Behind the Population Shift
– The rise of the Sunbelt has two common explanations: one climatic and the other commercial. The climatic, obvious explanation is that it’s the weather, stupid. The commercial explanation, which has a proselytizing undertone, is that places like Texas and Nevada attract companies and people with their lower business taxes and fewer regulations. The first view emphasizes the outdoors; the second right-to-work laws
. If all that we knew was that Sunbelt populations were increasing, it would be impossible to distinguish among these and other theories, but we have evidence on wages, productivity and the price of housing that can help us make sense of the Census. If economic productivity – created by low regulations or anything else – was causing the growth of Texas and Arizona and Georgia, then these places should have high per capita productivity and wages. Yet per capita state product in Arizona in 2009 was $35,300, 16 percent less than the national average. Per capita state products
were $36,700 and $42,500 in Georgia and Texas, respectively.
The ‘Subsidy’: How a Handful of Merrill Lynch Bankers Helped Blow Up Their Own Firm
– Within Merrill Lynch, some traders called it a "million for a billion" — meaning a million dollars in bonus money for every billion taken on in Merrill mortgage securities. Others referred to it as "the subsidy." One former executive called it bribery. The group was being compensated for how much it took, not whether it made money. The group, created in 2006, accepted tens of billions of dollars of Merrill’s Triple A-rated mortgage-backed assets, with disastrous results. The value of the securities fell to pennies on the dollar and helped to sink the iconic firm. Merrill was sold to Bank of America, which was in turn bailed out by taxpayers. What became of the bankers who created this arrangement and the traders who took the now-toxic assets? They walked away with millions. Some still hold senior positions at prominent financial firms.
Iran’s economic ‘surgery’ – INSIDE STORY – Al Jazeera – Iran’s government has slashed subsidies on food, water, electricity and fuel. They say the subsidies have been an expensive affair costing them around $100bn annually. Petrol prices will rise from 40 cents per litre to 70 cents. Electricity prices will jump from around $5 per month to $20. It is a dramatic increase, also for the cost of natural gas, from around $30 per month to $150. The cutbacks have been descirbed as the "biggest surgery" to the nation’s economy in 50 years. They come as the Iranian economy is straining under international sanctions. Earlier this year, the UN, the US and the EU all imposed tough new sanctions on Iran over its nuclear programme. But is Mahmoud Ahmadinejad, Iran’s president, breaking his electoral promise to help the poor, his main source of support? And are sanctions the only reason behind Iran’s economic woes?
China’s Wen seeks to assure public about inflation – Chinese Premier Wen Jiabao is trying to reassure the public about the government’s ability to control inflation amid worries that rising prices could hurt social stability. Wen said Sunday on China National Radio that the government has already taken 16 measures to fight inflation and is fully able to control the general level of prices. The remarks came a day after China raised interest rates for the second time in a little more than two months to curb inflation, which has risen to a 28-month high.
The Working Poor – As the middle class in America continues to be slowly wiped out, the number of working poor continues to increase. Today, nearly one out of every three families in the United States is considered to be "low income". Millions of American families are finding that they can barely make it from month to month even with both parents working as hard as they possibly can. Blue collar American workers from coast to coast are having their wages decreased at a time when it seems like the cost of virtually every monthly bill is going up. Unfortunately, there is every indication that things are only going to get worse and that average American families are going to be financially squeezed even more in the months and years to come. The Working Poor Families Project has just released their policy brief for the winter of 2010-11. What they have discovered is that the number of working poor in the United States is higher than they have ever seen it before and it continues to increase at a staggering pace. The following are some of the key findings for 2009 that were pulled right out of their report….
Bring back the RTC to fix housing – According to CoreLogic, about 10.8 million homes were underwater as of Sept. 30. This represents 22.5% of all mortgages. As homeowners find themselves deeper underwater, they eventually can no longer justify paying a mortgage based on a principal balance that does not reflect the value of the home, and they consider a strategic default. I am not sure if the traditional supply-and-demand formula works in housing. True, we could continue to allow supply to work off until the equilibrium is reached. However, as this supply works off, and my neighbors allow their homes to fall into foreclosure, the value of my own home is diminished. And as more homes in my neighborhood default, the value of my home falls even lower. This cumulative effect only occurs in real estate. If my neighbor allows his car to be repossessed, the value of my car is not directly affected. If I have a neighbor who defaults on their Visa, the balance on my Visa is not affected. Yet if my neighbor allows his house to go into foreclosure, the value of my home is directly affected. According to a Morgan Stanley report last week, home prices may drop as much as 11% through the first quarter of 2011. That is the danger of this contagious downward spiral. As prices continue to decline, more people are forced to walk away, causing home values to decline further.
The Limits to Racketeering
– According to Joseph Tainter’s theory of imperial collapse, as societies become more complex, they must expend an ever greater portion of the energy they have available simply on maintaining their complexity. Although social and technological advances may achieve profitable returns for awhile, once a certain level of complexity is reached, diminishing returns set in. Eventually, at the late imperial stage, the complexity of the power structure, the military infrastructure, the bureaucracies, all the rents involved in maintaining an ever more bloated parasite class, their luxuries, the police state required to extract these rents and keep the productive people down, and the growing losses due to the response of the oppressed producers, everything from poor quality work to strikes to emigration or secession to rebellion, reaches a point where the system can only cannibalize itself and eventually collapse. One dynamic of the system which makes citizen action so difficult is its distributed responsibility for repressing the people. But perhaps the same dynamic also generates an inner weakness.
Floored (homophonically) Section 171(b)(2) of the of the Dodd-Frank Wall Street Reform and Consumer Protection Act states that the agencies shall establish minimum risk-based capital requirements applicable to insured depository institutions, depository institution holding companies, and nonbank financial companies supervised by the Federal Reserve. In particular [the] sections specify that the minimum leverage and risk-based capital requirements shall not be less than “generally applicable” capital requirements, which shall serve as a floor for any capital requirements the agencies may require.
This is the Collins amendment to Dodd-Frank, inserted by Susan Collins into the act at, it is generally believed, the suggestion of Sheila Bair. What does it mean? Again, a slight paraphrase:
Gaming The Bank Regulation System: A Primer
– It’s eye opening to reflect that the Basel III requirements are the joint production of more than 500 representatives from 27 nations, including top regulators and central bankers. They met dozens of times this past year. They produced 440 pages of new rules. But those rules are just as open to regulatory arbitrgage—a fancy phrase for gaming the system—as ever. Imagine that Bank of America
l ends $1 million to a BBB rated company. That loan comes with a 100 percent risk weighting, which—under the 7 percent Basel III capital requirement—means that Bank of America would have to set aside $70,000 in capital. Bank of America would rather not set aside $70,000, so it buys a credit default swap from JPMorgan.
Because JPMorgan is a bank, the CDS has just a 20 percent capital weighting. This means that Bank of America must now set aside just $14,000 in capital for the loan. JPMorgan, however, doesn’t want to set aside the necessary capital for the loan, either…