Morning Links 1-25

Jan 25, 2010 14:25 UTC

Tishman gives up Stuyvesant Town (Wei/Spector, WSJ) Way underwater was this deal: the price tag was $5.4 billion, but the property is thought to be worth only $1.8 billion now. Tishman put up only $112 million of equity. Lenders and investors get wiped out. Good. By the way, if underwater investors can walk away, there’s little reason underwater homeowners should feel a moral obligation to keep paying their own overpriced mortgages….

SEC mulled national security status for AIG details (Goldstein, Reuters) “U.S. securities regulators originally treated the New York Federal Reserve’s bid to keep secret many of the details of the American International Group bailout like a request to protect matters of national security…”

Avatar to surpass Titanic as top box office draw of all time (Box Office Mojo) Inflation in the price of movie tickets plus the fact that many are paying $16 to watch Avatar in 3D, mean the comparison isn’t totally fair. But whatever. James Cameron has directed the two best grossing movies of all time. And Avatar is poised to go well over $2 billion…in less than two months!

BOJ open to extending loans, bond buying (Hidaka/Otsuma, Bloomberg) The Japanese central bank has engaged in various rounds of quantitative easing since the late ’90s I believe. Yet they’re still unable to keep deflation at bay. There are those that say this is proof that QE doesn’t necessarily lead to inflation. The bet being made by guys like David Einhorn is that eventually the debt load overwhelms the Japanese economy causing the yen to collapse. Indeed, the inflation that people fear here in the U.S. isn’t so much the old wage-push variety. Rather it’s a sudden loss of confidence in the dollar when it becomes clear the U.S. can’t pay its bills.

Bernanke confirmation looks set (Gelsi, Marketwatch) When Barbara Boxer and Russ Feingold pulled their support last Friday, it appeared Ben Bernanke might not get Senate confirmation for a second term. Now he look safe.

Fannie, Freddie should be eliminated, Frank says (Timiraos/Crittenden, WSJ) Unlikely this means Barney Frank will stop rolling the dice to subsidize housing with the public purse.

Leviathan stirs again (Economist) The return of big government the world over. This is not a good thing. Federal government is probably the least efficient allocator of resources in the economy. Not that we need smaller government overall, we just need smaller federal government. States and localities govern more efficiently. The federal government should be shrunk dramatically and the power/tax base of state and local gov’ts should expand.

Right-wing flame war (Dee, NYT) The story of Charles Johnson and his blog Little Green Footballs.

Newspapers are failing because their articles are too long (Kinsley, Atlantic) Shameless self-promotion: Reuters BreakingViews tells you what you need to know about financial news in 350 words or less!

2010: The year of the renter? (Toy, NYT) This story is NY specific. But I must say it’s good to live in the Hudson Yards area of Manhattan. Some of the best deals on apts in NYC at the moment as there’s way too much inventory around here….

Will NY soda tax drive some to drink? (CityRoom) This is a pretty stupid argument from soda bottlers who are opposed to new taxes on their product. Beer and soda aren’t exactly perfect substitutes…

Cat vs. Bear

Dodd on Bernanke: “not necessarily”

Nov 20, 2009 21:45 UTC

From Shahien Nasiripour at HuffPo.

One wonders where news and approval ratings will be when Bernanke’s confirmation comes up for a vote….

I went on record with my Bernanke angst the day said he’d nominate Bernanke for a second term. At that time I qualified my opinion by saying that if Larry Summers was the other option, then I’d settle for BB. But I get the sense that Larry isn’t that popular now either, that Washington wants a clean break from Bernanke/Summers/Geithner.

So take a shot on a new Fed chair Mr. President. One who’s not afraid to challenge the banks, and run the occasional Fed fire drill.

COMMENT

I think that the federal reserve should be shut down, get rid of the poeple that are in power now and replace them with poeple that have been morally and ethically tested. Also test the testers, corruption and greed is a disease

Posted by Azrael | Report as abusive

Fed: Stop the presses

Aug 7, 2009 20:55 UTC

On Thursday, the Bank of England said that it would run its printing press a bit faster while the European Central Bank hinted that theirs might slow down sooner than expected.

In the United States, the Federal Reserve’s printing press is running low on ink, and Ben Bernanke has his own choice to make: Buy a new cartridge or shut the thing down. He should shut it down.

In particular, I’m referring to the Fed chairman’s commitment to print $300 billion to buy Treasury bonds by the end of September.

So far the Fed has purchased $243 billion since the program began in March. He’s on schedule to hit the $300 billion mark next month, right on schedule. The question is whether he should buy more.  (Click table to enlarge in new window)

slide1

With some signs pointing to a recovery, the conventional wisdom is that the Fed can let the program expire. That’s right, but for the wrong reasons.

The problem with quantitative easing, and with all programs fiscal and monetary intended to artificially support asset prices, is that they badly distort markets, preventing them from grappling with the underlying problem of leverage.

They also send false signals to market participants that it’s safe to take risk.

Leverage is still at record highs. To take just one measure, according to the Fed’s first quarter flow of funds report, total credit market debt to GDP stood at 376 percent. (Click chart to enlarge in new window, ht Comstock Partners)

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We’ve run up more debt that we can possibly pay. As any overextended borrower can tell you, the way to deal with excessive debt is to pay it down, or declare bankruptcy.

But quantitative easing encourages people to take on more debt.

Take homes, for instance. Mortgage rates are tied to Treasury rates, which are held artificially low thanks to the Fed. Low mortgage rates lead to higher house prices and higher house prices provide collateral to take on more debt.

But when the Fed’s artificial support is removed, prices will continue their march downward and borrowers will find they can’t pay off their last loan.

Every time we hit a recession, the Fed’s solution is to hit the gas, encouraging folks to go deeper into debt. For a time, credit expansion provides the illusion of economic expansion. Until, that is, inflation fears force the Fed to hit the brakes.

We’re addicted to debt. But instead of trying to kick the habit, we invent ever more creative ways to find our next fix.

Once upon a time, low interest rates were enough. Not anymore. So the Fed devised a dangerous combination of zero interest rates and quantitative easing.

Before we were snorting the junk. Now we’re injecting it. And the high is causing market participants to take more dangerous risks than they should.

People jumping back into the housing market are in for a rude awakening as prices continue to fall and their equity evaporates. If house prices trend back up, it won’t be because people can pay more, it will be because credit markets have loosened up again and they can borrow more.

Then we’re back where we started, but with an even larger pile of unpayable debt.

The economy won’t be on a sound footing until debt levels fall, and that won’t happen as long as the Fed stands in the way. It should let its three quantitative easing programs expire on schedule, and make a firm commitment that they’re not coming back.

COMMENT

As an ape, I watch with interest as you humans choose paths of self destruction. It appears that the despots have succeeded in spoiling you with their circuses and horses. I wait anxiously to clean up the mess that will be left when you finally finish destroying each other. I’d like to thank everyone who has made this opportunity possible. Most importantly… Shakespeare, The Founding Fathers, Kings everywhere, and all the gullible, stupid sheep that have so easily followed them into the abyss.

-Bye bye!

Posted by Cornelius | Report as abusive

Who are Bernanke’s top 25?

Jul 24, 2009 19:47 UTC

How many too-big-to-fail financials might be subject to additional oversight under Obama’s regulatory reform bill?  According to Ben Bernanke: roughly 25.

“On order of magnitude, a very rough guess would be 25 (firms). I would like to point out that virtually all those firms are organized as bank holding companies, or financial holding companies, which means the Federal Reserve already has umbrella supervision , so I would not envision the Fed’s oversight extending to any significant number of additional firms.”

Conveniently, the Fed publishes a list of the top BHCs.  Here are the top 50.  And you’ll never guess who just missed the cut at #26…

CIT.

Not on the list is GE Capital, which is certainly too-big-to-fail.  And there are more than a few insurance companies that wouldn’t be allowed to go under.  By assets, the biggest insurers–besides MetLife, which is on the BHC list–are Prudential ($380 billion assets), Hartford ($290 billion), and Berkshire Hathaway ($282 billion).

COMMENT

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