How the Banks Put the Economy Underwater – IN Congressional hearings last week, Obama administration officials acknowledged that uncertainty over foreclosures could delay the recovery of the housing market. The implications for the economy are serious. For instance, the International Monetary Fund found that the persistently high unemployment in the United States is largely the result of foreclosures and underwater mortgages, rather than widely cited causes like mismatches between job requirements and worker skills. This chapter of the financial crisis is a self-inflicted wound. The major banks and their agents have for years taken shortcuts with their mortgage securitization documents — and not due to a momentary lack of attention, but as part of a systematic approach to save money and increase profits. The result can be seen in the stream of reports of colossal foreclosure mistakes: multiple banks foreclosing on the same borrower; banks trying to seize the homes of people who never had a mortgage or who had already entered into a refinancing program.
Economist Stiglitz: We need stimulus, not quantitative easing – The midterm elections, as every pundit has told you, is about jobs. But whatever happens Tuesday, the results won’t do much to reduce the unemployment rate. Congress is headed either for divided government or slim Democratic majorities – and either way, the era of big action is likely over. But Wednesday, the Federal Reserve is expected to get back in the game by announcing at least a half-trillion in long-term bond purchases. Many observers have found this at least somewhat encouraging. It may not do too much, but with inflation so low, it can’t hurt. Joseph Stiglitz, the Nobel prize-winning economist at Columbia, disagrees. He thinks it can hurt, and it also won’t do very much. The proper role for the Fed, he argues, is backing up Congress: We should try fiscal policy first, and if that raises interest rates (which he doesn’t believe is likely), then our monetary overlords can buy bonds to bring those rates back down. We spoke last week, and a lightly edited transcript follows.
Special Report: A Marshall Plan for America’s housing woes – The federal government just reported that 4.2 million homeowners are "seriously delinquent" on their mortgages and some 10.9 million borrowers are underwater, meaning their loans exceed the value of their homes. To make matter worse, there is the threat of protracted litigation between banks and borrowers because lenders might not have followed the letter of law in processing foreclosure paperwork. An even bigger source of worry is the $426 billion in so-called second liens — home equity loans, second mortgages and other loans "junior" to the primary mortgage — that sit on the balance sheets of Bank of America, JPMorgan Chase, Wells Fargo and Citigroup. Add it all up and there’s the potential for the U.S. housing market to languish in a stupor for years to come. As bleak as all that might sound, there could be a way out — one that doesn’t involve another government bailout.
As HAMP goes up in smoke, U.S. needs new housing plan (Reuters) – The U.S. government’s main anti-foreclosure program isn’t winning many friends these days because of its poor track record in getting banks to modify mortgages for cash-strapped borrowers.Of the roughly 1.4 million borrowers who entered the loan modification program, about half were kicked out and did not get the amount of money owed on their mortgage reduced.Critics of the government’s Home Affordable Modification Program, or HAMP, say it’s now time to give a fresh look at other ideas to stem the wave of foreclosures. Below are three proposals that are generating the most interest.
How Immigrants Create More Jobs – Over all, it turns out that the continuing arrival of immigrants to American shores is encouraging business activity here, thereby producing more jobs, according to a new study. Its authors argue that the easier it is to find cheap immigrant labor at home, the less likely that production will relocate offshore. The study notes that when companies move production offshore, they pull away not only low-wage jobs but also many related jobs, which can include high-skilled managers, tech repairmen and others. But hiring immigrants even for low-wage jobs helps keep many kinds of jobs in the United States, the authors say. In fact, when immigration is rising as a share of employment in an economic sector, offshoring tends to be falling, and vice versa, the study found. In other words, immigrants may be competing more with offshored workers than with other laborers in America.
How immigration can benefit native workers – Several studies find that immigrants do not harm the wages and job prospects of native workers. This column seeks to explain these somewhat counterintuitive findings by emphasizing the scope for complementarities between foreign-born and native workers. Examining 14 European countries from 1996 to 2007, it finds that immigrants often supply manual skills, leaving native workers to take up jobs that require more complex skills – even boosting demand for them. Immigrants replace “tasks”, not workers.
Repeat after me: tax cuts don’t pay for themselves – Here is an interesting new U.S. site we’ve come across, I Heart Taxes. Take a look at it. (They do a nifty line in t-shirts too.) It, in turn, pointed us towards something else we have blogged extensively about: the widely peddled notion that tax cuts somehow pay for themselves. (Our recent exchange with MP Roger Helmer was our latest in that particular series.) Now we have the respected U.S. economist Mark Thoma weighing in: Some Republican Senate candidates have suggested that extending the Bush tax cuts — which are scheduled to expire at the end of the year — will actually be good for the country’s bottom line, as the economic growth that results will more than offset the trillions of dollars in lost revenue. But, of course, the Bush tax cuts did not even come close to paying for themselves. The Bush tax cuts cost us around $1.7 trillion in revenue from 2001 through 2008, in part because of weak output and job growth following the cuts (contrary to assertions about how the tax cuts would stimulate economic growth).As for the cost of extending the tax cuts to the wealthy, the Tax Policy Center estimates that making all the Bush tax cuts permanent, as opposed to extending them only for the middle and lower classes, would cost $680 billion over the next decade. The disappointing part is that the press still lets them get away with this.
How to spot a recession scam –There’s an art to conning people. That’s why they’re called scam "artists." The successful ones skate right up to the edge of the truth, capitalizing on people’s awareness of certain programs, trends or developments — and people’s limited understanding when it comes to the details.Toss in a recession that changed many of the rules and made more people financially desperate, and scam artists are having a field day.
Here’s one example: Most people know President
pushed an economic-stimulus package worth hundreds of billions through Congress last year. So the con artists will tell you some of it could be yours, if you just pay an upfront fee to them to process your "application" for a "stimulus grant."
In normal times, you might be suspicious of the idea that the government would just hand you cash. But didn’t you get a rebate check from the Internal Revenue Service a couple of years ago? And didn’t Wall Street get a huge bailout? Maybe there’s something to this . . .
Leaving euro would only make problems worse, says Trinity economist – LEAVING the euro would cause severe disruption to the Irish economy and would not help solve the fiscal crisis, a leading economist said yesterday.Dr Philip Lane of Trinity College Dublin said the economic problems would only be exacerbated if Ireland left the single currency. "The disruption caused if we left the euro would be enormous. The Government would have to implement severe controls on our currency, which is unthinkable given how globalised our economy is. As well as this, high interest rates would inevitably follow, which would cause huge problems, so it would not be helpful at all," he said. Dr Lane described the stability and growth pact, which demands that a eurozone country’s deficit not exceed more than 3pc of GDP, as "irrelevant", and added that the political difficulties for any government trying to resist calls to spend a budget surplus had to be recognised.
World’s richest man tells U.S. to sell assets – The U.S. government needs to consider selling assets to boost the economy and reduce the deficit, Mexican billionaire Carlos Slim said Friday. “Most aggressive monetary and fiscal policies are not enough,” Slim said at the George Washington University Global Forum in New York City. “They are temporary measures.” Mr. Slim, ranked the world’s richest man by Forbes magazine, controls Telefonos de Mexico SAB, the nation’s largest landline phone company, and is an investor in the New York Times Co. The global financial crisis is a sign that governments must rein in debt, Mr. Slim said. Fiscal and monetary policies are only “temporary medicine” and won’t help economies return to growth, he said.
Angela Merkel forces Europe to protect euro from future collapse – The leaders of 26 European countries bowed resentfully today to German determination to rewrite the EU’s Lisbon Treaty to shore up the euro. Angela Merkel declared she was happy after a summit meeting of EU leaders in Brussels agreed to establish a stiff new regime aimed at immunising the euro against the threats that brought the currency to the brink of collapse this year. Under the new system, to be in place by 2013, the Germans insist that highly indebted eurozone countries struggling to repay will be forced to restructure their debt in a process of "managed insolvency" and that their creditors will need to take large "haircuts". The German chancellor said this was a quantum leap in the way the euro was run. "The inclusion of private institutions is very important to me," Merkel said. "We won’t allow only the taxpayers to bear all the costs of a future crisis."