government subsidized funding put firms like Berkshire at a disadvantage. He failed to note that public subsidies — in particular FDIC’s Temporary Liquidity Guarantee Program — helped to keep afloat the eight banks in which Berkshire had a stake.  From the end of ’08 through July of ’09, 75 percent of the debt sold by these eight banks came with the explicit government guarantee offered by TLGP. Without it, many might have failed, wiping out Berkshire’s equity stake.

It takes chutzpah to lobby for bailouts, make trades seeking to profit from them, and then complain that those doing so put you at a disadvantage.

Those who follow him closely are well aware that he talks his own book, but the wider public still believes him to be a trustworthy broker of unbiased financial advice and commentary. They shouldn’t.

Buffett didn’t respond to requests for comment.


Ignacio Couce: What could possibly be rational about “cheap money, corporate subsidies, tax breaks and incentives (read loopholes), and yes, bailouts for all”? These create short-run gains with untold long-run costs. What Buffett’s doing may be legal, but it is not rational. Unless, of course, you’d prefer to live in a USA that has an economy like Russia’s — which is what you’ll get if we stay on this path. Read your economics a little deeper and you’ll see that the rhetoric of the rational economic player is based on a straw man model designed for training school children not for making policy. Platitudes are for Marx — not Mises.

Posted by NYUphd | Report as abusive