Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Arcanaut
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1562.4 | -0.3 | -0.02% |
| Eurostoxx Index | 2624.0 | 11.6 | 0.44% |
| Oil (WTI) | 96.53 | -0.7 | -0.72% |
| LIBOR | 0.283 | -0.001 | -0.35% |
| US Dollar Index (DXY) | 82.94 | -0.032 | -0.04% |
| 10 Year Govt Bond Yield | 1.88% | 0.03% | |
| Current Coupon Ginnie Mae TBA | 104.4 | -0.2 | |
| Current Coupon Fannie Mae TBA | 103 | -0.2 | |
| RPX Composite Real Estate Index | 190.5 | -0.3 | |
| BankRate 30 Year Fixed Rate Mortgage | 3.67 |
Markets are flat this morning as most European markets are closed for the Easter Holiday. We are kind on a lull period until next Monday when Alcoa kicks off earnings season. Bonds and MBS are down small.
The Markit U.S. Preliminary March Purchasing Managers Index rose to 54.9 from 54.3 in February, indicating that the economy is expanding at a faster rate. Most indicators (new orders, employment, backlog) indicated the economy was expanding and accelerating. The Markit PMI is different than the more widely followed Institute of Supply Management Survey, which uses different weightings.
NPR has a good backgrounder on how strength in housing feeds other sectors of the economy. Punch line: the wealth effect, which was given up for dead in 2008 has returned. As home equity grows, people start spending again.
The Feds are getting closer to Stevie Cohen. They have arrested Micheal Steinberg, one of Cohen’s senior lieutenants, who was implicated in insider trading in Nvidia and Dell.
Filed under: Morning Report |
All Things in Moderation 
Just for the heck of it here’s a counter to Stockman’s piece linked yesterday, for what it’s worth. I’m not going to pretend know who has it right.
The problem is that the last 80 years, since then have represented a marvelous time for economic progress in America (and elsewhere). Standards of living have soared, and the tools of modern economic management have meant that we’ve never had another economic crash anywhere near the level we saw during The Great Depression.
Beyond that, the fact that things have gone on for 80 years without the gigantic collapse that Stockman has predicted is a sign that perhaps FDR’s move wasn’t so horrible.
The last few years have been devastating to people with Stockman’s biases.
The dollar hasn’t collapsed. Inflation hasn’t soared (food prices are stable). Total debt to GDP (when you include private debt) has shrunk. The financial sector has begun to normalize as a share of the economy. Housing has come back. US borrowing costs are not exploding. Inflation expectations very far out remain tame… probably too tame.
In fact the big surprised to many in the economic community is how the US — which was already seen as an aging lumbering giant in the years going into the crisis (2005, 2006, 2007) is now seen as the country in the best shape in the developed world. There’s a widespread view that you have to be long the US in part because of how well we’ve managed our crisis, but also because factors like energy and demographics augur so well for America’s future.
http://www.businessinsider.com/david-stockman-america-is-doomed-2013-3
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And also, Simon Johnson, on April 1st.
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This was the funniest rejoinder to the gold bug portion of Stockman’s otherwise provocative column.
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Would it be naughty of me to ask if anyone here can read and report or copy and paste the piece in the FT regarding Obama and inequality, if you can find it? All I saw was the headline from naked capitalism, “US inequality will define Obama Era.”
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Just for the heck of it again, here’s another guy who didn’t think much of Stockman’s piece. And I’ll reiterate, again, I don’t know who’s correct, but it is interesting reading.
It’s a long piece, bursting with passionate fire and brimstone, but again, at least to me, there’s no cogent argument in here, just assertions: sovereign debt is bad; you’ve got to let the market work out its failures without trying to fix them (there must be “a sweeping divorce of the state and the market economy”); no government investments in industry; central banks shouldn’t mess with the money supply.
One could take each one of those apart. Sovereign debt is neither bad nor good–its assessment must be situational. Despite the fact that policy makers are working hard to forget this lesson, is well established that allowing market failures to heal themselves causes protracted and unnecessary economic pain that can be avoided with temporary stimulus. Private investors will under-invest in innovative sectors due to uncertain returns, central banks have played a critical stabilizing role, etc…
So what does he get right? Of course, all of the above can and are sometimes done badly. Our debt is in no small part a function of our uniquely inefficient health care sector, not to mention the supply-side, trickle-down, economic snake oil that Stockman himself helped to sell back in the Reagan days. As Dean Baker has documented, we are awash in crony capitalism—the best parts of Stockman’s screed inveigh against this, with resonant connections to Wall St.—and that leads to government failure alongside market failure.
http://jaredbernsteinblog.com/david-stockman-goes-way-way-over-the-top/
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From Bernstein:
Our debt is in no small part a function of our uniquely inefficient health care sector…
This seems to be an article of faith among many on the left (“We don’t have a spending problem, we have a health care problem”). I don’t get it. To the extent that the national debt derives from health care costs, it derives from the government’s decision to pay for some people’s health care costs without taxing others to come up with the revenue to pay for it. This will result in debt regardless of how efficient or inefficient the health care system is. This seems to me to be a denial of the actual problem, not an identification of it.
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I think Stockman overreaches when he tries to tie everything together in a grand narrative going back to the New Deal. He’s better served to focus on how the policies of the Federal Reserve help to create new serial bubbles based on their actions to try mitigate the fallout from the collapse of the previous ones.
I liked his previous op-ed’s better than the new piece.
The SJ piece almost had me when he was talking about creditor prioritization in Europe.
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So, both guys are arguing that bailing out the banks and not prosecuting criminals in the public and private financial sector were good things? Not being snarky, but I cannot interpret their opinions in any other way.
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Here’s where Jared Bernstein goes over the top:
The pain isn’t avoided. It’s pushed off into the future. Old style temporary deficits off set with surpluses to actually balance the budget over the medium term, as Keynes himself advocated have now been supplemented with deficits in perpetuity. The new goal is never to run surpluses to actually pay down the debt but merely to potentially stabilize the debt to GDP ratio.
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” The new goal is never to run surpluses to actually pay down the debt but merely to potentially stabilize the debt to GDP ratio.”
This is one angle of the Obama Administration that I find fascinating. Do they actually think that “stabilizing the deficit” as I heard Obama say once, is a viable medium or long term option? Do they actually believe this of is this for the rubes? I don’t know which is worse.
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Given that all of their deficit reduction is scheduled to occur during the out years after they have left office, I don’t think they care one way or the other.
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He’s better served to focus on how the policies of the Federal Reserve help to create new serial bubbles based on their actions to try mitigate the fallout from the collapse of the previous ones.
Yep. And I think this has been the unintended consequence of the dual mandate…
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I don’t know how “unintended” it is. It seems to be required by attempting to maintain “full employment”.
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No, this is not from The Onion
http://m.whitehouse.gov/the-press-office/2013/03/29/presidential-proclamation-national-financial-capability-month-2013
Absolutely breathtaking
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More ( snicker) Republican War on Women.
http://www.thedailybeast.com/articles/2013/04/01/how-kentucky-democrats-duped-the-msm-and-helped-elbow-out-ashley-judd.html
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OT: Ezra identifies how the Republicans won the sequester fight.
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That can’t be right, jnc. It’s all part of Obama’s long game.
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Why is it thought among the Left that “zero baseline budgeting” is bad? I’ve never understood the embrace of unrestrained “budgeting” as a responsible governing strategy. I would thing the constant uncovering of inefficiencies and the emphasis on efficient spending would be a way to sell the idea of large government.
Are my conclusions wrong?
1.) It is impossible to make government spending efficient, or even sound efficient to a lay-person
2.) An assumption that lay-people have an innate understanding of the Fox Butterfieldism effect.
3.) It’s impossible to spend money that is not yours and that you have no perceived stake in, in an even remotely responsible manner.
4.) a universal understanding by those elected to office only way to lessen inefficient and/or corrupt spending is to reduce the amount spent, which reduces power and influence of those elected.
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Are my conclusions wrong?
1.) It is impossible to make government spending efficient, or even sound efficient to a lay-person
I think this is wrong. At every level of government, financial analysts and auditors have recognized agencies that are tightly managed and those that are not. There are books written on how to replicate the efficiencies. Wasteful policies have been identified, and in some agencies eliminated, but in others remain habitual [certainly, in Texas!]. Management of government and non-profit agencies must rely on a different set of strategies than for-profits. But they can learn from for-profits.
The questions why this has not been done across the board repeatedly is answered best, I think, by our not having given the Inspector Generals or anyone else the permanent tools to deal with wasteful practices. The Gore initiatives of the early 90s were more than window dressing but far less than universal in space or time. Billy Hamilton, who worked John Sharp’s “miracle” with the Texas budgets of the late 90s during the S&L debacle, was brought to DC to design that program.
George, the administrative cost of Social Security is reputed to be far lower than any for- profit company. OTOH, DoD has not passed an IG inspection in my lifetime and will not have its first “real” audit until 2017.
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Mark/McWing:
I don’t think it is “impossible” to make government spending efficient, but there isn’t any real, institutional incentive for those responsible to make it efficient. Unless and until voters start punishing elected officials based on government spending habits, they won’t be efficient.
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OT, but we hear all the time that we are underinvesting in infrastructure. I drove to DC over the weekend and can safely say that doesn’t apply to the I-95 corridor. The entire drive was one big construction zone..
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Dunno if anybody has read Teh Krugman’s latest, a tribute to California,
I wonder if he’ll respond to this?
http://m.washingtonexaminer.com/9-facts-paul-krugman-left-out-of-his-california-comeback-column/article/2525951/?page=1&referrer=http://t.co/wo332Qh41z
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So, I quit eating chicken again after being sick last year but I’m still cooking it for Walter and the kids when they’re around. This is one of his favorite recipes that I thought I’d share. I usually just throw some chicken on the bbq for him but this is really good for a quick and easy oven recipe.
Ingredients
1 1/2 lbs boneless skinless chicken thighs
1/2 cup Dijon mustard
1/4 cup maple syrup
1 TBS rice wine vinegar
salt and pepper
rosemary (optional)
Directions
Preheat oven to 450 degrees
Mix together Dijon mustard, maple syrup and rice wine vinegar
Place chicken in an oven proof baking dish and sprinkle with salt & pepper
Pour the mustard mixture over chicken making sure the pieces are fully coated
Bake for 40 minutes or until the meat is cooked (155 degrees)
Baste chicken halfway through cooking
Serve with rosemary sprinkled on top…….I only do this if I have fresh rosemary
This is called “Man Pleasing Chicken”…………………which cracks me up!
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“Dunno if anybody has read Teh Krugman’s latest, a tribute to California, ”
I did. The more pertinent fact he left out was the amount of spending cuts, especially to public employee pensions that Jerry Brown has enacted since taking office.
Note that Krugman used to (correctly) cite California as an example of austerity in practice.
http://blogs.kqed.org/newsfix/2012/05/24/paul-krugman-on-california-fiscal-crisis-pensions-and-not-a-shred-of-evidence-that-higher-taxes-kill-jobs/
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Brent continues to be correct on shale gas as a game changer for the US:
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Pick-a-side, CA is either a failed state or an improving state. It depends on the point being made. Whatever numbers are the flavor of the day will support any thesis. It feels like we’re crawling out from under a rock and our Governor is trying to be responsible………………..what more can I ask for really.
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It’s not just natural gas, oil is being horizontally extracted as well and they’re re-visiting lots of old oil sites and previously impossible extraction areas. As long as they can either sell fracking to the general public or continue to dodge the issue where they can, oil is gold.
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” It feels like we’re crawling out from under a rock and our Governor is trying to be responsible………………..what more can I ask for really.”
That’s my assessment as well. Jerry Brown is the indispensable man for California at this point.
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I doubt he would call himself an austerity advocate however. He’s doing what he has to do to turn our budget problems around because we have to not because he finds any particular joy in cutting programs. It’s the same kind of kitchen table cuts families make. State budgets are much more similar to family budgets than the federal budget. He’s been mopping up the state and everyone is holding a mop, not just the poor or the wealthy.
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I believe this is an April fool’s post, but based on Yglesias past posts, I’m not sure.
“Print Money. Mail Everybody a Check.
Fight unemployment by giving money directly to American families.
By Matthew Yglesias|Posted Monday, April 1, 2013, at 1:18 PM”
http://www.slate.com/articles/business/moneybox/2013/04/helicopter_money_federal_reserve_should_print_money_and_give_it_directly.html
It’s not nearly as obvious as Simon Johnson’s embrace of the gold standard.
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“I doubt he would call himself an austerity advocate however. ”
Doesn’t matter. Actions are what is relevant here. Cutting spending and raising taxes to balance a budget is the definition of austerity.
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I suppose. Of course that’s what Obama says he wants to do as well. A balanced approach.
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The difference is Brown’s spending cuts are for real.
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I still like this Bloomberg piece from the day after the Inauguration regarding spending, the deficit, debt and health care spending. It’s not perfect and I’m sure all of you can punch a bunch of holes in it, but I think it takes a pretty honest look at things, and it’s pre-sequestration, which you guys won on, so it might even look a little better than this now.
Anyway, I would take a Dem like Brown or Obama every day of the week and Sunday over a Republican like Scott Walker or Romney if those are my choices
Thanks for the conversation jnc..
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Unfortunately behind the firewall, but today in the WSJ Sheila Bair argues, I think, that capital adequacy ratios for banks are too low. I say “I think” because it isn’t entirely clear to me just what she is recommending.
Yet, after making so much of banks being permitted to risk-weight their assets, Bair goes on to admit that “It does make sense to look at the riskiness of banks’ assets in determining the adequacy of its capital.” She says that current rules are “upside down” and that regulators should “go back to the drawing board”, but she makes no recommendations as to what the regulations should actually be.
It does seem, however, that her primary goal is to demonize “trading” activity while lauding “good old fashioned loans”. She laments that current regulations provide “more generous treatment of derivatives trading than fully collateralized small-business lending” without any explanation as to why that is lamentable, as if the problem with this is self-evident. It is not. Nor, it seems, is Bair aware (or, more likely, she doesn’t want her audience to be aware), that in fact the vast majority of derivatives trading is and has been for some time collateralized, and that part of Dodd-Frank actually now requires that derivatives trading not only be collateralized, but be cleared through a clearing house. Cleared derivatives trades margined with cash are much, much safer than some small business loan collateralized by a building or a house.
Again, I get back to the same issue I have raised with jnc in the past. The real desire, it seems to me, is not so much controlling the degree of risk that banks have, but is rather forcing them into politically preferable risks. Certain risks, like lending to buy a house or start a small business, are more preferable politically, regardless of whether or not they are truly any less risky.
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“Again, I get back to the same issue I have raised with jnc in the past. The real desire, it seems to me, is not so much controlling the degree of risk that banks have, but is rather forcing them into politically preferable risks. Certain risks, like lending to buy a house or start a small business, are more preferable politically, regardless of whether or not they are truly any less risky.”
Certain activities, such as securization of a home loan that is then sold off by tranches are much more difficult to unwind or write down when the underlying asset value falls than if the loan had been kept as a single instrument and held by one entity. There’s an argument that simpler is less risky.
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jnc:
Certain activities, such as securization of a home loan that is then sold off by tranches are much more difficult to unwind or write down when the underlying asset value falls than if the loan had been kept as a single instrument and held by one entity.
Perhaps, but 1) such asset-backed securities are not derivatives and 2) one of the main purposes that such securities serve is to allow banks to lay off home loan risk to outside investors that do not themselves have direct access to the mortgage lending market (ie non-banks). Loans are packaged together and sold to outside investors as a security, which thus frees up bank capital so that it can make more direct loans.
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Mark, then my #1 is right in that it is impossible to make it sound efficient. Why else would the Democrats resist such efforts as zero baseline budgeting? There is no up-side politically.
Scott, I agree with that the Friedman rule sounds plausible, but power corrupts ultimately and becomes institutionalized. I’m with Von Mises on this.
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@Scott: “I don’t think it is “impossible” to make government spending efficient, but there isn’t any real, institutional incentive for those responsible to make it efficient. ”
Which is what makes it impossible. Also, governments lack the failsafe of the freemarket: it is a functional monopoly. While one could create a more laissez-faire arrangement amongst government agencies, where they survived less on grants of tax payers money so much as performance, or efficiency or performance were rationally tied to survival of the agency . . . the parent corporation cannot go bankrupt without potentially disastrous consequences. The U.S. government is “too big to fail” . . . meaning we are deprived of the simple expedience of having it simply go out of business due to mismanagement, thus perpetually insulating the government from much (not all, but much) of the consequences of mismanagement, in terms of the continuation of agencies, the funding of programs, and the tenure of political appointees. Elections are lovely, but much of the efficiency and waste in a political agency happens on the ground level.
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@lmsinca: ” and it’s pre-sequestration, which you guys won on”
Depends on how you define “winning”. 😉 That being said, I say we all won: because there was a fight. I think it’s when everyone in Washington is getting along and are all on the same page (except after an immediate national disaster) that we really have to worry. Better to have one hand trying to slap the hand trying to pick your pocket (and then slide their own hand in), as opposed to having them both thoroughly probing all your pockets in smiling cooperation. 😉
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@jnc4p: “Print Money. Mail Everybody a Check.”
I’d like money as much as the next guy, but I think if we went the route of printing money, it’d be best put into the economy through infrastructure investment or something where something was bought, where a product was made, or somebody had to engage in some sort of productive activity or improvement to be eligible for said money. Just throwing money into the economy is questionable.
And if we are to do so, why not just issue tax refunds or lower tax rates on folks making less than $250k or something?
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“2) one of the main purposes that such securities serve is to allow banks to lay off home loan risk to outside investors that do not themselves have direct access to the mortgage lending market (ie non-banks). “
I don’t consider the ability to dump the risk on other people further down the chain from the actual loan origination to be a good thing.
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jnc:
I don’t consider the ability to dump the risk on other people further down the chain from the actual loan origination to be a good thing.
The risk isn’t being “dumped” on anyone. It is being actively sought and freely taken on by investors who want the returns that such risk offers. You might object that the willingness of investors to take on the risk will make the banks less diligent about the quality of the loans they originate. But that is, ultimately, a problem for the investors to address through their own due diligence and appetite for risk.
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Kevin
That being said, I say we all won: because there was a fight.
I believe in the two party system. I even respect a few people from the opposing side and enjoy some comfort in the fact that my side won’t be able to get everything we say we want. I also respect the notion of unintended consequences. I’m a partisan but not so much of one that I can’t find value in opposing views and policy. I don’t believe that attitude is very often reciprocal however.
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@lmsinca: “I don’t believe that attitude is very often reciprocal however.”
I think it is similarly reciprocal. Especially on the center-right/center-left axis. As you get further left or right, it becomes less common on both sides. I’ve had discussions with liberals and conservatives where they are similarly offended that the ideological opposition has a place at the table, or any voice at all.
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And also plenty of blog posting where the compromisers in their own party are viewed with more disdain than the other party.
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@jnc4p: Yeah, I’ve experienced the “you’re with us or against us” thing before. Because if you have the right party label, you’re supposed to be totally in on EVERYTHING. And no compromises, even when compromise might (and sometimes, I think it might) do more to advance a particular ideological agenda then fighting to the bitter end.
Not that there aren’t times to fight to the bitter end.
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“But that is, ultimately, a problem for the investors to address through their own due diligence and appetite for risk.”
Unless they figure out a way to transfer it to the taxpayers.
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jnc:
Unless they figure out a way to transfer it to the taxpayers.
Well, I suppose that is always a problem with anything. There’s no telling what politicians might stick the taxpayer with. But if this is the principle underlying objections to banks packaging and selling RMBS, maybe we also should object to GM making cars because they might figure out a way to pass the risk of failure onto taxpayers. And of course the biggest source of risk to taxpayers coming from mortgage defaults is Fannie and Freddie, not any privately issued RMBS.
But the original topic was not whether banks can transfer risk to taxpayers. We know implicitly that they can via FDIC. The issue is, given that fact, what kind of risks ought they be allowed to take on and thereby over which, implicitly, to put taxpayers at risk. I think that, despite political attempts to make it seem otherwise, this whole debate doesn’t really have much to do with the actual risk that various activities represent, but instead is actually just a question of which activities are more politically preferable. Does a bank holding a CDO secured by 1000 underlying mortgages really represent more risk to taxpayers than a bank holding those same 1000 mortgages as individual assets? I don’t see how. Does a collateralized interest rate swap with another bank, held with the London Clearing House, really represent more risk to taxpayers than a corporate loan to IBM? Most definitely not. Does even a non-collateralized currency swap with, say, the country of Italy really represent more risk to taxpayers than a direct loan to Italy for the same notional amount? Again, definitely not. Yet all this talk about what banks should or should not be allowed to do focus on eliminating the former of each of these examples, while assuming that the latter in each case is perfectly acceptable banking activity. Hence my conclusion that this really has nothing to do with actual risk, and everything to do with what is optically preferable from a political standpoint.
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“Hence my conclusion that this really has nothing to do with actual risk, and everything to do with what is optically preferable from a political standpoint.”
Or involves learning from past experience what tends to blow up the whole system and what doesn’t.
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I really liked Brooks’ column.
I believe that institutions like marriage are social structures that by their nature limit individual choice once entered into and I believe that the best non-legal reason to support SSM is that like OSM it requires standing up and making a positive long term commitment to create a team. I, like Brooks, think that is good for a society.
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mark:
I, like Brooks, think that is good for a society.
How is it good for society for two gay people to create a team through a long term commitment? And why can’t they make that commitment in the absence of SSM?
BTW, just for the record, I’m not particularly fussed about the existence of legally recognized SSM. I just don’t see why it would be “good” for society.
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jnc:
Or involves learning from past experience what tends to blow up the whole system and what doesn’t.
That seems highly unlikely given that our most recent experience resulted from too much residential real estate lending, yet the focus seems to be on everything but this activity, and particularly on derivatives which played literally no role whatsoever in inflating the housing bubble.
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jnc:
Or involves learning from past experience what tends to blow up the whole system and what doesn’t.
And yet we got this, just yesterday:
Obama administration pushes banks to make home loans to people with weaker credit
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jnc:
And then there is this:
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Obama administration pushes banks to make home loans to people with weaker credit
Trying to create another real estate bubble has got to be the essence of stupid. I suppose we should write letters to various officials, beginning with POTUS.
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@markinaustin: “Obama administration pushes banks to make home loans to people with weaker credit”
Depends on what kind of loans we’re talking about. If you’ve got weak credit but can manage to put 20% down on your house in real cash, either from the sale of your previous house, or from frugal savings, I don’t have a problem with that. If we’re talking about variable rate mortgages with a functional 2% down or something, then, um, no.
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