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Americans Prioritize Deficit Reduction as an Economic Strategy –  Americans are most likely to choose deficit and debt reduction as the best approach for dealing with the economy over three widely discussed alternatives: raising taxes on the wealthy, cutting taxes, and increasing stimulus spending. These results are based on a USA Today/Gallup poll conducted Nov. 19-21 as the U.S. economy continues to suffer from sluggish growth and high unemployment. Americans do not show a strong consensus for any of the approaches, but clearly reject additional economic stimulus spending. The increased government spending in late 2008/early 2009 to bail out major U.S. corporations and attempt to jump-start the economy concerned many Americans and helped fuel the Tea Party movement, leading to significant Democratic losses in Congress in the midterm elections. That concern is also reflected in Americans’ endorsing deficit reduction as an economic strategy over generally popular approaches like tax cuts or tax hikes on the wealthy. Both independents and Republicans choose deficit reduction as the preferred economic approach.

More on BofA Employee Damaging Admissions re Failure to Convey Mortgage Notes –  Yves Smith – We’ve had a series of posts (see here, here, and here) on the judge’s decision in a case called Kemp c. Countrywide, which provided what appeared to be the first official confirmation of what we’ve long suspected and described on this blog: that as of a certain point in time post 2002, mortgage originators and sponsors simply quit conveying mortgage notes (the borrower IOUs) through a chain of intermediary owners to securitization trusts, as stipulted in the pooling and servicing agreements, the contracts that governed these deals. We say “appeared to be” because Bank of America’s attorney promptly issued a denial, effectively saying that the employee whose testimony the judge cited in his decision, one Linda DeMartini, a team leader in the bank’s mortgage- litigation management division. didn’t know what she was talking about. As we discussed, this seems pretty peculiar, since she was put on the stand precisely because she was deemed to be knowledgeable about Countrywide’s practices. Today, an article appears in Bloomberg, and it appears to be a rehash of this now week-old story, so I was puzzled to see it run now. But buried in the article is the probable reason for this piece, namely, that the Bloomberg reporters saw that BankThink had purchased and posted the trial transcripts, and quoted more of DeMartini’s testimony. And it isn’t pretty.

Alan Simpson and Erskine Bowles try to scare America into doing something about the deficit. – Wonkish, crotchety, and mostly bald, the co-chairs of President Obama’s National Commission on Fiscal Responsibility and Reform want you to care about the deficit the way cable television wants you to care about pedophiles. The threat might be remote, but when it comes, it comes closer than you think—and it is horrible. At a press conference this afternoon, Alan Simpson and Erskine Bowles described debt as a "cancer." They called it "dangerous." Bowles warned that if Congress really gets into a fight about the debt ceiling in the next few months, all financial hell will break loose.  Since the co-chairs released their proposal for getting America back in the black, Simpson says, it’s been "the same old crap." People have responded with "emotion, fear, guilt, and racism." And the "far left" and "far right" are rounding up their "minions" to attack the plan as cruel or infeasible or insufficient or whatever. But Bowles and Simpson—they don’t care. They just want to talk numbers and to scare the living bejesus out of you about debt.


Still a crisis of confidence – LOTS of people around the internet have lots of things to say about the latest twists and turns in Europe. I’ve been letting events percolate over the last few days and trying to take a broader view. You should all know, by the way, that the print edition’s coverage of the ongoing crisis has been excellent and very thorough (see especially this, and this). Buttonwood and Charlemagne have done a good job tracking the blow-by-blow. In terms of the latest twists and turns, there are a few key questions. One issue is the solvency of various governments. Things became messy when Germany pressed for talks about debt restructuring in troubled economies, which spooked markets, especially with regard to Ireland, which had only recently announced a big jump in the cost of supporting its banks. Ireland didn’t want a rescue and didn’t think it actually needed one; it thought it could accept the austerity necessary to handle its debts, daunting as the prospect seemed. Maybe it could have at lower yields, but markets became nervous as yields rose a bit, which pushed yields up further. Worse, banks began leaking deposits (read Buttonwood on this dynamic) which worried Europe a great deal.

The rough politics of European adjustment – If Europe is going to “resolve” the current crisis in an orderly way, it is going to have to move very quickly – not just for the obvious financial reasons, but for much narrower political reasons.  I am pretty sure that the evolution of European politics over the next few years will make an orderly solution progressively more difficult. For ten years I have used mainly an economic argument to explain why I believed the euro would have great difficulty surviving more than a decade or two.  It seemed to me that the lack or fiscal centrality and full labor mobility (and even some frictional limits on capital mobility) would create distortions among countries that could not be resolved except by unacceptably high levels of debt and unemployment or by abandoning the euro.  My skepticism was strengthened by the historical argument – no fiscally fragmented currency union had ever survived a real global liquidity contraction. I am now going to veer off into a very different realm, that of politics.

The Bush Tax Cuts and Economic Growth – The evidence is not favorable. For example, according to this Census report (see table A1), median household income in 2007, adjusted for inflation, was lower than it was in 2000. And as the non-partisan Center on Budget and Policy Priorities reports based upon data from the Bureau of Labor Statistics, employment growth was particularly weak, “with employment and wage and salary growth … lower than in any previous post-World War II expansion. Employment grew at an average annual rate of only 0.9 percent from November 2001 to September 2007, as compared with an average of 2.5 percent for the comparable periods of other post-World War II expansions. In addition, real wages and salaries grew at a 1.8 percent average annual rate in the 2001-2007 expansion, as compared with a 3.8 percent average annual rate for the comparable periods of other post-World War II expansions.” Thus, there is little evidence to support that the Bush tax cuts had a significant effect on growth.  In addition, contrary to the argument that the tax cuts would pay for themselves being made at the time the tax cuts were enacted, the deficit ballooned as a result of the tax cuts.

Europe Update and more – From the WSJ: Fresh Round of ‘Stress Tests’ Planned for European BanksThe [first stress] tests were largely discredited by revelations that they lacked rigor, including a Wall Street Journal report in September that the tests understated some banks’ holdings of potentially risky sovereign bonds. … "There was some variety in terms of rigor and application of [the initial] tests," European Economic and Monetary Affairs Commissioner Olli Rehn said in Brussels. Oh yeah. Ireland’s banks passed the initial stress tests in July! And we know how that worked out.  From the Financial Times: Trichet hints at more bond purchases. The Financial Times quotes European Central Bank president Jean-Claude Trichet as saying “pundits are under-estimating the determination of governments” and “I don’t think that financial stability in the eurozone, given what I know, could really be called into question.”From Bloomberg: Italy-Germany 10-Year Yield Spread Reaches 200 Points, Widest Since 1997.

Marijuana Price Index – interactive, crowd sourced

Europe Debt Fears Hit More Secure Countries – Fears among European bondholders spread Tuesday from the weakest members of the euro zone to other countries, including Italy and Belgium, spurring a stepped-up search for a solution to a crisis that is increasingly putting political as well as financial strain on Europe’s decade-old monetary union. Despite the commitment of 200 billion euros, or $260 billion, in bailout funds to Europe’s two most stricken nations — Greece and Ireland — institutional investors were unimpressed with the rescue effort this weekend of Ireland and continued to sell bond holdings in the weaker euro-zone economies. But what is worse for the European Union and an increasingly stretched International Monetary Fund is that investors have begun to disgorge some of their positions in Belgium, Italy and even Germany.

  Congress Agrees to Delay Medicare Payment Cuts – Congress agreed Monday to a one-month delay in Medicare payment cuts to doctors, giving a short-term reprieve to a looming crisis over treatment of the nation’s elderly.  The House, in approving by voice vote the bill passed by the Senate earlier this month, postponed a 23 percent cut in doctors’ pay scheduled to take effect Dec. 1. That gives lawmakers a month to come up with a longer-term plan to overhaul a system that in recent years has bedeviled Congress, angered doctors and jeopardized health care for 46 million elderly and disabled.  “This bill is a stopgap measure to make sure that seniors and military families can continue to see their doctors during December while we work on the solution for the next year,” said Rep. Frank Pallone, R-N.J., chairman of the Energy and Commerce health subcommittee.  Health care payment formulas for military service members and veterans are tied to Medicare.
18 hours ago

The FHA as Predatory Lender – While everyone has been watching Fannie and Freddie, the administration has quietly shifted most federal high-risk mortgage initiatives to FHA, the government’s original subprime lender. Along with two other federal agencies, FHA now accounts for about 60 percent of all U.S. home purchase mortgage originations. This amounts to more than $1 trillion and is rising rapidly. The administration justifies this policy by saying it is necessary to support the mortgage market, yet borrowers are once again receiving high-risk loans… The Dodd-Frank Act, however, exempts FHA and other government agencies from appropriate standards on mortgage quality. This will give low-quality mortgages a direct route into the market once again; it will be like putting Fannie and Freddie back in the same business, but with an explicit government guarantee. For example, thanks to expanded government lending, 60 percent of home purchase loans now have down payments of less than 5 percent, compared to 40 percent at the height of the bubble, and the FHA projects that it will increase its insured loans total to $1.34 trillion by 2013. Indeed, the FHA just announced its intention to push almost half of its home purchase volume into subprime territory by 2014-2017, essentially a guarantee to put taxpayers at risk again.


WikiLeaks’ Next Target: Bank of America? – Wall Street was atwitter late on Monday when WikiLeaks’ founder, Julian Assange, disclosed in a Forbes interview that the organization’s next target was a major American bank, with a major data reveal to come early next year. Of course, he didn’t specify which bank; Mr. Assange is, among other things, skilled at building up suspense for his organization’s data dumps. But in this case, he may have let the cat out of the bag a year ago. In an October 2009 interview with Computerworld, Mr. Assange said that he had obtained copious amounts of data from a Bank of America executive’s hard drive

Pettis on Eurozone Pathways and Endgames Yves Smith – Michael Pettis, like Simon Johnson a few days ago, has tried mapping out what he thinks future scenarios for the eurozone might be, and what that means in terms of possible winners and losers.One of Pettis’ strengths is that he takes the time to be explicit about his reasoning, which gives readers the opportunity to see where they might beg to differ. And as much as I like his post, I think he makes one fatal assumption at the top, that the eurozone has more time than it really does.  I’m curious to get reader input (and do read the entire Pettis piece, it’s wonderfully thoughtful), but I see the conundrum in plain view. The eurozone does not have two to three years to come to resolution. The markets are pounding on weak countries now, and the inter-related credibility of nation-states and their banks are in serious doubt. And he is right, that the difficulty of apportioning costs, particularly among so many players, means that this situation cannot be resolved quickly. Political processes and market responses operate on hopelessly different time scales.

Guest Post: Scientists Confirm that Dispersants Are Increasing Contamination in the Gulf I have repeatedly documented the detrimental impacts of dispersants on humans, wildlife and seafood safety. See this, this, this, this, this, this and this. As I noted in September, scientists from Oregon State University found elevated levels of polycyclic aromatic hydrocarbons (PAHs) in the Gulf, and blamed dispersants. Now, the website of the prestigious Journal Nature is also reporting on the increase of PAH contamination due to the use of dispersants in the Gulf: The problem, explains Hodson, is that the dispersed cloud of microscopic oil droplets allows the PAHs to contaminate a volume of water 100–1,000 times greater than if the oil were confined to a floating surface slick. This hugely increases the exposure of wildlife to the dispersed oil. As the Press Register notes: “These chemicals, these are PAHs that are carcinogenic. … These items are not in any way appropriate for anyone to eat,” said Ed Cake, an environmental consultant from Ocean Springs. “There’s no low-dose level that’s acceptable to eat.”…

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