Ben Bernanke

There Is No Bubble and Even if There Is It’s Not a Problem, by Economist’s View Blog

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The big story today seems to be the Fed’s comments about the housing bubble in transcripts from their meetings in 2006. The transcripts show what we already knew, that the Fed was never fully convinced there was a housing bubble, and asserted that even if there was the dmage could be contained — they could easily clean up after it pops without the economy suffering too much damage:

Greenspan image tarnished by newly released documents, by Zachary A. Goldfarb, Washington Post: The leaders of the Federal Reserve went around the room saluting Alan Greenspan during his last major meeting as chairman of the central bank Jan. 31, 2006. …

Some six years later, Greenspan’s record — sterling when he left the central bank after 18 years — looks much more mixed. Many economists and analysts say a range of Fed policies contributed to the financial crisis and resulting recession. These included keeping interest rates low for an extended period, failing to take action to stem the bubble in housing prices and inadequate oversight of financial firms.

The Thursday release of transcripts of Fed meetings in 2006 shows that top leaders of the Fed — several of whom continue to hold key positions today — had a limited awareness of the gravity of the threat that the weakness in the housing market posed to the rest of the economy. And they had what turned out to be an excessive optimism about how well things would turn out. …

A Fed economist reported in a 2006 meeting that “we have not seen — and don’t expect — a broad deterioration in mortgage credit quality.” That turned out to be incorrect.

 

http://economistsview.typepad.com/economistsview/

 

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Signs Hyperinflation Is Arriving, by Gonzalo Lira

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This post is gonna be short and sweet—and scary:

Back in late August, I argued that hyperinflation would be triggered by a run on Treasury bonds. I described how such a run might happen, and argued that if Treasuries were no longer considered safe, then commodities would become the store of value.

 

Such a run on commodities, I further argued, would inevitably lead to price increases and a rise in the Consumer Price Index, which would initially be interpreted by the Federal Reserve, the Federal government, as well as the commentariat, as a good thing: A sign that “the economy is recovering”, a sign that “normalcy” was returning.
I argued that—far from being “a sign of recovery”—rising CPI would be the sign that things were about to get ugly.
I concluded that, like the stagflation of ‘79, inflation would rise to the double digits relatively quickly. However, unlike in 1980, when Paul Volcker raised interest rates severely in order to halt inflation, in today’s weakened macro-economic environment, that remedy is simply not available to Ben Bernanke.

Therefore, I predicted that inflation would spiral out of control, and turn into hyperinflation of the U.S. dollar.

A lot of people claimed I was on drugs when I wrote this.

Now? Not so much.

In my initial argument, I was sure that there would come a moment when Treasury bond holders would realize that they are the New & Improved Toxic Asset—as everyone knows, there is no way the U.S. Federal government can pay the outstanding debt it has: It’s simply too big.

So I assumed that, when the market collectively realized this, there would be a panic in Treasuries. This panic, of course, would lead to the spike in commodities.

However, I am no longer certain if there will ever be such a panic in Treasuries. Backstop Benny has been so adroit at propping up Treasuries and keeping their yields low, the Stealth Monetization has been so effective, the TBTF banks’ arbitrage trade between the Fed’s liquidity windows and Treasury bond yields has been so lucrative, and the bond market itself is so aware that Bernanke will do anything to protect and backstop Treasuries, that I no longer think that there will necessarily be such a panic.
But that doesn’t mean that the second part of my thesis—commodities rising, which will trigger inflation, which will devolve into hyperinflation—will not occur.
In fact, it is occurring.

The two key commodities that have been rising as of late are oil and grains, specifically wheat, corn and livestock feed. The BLS report on Producer Price Index of commodities is here.

Grains as a class have risen over 33% year-over-year. Refined oil products have risen just shy of 13%, with home heating oil rising 18% year-over-year. In other words: Food, gasoline and heating oil have risen by double digits since 2009. And the 2010-‘11 winter in the northern hemisphere is approaching.

A friend of mine, SB, a commodities trader, pointed out to me that big producers are hedged against rising commodities prices. As he put it to me in a private e-mail, “We sometimes forget that the commodity markets aren’tsolely speculative. Most futures contracts are bought by companies whouse those commodities in their products, and are thus hedging their costs to produce those products.”

Very true: But SB also pointed out that, hedged or not, the lag time between agricultural commodities and the markets is about six-to-nine months, on average. So he thought that the rise in grains, which really took off in June–July, would hit the supermarket shelves in January–March.

He also pointed out that, with higher commodity costs and lower consumption, companies are going to be between the Devil and the deep blue sea. My own take is, if you can’t get more customers, then you’re just gonna have to charge more from the ones you got.

Coupled to these price increases is the ongoing Currency War: The U.S.—contrary to Secretary Timothy Geithner’s statements—is trying to debase the dollar, so as to make U.S. exports more attractive to foreign consumers. This has created strains with China, Europe and the emerging markets.

A beggar-thy-neighbor monetary policy works for small countries getting out of a hole of their own making: It doesn’t work for the world’s largest single economy with the world’s reserve currency, in the middle of a Global Depression.

On the contrary, it creates a backlash; the ongoing tiff over rare-earth minerals with China is just the beginning. This could easily be exacerbated by clumsy politicking, and turn into a full-on trade war.

What’s so bad with a trade war, you ask? Why nothing, not a thing—if you want to pay through the nose for imported goods. If you enjoy paying 10, 20, 30% more for imported goods—then hey, let’s just stick it to them China-men! They’re still Commies, after all!

Furthermore, as regards the Federal Reserve policy, the upcoming Quantitative Easing 2, and the actions of its chairman, Ben Bernanke: There is an increasing sense in the financial markets that Backstop Benny and his Lollipop Gang don’t have the foggiest clue about what they’re doing.

Consider:

Bruce Krasting just yesterday wrote a very on-the-money précis of the trial balloons the Fed is floating, as regards to QE2: Basically, Bernanke through his WSJ mouthpiece said that the Fed was going to go for a cautious, incrementalist approach, vis-à-vis QE2: “A couple of hundred billion at a time”. You know: “Just the tip—just to see how it feels.”

But then on the other hand, also just yesterday, Tyler Durden at Zero Hedge had a justifiable freak-out over the NY Fed asking Primary Dealers for their thoughts on the size of QE2. According to Bloomberg, the NY Fed was asking the dealers how big they thought QE2 would be, and how big they thought itought be: $250 billion? $500 billion? A trillion? A trillion every six months? (Or as Tyler pointed out, $2 trillion for 2011.)

That’s like asking a bunch of junkies how much smack they want for the upcoming year—half a kilo? A full kilo? Two kilos?

What the hell you think the junkies are gonna say?

Between BK’s clear reading of the tea leaves coming from the Wall Street Journal, and TD’s also very clear reading of the tea leaves by way of Bloomberg, you’re getting a seriously contradictory message: The Fed is going to lightly tap-tap-tap liquidity into the markets—just a little—just a few hundred billion dollars at a time—

—while at the same time, the Fed is saying to the Primary Dealers, “We’re gonna make you guys happy-happy-happy with a righteously sized QE2!”

The contradictory messages don’t pacify the financial markets—on the contrary, they make the markets simultaneously contemptuous of Bernanke and the Fed, while very frightened as to what they will ultimately do.

What happens when the financial markets don’t really know what the central bank is going to do, and suspect that the central bankers themselves aren’t too clear either?

Guess.

So to sum up, we have:

• Rising commodity prices, the effects of which (because of hedging) will be felt most severely in the period January–March of 2011.

• A beggar-thy-neighbor race-to-the-bottom Currency War, that might well devolve into a Trade War, which would force up prices on imported goods.

• A Federal Reserve that does not seem to know what it is doing, as regards another round of Quantitative Easing, which is making the financial markets very nervous—nervous about the Fed’s ultimate responsibility, which is safeguarding the U.S. dollar.

• A U.S. economy that is weak to the point of collapse, where not even 0.25% interest rates are sparking investment and growth—and which therefore prohibits the Fed from raising interest rates, if need be.

• A U.S. fiscal deficit which is close to 10% of GDP annually, and which is therefore unsustainable—especially considering that the total U.S. fiscal debt is well over 100% of GDP.

These factors all point to one and the same thing:

An imminent currency collapse.

Therefore, I am confident in predicting the following sequence of events:

• By March of 2011, once higher commodity prices reach the marketplace, monthly CPI will be at an annualized rate of not less than 5%.

• By July of 2011, annualized CPI will be no less than 8% annualized.

• By October of 2011, annualized CPI will have crossed 10%.

• By March of 2012, annualized CPI will cross the hyperinflationary tipping point of 15%.

After that, CPI will rapidly increase, much like it did in 1980.

What the mainstream commentariat will make of all this will be really something: When CPI reaches 5% by the winter of 2011, pundits and economists and the Fed and the Obama administration will all say the same thing: “Happy days are here again! People are spending! The economy is back on track!”

However, by the late spring, early summer of 2011, people will realize what’s going on—and the Federal Reserve will initially be unwilling to drastically raise interest rates so as to quell inflation.

Actually, the Fed won’t be able to raise rates, at least not like Volcker did back in 1980: The U.S. economy will be too weak, and the Federal government’s balance sheet will be too distressed, with it’s $1.5 trillion deficit. So at first, the Fed will have to let the rising inflation rate slide, and keep trying hard to explain it away as “a sign of a recovering economy”.

Once the Fed realizes that the rising CPI is not a sign of a reignited economy, but rather a sign of the collapsing dollar, they will pursue a puerile “inflation fighting” scheme of incremental interest rate hikes—much like G. William Miller, the Chairman of the Fed from January of ‘78 to August of ‘79, pursued so unsuccessfully.

2012 will be the bad year: I predict that hyperinflation’s tipping point will be no later than the first quarter of 2012. From there, it will accelerate. By the end of 2012, I would not be surprised if the CPI for the year averaged 30%.

By that point, the rest of the economy—unemployment, GDP, all the rest of it—will be in the toilet. By that point, the rest of the economy will no longer matter: The collapsing dollar will make 2012 the really really bad year of our Global Depression—which is actually kind of funny.

It’s funny because, as you know, I am a conservative Catholic: I of course put absolutely no stock in the ridiculous notion that “The Mayans predicted our civilization’s collapse in 2012!”—that’s all rubbish, as far as I’m concerned.

It’s just one of those cosmic jokes that 2012 will turn out to be the year the dollar collapses, and the larger world economies go down the tubes.

As cosmic jokes go, all I’ve got to say is this:

Good one, God.

Gonzalo Lira’s  Blog
http://gonzalolira.blogspot.com

 

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Sales of U.S. New Homes Increased Again in September, by Bob Willis, Bloomberg.com

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Sales of new homes rose in September for a second month to a pace that signals the industry is struggling to overcome the effects of a jobless rate hovering near 10 percent.

Purchases increased 6.6 percent to a 307,000 annual rate that exceeded the median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed today in Washington. Demand is hovering near the record-low 282,000 reached in May.

A lack of jobs is preventing Americans from gaining the confidence needed to buy, overshadowing declines in borrowing costs and prices that are making houses more affordable. At the same time, foreclosure moratoria at some banks, including JPMorgan Chase & Co., signal the industry will redouble efforts to tighten lending rules, which may depress housing even more.

“These are still very low levels,” said Jim O’Sullivan, global chief economist at MF Global Ltd. in New York. “Ultimately, a significant recovery in housing will depend on a clear pickup in employment.”

Another Commerce Department report today showed orders for non-military capital equipment excluding airplanes dropped in September, indicating gains in business investment will cool.

Capital Goods Demand

Bookings for such goods, including computers and machinery meant to last at least three years, fell 0.6 percent after a 4.8 percent gain in August that was smaller than previously estimated. Total orders climbed 3.3 percent last month, led by a doubling in aircraft demand.

Stocks fell, snapping a five-day gain for the Standard & Poor’s 500 Index, on the durable goods report and investor speculation that steps taken by the Federal Reserve to shore up the economy will be gradual. The S&P 500 fell 0.5 percent to 1,179.8 at 10:14 a.m. in New York.

Economists forecast new home sales would increase to a 300,000 annual pace from a 288,000 rate in August, according to the median of 73 survey projections. Estimates ranged from 270,000 to 330,000.

The median price increased 3.3 percent from September 2009 to $223,800.

Purchases rose in three of four regions, led by a 61 percent jump in the Midwest. Purchases dropped 9.9 percent in the West.

Less Supply

The supply of homes at the current sales rate fell to 8 months’ worth, down from 8.6 months in August. There were 204,000 new houses on the market at the end of September, the fewest since July 1968.

Reports earlier this month showed the housing market is hovering at recession levels. Housing starts increased in September to an annual rate of 610,000, the highest since April, while building permits fell to the lowest level in more than a year, signaling construction will probably cool.

Sales of existing homes, which now make up more than 90 percent of the market, increased by 10 percent to a 4.53 million rate in September, the National Association of Realtors said yesterday. The pace was still the third-lowest on record going back a decade.

Home resales are tabulated when a contract is closed, while new-home sales are counted at the time an agreement is signed, making them a leading indicator of demand.

Moratoria’s Influence

Economists are debating the likely effect on new-home sales from the foreclosure moratoria and regulators’ probes into faulty paperwork. Most agree the moratoria pose a risk to housing sales as a whole.

Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research in New York, is among those who say the moratoria, by limiting the supply of existing homes, may lift demand for newly built houses in coming months.

“There is a possibility there will be a shift in demand for new construction, at least in the short term,” she said.

The U.S. central bank and other regulators are “intensively” examining financial firms’ home-foreclosure practices and expect preliminary findings next month, Fed Chairman Ben S. Bernanke said this week at a housing conference in Arlington, Virginia.

Fed officials have signaled they may start another round of unconventional monetary easing at their next meeting Nov. 2-3 to try to spur the economic recovery.

Homebuilders say labor-market conditions will be the biggest factor in spurring or delaying a recovery.

“The U.S. economy needs to improve, and we’ve got to see some improvement in job creation,” Larry Sorsby , chief financial officer at Hovnanian Enterprises Inc., the largest homebuilder in New Jersey, said during an Oct. 7 conference call.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Bernanke Asset Purchases Risk Unleashing 1970s Inflation Genie, by Craig Torres, Bloomberg.com

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For the second time since he became chairman in 2006, Ben S. Bernanke is leading the Federal Reserve into uncharted monetary territory.

Bernanke next week is likely to preside over a decision to launch another round of large-scale asset purchases after deploying $1.7 trillion to pull the economy out of the financial crisis, comments from policy makers over the past week indicate. This time, with interest rates already near zero, the Fed will be aiming to increase the rate of inflation and reduce the cost of borrowing in real terms. The goal is to unlock consumer spending and jump-start an economy that’s growing too slowly to push unemployment lower.

Estimates for the ultimate size of the asset-purchase program range from $1 trillion at Bank of America-Merrill Lynch Global Research to $2 trillion at Goldman Sachs Group Inc., with economists at both firms agreeing the Fed will likely start by announcing $500 billion after the Nov. 2-3 meeting. The danger is that once the Fed kindles price increases, inflation will be difficult to control.

“By reducing real interest rates and trying to break the psychology of ‘Why spend today when I can buy goods cheaper tomorrow,’ they are hoping to drive growth that would be more commensurate with a pickup in employment,” said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. “The risk is a late 1970s type of scenario where the inflation genie gets out of the bottle.”

The U.S. Treasury Department yesterday sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Fed will be successful in sparking inflation. The securities drew a yield of negative 0.55 percent.

‘Unacceptable’ Inflation

William Dudley, president of the New York Fed and vice chairman of the Federal Open Market Committee, yesterday repeated that current levels of inflation and a 9.6 percent unemployment rate are “unacceptable” and said the Fed needs to take action, even though expanding the balance sheet isn’t a “perfect tool.”

“To the extent that we can do things to improve the economic environment, we certainly owe it to the millions of people who are unemployed to do so,” Dudley said in response to audience questions after a speech in Ithaca, New York. Policy makers haven’t yet decided whether to buy additional assets, he said.

A second jolt of monetary stimulus would expand the Fed’s $2.3 trillion balance sheet to a record and likely work through the exchange rate as well as interest rates, said former Fed governor Lyle Gramley. A weaker dollar would boost U.S. exports and push prices higher as the cost of imported goods rises.

Competitive Exports

“It is a channel that works not only from the standpoint of encouraging more growth and making exports more competitive, but if you’re worried about inflation getting too low, this tends to put a little upward pressure” on it, said Gramley, a senior adviser at Potomac Research Group in Washington.

An index of the dollar versus six major currencies is down 5.2 percent since Sept. 20, the day before Fed officials concluded their last meeting by saying inflation measures were “somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.” The Standard and Poor’s 500 Index is up 3.8 percent since then.

A 10 percent decline in the dollar in the first six months of next year would push the economy above estimates of trend growth, moving indicators on inflation and employment more rapidly toward the Fed’s policy goals, according to a simulation run by Macroeconomic Advisers LLC on their model of the U.S. economy.

Effect on GDP

Gross domestic product would rise 1.1 percentage points more than the St. Louis-based firm’s baseline forecast for next year, to 4.8 percent. In 2012, growth of 5.7 percent would exceed the baseline forecast by 1.3 percentage points.

Unemployment would fall to 7 percent by the end of 2012, 1.4 points lower than the firm’s baseline forecast. The consumer price index, minus food and energy, would rise 0.4 percent and 0.7 percent more each year.

A continuing rally in stocks could also provide an added lift to growth, the firm’s simulation showed.

The firm, co-founded by former Fed governor Laurence Meyer, predicts the Wilshire 5000 stock index will jump 14 percent next year and 16 percent in 2012. The index tracks the impact of rising asset prices on household net worth. An additional 10 percent gain in the stock index in the first half of 2011 boosts growth by 0.1 percentage point and 0.3 percentage point more than the firm’s baseline forecast.

‘Transmission Mechanism’

“The transmission mechanisms are risk assets and a lower dollar,” said Steven Einhorn, who helps manage $5 billion at hedge fund Omega Advisors Inc. in New York. “Exports will respond over the next six to 12 months, and a further lift in risk assets will have benefits in more consumer spending as it lifts households’ net worth.”

A weaker dollar won’t be welcomed by U.S. trading partners concerned about the danger of competitive devaluations as nations seek to boost exports and growth.

Bernanke received “criticism” at a meeting of Group of 20 central bankers and finance ministers in South Korea last weekend, said German Economy Minister Rainer Bruederle.

“It’s the wrong way to try to prevent or solve problems by adding more liquidity,” Bruederle told reporters. “Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate.”

$500 Billion

Economists Jan Hatzius at Goldman Sachs and Ethan Harris at Bank of America predict the Fed will spread an initial $500 billion in asset purchases over six months. That is the figure mentioned in the Oct. 1 speech by Dudley, who said $500 billion in purchases could have the same effect as cutting the benchmark federal funds rate by as much as a 0.75 percentage point.

The FOMC’s meeting next week could be contentious, with regional bank presidents such as Charles Plosser of Philadelphia and Richard Fisher of Dallas expressing concern in public remarks about a second round of asset purchases. Neither is a voting member of the FOMC this year.

Plosser told reporters Oct. 20 that high unemployment may not be “amenable to monetary-policy solutions” and added that he was “less inclined to want to follow a policy that is highly concentrated on raising inflation and raising inflation expectations.”

Fisher said central bank officials must be mindful of the effect their actions are having on the dollar.

Dollar Impact

“We need to be aware of the impact whatever we do has on other variables, and one of the variables is the dollar, the value of the dollar against other currencies,” Fisher said in an Oct. 22 interview in New York.

The prospect of an easier policy for a long period could prompt foreign investors to use Fed purchases as an opportunity to unload longer-term Treasuries, said Vincent Reinhart, former director of the Fed Board’s Division of Monetary Affairs.

“This might put more pressure on the exchange value of the dollar than the Fed is willing to tolerate,” said Reinhart, a resident scholar at the American Enterprise Institute in Washington.

Some commodity prices have already started to move up in anticipation of further Fed stimulus. Gold futures traded on the Comex in New York have risen 22 percent this year to $1,338.90 an ounce, while silver is up 40 percent.

“The Fed would like to talk up as many asset classes as it can,” said Scott Minerd, the Santa Monica-based chief investment officer at Guggenheim Partners LLC, who helps oversee $76 billion.

Asset Bubbles

“The history of the Fed, over the last 20 years, is one of bubble to bubble: one bubble deflates to create another bubble,” Minerd said. “We are certainly heading into the mother of all bubbles with commodities and gold.”

Another danger for the Fed is that its policy fails to have the intended effect, damaging the central bank’s credibility, Reinhart said.

“What happens if they bulk up the portfolio by another $500 billion in the next six months and there is no material change in markets or the outlook,” he said. “Presumably, the Fed will double-down and buy some more, but at some point, people will ask, ‘Is that all there is?’”

U.S. central bankers cut the benchmark lending rate to zero in December 2008. Seeking more stimulus, they launched a $1.7 trillion program to buy mortgage-backed securities, housing agency debt and U.S. Treasuries. The purchases ended in March.

Jackson Hole

Bernanke told central bankers in Jackson Hole, Wyoming, in August that those purchases “pushed investors into holding other assets with similar characteristics,” lowering interest rates on a broad range of debt.

While a second round of Treasury purchases would also lower nominal rates, the FOMC has been explicit about the need to lower real interest rates through higher inflation, minutes of its Sept. 21 meeting show.

The personal consumption expenditures price index, minus food and energy, rose at a 1.4 percent annual rate in August. That’s below the Fed’s long-run preference range of 1.7 percent to 2 percent. The year-over-year increase in consumer prices jumped as high as 14.8 percent in 1980 during the administration of Jimmy Carter.

Even moderate rates of inflation can shift wealth through the economy. Companies can make more money because their prices rise faster than wages. Households can also benefit as incomes eventually rise while costs on fixed-rate debt stay the same.

Chipotle Mexican Grill Inc. chief financial officer John Hartung told Bloomberg Television Oct. 22 that he expects inflation to be in the low-single to mid-single digits next year. “We would welcome modest inflation along with the continued pickup in consumer demand,” Hartung said.

To contact the reporters on this story: Craig Torres in Washingtont ; or Scott Lanman in Washington at slanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Timothy Geithner forecloses on the moratorium debate, Dean Baker, Guardian

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Treasury Secretary Timothy Geithner is good at telling fairy tales. Geithner first became known to the general public in September of 2008. Back then, he was head of the New York Federal Reserve Board. He was part of the triumvirate, along with Federal Reserve Board chairman Ben Bernanke and then Treasury secretary Henry Paulson, who told congress that it had to pass the Tarp or the economy would collapse.

This was an effective fairytale, since congress quickly handed over $700bn to lend to the banks with few questions asked. Of course, the economy was not about to collapse, just the major Wall Street banks. To prevent the collapse of the banks, congress could have given the money – but with the sort of conditions that would ensure the financial sector would never be the same. Alternatively, it could have allowed the collapse, and then rushed in with the liquidity to bring the financial system back to life.

But the Geithner fairytale did the trick. Terrified members of congress tripped over each other to make sure that they got the money to the banks as quickly as possible.

Now, Geithner has a new fairytale. This time, it is that if the government imposes a foreclosure moratorium, it will lead to chaos in the housing market and jeopardise the health of the recovery.

For the gullible, which includes most of the Washington policy elite, this assertion is probably sufficient to quash any interest in a foreclosure moratorium. But those capable of thinking for themselves may ask how Geithner could have reached this conclusion.

The point of a foreclosure moratorium would be to ensure that proper procedures are being followed. We know that this is not the case at present. There have been several outstanding stories in the media about law firms that specialise in filing documents for short-order foreclosures. They hire anyone they can find to sign legal documents assuring that the papers have been properly reviewed and are in order.

In some cases, this has led to the wrong house being foreclosed. People who are current on their mortgage – or who, in one case, did not even have a mortgage – have been foreclosed by this process. The more common problem would be the assignment of improper fees and penalties to mortgage holders. Or, in many cases, foreclosures have probably occurred where the servicer did not actually possess the necessary legal documents.

A moratorium would give regulators the time needed to review servicers’ processes and ensure that they have a system in place that follows the law and will not be subject to abuse. This is the same logic as the Obama administration used when it imposed a moratorium on deepsea drilling following the BP oil spill.

No one can seriously dispute that there is a real problem. Three of the largest servicers, Bank of America, JP Morgan and Ally Financial have already imposed their own moratorium to get their procedures in order. This is just a question of whether we should have regulators oversee the process or “trust the banks”.

If the argument for a moratorium is straightforward, it is difficult to see any basis for Geithner’s disaster fairytale. If there were a moratorium in place for two to four months, then banks would stop adding to their inventory of foreclosed properties.

But most banks already have a huge inventory of unsold properties. Presumably, they would just sell homes out of this inventory. This “shadow inventory” of foreclosed homes that were being held off the market has been widely talked about by real estate analysts for at least two years. It is difficult to see the harm if it stops growing for a period of time.

Of course, it actually was Obama administration policy to try to slow the process of foreclosure. This has repeatedly been given as a main purpose of its Hamp programme, the idea being that this would give the housing market more time to settle down. Now, we have Geithner issuing warnings of Armageddon if a foreclosure moratorium slows down the foreclosure process.

It doesn’t make sense to both push a policy intended to slow the foreclosure process and then oppose a policy precisely because it would slow the process. While this is clearly inconsistent, there has been a consistent pattern to Geithner’s positions throughout this crisis.

Support for the Tarp, support for Hamp and opposition to a foreclosure moratorium are all positions that benefit the Wall Street banks. I’m just saying.

 

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http://www.guardian.co.uk/commentisfree/cifamerica/2010/oct/18/mortgage-arrears-banking

Oregon Home Prices OFHEO DATA: Oregon Economics Blog

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The OFHEO has come out with its latest house price data. Remember that these cover much more of the US than the 20 cities of the Case-Shiller report, but are based home sales only with conventional mortgages. Anyway, we can see the data for Oregon cities, Oregon and the USA.

Here (a bit messy) is the raw data since Q1 of 2004:

Here (even more messy) is the quarter to quarter % change in home values:

Here is the overall depreciation (so positive numbers are bad in the sense that they represent loss of value) since Q1 of 2007 when the market in Oregon really turned:

Overall, it is bad, especially for Bend and Medford which are seeing collapses of California proportions, but overall the state is not doing too badly in relative terms.

Here is a nice picture from their summary report that shows the national picture. Oregon is the 35th best state in terms of home value appreciation (or limited depreciation):

Oregon Economics Blog