March 31 3:51 AM

Obama to Open Offshore Areas to Oil Drilling for First Time – NYTimes – The Obama administration is proposing to open vast expanses of water along the Atlantic coastline, the eastern Gulf of Mexico and the north coast of Alaska to oil and natural gas drilling, much of it for the first time, officials said Tuesday. The proposal — a compromise that will please oil companies and domestic drilling advocates but anger some residents of affected states and many environmental organizations — would end a longstanding moratorium on oil exploration along the East Coast from the northern tip of Delaware to the central coast of Florida, covering 167 million acres of ocean. Under the plan, the coastline from New Jersey northward would remain closed to all oil and gas activity. So would the Pacific Coast, from Mexico to the Canadian border.
 
 Downtown NYC Towers Empty as Best Market Falters  (Bloomberg) — Downtown Manhattan, where demand for office space began to surge three years after the 9/11 terrorist attacks, is about to lose its spot as the best- performing U.S. market.  Vacancies may exceed 14 percent of the area’s 87 million square feet by late 2011, empty space that’s equivalent to four Empire State Buildings and the highest rate since 1997, according to property broker Cushman & Wakefield Inc. That doesn’t include the 4.4 million square feet of offices in two towers now under construction at the World Trade Center site. Those are scheduled for completion in 2013. “The amount of space that’s potentially going to come to the market will increase availabilities and put pressure on pricing,” said Kenneth McCarthy, Cushman’s head of New York- area research. “It will be quite awhile before it can be absorbed.”
 
The dollar’s international roles –  Is the dollar still the dominant international currency? This column argues that the answer is “yes”. The dollar is used as a major form of cash currency, and is the main currency for exchange rate pegs and for invoicing foreign transactions. Network externalities create inertia – everyone uses the dollar because everyone else is using the dollar.
 

In tough market, some job seekers go abroad – With an anemic job market in the United States, many are looking beyond our shores to find employment or advance their careers. International experience is often seen as a plus for career enhancement. But finding employment abroad is anything but easy, especially if you’re not moving with an existing employer. Furthermore, becoming an expatriate can be a major adjustment.Despite the challenges, many job seekers are eyeing foreign lands as possible career saviors or enhancers. “Obviously, the recession is bringing out many people who can’t find a job and want to look abroad,”

 

Modding mods – Friday’s announcement that the administration is overhauling its mortgage modification program to encourage principal forgiveness shows they understand that unless folks have equity in their homes, mortgage defaults will continue in huge numbers. The plan is a decent one, and it appropriately would have lenders absorb the lion’s share of losses. Still, its an all-carrots approach that may be tough to get off the ground. And taxpayers would get even more deeply involved in housing finance. If it doesn’t work, regulators have a stick to force lenders to take losses, which I describe at the end.

 
 In Defense of Bubbles… – Rational Irrationality – If there’s one subject I’ve bored New Yorker readers with more than any other over the past decade or so, it’s the dangers of speculative bubbles. When I first started banging on about this subject, back in the late nineteen nineties—see, for example, this piece from 1997—nobody took much notice. Back then, many economists, including Fed Chairman Alan Greenspan, were skeptical about the very existence of bubbles. Even if they did exist, it was widely believed that they didn’t present much of a danger: should a bubble inflate and burst, the Fed could simply cut interest rates to prevent wider damage to the economy.  Today, my long-held view that, in a modern, financially-driven economy, bubbles are a serious and omnipresent danger has become widely accepted. I don’t take any credit for effecting this change: the experience of the dotcom and housing bubbles was far more persuasive than anything I could have written.
 

Teach Your Neighbors Well –– This recession has hit some places much harder than others, and the spillovers from well-educated neighbors can help explain why. The unemployment rate is 18.9 percent in Modesto, Calif., and 15.6 percent in Detroit, but only 7.7 percent in Minneapolis. Human capital — as measured by the share of adults who have college degrees — is among the best predictors of metropolitan fortunes, and, as the figure shows, that remains true today. But the link between education and January 2010 unemployment is so strong that it creates something of a puzzle.

 Chocolate reduces blood pressure and risk of heart disease – – Easter eggs and other chocolate may be good for you – at least in small quantities and preferably if it’s dark chocolate – according to research that shows just one small square of chocolate a day can lower your blood pressure and reduce your risk of heart disease. The study is published online today (Wednesday 31 March) in the European Heart Journal [1]. Researchers in Germany followed 19,357 people, aged between 35 and 65, for at least ten years and found that those who ate the most amount of chocolate – an average of 7.5 grams a day – had lower blood pressure and a 39% lower risk of having a heart attack or stroke compared to those who ate the least amount of chocolate – an average of 1.7 grams a day. The difference between the two groups amounts to six grams of chocolate: the equivalent of less than one small square of a 100g bar.

10 Questions for Finance Reformers – The current series of proposals for reforming Wall Street and bankers are toothless facades of what real regulation should look like.It seems that each new proposal for reforming Banking and Wall Street is more banker friendly – and ineffective – than the previous one. They are milquetoast, meaningless, appeasing nonsense. The reformers are in a race to see who can offer up legislation that is least offensive to bankers.In order to legislate reform that will prevent the next meltdown from occurring, I suggest that anyone who introduces new reform legislation must answer the following questions about their proposals:

  N.Y. Fed Knowingly Bought Lehman Junk Under Geithner – As Lehman Brothers headed toward bankruptcy in 2008, the New York Federal Reserve Bank, under the direction of now-Treasury Secretary Tim Geithner, reportedly allowed itself to be used as a "warehouse" for Lehman Brothers junk loans. A report from Anton Valukas, an examiner appointed by the court to investigate how Lehman’s accounting, found clear evidence that the New York Fed knew that Lehman was sending it garbage that it had no intention to market, even though Fed guidelines say it can only accept investment grade bonds. The move, in fact, created baskets of assets for the specific purpose of selling to the Fed for far more than they were worth, The Huffington Post reports.

 Tight job market is squeezing out young workers –Teens and young adults, short on experience and skills, have been giving up the job search at higher rates than other workers are during this great recession.Frustrated by a lean job market, nearly 1.3 million workers ages 16 to 24 have left the labor force since the recession hit in December 2007. That’s about 6 percent of them, and it’s nearly 31/2 times the exodus rate of workers ages 25 to 54.With a jobless rate of 18.5 percent for 16- to 24-year-olds, some have gone back to school, some are volunteering, some are joining the military and some are just chilling at home until the economy heats up again. It’s anybody’s guess when that will happen.

 

Full SEC Letter Demanding Repo 105 Disclosures From Financial Firm CFOs… Dear Chief Financial Officer: We are currently reviewing your Form 10-K for fiscal year ended__. In our effort to better understand the decisions you made in determining the accounting for certain of your repurchase agreements….

Home price dip continues – – The market seems to have pulled the rug out from under housing industry hopes for a sustained early recovery.After a five-month run-up in home prices starting last spring, prices have now fallen for four consecutive months, according to the S&P/Case-Shiller Home Price Index of 20 cities, a gauge of market values, released Tuesday. In January, prices were down 0.4%, compared with December and have fallen 0.7% from a year earlier."The rebound in housing prices seen last fall is fading," said David Blitzer, chairman of the Index Committee at Standard & Poor’s. "Fewer cities experienced month-to-month gains in January."

How Long Will Negative Equity Last? – There has been a lot of recent talk about mortgages in negative equity – underwater homes – and the impact on the housing market. In response, First American CoreLogic asked the question: When will these homes start to float? The company estimates that the typical underwater homeowner will not begin to surface until late 2015 to early 2016. It’s an even longer stretch for some of the most depressed markets, where First American CoreLogic says the typical borrower in negative equity may not experience positive equity until 2020 or later.

Control That Capital – In a new study, staff members of the International Monetary Fund (IMF) endorse an idea to help mitigate the impact of economic crises in developing countries: capital controls. Before the 1997 Asian economic crisis, IMF staff thought controls — really a macroeconomic policy to smooth the amount of money coming into and leaving an economy — should be banned. Now, and particularly since the Great Recession, the IMF has changed its tune. Capital controls are a good idea — and now is the time for the IMF and the United States to back them. The more capital coming in, the more the developing country benefits, one would think. But it is a bit more complicated than that. Cross-border capital flows tend to be "pro-cyclical": too much money comes in when times are good, and too much money evaporates during a downturn.

Ezra Klein – FinReg’s killer app – "Capital requirements" are one of those terms that wonks are suddenly using a lot and that plenty of people are probably still confused by. But they’re important to understand, because they’re the killer app of financial regulation. David Leonhardt offers an exceptionally clear explanation: One good way to understand the importance of capital is to look at the fate of firms that entered the crisis with relatively thick cushions. In 2007, commercial banks had an average leverage ratio of about 12 to 1, according to a recent report by McKinsey & Company. This means the banks had a dollar in assets for every $12 in debt. That was enough for many of them, like Bank of New York, to survive the bust in decent shape. By contrast, the five big investment banks in this country — Bear Stearns, Goldman Sachs, Lehman, Merrill Lynch and Morgan Stanley — were close to or exceeding a ratio of 30 to 1.

Weak Rules in U.S. on Toxins and Consumer Safety – NYTimes – Every society needs to make a choice about how to prioritize consumer safety. If you try too hard to avoid problems, you can end up stifling daily life. Outlawing gasoline, for instance, would doubtless reduce pollution and respiratory disease, but no one is suggesting such a step. Europe, with its hostility to genetically modified foods, arguably errs on the side of being too cautious about chemicals and other such substances. But the United States clearly seems to be on the other side of the line. We are not taking toxic risks seriously enough. Several common diseases, like certain cancers and developmental disorders, have been rising in recent decades, and scientists are not sure why. In some cases, evidence suggests chemicals may be the reason.

Fiscal policies in “normal” and “abnormal” recessions – Should governments continue with fiscal expansion or should it be cut back as soon as possible? This column compares different economic models and argues that the answer depends on the type of recession we are facing. In “normal recessions” the New Keynesian model is best, but in “abnormal recessions” it is the Keynesian model.

Still disinflating – The Economist – THERE is no end of debate over what should and shouldn’t be considered relevant in considering monthly price index moves. Setting that aside, many of the price indicators favoured by policymakers show a clear pattern to recent inflation moves:  That’s from the Dallas Fed, via Mark Thoma. Earlier today, I listened to Paul Volcker discuss financial regulatory reform, and after his remarks he was asked about Olivier Blanchard’s floating of the idea of the utility of a move to 4% inflation targets. Mr Volcker reiterated a comment he’d previously made about the suggestion (that it’s "nonsense"), before declaring: It doesn’t make me at all nervous that we have 0% price inflation at the moment. It was a strange statement, reflecting a view that any inflation at any time is bad, as if there were never any potential downside to falling prices. It was not a rigorous answer—"I can see x upsides and y downsides and on balance a higher inflation target is a bad idea"—but a moralistic one.

Misplaced Rectitude – – In the FT, Jeffrey Sachs and George Osborne argue that governments need to deal with their budget woes sooner rather than later: Virtually all policy analysts agree that the path to renewed prosperity in Europe and the US depends on a credible plan to re-establish sound public finances. Without such a plan, the travails which have hit Greece and which are threatening Portugal and Spain will soon enough threaten the UK, US, and other deficit-ridden countries. In the recent duel of macro-economists, one camp has called for early budget consolidation, followed by further measures over five years. We agree. Others want more fiscal stimulus, delaying deficit reduction. We believe delaying the start of deficit reduction would put long-term recovery at risk. Such an approach misjudges politics, financial markets, and underlying economic realities.Count me with the "others" in the "second camp." In the case of the US, there is still little evidence of a problem. If markets were losing their appetite for US government debt, it would be reflected in rising Treasury yields, which are not apparent.

 
 A little more on Mortgage Debt and Aging –  I did a quick comparison of average household income for 1989 and 2007 (using the census) and average mortgage debt for those that has mortgage debt (using Survey of Consumer Finances data). In both cases I looked at 45-54 year olds. In 1989, average household income among 45-54 year olds was $39,934; average mortgage debt outstanding among those who had debt was $39,300, so the ratio was about one-to-one. In 2007, average household income among 45-54 year olds was $83,100; average mortgage debt outstanding among those who had debt was $154,000, so the ratio was just under two-to-one.In 1989, the share of households in the age group with a mortgage was 58.3 percent; in 2007 it was 65.5 percent.The only good news: interest rates have dropped from about 10.5 percent to 5 percent. So in 1989, an average income household that wanted to amortize an average mortgage in 15 years would need to pay 14 percent of gross income to do so; in 1989 it would need to spend 19 percent. So putting this all together, the ratio of debt service to income for amortization by retirement has increased by (.19*.655/.14*.583)-1 = 52 percent.
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