The Ratings Agencies are on Thin Ice

In all the discussion about who’s to blame for the financial crisis, the ratings agencies always seem to be in the mix, but they never seem to be more than an after thought, as in, “Oh yeah, we need to fix them too”. Perhaps they’ll get more attention tomorrow when Goldman Sachs appears before the Senate’s Permanent Subcommittee on Investigations.

From the Tom Toles archive/blog at the Washington Post.

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Sometimes you just don’t know what to make of the dismal science, this CNN/Money report casting doubt on the need to have spent almost a trillion dollars a year ago to aid the U.S. economy and resulting in little by way of private sector employment.

Economists: The stimulus didn’t help

The recovery is picking up steam as employers boost payrolls, but economists think the government’s stimulus package and jobs bill had little to do with the rebound, according to a survey released Monday.

In latest quarterly survey by the National Association for Business Economics, the index that measures employment showed job growth for the first time in two years — but a majority of respondents felt the fiscal stimulus had no impact.

NABE conducted the study by polling 68 of its members who work in economic roles at private-sector firms. About 73% of those surveyed said employment at their company is neither higher nor lower as a result of the $787 billion Recovery Act, which the White House’s Council of Economic Advisers says is on track to create or save 3.5 million jobs by the end of the year.

That sentiment is shared for the recently passed $17.7 billion jobs bill that calls for tax breaks for businesses that hire and additional infrastructure spending. More than two-thirds of those polled believe the measure won’t affect payrolls, while 30% expect it to boost hiring “moderately.”

Public sector economists would likely have a completely different answer as to how government employment has fared since a good portion of the stimulus money ended up in state coffers, effectively saving untold thousands of jobs. That sort of public sector/private sector disparity is, perhaps, something we should get used to.

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I wonder how many homebuyers in the U.S. who, at this very moment, are rushing to get their sales contract signed before the government’s $8,000 tax credit expires on Friday, have even considered the relative importance of the tax credit today and the future impact of the foreclosure pipeline as illustrated in the chart below from this WSJ story.

As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments … Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload.

The report goes on to note that the the government is worried about the situation, in part because their wildly un-successful Home Affordable Modification Program has been one of the major factors behind the inventory buildup.

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A couple of reports today about the housing bubble in China must make some Americans long for the days of condo parties and Hummers about five years ago, this story in the LA Times no doubt spurring memories for hundreds of thousands of Angelinos whose lives have taken a decided turn for the worse since the housing bubble burst here.

Hundreds of miles inland from the booming real estate markets of Beijing and Shanghai, an unlikely property fever is gripping this middling industrial outpost.

Rows of half-completed apartment buildings rise over former farmland, each crowned with yellow construction cranes that seem to outnumber trees in parts of this dusty city of 5 million residents.

Taxi drivers boast of owning multiple flats for investment. Billboards hawk developments with names such as Villa Glorious and Rich Country. Frenzied crowds pack sales events with bags of cash, buying units that exist only on blueprints. Average home values in Hefei soared 50% last year.

China’s real estate rush, once confined to leading cities, has spilled into the hinterlands with a ferocity reminiscent of American expansion into exurbs like the Inland Empire.

The “bags of cash” are unique to China – that certainly wasn’t the case for the housing bubble in the U.S. – but we had our share of 50 percent property price increases. It was a flood of Southern California buyers that played a big role in pushing prices up by about that much in Las Vegas and Arizona at the height of the boom.

(more…)

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Golden Goose to Survive

Mark Mobius of Templeton Asset Management talks about financial market regulation and how the bill coming up for a vote in the Senate won’t kill the Golden Goose, otherwise known as the Wall Street casino culture that will again, someday, lead to another crisis.

In a related story, Mobius says: “The forces against regulation are very strong in Washington… There are $600 trillion in derivatives outstanding. Lots of money is being made with derivatives. It’s not going to go away… If stock exchanges, savings banks (and) those institutions became utilities, I’m all for it, because that’s the service that has to happen properly and regulated for the market to work.”

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