Fed’s $4 Trillion Rescue Helps Hedge Fund as Savers Hurt - (www.bloomberg.com) Deepak Narula’s mortgage-bond fund is up 39 percent this year. George Sanchez’s monthly annuity payout is down 41 percent. The near-zero interest rate the Federal Reserve charges financial firms, as well as securities purchases that will balloon the central bank’s balance sheet to almost $4 trillion next year, have made it easier for Narula’s $1.6 billion fund to thrive and more difficult for Sanchez, a former college library director, to enjoy retirement. Chairman Ben S. Bernanke’s efforts to energize the U.S. economy since 2008 have been credited with rousing the housing market from a six-year funk, lowering the jobless rate and putting more money in the pockets of both mortgage lenders and borrowers. At the same time, Fed policy has been blamed for starving money-savers of income and boosting certain asset prices, widening the gap between the rich and the rest of the country, said Joseph E. Stiglitz, the Nobel Prize-winning Columbia University economist. “Monetary policy has been indirectly, surreptitiously helping the top and hurting the bottom,” Stiglitz said.
Municipalities Fight a Proposal to Tax Muni Bond Interest - (www.nytimes.com) France's parliament has passed a contentious budget for next year that includes a raft of new taxes aimed slashing the country's deficit and putting it on the path to economic recovery. Socialist President Francois Hollande's budget aims to cut €30 billion ($40 billion), with two-thirds of that coming in tax hikes, including a 75 percent levy on incomes earned over €1 million. But it was the increase in taxes on profits from investments that raised the most hackles in France, touching off a Twitter revolution of entrepreneurs who accused the government of punishing those who take risks. The bill, which the conservative opposition complained doesn't make enough spending cuts, has struggled to get through parliament. The lower house eventually passed it Thursday in a show of hands vote.
Cash-for-Gold Loans Hide Shadow-Banking Risks in India - (www.bloomberg.com) When Rashmi Deshmukh needed money for her hand-knit clothing business in Mumbai, she couldn’t wait for bank approval. Instead, she put up her wedding jewelry as collateral at a loan-for-gold company to get cash on the spot. Muthoot Fincorp Ltd., which advertises three-minute gold loansand has 3,125 branches across India, charged 24 percent annual interest. While a bank gets half that rate, it would have loaned her less and required paperwork, she said. “It’s faster, it’s easier, it isn’t cheaper, but I get more for my gold from Muthoot than the bank,” said Deshmukh, 37, who borrowed 250,000 rupees ($4,576) in October because she had more orders than yarn ahead of this year’s holiday season. Assets at non-bank lenders such as Muthoot have increased 20 percent annually for the past five years to $670 billion, according to a November report by the Financial Stability Board. That makes India the world’s second-fastest-growing market, after Indonesia, for lending outside the banking system, or shadow banking.
Weve Nationalized the House Mortgage Market. Now What? - (www.propublica.org) At the height of the 2008 financial crisis, the country heatedly debated whether to nationalize the failing banking system. Both the George W. Bush and Barack Obama administrations rejected that path as excessive government intrusion into the marketplace. Yet since then, with little planning and paltry public discussion, the government has almost completely taken over the American home mortgage market. Banks and other for-profit financial services companies lend money to homeowners, but without the guarantees and other support the government provides, the housing market would barely be functioning now. Fannie Mae and Freddie Mac, the taxpayer-controlled housing giants, guaranteed 69 percent of new mortgages in the first nine months of the year, up from about 27 percent share in 2006, according to Inside Mortgage Finance. Meanwhile, the Federal Housing Authority and the Department of Veteran's Affairs currently back another 21 percent of mortgages, up from just 2.8 percent in 2006. Altogether, 9 of every 10 new mortgages are backed by the U.S. taxpayer, up from three in 10 in 2006, when the government share hit a decade-low, according to the publication.
House mortgage subsidy may be abolished - (www.sfgate.com) Shirley Ann Stern is such a big Giants fan that she's buying a new one-bedroom condo near AT&T Park in Mission Bay. At $819,000, the one-bedroom would be considered top of the line almost anywhere in the country but here, where it's just a notch above San Francisco's median home price. Being able to deduct all her mortgage interest from her taxable income makes the payments much more manageable, said Stern, who works as a software security program manager. The deduction lops several thousand dollars a year off her tax bill. "I'm a single woman well into middle age," she said. "I have no other tax deductions because I don't have children. I make a fairly decent salary, but frankly in this area it would be hard to afford a nice place to live without a mortgage deduction. It really helps."