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 | 1627.3 | -2.3 | -0.14% |
| Eurostoxx Index | 2776.9 | -8.4 | -0.30% |
| Oil (WTI) | 95.43 | -0.6 | -0.64% |
| LIBOR | 0.275 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 83.31 | 0.165 | 0.20% |
| 10 Year Govt Bond Yield | 1.94% | 0.04% | |
| Current Coupon Ginnie Mae TBA | 104.8 | -0.4 | |
| Current Coupon Fannie Mae TBA | 102.8 | -0.3 | |
| RPX Composite Real Estate Index | 196.3 | 0.5 | |
| BankRate 30 Year Fixed Rate Mortgage | 3.58 |
Markets are slightly lower after vaulting to new heights last week. Earnings season is largely over; the only ones left are the retailers who start reporting this week. We will hear from Wal Mart and Kohls later this week. Bonds and MBS continue to sell off – the 30 year fixed rate mortgage closed the week at 3.58% after bottoming at 3.4% a week and a half ago.
Does the back up in bond yields mean the refi boom is over? Perhaps. At any rate, since we have been in this range of interest rates for so long, the people who have the ability to refinance already have. This is called prepayment burnout. Now, it will take home price appreciation to drive refinances. That said, there is talk of a HARP 3.0, which would allow late 2009 and 2010 vintage underwater mortgages to refinance, and there is talk that the government may allow people who have already refinanced under HARP to do so again. New government initiatives may help keep the refi boom alive for a little bit longer.
Retail sales increased .1% in April, higher than the -.3% estimate. The movement of the Easter holiday played some role in the increase. Ex autos and gasoline, the increase was .6%. Gasoline is usually stripped out, because simple price changes can move the index. Joseph H Banks (JOSB) missed earnings estimates this morning. It is an old saw that in weak economic times, the only apparel that is purchased is children’s clothing. As the economy improves, women’s apparel starts to pick up, and when the economy really starts heating up, men’s suits start being purchased. We’ll get a read on women’s apparel when Nordstrom reports on Thursday. Bonds sold off on the retail sales number, although equities didn’t really react.
I said it on Friday and I’ll say it again. This Obama / IRS thing could be market negative in a lot of ways – first, if there is something there, it will inevitably cause marginal foreign investment money to flee the dollar, which is equity negative. Plus it will make the debt ceiling negotiations all that more acrimonious. With the S&P 500 at record highs, it is worth bearing this in mind. You could also see a serious snap-back rally in the bond market.
Filed under: Morning Report |
All Things in Moderation 
Stiglitz jumps on the bandwagon:
This is what happens when the government gets into the loan business. Suddenly everyone is entitled to .75 percent interest rates.
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jnc:
Stiglitz jumps on the bandwagon:
WTF….now Stiglitz. Ironic that he accuses bankers of “preying especially on those who are financially unsophisticated” since that is precisely what he was doing throughout that column. The level of dishonesty is depressing.
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The first part is decent, but he excludes various actors from the discussion for political reasons. Given the current structure of the student loans, blaming “bankers” and for profit colleges for the problem but omitting any mention of the Federal government’s and traditional universities’ roles in the increasing tuition and subsequent rise in student loan debt crosses the line into intellectual dishonesty.
The Elizabeth Warren proposal and it’s growing list of adherents does show the moral hazard costs of TARP and the bailouts. Once you give free money to the Wall Street banks, regardless of it being repaid, it becomes harder to make the political argument against extending similar consideration for other politically attractive constituencies.
The end result will be as Shelia Blair predicted: “$10 million loans for everyone!”
http://articles.washingtonpost.com/2012-04-13/opinions/35450850_1_unemployment-benefits-bush-tax-cuts-income-inequality
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jnc:
The Elizabeth Warren proposal and it’s growing list of adherents does show the moral hazard costs of TARP and the bailouts.
I don’t think it makes a lot of sense to focus on TARP as the point at which moral hazard was introduced, nor to think that without TARP we wouldn’t be having these same conversations about these same topics Yes, advocates for increased government control of this or that aspect of the economy will point to TARP as justification for their latest scheme, but if it wasn’t TARP it would be something else. Progressives and progressive ideas long predate TARP. As do FDIC, Fannie Mae, Freddie Mac, and federal housing policy. The Fed activity that precipitated Bair’s snark (in her own contribution to intellectual dishonesty) has been going on since 1913. It wasn’t invented by Ben Bernanke.
Nor are federal government bailouts something new. Penn Central Railroad, Lockheed, Franklin National Bank, Chrysler, and New York City were each bailed out by the federal government 30 years before anyone had even conceived of TARP. The savings and loan industry was bailed out in 1989. The airline industry was bailed out in 2001.
With regard to the specific topic at hand, the federal government has been guaranteeing student loans since 1965, and has been lending directly since 1993. We’ve been having discussions about the fed’s role in financing higher education for decades, but somehow today’s stupid ideas for lowering interest rates on student debt wouldn’t be happening but for TARP? I highly doubt that.
We can certainly argue the merits of TARP, and you and I probably would agree on more than we would disagree, but TARP is not the bogeyman causing all new government interventions into the market since, even if demagogues try to use it as justification for those interventions. TARP represents just another data point on the long and storied path of government messing with markets, not an inflection point that somehow introduced a new principle that is only recently being acted upon.
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Funny tweet from Iowahawk:
“@iowahawkblog: The 3 most corrupt government agencies: the IRS, the State Dept, and the New York Times.”
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Other crazy news:
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OT: Meanwhile, back at the ranch…
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GS teaching moral reasoning is slightly absurd but it was my first laugh of the day anyway.
Someone put a link up yesterday at the PL about the ROI in college degrees and I was very happy to find that our daughter’s new Alma Mater (CSM) came in 14th over all and was actually the top public school. I’m not real sure where the figures came from but since she’s already making bank, I’ll assume she made a great decision going there. Graduation was boring, aren’t they all, but we were able to sit and chat with her new boyfriend and got to know him a little. He passed our test, hopefully we passed his…………………hahahaha.
It sure was nice being away from all the news for a week and a half. I’m trying to ease my way back in but not finding anything that interesting yet. I did see a piece from OR that the initial test of the exchanges seems to be creating some competition between insurance companies……………………that would be awesome if it holds up.
My report from AZ is inconsequential……………….I had fun meeting like minded people but am doubtful we had much of an impact on Jeff Flake………………you never know though.
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TARP provides the convenient example for the masses.
“If it’s good enough for Wall Street, why isn’t it good enough for the [insert x group here]”
Regardless of the fact that it was paid back, it was fundamentally bad policy in terms of picking winners and losers and it set the stage for all the bad policy that followed starting with the auto bailout and continuing to the present day.
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jnc:
“If it’s good enough for Wall Street, why isn’t it good enough for the [insert x group here]”
The problem is that the “it” from the former clause is almost inevitably different from the “it” in the latter. Hence the intellectual dishonesty of the demagogues previously discussed.
…and it set the stage…
No, it didn’t. My point is that the stage was clearly set long before, and TARP was just a new prop that was added to it.
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Significant Supreme Court ruling
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Nope. TARP was a watershed. It substantively altered the conversation by saving private for profit businesses and leaving equity holders mostly untouched. By contrast the S&L crisis resulted in the RTC winding the seized banks down.
Also:
“The problem is that the “it” from the former clause is almost inevitably different from the “it” in the latter.”
Not in this case. The “it” is the same, access to the Fed’s discount window and loans at .75 %.
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jnc:
TARP was a watershed.
With regard to equity holders, how did it differ from the loan guarantees given to, say, Lockheed or Chrysler?
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TARP was much bigger.
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Mark:
TARP was much bigger.
Yes. It differed in size, but not in principle, and not, as far as I can tell, with regard to equity holders.
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jnc:
The “it” is the same, access to the Fed’s discount window and loans at .75 %.
Nope. Banks who borrow from the discount window have to post collateral and borrow on a very short term basis, generally overnight. Student loans are long term, unsecured loans. They are not the same thing.
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Some good news for Detroit
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“TARP represents just another data point on the long and storied path of government messing with markets, not an inflection point that somehow introduced a new principle that is only recently being acted upon.”
I think this is wrong. It is an inflection point. The previous examples from the 1970’s were one offs. TARP and Too Big Too Fail and the various other subsidies from the Federal Reserve to allow the banks to “earn” their way back to health (i.e. TALF, etc) is ongoing systematic policy.
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JNC, I pretty much agree that it was a major turn of events. Scott, in any business failure or bkcy, equity holders get in line behind creditors and/or the new money. The equity holders are poof.
Are we talking about AIG? What?
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Mark:
JNC, I pretty much agree that it was a major turn of events.
As I have already pointed out with examples, this was not the first time the fed stepped in to save private companies from bankruptcy. It was unprecedented in terms of scale, but not in principle.
Are we talking about AIG? What?
jnc is talking about TARP in general.
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jnc:
The previous examples from the 1970′s were one offs.
There were 5 bailouts in the ’70s. At some point I think the number gets too big to be called “one-offs”.
TARP and Too Big Too Fail and the various other subsidies from the Federal Reserve to allow the banks to “earn” their way back to health (i.e. TALF, etc) is ongoing systematic policy.
Nope.
According to propublica, there hasn’t been a disbursement of TARP funds since September 29, 2010. And according to the Treasury, it is winding down, not continuing to add to, its holdings under TARP. As of December of last year, the Treasury had eliminated its investment in 489 of the 707 recipients of TARP, either through repayments or sales of the investment in the private market. And it expects to be out of two-thirds of what remains by the end of this year. (I couldn’t find an update as of this moment.)
Too Big To Fail is at best a political determination or at worst just a political slogan, not a policy or subsidy.
I’m not sure exactly what other subsidies you have in mind, but you specifically mention TALF. According to this report from the New York Fed, TALF ceased making new loans on June 30, 2010. Note also that, according to this Treasury report from January, all of its outstanding TALF loans have been repaid. Also from the same report, of the 6 different TARP and credit relief programs created, only one remains an on-going program, and that is the Community Development Capital Initiative (CDCI). According to the Treasury, the investments under CDCI total just $533 million, and “These investments are in 77 community development financial institutions which serve lower and moderate-income communities that are underserved by traditional financial institutions.” Hardly the stuff of big Wall Street subsidies.
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Student loans are long term, unsecured loans.
Student loans survive bankruptcy. That is as close to secure as you can get without a first born child as collateral.
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yello:
Student loans survive bankruptcy. That is as close to secure as you can get without a first born child as collateral.
No, it isn’t. The possession of real assets that can be sold in the event of default on the loan, ie collateral, is far more preferable to nothing but the legal ability to maintain the debt in perpetuity.
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I’m w/Scott. A long and disgusting history of picking winners and losers. Plus, post SnL, we bailed out Mexico merely to save GS. The question is, when do we investigate Andrea Mitchel’s husband and Bernake’s? Moral Hazard, no?
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“Too Big To Fail is at best a political determination or at worst just a political slogan, not a policy or subsidy. ”
Cleveland Fed disagrees:
Click to access ff_2012_summer_03.pdf
As does Bloomberg
http://www.bloomberg.com/news/2013-03-12/lobbyists-dispute-our-83-billion-argument-they-re-wrong.html
http://www.bloomberg.com/news/2013-05-10/no-lehman-moments-as-biggest-banks-deemed-too-big-to-fail.html
As does Bernanke
http://economix.blogs.nytimes.com/2013/02/28/bernankes-credibility-on-too-big-to-fail/
CEPR
Click to access too-big-to-fail-2009-09.pdf
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jnc:
It seems to me that when you (or others) refer to a TBTF subsidy, you are talking about the effects on the market of a widespread belief that certain institutions would, in the final event, not be allowed to fail. While the effects are real, and the belief may be a reasonable one, it is still just that…a belief. And it is a belief in what politicians will do under certain circumstance, or, as I said in my original, it is a political determination. There is no law that was passed in the wake of 2008 that needs to be or can be repealed in order to end this subsidy. It can be ended only if the belief is dispelled, and that can only come with a change in politics, a politics of market intervention that long preceded the financial crisis of 2008.
And lastly, the biggest subsidy of all, QE.
The Fed has been manipulating interest rates and the money supply since 1913, not 2008. The crisis was hardly a watershed event in this respect, even if the fed is now using extraordinary means of accomplishing the task.
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Also, TLGP.
http://www.fdic.gov/regulations/resources/TLGP/index.html
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And lastly the biggest subsidy of them all, QE.
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Worth noting:
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In all, the government seized those records for more than 20 separate telephone lines assigned to AP and its journalists in April and May of 2012.
That has got to have a chilling effect on sources. Journalists are going to need better tradecraft.
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“My Administration is committed to creating an unprecedented level of openness in Government. We will work together to ensure the public trust and establish a system of transparency, public participation, and collaboration. Openness will strengthen our democracy and promote efficiency and effectiveness in Government.”
http://www.whitehouse.gov/the_press_office/TransparencyandOpenGovernment
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I am not a crook.
-President Barak Milhouse Obama
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Plus, I’m sure us bagger wingnuts brought it out of him.
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That’s the wrong quote to use. This one fits better:
“When the President does it, that means it is not illegal.”
http://www.guardian.co.uk/commentisfree/2013/mar/19/goodale-obama-press-freedoms-secrecy-nixon
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Alright, new best tweet of the day,
“@JonahNRO: Government is just the word we use for things we do together, like audit political enemies and monitor journalists’ phone calls.”
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Wemple is pretty good too:
“A word of caution to key government sources and whistleblowers: The most transparent administration ever “secretly obtained two months of telephone records of reporters and editors for The Associated Press,” according to a story in the Associated Press.”
http://www.washingtonpost.com/blogs/erik-wemple/wp/2013/05/13/ap-government-subpoenaed-journalists-phone-records/
This is worse news for Obama than the IRS thing. Now the mainstream press institutional interests are threatened. No more benefit of the doubt.
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JNC, I think the AP story is worse, but it is not worse for the Admin. Think Of how little fuss was raised politically by revelations of GWB subpoenas and taps of journalists.
The IRS thing must be fixed. I would rather it not be politicized in the way that it is, with the interim IRS guy’s head on the chopping block when he had nothing to do with it, it having been done under GWB’s appointee. Repeal (c)(4) and we solve this problem. For now.
The AP story is MUCH worse, even if I think the political ramifications are not. I won’t be satisfied until BHO dumps Holder, or at the very least, the AG’s division head who authorized the subpoenas.
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I liked this from Ezra Klein:
A few questions on the IRS scandal.
1) The core issue here is that the IRS was using the term “tea party” and its associated language as a flag for organizations that might be more political than the 501(c)4 designation permitted. As Juliet Eilperin writes, this kind of category-based approach to choosing which applications require more scrutiny is typical for the IRS. It’s even used in individual tax returns. The question was whether, when it came to the 501(c)4 groups, the only kind of political activity being rigorously screened was conservative political activity. Was tea party language the only red flag? Or did other kinds of politicized language set off alarm bells, too? If so, what was that language?
2) Was the Cincinnati office the only one that used the tea-party test or was it more widely applied? The fact that some tea party groups received scrutiny from Washington-based IRS employees doesn’t answer that question. We should expect tea party groups to get scrutiny when they apply for non-political 501(c)4 designation. The question is whether their applications were flagged through a politically discriminatory test that existed in other agencies, too.
3) Did the IRS higher-ups act appropriately? Right now, much of the reporting indicates that IRS higher-ups shut this down pretty much as soon as they heard about it. Their sin, if there was one, was that they didn’t disclose that anything had gone awry when asked whether the IRS was targeting conservative groups. But they may also have thought that this wasn’t targeting conservative groups — it was simply a reasonable, but ultimately unwise, way of filtering politicized applications for appropriate scrutiny. The IG report should tell us more on this score.
4) In which direction does our outrage point? Do we think the tea party groups really are primarily non-political social welfare organizations and they should’ve received 501(c)4 designation more smoothly? Or do we think that they’re clearly political organizations and their applications should’ve been closely scrutinized and maybe even rejected – but so too should the applications from a host of other politicized groups on the left and the right?
5) Do we want a personnel outcome, a political outcome, or a policy outcome? Is the right endgame simply that some IRS employees get fired? That the Obama administration gets embarrassed? Or is that Congress tightens the language governing who does and doesn’t qualify for 501(c)4 status so that the IRS doesn’t have so much discretion — and career employees don’t resort to these confused tactics — when reviewing applications? Note that if we go the legislative route, we could either widen the 501(c)4 designation, making it clear that political groups qualify, or we could narrow it, making it clear that they don’t.
The answers to these questions would go a long way in clarifying whether we have a real scandal or simply a bad filtering process on our hands, and what we should do about it.
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“The Fed has been manipulating interest rates and the money supply since 1913, not 2008. The crisis was hardly a watershed event in this respect, even if the fed is now using extraordinary means of accomplishing the task.”
I’m sorry, but if QE isn’t considered a watershed, then the word has no meaning.
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jnc:
if QE isn’t considered a watershed, the word has no meaning.
Clearly QE is an extraordinary action. But I don’t see it as some kind of change or turning point in the relationship between banks and the Fed or the government more generally. It is not as though the Fed is going to maintain QE even as it raises interest rates if/when the economy starts to recover, just so that it can keep giving a “subsidy” to banks.
One might argue that QE is either ineffective or ill-advised policy with regard to the economy. But I don’t see any reason to view it as a sea change or a “watershed” event in terms of how banks will be treated by the Fed in the future.
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Paranoid effing wingnuts, jeez.
http://m.weeklystandard.com/blogs/koch-industries-lawyer-white-house-how-did-you-get-our-tax-information-1
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You first.
http://www.myfoxny.com/story/22233951/un-says-why-not-eat-more-insects
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Mark, There’s a good chance that the AP subpoena’s were authorized by the US Attorney’s that Holder put in place to investigate the White House leaks and that Holder and the White House are recused from decision making there.
http://articles.washingtonpost.com/2013-01-26/world/36560799_1_stuxnet-computer-virus-cia-officer
This mostly reminds me of Patrick Fitzgerald and the Valerie Plame leak investigation.
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