KeNo's Housing and Economic Portal: Tuesday October 5 Housing and Economic stories

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TOP STORIES:

IMF fears 'social explosion' from world jobs crisis - (www.telegraph.co.uk) America and Europe face the worst jobs crisis since the 1930s and risk "an explosion of social unrest" unless they tread carefully, the International Monetary Fund has warned. "The labour market is in dire straits. The Great Recession has left behind a waste land of unemployment," said Dominique Strauss-Kahn, the IMF's chief, at an Oslo jobs summit with the International Labour Federation (ILO). He said a double-dip recession remains unlikely but stressed that the world has not yet escaped a deeper social crisis. He called it a grave error to think the West was safe again after teetering so close to the abyss last year. "We are not safe," he said. A joint IMF-ILO report said 30m jobs had been lost since the crisis, three quarters in richer economies. Global unemployment has reached 210m. "The Great Recession has left gaping wounds. High and long-lasting unemployment represents a risk to the stability of existing democracies," it said. The study cited evidence that victims of recession in their early twenties suffer lifetime damage and lose faith in public institutions. A new twist is an apparent decline in the "employment intensity of growth" as rebounding output requires fewer extra workers. As such, it may be hard to re-absorb those laid off even if recovery gathers pace. The world must create 45m jobs a year for the next decade just to tread water. Olivier Blanchard, the IMF's chief economist, said the percentage of workers laid off for long stints has been rising with each downturn for decades but the figures have surged this time.

Fannie and Freddie: guilty? - (www.economist.com) AS A general rule of thumb, the answer to the question, "Did x cause the crisis?" is no, for all x. No one factor caused the crisis, and that's as true of the involvement of Fannie Mae and Freddie Mac in mortgage markets as it is of anything else. The right question to ask is to what extent various factors contributed to the crisis. Where Fannie and Freddie are concerned, the answer would seem to be: some, but less than many may imagine. The latest round of debate over Fannie and Freddie began with Raghu Rajan, whose book "Fault Lines" argues that government action to support housing markets was one of the major economic forces underlying the development of the crisis (alongside things like global imbalances and easy money). Responding to a review of the book by Paul Krugman, Mr Rajan wrote: Clearly, Fannie and Freddie did not originate sub-prime mortgages directly — they are not equipped to do so. But they fuelled the boom by buying or guaranteeing them.

I actually think that the evidence for Mr Rajan's argument here is somewhat weak. For a collection of responses to this particular critique, see this post by Mark Thoma. The thing is, Mr Thoma's post contains references to an alternative contributory path for Fannie and Freddie, to which I haven't heard as good an answer. He quotes Jim Hamilton on the issue, saying:

Recession's over, economists say to a skeptical public - (www.latimes.com) A declaration that the turning point came in June 2009 gets an indignant reaction, showing that many Americans see little difference between the recession and current conditions. This just in: The recession ended more than a year ago — in June 2009. That may seem perplexing, given the sour state of the economy, but the panel of experts designating when serious economic downturns begin and end typically takes a year or so to make the calls. Even so, minutes after the experts announced Monday that the worst recession in more than half a century had officially ended 15 months ago, its members felt the sting of indignant reaction from a public for whom economic pain continues to be an everyday reality. "Hallucinatory news," one blogger snapped in response to the report by the National Bureau of Economic Research, a private nonprofit research group that is considered the official arbiter of economic contractions and expansions. "I'll start believing the recession is over when I stop seeing endless numbers of people sleeping on the streets," said another.

How Serious is the GMAC Problem? Pretty Serious and Not Just GMAC - (www.nakedcapitalism.com) The news reports on GMAC Mortgage’s decision to halt evictions and foreclosure sales in 23 states, as originally reported by Bloomberg News, has generated keen interest in the mortgage and securitizaion communities. One reason is the oddly abrupt and broad nature of GMAC Mortgage’s action. GMAC Mortgage subsequently issued a rebuttal of sorts to the article. Not only did it fail to clairify matters, it is inconsistent with the actual notice it sent last week. Various accounts have described how one officer of GMAC Mortgage’s servicing unit has admitted during testimony that, while he signs thousands of affidavits each month in order to affect steps in the foreclosure process, he does not have personal knowledge of certain critical facts in the affidavit which he asserts to be true. Reader Stupendous Man provided the text of Federal Rule 56 on affidavits (although the cases in question are in state courts, the same principles no doubt apply). Boldface ours: A supporting or opposing affidavit must be made on personal knowledge, set out facts that would be admissible in evidence, and show that the affiant is competent to testify on the matters stated. The key here is you can’t delegate creating affidavits to parties who weren’t close to relevant matter out of administrative convenience; you need to find people who were directly involved. And evidence in a number of foreclosure suits indicates that this problem not only extends well beyond GMAC, and is not a matter of matter of officers providing affidavits based on a review of copies of the paperwork in a transaction. As one attorney wrote:

Wall Street's greatest heist: the Tarp - (www.guardian.co.uk) The notion that without the $700bn bailout we would be reduced to bartering was a ruse by the banks to get taxpayers' money. Two years ago, the top honchos at the Fed, Treasury and the Wall Street banks were running around like Chicken Little warning that the world was about to end. This fear-mongering, together with a big assist from the elite media (thatis, NPR, the Washington Post, the Wall Street Journal, etc), earned the banks their $700bn Troubled Asset Relief Programme (Tarp) blank cheque bailout. This money, along with even more valuable loans and loan guarantees from the Fed and FDIC, enabled them to survive the crisis they had created. As a result, the big banks are bigger and more profitable than ever. Now, the same crew that tapped our pockets two years ago is eagerly pitching the line that their bailout was good for us. It may be the case that the history books are written by the winners, but that doesn't prevent the rest of us from telling the truth. Let's step back to where we were two years ago. The huge investment bank Bear Stearns had collapsed. So had Fannie Mae and Freddie Mac, the mortgage giants. Lehman Brothers, the fourth largest investment bank had also gone down. AIG, the country's largest insurer, had been put on life support by the government. At this point, Merrill Lynch, Morgan Stanley and Goldman Sachs, the three remaining independent investment banks, all faced runs that would quickly sink them without government intervention. Citigroup and Bank of America, two of the three largest commercial banks, were also almost certainly insolvent. Many other banks also faced insolvency, especially if they took big losses on their loans to other institutions that were about to go bankrupt.