Euro Swings Won’t Stop China Reserves Shift, Yu Says

Right, they want to stay ‘competitive’ in the euro zone

China Property Stocks to Rebound End-Year, Xia Says
China’s Inflation Target of 3% This year ‘Difficult’ to Meet

Even with the yen rising with the dollar.
Not a good sign.
Inflation per se isn’t ‘bad’ for an economy, it’s that people don’t like inflation and fighting inflation can be very bad for an economy.

27 Responses

  1. Opening quote from the book “The Big Short” which is highly recommended.
    The Most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of a doubt, what is laid before him.
    Leo Tolstoy, 1897.

  2. Nice story in NY times on how people are not paying mortgages and consuming the savings. What is going to happen to the economy when this ends? Also, if banks would’ve been allowed to fail, would “squatters” in would-be foreclosures be forced out much sooner?

    1. Yeah, that NY Times article is a little late in coming. This has been a trend for at least two years. It’s ironic that this is a transmission mechanism (money goes from govt to banks to delinquent homeowners) which has probably mitigated the recession to some extent, but it is horribly inefficient and very unfair. It’s too bad that nobody in the federal government had the cohones to facilitate the foreclosure process rather than delay and undermine it. You have to get the deadbeats out and responsible people in and establish a fair clearing price for housing. I suspect that this would have even been politically popular. The vast, vast majority of households in this country are either current on their mortgages or don’t have one.

      1. I agree, the faster you pass the kidney stone the better. Moreover, the sooner we can get to real-estate transactions where the sellers bank has no input(no more short sales,foreclosures), the better.

      2. Herbert Hoover in his memoirs: In one camp were the “leave it alone liquidationts” headed by Secretary Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” He held that even panic was not altogether a bad thing. He said: “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people”…


      3. I don’t think either of us is advocating that the government have a hands-off policy in response to a financial crisis. We’re simply advocating that the government facilitate an inevitable transfer of homeownership rather than impede it.

        Allowing people to live in a home in which they have no economic stake (either as renters or as owners) leads to destruction of the value of the home. There is also a moral hazard component, which exacerbates the mortgage default crisis.

        Perhaps the worst mistake Congress made in handling this mess so far was passage of the Mortgage Forgiveness Debt Relief Act of 2007, which made it much more profitable to walk away from an upside-down mortgage. The various foreclosure moratoria at the state level have only done more damage.

      4. ESM, the alternative was criminal prosecution for fraud, misrepresentation, predatory lending and civil redress. Instead, the administration defended the industry and tried to put a floor under housing to preserve the “wealth effect” on which middle class spending depends.

        I’m not defending the administration, but the people that the federales should be going after are the bankstas, the mortgage brokers, and those who committed fraud on their loan applications. The rating agencies also violated their fiduciary responsibility by handing out AAA ratings to dreck in exchange for a bribe. And it goes no.

        No, the home owners are not the problem here, it is the financial system that created this debacle that the country will be dealing with for the next ten years to clear out all the bad debt. Meanwhile, the people responsible have taken their bonuses and are living high off the hog.

        Let’s be real about this.

      5. Toms Hickeys:

        Yes, let us please do be honest about this.

        There was also an option to simply cut FICA as warren proposes and lift all boats instead of moving money from sensible and honest to bankers/unions/deadbeats/govt employees.

        Those who waited out bubble because they did not want to take out irresponsible loan have been screweed by Obama. Now they don’t have house, they have to pay rent (unlike deadbeat), lost out on chance for appreciation, AND are unemployed.

      6. Yes I have to keep reminding myself (Warren often mentions) that if Govt would have used fiscal to sustain GDP/incomes, alot of this wouldnt have happened.

        In 2008, per the sectoral balances, current account was running at about $60B/mo. deficit, govt sector fiscal was approaching balance, so non-govt had to run about a $600-$700B deficit to keep GDP positive . Perhaps this non-govt sector just ran out of capital to support their lending levels and poof. If govt cranked up the tax cuts to to about the $70B/mo rate at that point, we probably could have continued with all but the outrageous speculation/frauds kept current.

        Perhaps we are too hard on folks when we call them ‘deadbeats’ ‘freeloaders’ and such…often my first thought I must admit (old habits hard to break). Lets remember, if we had a competent govt using fiscal as counter-cyclical (even with a small delay after data release, Id take it!) many people wouldnt be upside down on their residences now.

      7. I’m not disputing that, Zanon. What I am saying is that blaming the people who took out the mortgages instead of the people that creating dodgy products and misrepresenting them is the wrong way to go. This was a gigantic crime scene. The Obama administration decided to look the other way, and bail out the bankers, because “everyone knows” that the financial sector is the bedrock of the nation. NOT. It was a dumb idea, and the Dems will pay for it.

      8. I know very well what you are saying Tom Hickey and I am disagreeing.

        underwater homeowners should go back to renting just as financial industry should go back to making loans that get paid back etc. I am blaming both parties here, not excusing the one I have warm feelings towards.

        but blame is wrong word. I would not try to reflate bubble, nor would I channel money from responsible to irresponsible

    2. Had the banks failed, would the squatters be out by now? Maybe not. The frenzy of securitization resulted in the lack of clear title to many mortgages. Who has the authority to foreclose?

  3. Zanon, I want to see lots of people prosecuted before folks get put out in the street. Let’s get our priorities straight.

    Janet Tavakoli nails it here. The whole financial sector is a giant crime scene. It wasn’t just mortgages and it’s continuing as we speak. “Reform” is a joke.

    1. Ehh. She grossly overstates the case against Wall Street. Ultimately the blame for the whole financial mess lies at the feet of the federal government, which made four fundamental mistakes:

      1) subsidized and fueled a housing bubble with a wide range of tax incentives, as well as the explicit backing of the GSEs;

      2) granting an imprimatur to the NRSROs (i.e. credit rating agencies), who lulled investors into a dangerous complacency;

      3) not making fiscal adjustments when private sector leverage expansion led to small deficits in 2006-2007;

      4) not responding effectively to the rise in delinquencies and falling home prices (e.g. way too small stimulus in Spring 2007, and the disastrous Mortgage Forgiveness Debt Relief Act of 2007).

      Although there was a large amount of fraud in the mortgage origination process, I think that many of the Wall Street banks were victims of this fraud rather than perpetrators of it. And many were willing to tolerate a small amount of fraud because they thought housing prices would keep going up (e.g. who cares what a mortgagor’s debt/income ratio is if his house rises in value at 10% per year?). The NRSROs were incompetent and negligent and worked too closely with Wall Street, but that has been going on for decades — nothing new there. The single best financial reform that could be implemented right now would be to remove formally the “National Recognized” designation from all of the NRSROs. Then investors would have to do their own research instead of relying on a large bureaucracy with misaligned incentives to do their job for them.

      1. “The Big Short” kind of takes the position that the big banks were dumb and lazy.

    2. Sorry guys, but I’ll trust Janet Tavakoli, William Black, Frank Partnoy, Elliot Spitzer, Simon Johnson on this one. Even people on the right like Karl Denninger are on board with this. In fact, Karl was one of the early ones that began speaking out loudly.

      1. Spitzer? He would not be on any of my lists of people I would trust with anything.

        Can’t speak to the others, although Tavakoli strikes me as an accomplished self-promoter.

  4. agreed on sustaining demand with a fica tax holiday I’ve been pushing since maybe July/Aug 08. About that time I also came up with my housing suggestion to allow foreclosed homeowners to agree in to remain as renters.

    And my proposals for the scope of the financial sector, including limiting what pension funds can do, should fundamentally remove at least 90% of our financial sector issues.

  5. What Black, Tavakoli, Partnoy, Spitzer, etc. and saying is that without accountability, there will be inevitable repeats because industry is expert in getting around regs and capturing regulators. All, may of the supposed regs that are put in place either attach no penalties or penalties that are too weak to dissuade violations.

    1. Here is James K. GAlbriath’s testimony to the Senate Judiciary Committed in May. He sums it up. His conclusion:

      In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case.

      1. I actually agree with both ESM and Toms hickey on this one.

        Financial industry fundamentally is a product of its environment, and environment that was created by government regulators.

        So is financial industry a rabid dog? Yes. But the jungle it lives in was created by Govt. You need to shoot the dog and clear the jungle.

        10% unemployment rate now is entirely fault of Govt.

        If you want to pick a single target, you knows who I would choose. i would pick the source of all this nonsense, the ideas that created the jungle and makes Obama think he is out of money (unless it is for his pals Goldman Sachs and SEIU of course)

      2. Where there are free markets and governments, they can be captured. The solution is prevent this happening through laws, regulation, oversight, enforcement, and strict accountability. Only a government accountable to the people can do this.

        But the people have to demand it, or it won’t happen. So far, Washington is not feeling enough heat to push back against major donors by actually cleaning house and instituting accountability.

        At present, we are blaming the victims, e.g., the people who got sucked into dodgy loans because they didn’t understand the terms and the fund managers who bought the toxic waste because they didn’t really understand structured finance and didn’t consult experts like Tavakoli, but relied instead on the rating agencies. Meanwhile, the perps that engineered this are walking off with their bonuses, or may be with a finger-wagging or slap on the wrist, and they are now back to their old tricks.

      3. This is exactly where you go badly wrong, toms hickey. you are making the same error here as you are making in your laughable populist movement based on accounting. but you are not ready mentally to evolve your thinking here.

        And the homeowners who put nothing down and living rent free are not victims. victims are those who did the right thing, got priced out, and are still priced outs and now also have no jobs.

      4. Zanon, you are generalizing. I know people who put a significant amount of money down (for them), and now they are way underwater and either having difficulty making their payments owing to wages cuts/hours cut back or have lost their jobs and can’t make payments. They are facing bankruptcy and homelessness, not only foreclosure.

        Prudent lenders never would have extended them credit in the first place. Imprudent and often predatory lenders are not victims. People who didn’t buy because they thought prices were too high were not victims. Many of the people now living in tent cities or their cars are victims.

      5. Toms Hickey:

        No, you are generalizing. I am surrounded by people who put next to nothing down (for them) and are underwater and do not care because they are no longer paying money. tell ppl you know to get a clue and stop paying mortgage for house they cannot afford.

        I agree that that stupid lenders should pay. Obama does not.

        But I do not see why homeowners who made bad decision should be bailed out at expense of renters who made right decision. Let people you know default and go back to renting. not the end of the world. And lift all boat via FICA

        It is ridiculous that the only option people have are “own home” or “homeless”. there is this thing called “renting”. maybe you in your college towns has heard of it.

      6. Try getting a rent in CA when you’ve just gone bankrupt or lost your equity in foreclosure, don’t have the three months in advance (first month, last moth, and security deposit), and your credit stinks.

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