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Peter Coy, a veteran reporter at BW, who was prescient about the housing crisis, asks if defaltion is a possibility,; something hat happened in Japan in the 1990's and in the US in the 1930's. There is adownward ressure on wages from growing joblessness. With 7.2 million added to the unemployed since December 2008 and 263,000 in September 2009 alone, this pressure for labor to accept lower wages is growing.Jan Hatzius of Goldman Sachs predicts a drop in average hourly earnings of half a percent from the fourth quarter of 2009 through the fourth quarter of 2010. Hatzius accounts for workers strong aversion for wage cuts, without that the wages go down by 2%. Some experts say someone who lost his job 6 months ago is likely to accept alower wage now. If prices fall faster than salaries are workers better off. Not likely because of the destructive effects of defaltion from unused capacity an underutilized labor.

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The mortgage interest deduction mostly benefits wealthier people with larger mortgages who need it least, and who are likely to buy homes regardless of the deduction, say experts. Both the Brookings Institution and other experts such as Moody's chief economist, Mark Zandi, see the deduction as part of the negotiations for deficit reduction. The Brooking Institution's Ted Gayer, says the deduction subsidizes acitvity such as borrowing large amounts of money to buy larger homes which the U.S. should not want to subsidize in the current state of the country's finances. The Simpson-Bowles plan and the Feldstein-Romney plan sought to put unnecessary tax expenditures and deductions on the table for negotiation. The deduction was not part of the last tax reform in 1986 under president Reagan. Zandi says any changes should be phased in over a number of years so that housing sales ar not affected in the current recovery. David Stephens, CEO of the Mortgage Bankers Association says any changes should be implemented gradually. ...

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HDFC Bank CEO, Aditya Puri, has succeeded with conservative practices in lending. It is now India's second biggest lender by market value, after the government owned State Bank of India. HDFC's lending to consumers has doubled since 2008 under Puri. He believes in prudent lending and keeps an autographed copy of Michael Lewis's The Big Short in his office. This has enabled Puri to avoid the losses experienced by other banks such ICICI, and with India's growing economy HDFC has profit increases of over 30% for the last decade. HDFC is adding 2 million customers a year, says Puri. The bad loan ratio is estimated to be 0.2% in the third quarter of 2011, one tenth of that at State Bank of India. India's largest mortgage lender, Housing Development Finance Corporation, is the largest shareholder with 23%. Puri says he will focus on growth in India, and will continue to avoid taking the kind of risks that would make depositor's lose sleep at night.

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This Journal editorial talks about the role GE Capital has played in generating profits for GE under CEO Welch, and then leading to a need for government money to help GE Capital survive. It describes as hollow the claims GE makes about leading a drive for US renewal through jobs growth and innovation when earnings were driven by a finance division for many years during the financial boom in mortgages. Capital was then massively misallocated from productive uses to speculative investments. The claims about investment in jobs in the US rings hollow says the Journal, because GE continues to cut jobs in the US- employment in the US for GE fell by 34,000 between 2000 and 2009. By inviting "government to be a industrial policy champion, a financier and a key partner," as stated in a 2008 letter to shareholders, GE CEO Immelt, says the Journal, is simply inviting the same kind of capital misallocation that led to the housing bubble.

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Reviews of "End of Wall Street" by Roger Lowenstein and the "Big Short" by Michael Lewis show not only how the traders like Michael Burry and Steve Eisman built up credit default swap positions and bet that the housing market with subprime lending would collapse. The Big Short says Gross is a portrait of misfits, which is how the traders are shown in their personal lives. For Eisman a graduate of the University of Pennsylvania and the Harvard Law School, his own wife is quoted as saying, that even on Wall Street he was seen as "rude, obnoxious and aggressive." About lives of the men of finance, Lowenstein describes one incident in which Vikram Pandit is spotted at lunch in "Le Bernardin," a top rated restaurant in New York. Pandit sees nothing by the glass and orders a $350 bottle so he could savor a glass of wine worth drinking. All this for doing what Loyd Blankfein described as "doing God's work."

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Total student debt in the U.S. passed the figure of $1 trillion in late 2012, according to the Consumer Financial Protection Bureau, the federal agency recently created. This figure is about 16% larger than an estimate made earlier in 2012 by the Federal Reserve Bank of New York. The surge reflects increasing numbers of people going back to college to get new skills in a faltering job market. Tution increases with cuts in state funds to colleges mean larger loans need to be taken. Another factor is that about 25% of borrowers are behind in payments, resulting in higher interest payments, according to New York Fed data. Experts say this could delay the recovery in the housing market, as potential home buyers take longer to build up funds for a down payment. Parents are co-signers on some loans for children and professional changing careers are also taking loans, creating larger effects of rising student debt.

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Bill Gross of PIMCO has increased holdings of mortgage backed securities issued mainly by Fannie Mae and Freddie Mac in Pimco's Total Return Fund. Holdings were 38% in Sept. 2011, holdings were 52% in Feb 2012. This bet on mortgage securities has enabled this bond fund to show a return of 2.88% in the 1st quarter of 2012. Mortgage bonds are doing well because of expectations that the Fed will setup another program to buy mortgage bonds because of a weak housing market in the U.S. In 2011 the Total Return Fund performance showed a 4.16% return compared to the Barclays Capital Aggregate Bond Index return of 7.84%. Gross has 37% in Treasurys in Feb. 2012. In 2011 Gross hurt returns by cutting back on Treasurys. He has also reduced exposure to emerging market debt and riskier corporate bonds. Holdings of high yield bonds were reduced by 1% to 3% in February 2012.

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Use of oil for transportation has increased from 30% ten years ago to nearly 50% in 2013, according to Sanford Bernstein, as more cars are added to China's roads. This makes it less likely that a slowdown in China's growth will affect demand for oil. Sales of passenger cars increased by 11% in January and February 2014. A study at France's central bank by Gauvin and Rebillard shows only a much smaller effect on oil prices from a hard landing of the Chinese economy, compared to the effect on metal prices. Passenger cars now make up two out of three vehicles on Chinese roads, according to LMC Automotive. The growth in cars is likely to continue, not just in China, but in other emerging markets such as India, Brazil, Mexico and Russia. Metal consumption is different, as it comes mostly from housing, infrastructure and factories which are the most affected parts of the economy in China.

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Tesco's decision to exit the U.S. market in Dec. 2012. Tesco's U.S. plan was made after research showing buyers would favor smaller stores than large supermarkets, and more fresh products. Tesco made its entry in the U.S. market in 2007 in Nevada, California and Arizona in areas with new housing projects. When the mortgage crisis hit in 2008, foreclosures and the recession affected these areas where new stores were opened. Some of the ideas were lost in the implementation. The format that worked in Britain failed to takeoff in the U.S. Many stores were located in area where people were used to driving longer distances and could find a larger store with more selection a few minutes away. American buyers preferred to shop for name brands with more selections, Tesco carried more house brands. Experts say Tesco failed to establish a clear proposition to buyers. Tesco faces a loss of 1 billion pounds on the U.S. venture.

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Elelven of twelve Fed Governors support the U.S. Federal Reserve's decision to keep rates low till unemployment falls below 6.5%, as long as inflation remains subdued at 2-2.5% and inflation expectations are low. Only the Fed governor of Richmond expressed a dissenting vote. The Fed in its policy statement said it was addressing the problems of the last three years in housing and joblessness. Charles Evans of the Chicago Fed put it this way in a Sept 2011 speech- suppose the inflation rate was 5% when the target was 2%, then central banksers at the Fed would have acted as if their hair was on fire to tackle inflation, then why shouldn't the Fed do the same for unemployment. He succeeded in convincing Bernanke, Yellen and other Fed governors. Bernanke emphasized the enormous cost in human potential and productive capacity of the U.S. economy from high unemployment and people dropping out of the labor force.

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Obama cites "Seneca Falls and Selma and Stonewall" in his second inaugural address after failing to push strongly enough to address poverty and civil rights, housing foreclosures impact on minorities, and immigration during his first term. Stevenson says the address was filled with King's "urgency of the now," in pushing for progressive values in an unabashed manner. Freed from the constraints of the first term Obama senses the urgency of the moment if he is not to lose the opportunity to have contributed to the march of progressive values in America during his term as president. A cautious president feels the urgency of the progressive spirit that marked his early years, his first book, his work as a community activist and Illinois legislator; if all this is not to be lost in the burdens of the presidency, the pressures of politics, the fundraising machinery, election manoeuvring and vote getting that secured the presidency.

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The failure of the Obama administration's HARP, Home Affordable Refinance Program. It was designed to allow certain homeowners who owe between 80% and 105% of their home's current value to take advantage of lower rates. It was limited to loans owned or guaranteed by Fannie and Freddie. The HARP program was touted by Obama administration as helping potentially 4-5 million borrowers to refinance. So far only 12,710 refinancings have been completed according to the Treasury department. According to Freddie Mac by refinancing borrowers on average reduce the mortgage rates by 1.3 and 1.5 percentage points, saving around $2500 on a $200,000 loan. Now a new development further aggravates the housing market recovery. On June 10, 2009 rates on 30 year fixed mortgages climbed to 5.79%, up from 5% two weeks ago according to HSH Associates. That increase cuts in half the number of borrowers with incentives to refinance, according to FTN Financial. Now refinance activity is way down.

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African Americans from Chicago, Harvard Law School and other places in Obama's background, some of whom came into government with the Clinton administration are likely to assume leadership positions.John Rogers of Ariel Capital Management, Valerie Jarrett, are from Chicago. Some of them are at law firms like Jeh Johnson who is a fellow partner of Theodore Sorensen speechwriter for President Kennedy. These are a new group of younger African Americans different from the earlier generation of Andy Young and Vernon Johnson. Eric Holder was deputy attorney general under Clinton, now his name is mentioned for Attorney General. Ties in Chicago include ties to Martin Nesbitt, a close friend, who is chairman of the Chicago Housing Authority and a real estate developer. Harvard Law School admits 30 to 40 black students each year, and it has 1400 black law school alumni, more blacck law school graduates than any other school except Howard University. And its a source for fundraising and other contacts....

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How the housing slump that hit subprime borrowers is now beginning to affect prime borrowers.

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Building housing in gated communities and apartment complexes for the new middle class in China.

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Lael Brainard, head of the National Economic Council, and former Vice Chair at the Federal Reserve answers questions at the Council of Foreign Relations in Dec. 2024. Points she made are- The inflation we experienced was correctly diagnosed by Powell and the Fed as caused by Supply shocks from the pandemic not 1970's style embedded expectations inflation.  The response was to free up the supply by freeing up the clogged Los Angles Ports with labour and logistics coordination, and other actions. It also included redoing the supply chains to reduce dependence on China as only supplier. The 2017 tax cuts mean revenue will be 1.5 percentage points lower than the historically 18% of the GDP. This will increase the deficit. Biden administration had kept the deficit in control and reduced it by making offsetting adjustments when investment in certain areas such as childcare was done. The childcare tax credit is important for American families. Action is needed to increase the supply of housing. These are reminders of what is needed for the new DJT administration to keep the American economy on a strong footing says Brainard.     ...

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About two thirds of China is urban people but only 48% have residency rights, meaning about 250 million people are not getting the benefits of schools, pensions and healthcare in cities. Ministry of Human Resources shows only 22% of migrant workers have these benefits.  There are about 67 million Chinese children left behind by their parents in rural areas as they search for jobs in cities. These children do not see their parents often, sometimes not at all in a particular year. They have suffered lack of parental attention and have poorer schooling. In 2024 as some of these children grew up and became migrants themselves they did not want want happened to them happen to their children, and delay having children.  China's government considered rural couples as a good way to makeup for low birthrates. This has been proved not to be the case. China's household registration system is call hukou- it restricts access to healthcare and schools for migrants and discourages migrans who live in factory dorms or other restricted housing arrangements from taking children with them. Rural incomes are less than half of urban $3000 vs $7000 a year. ...

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Nigel Farage of Reform UK surges as its membership reaches 100,000 to Kemi Badenoch's Tories with 132,000 and split in their ranks. Tories are nervous about what is happening. Labour is trying to get its act together, and trying to get the civil service to serve the people. Starmer even goes on to warn that the civil service is "in managed decline." Every ministry is asked to save 5% through cutting waste and inefficiency, and to make good use of limited resources to deliver results to the British people. 2025 will be critical not only for Wales, Scottish and local elections, 2025 will show whether Labour can tackle the immediate problms of housing, cost of living, transport and show results in delivering on infrastructure and improvements at the NHS. Labour needs to get its execution for the goals set right and stay on top of delivery metrics at every stage on a monthly and quarterly basis. Can a lawyer like Starmer do this? It took years of execution of projects for Modi of India at the state level as chief minister in Gujarat to executi at the national level. Can Starmer/Reeves and the rest of the team learn, and learn quickly? ...

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As one wonders how the housing crisis will affect sales of items like cars and other items, its interesting to note that in addition to subprime borrowers who should never have taken the mortgage in the first place because of lack of proper credit background, there are borrowers who were otherwise healthy but are in a financial bind because of house flipping or speculative buying in the hope of gaining from the speculative price increases. These are defaults on prime quality loans and about 21 to 32 percent of the prime quality loan defaults in California, Nevada, Arizona, and Florida are mortgages with homes not occupied by the owner. Note that Goldman Sachs estimates that housing prices will fall about 7% this year and another 7% next year. These estimates may change as the housing crisis deepens with more foreclosures on subprime and prime properties.

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Zombrun describes the effect of low interest rates on savings for the bottom half of households in the U.S., the pressure to invest in stocks without the skills and experience of the better educated part of households in the top 20% of households by wealth and income. This resulted in a negative effect, a depletion of savings compared to an increase under a higher interest rates scenario with less pressure to take risks in a volatile stock market. This is the direct cost of the crises in stock and financial markets of 2000 caused by a internet bubble, and the larger crisis of 2008-2009 caused by the bubble in mortgages and housing. The secondary effects of the mortgage price bubble and faulty mortgage securities was in the millions of homeowners who went into foreclosure in 2009-2013, which further depleted wealth and savings of households in the bottom half lacking the experience and skills to navigate this type of housing market. The failure of the Obama administration to stem the foreclosures with practical steps which would have helped not hurt the banking sector, as suggested by FDIC's Sheila Bair and Harvard economist Martin Feldstein in many WSJ op-eds in 2010-2012, added to the erosion of savings and wealth of the bottom half. Minorities in particular were hit hard. A third effect is of communities across America that are feeling the effects of job migration to emerging markets such as China that has been underway as part of the globalization of the last three decades. A fourth effect in the rising cost of education, particularly since 2000, has reduced the opportunities for struggling working class people to enter the middle class and enjoy the higher incomes in precisely the very period when the divergence of incomes between less educated, less killed people and the more educated and better skilled people was taking place. The last two effects were neutral as part of the overall process of emergence of a globalized economy with a premium on more skills and education, requiring action by the government, universities and business for a concerted effort to mitigate in some places the negative effects and enhance in other places the positive effects. The first two effects were man made crises which required managing in constructive and positive ways for the entire American people, taking risks where necessary such as fears about the financial system if foreclosures did not go through. The risks of a long period of extremely low interest rates for savers and the middle as well as working class were poorly understood by the Fed since 2000. A similiar crisis is being faced in Europe with extremely low interest rates. Janet Yellen was only doing the honest thing by acknowledging how far and how different the situation is now compared to the period of three decades following 1945- a question not just of values cherished in America, also of the need for societies to advance through creation of wealth across all sectors of society or regress, as described by Smith in the Wealth of Nations....

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The Economist magazine describes Trump's business assets based on a few buildings in Manhattan, including one on Fifth Avenue. Compared to other real estate firms Trump's assets are small and lack the organization and structure typical of real estate firms. Asset values estimates also have a large range, as it lacks transparency. Not much can be concluded about his business skills says the Economist, other than that his company is not exceptional, has not raised permanent captal in capital markets, or developed a truly global business. Much of the business now relies on licensing the Trump name to properties, especially golf courses, following Trump's success with a television show "The Apprentice." In terms of cash flow the television show may have produced much of Trump's income in the last decade. The Economist says Trump's performance in the real estate business is mediocre when compared to his peers.

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The story of a company and its founder in Seattle who realized that $40,000 a year is not much to make a decent living in Seattle- that people had to work 2 jobs. In the process hurting the productivity at the company, with employees putting in less of the kind of energy and motivated work that helps companies grow. The founder decides to cut back on his own expenses and extravagant lifestyle to make sure his employees are paid a decent wage. He did the math and decided on $70,000 Five years later sales of the company have doubled. It is a payments company and the payments processed at Gravity doubled from $3.8 billion a year to $10.2 billion. The number employees have doubled. For employee productivity it mattered that they were not doing 2 jobs and worrying about credit card debt. Now 70% of employees have paid off debt. The amount of money they put into pension funds has doubled. And instead of 1% about 10% own their own homes. This suggests the old culture was bad for the economy as well as employees. More housing demand, more homes built, more cars sold, more money for pension funds to manage, all translate into a better performing economy and economic growth. Simply stated the old culture has put an artificial ceiling on economic growth and worse set a low bar fro productivity in companies. Healthier employees who could spend the time doing second jobs doing exercize instead and staying fit would also bring down the money spent on healthcare.  Ultimately it us about good common sense, and honest thinking about what works and does not work. The old culture simply fails good common sense. ...