Category: Equitablog

Cardiff Garcia: One reason the US auto market has bounced back faster than housing: “It’s only one of several reasons, of course…

…as housing is a much bigger source of wealth and collateral for households and was obviously devastated in the crisis (hurting the middle class and poorest Americans the hardest). But the simple point here is that both of these markets have had some favourable underlying demand-side pressures building in the last few years…. Access to car loans has been relatively less constrained than access to single-family mortgages, which is part of the explanation… for why auto sales have recovered like this… while single-family home sales have looked like this:

The frustrating thing about Geithner’s Stress Test is that he doesn’t explain why he took the housing policy positions he did when he did, and why he made the housing personnel decisions he did when he did. Instead, he jumps from claim to incompatible claim about his housing policy.

Thus we are left with Glenn Hubbard’s reaction to the housing policy discussion in Stress Test:

About housing… I must say I split my side in laughter because Tim Geithner personally and actively opposed mortgage refinancing…. And now he’s claiming this would be a great idea…

And David Dayen’s reaction to the housing policy discussion in Stress Test:

The guy who handed hundreds of billions of dollars over to banks with basically no strings attached [was] suddenly worried about fairness when homeowners get a break on their mortgage payments…. Even as he says in the book “I wish we had expanded our housing programs earlier,” he completely contradicts that to Andrew Ross Sorkin, saying [that his own] statement is “unicorny”…

And Amir Sufi and Atif Mian’s reaction to the housing policy discussion in Stress Test:

Multiplying $700 billion by 0.18 gives us a spending boost to the economy in 2009 of $126 billion, which is 1.3% of PCE, 10 times larger than the estimate Secretary Geithner asserted in his book. So Mr. Geithner is off by an order of magnitude…

Continue reading “The Consensus Is That Tim Geithner’s Blocking of Mortgage Foreclosure Relief Was His Biggest Unforced Error as U.S. Treasury Secretary: Wednesday Focus: May 14, 2014” →

Should-Reads:

1. Daniel Kruger and Wes Goodman: In Gundlach’s ‘No Normal’ World, Treasuries Can’t Lose: “Jeffrey Gundlach… has a simpler explanation for why investors have gotten the bond market so wrong this year: the aging of America…. This helps explain why the best and brightest erred in calling for a bear market in U.S. bonds–and why benchmark Treasury yields may stay low for years to come, according to Gundlach. ‘That’s one of the reasons why yields are not just going to explode on the upside’, Gundlach, who oversees $50 billion as the co-founder and chief executive officer of DoubleLine Capital LP, said in a May 7 interview with Tom Keene from Bloomberg’s headquarters in New York. ‘Part of this equation is the demand for income from the growing number of retirees.’…”

2. Alec Phillips: Obamacare is good for the economy, Goldman Sachs researcher says: “Alec Phillips, economic researcher at Goldman Sachs, said in a note issued late last week to clients that subsidies from the Affordable Care Act boosted gross domestic product during the first quarter and are likely to do the same during the second quarter…. ‘While we were initially skeptical of the large estimated effect of the new subsidies on personal income, these now look more reasonable to us in light of revisions, greater enrollment than expected several months ago, and the fact that states are likely contributing to the subsidies on top of the well-known estimates of federal costs’, Phillips said…”

Should Be Aware of:

Continue reading “Things to Read on the Evening of May 13, 2014” →

John Holbo: Occam’s Phaser?: “I’m rereading Nozick’s Anarchy, State and Utopia…

…because I got to thinking: what’s wrong with good old fashioned ‘force and fraud’ anyway? Isn’t the Night Watchman state just creeping Soft Tyranny, in Tocqueville’s sense? Plus it’s obviously a moral hazard and generally destructive to private virtue…. He spends a great deal of time answering my question. 150 pages. Why have even a minimal state that secures everyone against force and fraud? I know now that his answer is… really quite complicated and ultimately not altogether clear, despite the fact that Nozick is generally a clear writer. I’m not convinced Nozick really has any right, by his lights, to a full-fledged Night Watchman state. Something more minimal would be more respectful of the individual rights that we are, supposedly, respecting at all costs, seems to me…

Noah Smith: Does trend-chasing explain financial markets?: “Why do stock prices mean-revert in the long run?…

…Some people say that it’s because of time-varying risk premia with Rational Expectations; others say that it’s because of people’s incorrect information processing, and expectations are non-rational…. Andrei Shleifer and Robin Greenwood… take an extremely simple approach toward measuring people expectations: Just ask people what they think is going to happen!… Survey [expectations] measures are… strongly correlated… consistent with investors’ actions…. What causes people to expect higher stock returns?… Trend-chasing… seems to fit the facts very well…. Extrapolative Expectations beat Rational Expectations. That result would imply that trend-chasing by quasi-rational investors is the big force behind long-term stock return predictability…. But… [this] leaves the turning points unexplained…. There must be a role for hetergeneous investor expectations…. The refinement that Greenwood and Shleifer make in this 2013 paper, in which they team up with Nicholas Barberis and Lawrence Jin. They make a theoretical model where some investors are extrapolative trend-chasers and some are rational…

Paul Krugman: : Inflation Targets Reconsidered “For a time 2 percent seemed to make both economic and political sense…

…high enough to render concerns about hitting the zero lower bound mostly moot… was low enough to satisfy most of those worried about the distortionary effects of inflation… [and] those who wanted true price stability… could be deflected with the argument that official price statistics understated quality change…. The 2 percent target also, of course, acquired the great advantage of conventionality…. More recently, however, the 2 percent target has come under much more scrutiny… advanced economies are far more likely to hit the zero lower bound than previously believed…. In response, a number of respected macroeconomists, notably Blanchard (2010) and, much more forcefully, Ball (2013), have argued for a sharply higher target, say 4 percent. But do even these critics go far enough? In this paper I will argue that they don’t–that the case for a higher inflation target is in fact even stronger than the critics have argued, for at least three reasons…. Secular stagnation…. [The] two zeroes [of] downward nominal wage rigidity… [and] the interest rate ZLB…. [A]n economic and political trap… [of] a self-perpetuating feedback loop between economic weakness and low inflation…

Should-Reads:

1. Ed Luce: Review of Stress Test by Timothy Geithner: “Long after Rahm Emanuel, Lawrence Summers, Robert Gates, Peter Orszag and even Hillary Clinton had left the scene, Geithner was still at the president’s side. ‘Thanks for navigating us through a terrible storm’, wrote Mr Obama. ‘[Alexander] Hamilton would be proud!’… Geithner faced down the ‘Old Testament populists and moral hazard fundamentalists’ who would have preferred to burn the house down, in his view, than bail out rich bankers. ‘Nothing we did was out of sympathy for the bankers’, says Geithner. They were merely ‘collateral beneficiaries’. He repeatedly had to dissuade Mr Obama from the ‘showy, populist head fakes’ thrust on him by his political advisers. These included proposals to fire the chiefs of the bailed-out banks, nationalise the banks, impose strict pay limits and claw back generous bonuses…. Will history see Geithner as a great Treasury secretary? That is uncertain. He was certainly effective. But too much of this otherwise self-deprecating memoir is self-defence…. He is stung by the charge that he served Wall Street at the expense of Main Street. Yet he admits, ‘I wish we had expanded our housing programs earlier, to relieve more pain for homeowners’…”

2. Barry Eichengreen: The Eurozone Crisis Is Not Over: “If we have learned one thing from the last four years, it is that the European Union lacks the capacity to act decisively…. The patient is far from cured. Ireland, Portugal, Spain, and Greece have made considerable progress in lowering their unit labor costs to 1999 levels relative to Germany. The problem is that 1999 levels are not enough…. Italy and France… have made considerably less progress…. Nor is it clear where the crisis countries will find the demand that they need…. The ECB… continues to do too little to support demand… has been behind the curve since 2011…. Valls and Renzi also plan to cut spending to prevent their budget deficits from rising, which means that their initiatives will not boost demand…. Europe’s banking crisis is unresolved…. And everyone knows that Europe’s much vaunted banking union is deeply flawed…. Finally, there is that pesky matter of public debt…. All of this has the makings of a dismal prognosis. But it is how Europe progresses…”

Should Be Aware of:

Continue reading “Things to Read on the Evening of May 12, 2014” →