CBO Weighs in on Fannie and Freddie

CBO Weighs in on Fannie and Freddie – Yesterday, the Congressional Budget Office released its long-awaited report on the future of Fannie Mae and Freddie Mac. Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage Market (written with input from a cast of dozens — including, full disclosure, me as an outside reviewer) provides an outstanding overview of Fannie and Freddie’s history, the arguments for and against a government role in the secondary mortgage market, the flaws of the precrisis structure of Fannie and Freddie, and the pros and cons of possible reform models. Readers may recall that last spring Phill Swagel and I proposed a reform in which Fannie and Freddie would be privatized, the government would sell guarantees on mortgage-backed securities composed of conforming loans, and that this guarantee would be available not only to Fannie and Freddie but also to qualified new entrants. (Here’s the blog version; here’s the full paper.)
Lawler: Overall Housing Stock Growth Likely to Slow Even Further in 2011 – From economist Tom Lawler: Overall Housing Stock Growth Likely to Slow Even Further in 2011 Given recent and likely first half housing starts numbers, it seems highly likely that the growth in the US housing stock – which this year was the slowest in US history – will slow even further in 2011, even if housing starts begin to increase next year. Generally there is an average 7-8 month lag between SF housing starts are SF housing completions, and for MF housing starts the average lag is a little over a year. Given what housing starts have done, and given near-term indicators point to low levels of new housing production in the early part of next year, it seems highly likely that overall housing completions will be down in 2011.
Drop the corporate saving rate, please…Rebecca Wilder – The Federal Reserve Flow of Funds showed a third quarter shift in the financial sector balances: the corporate saving rate declined 0,25% to 2,7% of GDP; the household saving rate fell 0,13% to 3,8% of GDP; the current account fell 0,11% to 3,5% of GDP; and the government increased its saving rate 0,27% to -10,0% of GDP. Basically, the government was able to increase saving slightly, even as foreigners increased surpluses against the US, at the cost of reduced household and firm saving. The chart above illustrates the 3-sector financial balances approach, which is the identity that the private sector and public sector saving rates must equal that of the foreign sector (the current account). The private sector is broken into the household and corproate sectors. For a discussion of the 3-sector financial balances, see Scott Fullwiler, Rob Parenteau; and I’ve written on this as well. Some people may see the large government deficit, still -10% of GDP, as the ‘problem child’ of the sectoral financial balances. Me, I see the government deficit as a red herring of the corporate saving rate, which remains stickily in the 2-3% range. Until the corporate saving rate falls markedly, the unemployment rate is to remain high, and the household deleveraging process slower than would otherwise be…

More scrapped plans, retirements for U.S. plants in 2010 – Over the course of this year, more U.S. coal-fired power plants were tapped for retirement and more proposed plants were canceled than in 2009, according to an end-of-year report by the Sierra Club, which is fighting the continued use of coal. Data collected by the advocacy group show that 38 coal plant projects were dropped or delayed in 2010, up from 26 the year before and 27 in 2008. Meanwhile, power producers announced plans to retire 48 existing plants this year, four times as many as in 2009 and 12 times as many as in the year before that. The retirements announced this year would take 12,000 megawatts of coal-fired power off the grid — roughly 4 percent of the nation’s total coal-fired capacity and enough electricity to power about 6 million American homes.

Oil tops $90 for first time in more than two years – Crude oil rose to its highest closing price in more than two years today after government reports showed that U.S. supplies dropped and the country’s economy grew more than previously estimated in the third quarter. Stockpiles fell 5.33 million barrels to 340.7 million last week, the Energy Department said. A 3.4 million-barrel decline was forecast, according to the median of 14 responses in a Bloomberg News survey. The Commerce Department said gross domestic product expanded 2.6 percent in the third quarter, up from a previous estimate of 2.5 percent.

Big Oil Money Working to Rewrite History of Gulf Oil Disaster – Big polluters have spent years funding think tanks to give a veneer of credibility to their push for profit. I mean, if the CEO of Exxon Mobil comes out and says Congress should roll back the Clean Air Act, it would just rally people behind pollution limits. So instead, Exxon Mobil has given more than $2 million to the Competitive Enterprise Institute to say it for them. Now the polluter-funded think tank-media complex has a new target – whitewashing the Gulf oil disaster. Robert Nelson has an opinion piece made up to look like a news article in the Weekly Standard claiming the Gulf oil disaster caused little damage and calling anyone who would claim otherwise “secular equivalents to the devil.” Why would a public policy professor at the University of Maryland write something not just so wrong, but with such an angry, combative tone? A look at Nelson’s extracurricular activities reveals a web of connections to big polluters like Koch Industries & Exxon Mobil:

Spain’s Cuts to Solar Aid Draw Fire – A group of international investors has called on the Spanish government to reconsider plans to cut costly subsidies for solar power, saying they would cause a wave of defaults and more bad loans for Europe’s banks. Tom Murley, head of the renewable-energy team at U.K. private-equity firm HgCapital, said the changes represented a “breach of trust” that would increase regulatory uncertainty in the Spanish renewables industry.

Inside Job’s Charles Ferguson on the Corruption of Academic Economics – (video) Readers may have seen the movie Inside Job (if you haven’t, you really need to) or a clip from the movie that got quite a bit of attention on finance blogs, that of director Charles Ferguson grilling former Federal Reserve vice chairman Frederic Mishkin on some dubious work he did touting Iceland as a well run banking center not long before its implosion. The film’s director Charles Ferguson speaks with Rob Johnson, director of the Institute for New Economic Thinking, and former chief economist for the Senate Banking Committee and senior economist for the Senate Budget Committee. Enjoy!

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