KeNo's Housing and Economic Portal: Tuesday May 25 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Greenspan Wanted Housing-Bubble Dissent Kept Secret - (www.huffingtonpost.com) As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that dissent should be kept secret so that the Fed wouldn't lose control of the debate to people less well-informed than themselves. "We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting. At the same meeting, a Federal Reserve bank president from Atlanta, Jack Guynn, warned that "a number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida. Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on 'flipping' the properties--selling them quickly at higher prices." Had Guynn's warning been heeded and the housing market cooled, the financial collapse of 2008 could have been avoided. But his comment was kept secret until Friday, when the central bank released the transcripts of Federal Open Market Committee meetings for 2004 and CalculatedRisk spotted it. The transcripts for 2005 to the present are still secret.

Profs now outsourcing marking to India - (www.thestar.com) A veteran university professor frustrated with the tedium and time of grading papers has created a company that outsources the job to India. With a dozen clients in academia and a thick skin, Dr. Chandru Rajam is prepared to weather the outrage EduMetry Inc. of Herndon, Va., has set off. Virtual-TA, which hires offshore university-educated staff to assess, grade and comment on student assignments, is only one of the EduMetry services. But it is by far the most controversial. “Our intent is not to cheapen or degrade the learning and teaching equation,” Rajam told theStar. “We think there is a better model. We never outsource the responsibility, we’re just outsourcing the activity. “I like to half-jokingly point out that a mother is outsourcing childcare to a daycare provider. If you can entrust the care of your infant to a third person, any form of outsourcing should be fair game.” Since it was created five years ago, EduMetry has assembled a team of adjunct professors, retired teachers, “homemakers with masters’ degrees” and other university-educated staff, most in India but some in Singapore and Malaysia, to grade 2,000 student assignments a week. A selling point, said Rajam, is the extensive comments that accompany each grade – something graduate assistants and professors can seldom supply.

Sen. Dodd's financial bill ignores Fannie and Freddie - (www.knoxnews.com) The Dodd bill on financial reform is a doozy. In the bill's summary it says the failures that led to the financial crisis require bold action. Reading that you think the reason why the financial system teetered - the bursting of the asset bubble in housing - would be attacked in the legislation. But lo and behold, in its almost 2,000 pages there is hardly a mention of housing and Fannie Mae or Freddie Mac. Indeed, there is nothing in the bill remotely connected with the causes of the financial crisis. Instead, Dodd's financial reform bill is another power grab by this bunch of politicians. It creates a single regulator of consumer protection regulations even though there is no evidence that consumer protection has anything to do with the financial crisis. This new agency will be headed by a single political appointee of the president. All consumer lenders, including those only regulated by the states such as small consumer installment lenders, now would be subject to federal oversight. The new, powerful regulatory czar would be certain to enact rules that would limit credit granting to poorer households and small businesses. There will be a new agency for "financial stability" with another single politically appointed czar. This czar would have the power to shut down a company that might pose a risk to the financial system. This unprecedented stunning power would leave all large organizations operating at the sole behest of the shutdown czar. Now how this czar would have any idea of who to shut down escapes me. If this czar existed during the tech bubble, companies like Google and Amazon probably would have been shut down as they grew in excess of their valuations. Heaven help us. Within this new agency will be a $50 billion slush fund paid for by all financial institutions that will allow for the orderly failure of big institutions. In essence, the $50 billion would be used to pay out the creditors of the firm being shut down.

Goldman Fraud Case: The Only Email Worth Reading - (www.fool.com) The SEC's announcement on April 16 that it is bringing fraud charges againstGoldman Sachs has generated a server farm's worth of reporting, commentary, and chatter. However, the truth is that even if the SEC is able to establish that fraud occurred, that aspect of the case is actually a distraction from the broader issues at stake. Don't let the commotion over this case mislead you: Fraud was a minor element in the housing and credit bubble. The problem was not what was illegal, but rather what was sanctioned, and in some cases perpetrated by the government and regulators. A single useful email: Of the emails that have been released by various parties since the SEC made its complaint public, I have found only one that demonstrates an awareness of the wider problems that led to this crisis. That email didn't originate at Goldman -- employees there had been soaking in the mortgage hot tub for years, so it no longer occurred to them to question whether or not the water was sanitary. Instead, the author was an executive at Paulson & Co., the hedge fund that bet against the infamous ABACUS 2007-AC1 collateralized debt obligation (CDO) and an outsider to the real estate securitization market. This is the available excerpt from this January 2007 email: Exhibit 1: Paulson employee e-mail: It is true that the market is not pricing the subprime RMBS [residential mortgage-backed securities] wipeout scenario. In my opinion this situation is due to the fact that rating agencies, CDO managers and underwriters have all the incentives to keep the game going, while ‘real money’ investors have neither the analytical tools nor the institutional framework to take action before the losses that one could anticipate based [on] the ‘news’ available everywhere are actually realized.

Foreclosure Bargains Hurt by Chinese Drywall - (www.pbs.org) Good PBS video on foreclosure tours in Florida and impact of Chinese drywall.

Was There A Plan to Blow Up The Economy? - (www.informationclearinghouse.info) Many people now believe that the financial crisis was not an accident. They think that the Bush administration and the Fed knew what Wall Street was up to and provided their support. This isn't as far fetched as it sounds. As we will show, it's clear that Bush, Greenspan and many other high-ranking officials understood the problem with subprime mortgages and knew that a huge asset bubble was emerging that threatened the economy. But while the housing bubble was more than just an innocent mistake, it doesn't rise to the level of "conspiracy" which Webster defines as "a secret agreement between two or more people to perform an unlawful act." It's actually worse than that, because bubblemaking is the dominant policy, and it's used to overcome the structural problems in capitalism itself, mainly stagnation. The whole idea of a conspiracy diverts attention from what really happened. It conjures up a comical vision of top-hat business tycoons gathered in a smoke-filled room stealthily mapping out the country's future. It ignores the fact, that the main stakeholders don't need to convene a meeting to know what they want.They already know what they want; they want a process that helps them to maintain profitability even while the "real" economy remains stuck in the mud. Historian Robert Brenner has written extensively on this topic and dispels the mistaken view that the economy is "fundamentally strong". (in the words of former Treasury secretary Henry Paulson) Here's Brenner :
"The current crisis is more serious than the worst previous recession of the postwar period, between 1979 and 1982, and could conceivably come to rival the Great Depression, though there is no way of really knowing. Economic forecasters have underestimated how bad it is because they have over-estimated the strength of the real economy and failed to take into account the extent of its dependence upon a buildup of debt that relied on asset price bubbles. In the U.S., during the recent business cycle of the years 2001-2007, GDP growth was by far the slowest of the postwar epoch. There was no increase in private sector employment. The increase in plants and equipment was about a third of the previous, a postwar low. Real wages were basically flat. There was no increase in median family income for the first time since World War II. Economic growth was driven entirely by personal consumption and residential investment, made possible by easy credit and rising house prices. Economic performance was weak, even despite the enormous stimulus from the housing bubble and the Bush administration's huge federal deficits. Housing by itself accounted for almost one-third of the growth of GDP and close to half of the increase in employment in the years 2001-2005. It was, therefore, to be expected that when the housing bubble burst, consumption and residential investment would fall, and the economy would plunge. " ("Overproduction not Financial Collapse is the Heart of the Crisis", Robert P. Brenner speaks with Jeong Seong-jin, Asia Pacific Journal)

OTHER STORIES:

Portugal Facing Downgrade of Its Debt by Moody's - (www.cnbc.com)

Three Killed in Fire as Greek Protesters Clash with Police - (www.cnbc.com)

Low Interest Rates - As Destructive as Usury? - (www.makingsenseofmyworld.blogspot.com)

The bubble makers - (www.network.nationalpost.com)

Banks Buying Treasuries Instead Of Lending - (www.bloomberg.com)

Slideshow: Scenes from the Greek Protests - (www.cnbc.com)

One of 3 Gulf Well Leaks Halted, but Oil Flow the Same - (www.cnbc.com)

Housing market will implode, warns Edward Chancellor - (www.perthnow.com.au)

House price implosion claims ridiculous, says Australian economist - (www.heraldsun.com.au)

China May Crash in Next 9 to 12 Months, Faber Says - (www.bloomberg.com)

China State Media On Corruption and Cooling Off The Real Estate Market - (www.sinocism.com)