Ten Economics Paragraphs: December 12, 2009
Worth reading:
Calculated Risk: Refinancing with Negative Equity: Unfortunately David Streitfeld doesn't provide any further information on Belvedere's loan. If the loan was held by a bank, then it might make sense for the bank to refinance the loan (this lowers the bank's risk of default). However Belvedere's "lender" might be a servicing company and the loan may have been securitized. Then it is impossible to refinance because the current holders of the note would be paid off, and no new lender would make a loan greater than the value of the collateral...
Mark Whitehouse: American Dream 2: Default, Then Rent: Schoolteacher Shana Richey misses the playroom she decorated with Glamour Girl decals for her daughters. Fireman Jay Fernandez misses the custom putting green he installed in his backyard. But ever since they quit paying their mortgages and walked away from their homes, they've discovered that giving up on the American dream has its benefits. Both now live on the 3100 block of Club Rancho Drive in Palmdale, where a terrible housing market lets them rent luxurious homes -- one with a pool for the kids, the other with a golf-course view -- for a fraction of their former monthly payments. "It's just a better life. It really is," says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth...
Fake Steve Jobs: A not-so-brief chat with Randall Stephenson of AT&T: And now here we are. Right here in your own backyard, an American company creates a brilliant phone, and that company hands it to you, and gives you an exclusive deal to carry it — and all you guys can do is complain about how much people want to use it. You, Randall Stephenson, and your lazy stupid company — you are the problem. You are what’s wrong with this country. I stopped, then. There was nothing on the line. Silence. I said, Randall? He goes, Yeah, I’m here. I said, Does any of that make sense? He says, Yeah, but we’re still not going to do it. See, when you run the numbers what you find is that we’re actually better off running a shitty network than making the investment to build a good one. It’s just numbers, Steve. You can’t charge enough to get a return on the investment. Now there was silence again. This time I was the one not talking. There was this weird lump in my throat, this tightness in my chest. I had this vision of the future — a ruined empire, run by number crunchers, squalid and stupid and puffed up with phony patriotism, settling for a long slow decline. “Okay,” I said. “Nice talking to you.” Then I hung up.
Paul Krugman: Jobless Recovery: There was ample warning, even before the severity of the crisis was clear, that the recession was likely to be followed by a prolonged jobless recovery. E.g., here (January 2008): "I still keep reading articles asserting that the last two recessions were brief and shallow. Formally, that’s true. But … in both cases the employment slump went on for a long time after the recession was supposedly over. There’s every reason to think that the same thing will happen this time. There’s a huge overhang of excess housing inventory; it will probably take several years before housing prices fall to realistic levels; and it’s not at all clear what will fill the gap left by weak housing and consumer spending..."
Stan Collender: Baucus To Conrad And Gregg On A Budget Commission: Yo Mama: Finance Committee Chairman Max Baucus (D-MT) yesterday delivered this speech on the Senate floor against the budget commission proposed by Senate Budget Committee Chairman Kent Conrad (D-ND) and Budget Committee Ranking Republican Judd Gregg (R-NH). Although it was couched in the polite language typically used on the Senate floor, this absolutely was the Washington equivalent of "Yo mama"...
Mark Kleiman: "Anyone Telling You Uncertainty About Climate Change Is a Reason for Inaction Is Either a Fool or a Scoundrel": [G]reater uncertainty argues for more caution--more willingness to accept certain current losses to avoid possible large future losses--not less. That’s because it’s easier to adjust to small changes than it is to large ones, so damage is likely to increase more-than-proportionally as the size of the change increases...
Brad DeLong: Is This a Congressional Joke?: I am--in normal times--a deficit hawk. I think the right target for the deficit in normal times is zero, with the added provision that when there are foreseeable future increases in spending shares of GDP we should run a surplus to pay for those foreseeable increases in an actuarially-sound manner. I think this because I know that there will come abnormal times when spending increases are appropriate. And I think that the combination of (a) actuarially-sound provision for future increases in spending shares and (b) nominal balance for the operating budget in normal times will create the headroom for (c) deficit spending in emergencies when it is advisable while (d) maintaining a non-explosive path for the debt as a whole. But when I look at Senators Conrad and Gregg, I don't recognize fellow members of my species. They may be glueing the feathers of deficit hawks onto themeselves, but they are birds of a very different order--doves, turkeys, chickens, whatever, but I hope they are dodos...
Mark Thoma: Why it May Take Almost Seven Years for Unemployment to Reach Five Percent: The average rate of decline in the unemployment rate over the last three recessions is .061 percent Using this figure, and starting from an unemployment rate of 10 percent — the rate that exists today — how long would it take for the unemployment rate to get to 5 percent? Answer: (10-5)/.061 = 81.8 months, or almost 7 years. (Getting to 6% would take 65.5 months, or just short of 5 and a half years.)
Ed Hugh: The Velocity Of Modern Financial Crises: Jean-Claude Trichet, European Central Bank president, noted when speaking in Cambridge last Thurdsay that the speed at which financial disruption can spread had “accelerated tremendously over the past few decades”. While debt crises in the 1980s occurred over years, the effects of the Lehman collapse “spread around the world in the course of half-days”. As Ralph Atkins pointed out, the Greek government is but the latest to learn that in the modern world you can be catapulted from relative obscurity to global prominence in a matter of hours. Everyone can be famous for five minutes, as Andy Warhol said, but this kind of fame most of us could well live without...
Brad DeLong (October 10, 2008): The wrong financial crisis: All of us from Lawrence Summers to John Taylor were expecting a very different financial crisis. We were expecting the ‘Balance of Financial Terror’ between Asia and America to collapse and produce chaos. We are not having that financial crisis. Instead we are having a very different financial crisis. Catastrophic failures of risk management throughout the entire banking sector caused a relatively minor collapse in housing prices to freeze up global finance to a degree that has not been seen since the Great Depression. The first good thing about this situation is that it does not call for different central banks and Treasuries to do different things, but rather for them all to do the same thing in unison without fouling each other’s oars. That should be relatively easy to arrange. What we need right now are: (a) Coordinated fiscal expansions across the globe. (b) If the world economy is not now in something close enough to a liquidity trap to make no difference, it soon will be: coordinated monetary expansions across the globe. (c) A bank is any organisation that borrows or accepts investments short and lends long; the durations of its assets and liabilities are deliberately mismatched; when the entire banking sector is insolvent at current market prices, anything that reduces interest rates all along the yield curve helps reduce the magnitude of the insolvency: coordinated banking sector recapitalisations across the globe. (d) Since at least 1844 there has been broad consensus that the short-term price of safe liquidity is too important to be left to the market; now there is growing consensus that the price of risk is too important to be left to the market as well. For the government to operate on the price of risk through Operations-Twist on a Galactic scale is infeasible. That means that the aggregate degree of capitalisation of the banking system must become the object of policy choice. Call it socialism in one sector. What we need in the longer term are: (e) Global rules to make outsized compensation incentive-compatible. The Princes of Midtown Manhattan and Canary Wharf need to know that their fortunes will be lost if their institutions blow up within a decade of their handing over operational control – only in this way can you make them truly long in the fortunes of their firms and of the global economy rather than simply long in volatility. (f) More progressive global tax systems...
