Fed Minutes: High Bar for Changes to QE2

Fed Minutes: High Bar for Changes to QE2 – Minutes from the December Federal Reserve meeting point to a high bar for the central bank to change its $600 billion bond buying program. Some have argued that a recent run-up in interest rates as evidence the Fed’s program is ineffective. But officials noted a number of reasons for the increase, including stronger growth prospect, year-end positioning by the markets and the package of tax cuts that provide stimulus but also add to deficit concerns. There was another reason mentioned – that the Fed’s bond-buying program was smaller than markets expected. “A number of participants indicated that, because the backup in rates appeared to importantly reflect changes in investors’ expectations about the size of Federal Reserve asset purchases, the backup was consistent with purchases helping to keep longer-term yields lower than would otherwise be the case,” the minutes said. This was seen as evidence that the program is working, and made clear that changes are unlikely.
 
U.S. Light Vehicle Sales 12.55 million SAAR in December – Based on an estimate from Autodata Corp, light vehicle sales were at a 12.55 million SAAR in December. That is up 13.1% from December 2009, and up 2.7% from the November 2010 sales rate. This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for December (red, light vehicle sales of 12.55 million SAAR from Autodata Corp). This is the highest sales rate since September 2008, excluding Cash-for-clunkers in August 2009. The second graph shows light vehicle sales since the BEA started keeping data in 1967. Note: dashed line is current estimated sales rate. The current sales rate is still near the bottom of the ’90/’91 recession – when there were fewer registered drivers and a smaller population.
 

The rise of the new global elite (Atlantic)This widening gap between the rich and non-rich has been evident for years. In a 2005 report to investors, for instance, three analysts at Citigroup advised that “the World is dividing into two blocs—the Plutonomy and the rest”:  In a plutonomy there is no such animal as “the U.S. consumer” or “the UK consumer”, or indeed the “Russian consumer”. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie.  Before the recession, it was relatively easy to ignore this concentration of wealth among an elite few. The wondrous inventions of the modern economy—Google, Amazon, the iPhone—broadly improved the lives of middle-class consumers, even as they made a tiny subset of entrepreneurs hugely wealthy. And the less-wondrous inventions—particularly the explosion of subprime credit—helped mask the rise of income inequality for many of those whose earnings were stagnant. http://www.scribd.com/doc/6674234/Citigroup-Oct-16-2005-Plutonomy-Report-Part-1

Attorney General Tom Miller Reneges on Promise to Prosecute Mortgage Fraud (Updated) – Yves Smith – I’m not exactly surprised at the bait and switch by Iowa’s Attorney General Tom Miller, who is leading the 50 state investigation by state attorney generals into mortgage abuses. Less than a month ago promised that he would “put people in jail” Now he’s apparently decided to adopt a “move along, nothing to see here” posture. Per Bloomberg: The five largest loan servicers, including Bank of America Corp. and JPMorgan Chase & Co., may be the first to settle with the 50 state attorneys general probing foreclosure practices, Iowa Attorney General Tom Miller said…..The group isn’t pursuing a criminal investigation, Miller said. “Our focus is to reform the servicing process and that’s inherently civil, not criminal,” he said.  That’s funny, reader and former bankruptcy litigator Fractal thinks it would not take a lot of effort to come up with criminal charges. His message was directed at the activities of the foreclosure mills, but since they were operating as the arms and legs of servicers, many of these theories would presumably apply to them as well, since the communication between those law firms and their clients was frequent and ongoing. And he also points out why civil actions (or the threat of mere civil actions, since the AGs are on their way to sweeping these abuses under the rug) are inadequate:

BofA Freddie Mac Putbacks Resolved for 1¢ on $ – Bank of America settled numerous claims with Fannie Mae for an astonishingly cheap rate, according to a Bloomberg report. A premium of $1.28 billion was paid to Freddie Mac to resolve $1 billion in claims currently outstanding. But the kicker is that the deal also covers potential future claims on $127 billion in loans sold by Countrywide through 2008. That amounts to 1 cent on the dollar to Freddie Mac. Imagine if you had a $500,000 mortgage, and you got to settle it for $5,000 — that is the deal B of A appears to have gottem from Freddie Mac. B of A also paid $1.52 billion to Fannie Mae to resolve disputes on $3.1 billion in loans (~49 cents on the dollar). They remain liable for $2.1 billion in repurchase requests, as well as any future demands from Fannie Mae.

Waters: Taxpayers lose with Bank of America deal – A senior Democrat on Tuesday argued that the $2.8 billion settlement between mortgage giants Freddie Mac, Fannie Mae and Bank of America may be a ‘backdoor’ bailout that props the bank at the expense of taxpayers. "Given the strong repurchase rights built into Fannie Mae and Freddie Mac’s contracts with banks, and the recent court setback for Bank of America in similar litigation with a private insurer, I’m fearful that this settlement may have been both premature and a giveaway," said Rep. Maxine Waters (D., Calif.). "The fact that Bank of America’s stock surged after this deal was announced only serves to fuel my suspicion that this settlement was merely a slap on the wrist that sets a bad example for other negotiations in the future." Bank of America on Monday agreed to settle a legal spat with Fannie and Freddie over losses on hundreds of billions of dollars in home loans that the lender sold to the government-owned mortgage giants

Is a Tainter-Style Collapse in Our Future? Gloom, doom, and apocalyptic musings seem to be a permanent feature of modern society. But we’ve had more in the way of dystopian movies and talk of imperial decline in the last ten years than in the preceding ten. Quite a few readers have taken to mentioning Joseph Tainter’s classic, The Collapse of Complex Societies, in comments, a sign it might be worth discussing formally.Tainter, an archeologist, developed his thesis out of his considerable dissatisfaction with prevailing collapse theories, which he duly enumerates and shreds. His argument is straightforward:

    • 1. Human societies are problem solving organizations
    • 2. Sociopolitical systems require energy for their maintenance
    • 3. Increasing complexity carries with it increased cost per capita
    • 4. Investment in sociopolitical complexity often reaches a point of declining marginal returns
Issa Asks Corporate Players to Pick Regulations to Target We know about Darrell Issa’s steady stream of investigations. What we didn’t know is how central federal regulations were to that list. In fact, in determining how to proceed on the regulatory aspect of his oversight hearings, he has enlisted the industries themselves to tell him which regulations to jettison. Because there’s nothing corporations do better than act in the public interest. Rep. Darrell Issa (R-Calif.) wants the oil industry, drug manufacturers and other trade groups and companies to tell him which Obama administration regulations to target this year. The incoming chairman of the House Oversight and Government Reform Committee – in letters sent to more than 150 trade associations, companies and think tanks last month – requested a list of existing and proposed regulations that would harm job growth. …a partial list obtained by POLITICO includes ones sent Dec. 13 to Duke Energy, the Association of American Railroads, FMC Corp., Toyota and Bayer.
 
Rising oil prices send eurozone inflation above ECB’s target  – Eurozone inflation rises to 2.2% in December, driven entirely by rising commodity prices; ECB unlikely to react to the increase, but Yves Mersch is already warning that stimulus policies must end now; inflation likely to rise further as oil prices have since continued to increase; EIA warns that rise in oil prices could lead to a significant slowdown in OECD growth; Spanish unemployment falls in December, but the underlying trend remains negative; Sarkozy’s UMP ponders abolition of 35-hour week; Greek finance minister says consolidation plan is progressing, but large scale reforms are very tough to implement; eurozone bond markets remain volatile, as Irish spreads shoot through the roof; Ken Rogoff warns that eurozone debt crisis will take years to play out; Wolfgang Munchau, meanwhile, says economic liberals will need to embrace global macro-coordination, or lose the battle. [more]
 
G.O.P. Aims Smaller for Cuts to Budget – Many people knowledgeable about the federal budget said House Republicans could not keep their campaign promise to cut $100 billion from domestic spending in a single year. Now it appears that Republicans agree.  As they prepare to take power on Wednesday, Republican leaders are scaling back that number by as much as half, Now aides say that the $100 billion figure was hypothetical, and that the objective is to get annual spending for programs other than those for the military, veterans and domestic security back to the levels of 2008, before Democrats approved stimulus spending to end the recession.  Yet “A Pledge to America,” the manifesto House Republicans published last September, included the promise, “We will roll back government spending to pre-stimulus, pre-bailout levels, saving us at least $100 billion in the first year alone.”

 
What Has to Be on the Budget-Cuts Table? Everything. – Even defense spending, even tax expenditures.  I did this opening segment of Tuesday’s PBS Newshour broadcast.  One of my standard favorite lines I didn’t get to squeeze in about the politicians’ take on fiscal responsibility and reducing the deficit:  “It seems like a good idea…until you get right down to it”–i.e., it’s always easier in abstract theory than in specific practice. As both Jim Horney (of the Center for Budget and Policy Priorities) and I emphasize in the interview, everything should be on the budget-cuts table, and in fact, many in Congress like to use that line.  But then you listen more carefully and you find Republicans taking revenue increases and defense/national security cuts off the table, and Democrats taking most other types of spending off the table (whether for short-term or longer-term reasons), and you soon realize that what’s really left on the “bipartisan deficit-reduction table”–at least within the current Congress–is really close to nothing. 
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