Great articles about the economy from the past week (updated with new articles)
Here are some article I strongly recommend reading (excerpts are provided below):
- “California crisis by the numbers – 12, 5, 30, 2, 732, 5.5, 121“, John Chiang (Controller of the State of California), San Francisco Chronicle, 11 February 2009
- “The Great Depression – Just the Facts, Ma’am“, Paul L. Kasriel, 9 February 2009
- The Real Lesson Of The New Deal“, Bruce Bartlett, Forbes, 13 February 2009
- “My Preferred Fiscal Stimulus” by Greg Mankiw (Professor of Economics at Harvard), 5 February 2009
- “No one home: 1 in 9 housing units vacant“, US Today, 13 February 2009
Update: Here are my two favorites articles.
(a) “Failed Banks Pose Test for Regulators“, New York Times, 14 February 2009 — And the bank failures have just begun. Emphasis added.
The rising tide of foreclosed real estate is so overwhelming that the agency, which had shrunk to a relatively tiny 4,800 employees from as many as 15,000 in the last period of bank meltdowns in the 1990s, is in the midst of a military-scale buildup as it undertakes one of the greatest fire sales of all time.
… When regulators took over the First National Bank of Nevada last year, they faced a showdown with the Terrible Herbst, the mustachioed cowboy who boasts of being the “best bad man in the West.” … The family-owned Herbst chain, auditors at the Federal Deposit Insurance Corporation concluded, did not generate enough sales at its Reno-area gas stations to support the repayment of the nearly $10 million loan, leaving auditors with three bad choices: Move to take over those stations and put the government in the gambling business. Cut off any flow of additional loan money. Or sell the loan at a steep loss. Simply cutting off additional advances of cash from the loan, was ruled out because the business might close, making it nearly impossible to collect any of the outstanding principal.
The resolution of the case turned out to be a windfall for Terrible Herbst. The government put the loan on sale, and who should buy it directly from the government but the Herbst family, at a discount of more than 50%. The government ate the loss, but at least it collected on some of the bad debt, the F.D.I.C. official involved in the deal said.
Executives at Terrible Herbst, who said they never formally refused to pay off the loan in full, were hardly disappointed. “It worked out just fine,” said Sean Higgins, the company’s general counsel. “At least for Terrible Herbst.”
(b) “Freddie Max Extends Moratorium on Foreclosure Sales“, 13 February 2009 — Defaults in were higher in the 1930′s but with a lower rate of foreclosure, due to measures like this. Mass evictions were politically unacceptable back then — just as they are today.
Freddie Mac today announced it is immediately suspending all foreclosure sales involving occupied single family and 2-4 unit properties with Freddie Mac-owned mortgages through March 6, 2009. The suspension does not apply to vacant properties. The extension will provide servicers with more time to help troubled borrowers find an alternative to foreclosure.
Excerpts from these articles
(1) “California crisis by the numbers – 12, 5, 30, 2, 732, 5.5, 121“, John Chiang (Controller of the State of California), San Francisco Chronicle, 11 February 2009 — One of the most remarkable statements by a public offical I have ever seen. But that’s not the amazing thing about this. The public read this and shrugged! Its’ like the ending of Thelma and Louise, everyone smiling as we zoom off clif. Excerpt:
No, these are not lottery picks or a plot-twisting code on the TV show “Lost.” But they do tell a story of how the Golden State – once revered for its pioneering leadership – is now so desperate that it no longer pays its bills, or cares for the sick and elderly. These numbers also indicate what kind of California – one that offers opportunity or shackles us with debt – is on the horizon.
This is moral hazard — so long talked about — made tangible. The hundreds of billions so carelessly burned by the Bush Administration have created an expectation that fecklessness and folly will be rewarded with free money — so vital entities like California see no reason to adapt for hard times.
(2) A brief history of the Great Depression by economist Paul L. Kasriel: “The Great Depression – Just the Facts, Ma’am“, 9 February 2009 — The best summary I have seen of the consensus forecast of economists about this economic downturn, why they believe late this year will be the trough.
(3) An important explanation of government’s role during a depression: “The Real Lesson Of The New Deal“, Bruce Bartlett, Forbes, 13 February 2009 — “Deficits were too small, not too large.” Bruce Bartlett is a former Treasury Department economist and the author of Reaganomics: Supply-Side Economics in Action and Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy.
(4) Worth reading, but for the opposite reason, is “My Preferred Fiscal Stimulus” by Greg Mankiw (Professor of Economics at Harvard), 5 February 2009. He would like to increase taxes on oil. Imagine what a member of OPEC, or any oil exporter, would think of his proposal. “If you want higher oil prices, we can oblige — and keep the proceeds, since it is our natural resource — not yours.” Even Harvard Professors can exhibit the “one world = our world” thinking paradematic of the post-WWII era, now fading away with each headline
(5) It is sad that two years into this financial crisis so much nonsense is still written about housing. The fundamental problem is over-supply: we built far too many homes. As I have said so many times, this is an intractable problem. To see its dimensions read “No one home: 1 in 9 housing units vacant“, US Today, 13 February 2009 — Excerpt:
A record 1 in 9 U.S. homes are vacant, a glut created by the housing boom and subsequent collapse. … Census numbers show:
- More than 14 million housing units are vacant. That number does not include an estimated 4.8 million seasonal or vacation homes, most of which are occupied part of the year.
- The combined vacancy rate of almost 15% is higher than during previous recessions: 11% in 1991 and 9.4% in 1984.
- About 3% of owned homes are vacant. In normal times, “maybe 1% should be vacant,” Myers says.
- More than 9% of homes built since 2000 are vacant compared with about 2% for older homes.
- Homes priced at $500,000 or more are just as likely to be empty as homes that cost less than $100,000.
Historically, vacant housing was more of a concern in cities that have poor neighborhoods. Now, it has hit suburbs and new subdivisions. “You have abandoned vacant housing in Detroit but you also have it in Henderson, Nev., and Mesa, Ariz. (suburbs of Las Vegas and Phoenix),” Retsinas says.
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To read other articles about these things, see the FM reference page on the right side menu bar. Of esp interest these days:
Other posts about housing:
- Diagnosing the eagle, chapter I — the housing bust, 6 December 2007
- A vital but widely misunderstood aspect of our financial crisis, 18 September 2008 — Too many homes.
- Destroying houses in order to boost home prices , 16 December 2008