Tag Archives: credit

It’s Time to Fix the Housing Finance Market

by SergioBPFL Posted on January 15, 2014

Mother Jones

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Yesterday I mentioned Brad DeLong’s belief that the biggest problem with the economy right now is the weak housing market:

I find it very hard to escape the conclusion that the big bad thing going on in the third millennium is not the excess construction of the mid-2000s housing bubble–a sum of 7.5% points of annual GDP….but rather the additional 20% points of annual GDP of residences not built since 2007 because of the financial crisis, resulting depression, and breaking of housing finance.

The chart above shows what DeLong is talking about. Housing was overbuilt in the aughts, but we’ve more than made up for that. The shortfall in new housing starts since 2008 is far larger than the excess between 2002 and 2007.

So what’s the problem? Felix Salmon, keying off a New York Times piece today, writes that a big reason for the continuing weakness of the housing market is the inability of even people with good credit to get mortgages.

Anecdotally, it’s much harder to get a mortgage now than it used to be. In the NYT article, the Center for American Progress’s Julia Gordon says that “a typical American family” with a credit score in the low 700s is “being left out”: that’s a very long way from subprime, which is what you’re considered to be when your credit score is below 620.

Meanwhile, here in Manhattan, no one in my condo building has been able to sell or refinance for the past couple of years, thanks to an ever-shifting series of rules at various different banks, all of which are clearly designed to just give them a reason to say no.

The chart below shows this dramatically:

Needless to say, mortgages were too easy to get in 2006, and we don’t want to go back to that level. But neither do we want to be where we are now. Salmon believes the problem is fairly simple: it’s not because of new rules about qualified mortgages or anything else regulatory, it’s simply because 30-year fixed mortgage rates are currently running at about 4.5 percent. “Would you lend money fixed for the next 30 years at a rate of less than 5%?” he asks.

The 30-year fixed mortgage is mostly a creature of Fannie Mae and Freddie Mac, who have historically bought up and securitized 30-year fixed mortgages so that banks didn’t have to keep them on their books. They aren’t doing that as energetically as they used to, and this has depressed the entire mortgage market. So what to do? DeLong suggests the answer lies with the government: “Have Mel Watt’s FHFA end policy uncertainty about housing finance and rebalance the construction sector to fill in our current 20%-point of annual GDP housing capital deficit.” Salmon suggests the answer might be the opposite: “Phase out the 30-year fixed-rate mortgage entirely, since it’s a product no private-sector financial institution would ever offer.” But both agree that the mortgage market is a crucial part of getting the economy back on its feet. Here’s Salmon:

One thing is clear: for all that the Fed has been pumping billions of dollars into mortgage securities as part of its quantitative easing campaign, all that liquidity has failed to find its way to new homebuyers. I’m in general a believer in renting rather than buying, but the US is a nation of homeowners, and in such a country, a liquid housing market is a necessary precondition for economic vitality. Right now, we don’t have one — and we don’t have much hope of getting one in the foreseeable future, either.

With household deleveraging having now run its course, this is a good time to start thinking more seriously about the housing market. It’s not a silver bullet, but there are plenty of families out there willing to fund more residential construction if only they could get a mortgage. Not a go-go-no-doc-no-down bubble mortgage, just a normal mortgage for normal people. This is something that President Obama should probably be thinking pretty hard about.

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It’s Time to Fix the Housing Finance Market

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Friday Cat Blogging – 27 December 2013

by roz3edl Posted on December 27, 2013

Mother Jones

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Here it is, our final quilt of the year. The design is a “blooming nine patch.” (The nine-patchy nature of the quilt might not be obvious at a distance. Click here for a close-up. If you look carefully, you’ll see that every other square is 3×3 nine-patch.) It’s machine pieced and machine quilted, and it’s the only quilt Marian has designed specifically to coordinate with our house. (It matches the drapes.) And since this is our final quilt, it’s fitting to spotlight the person responsible for this year’s quiltfest. In this year’s final catblogging picture, Marian is doing her best to get Domino to cooperate with the camera, and as you can see, she succeeded admirably.

And now for one more year-end pitch. The most important part of Mother Jones isn’t this blog, it’s the serious investigative reporting we do. As the PEN Award judges put it, we’ve become an “internationally recognized powerhouse…influencing everything from the gun-control debate to presidential campaigns.”

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Friday Cat Blogging – 27 December 2013

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If You Want Credit For an Improving Economy, You Have to Seize It

by GenevaN41gfx Posted on December 18, 2013

Mother Jones

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Paul Krugman channels Simon Wren-Lewis today to complain about the economic triumphalism of British Prime Minister David Cameron, who has been crowing that his austerity policies are finally paying off. In reality, both men say, Cameron implemented austerity policies in 2010 and 2011, but then eased up. And now that he’s eased up, the economy is starting to improve. Austerity had nothing to do with it.

I want to use this as a springboard to make two random-but-connected points:

Politically, message consistency is key. Ronald Reagan never varied from his insistence that tax cuts would supercharge the economy, so when the economy finally did pick up in 1983, tax cuts got the credit even though they almost certainly played only a small role. Likewise, austerity is getting the credit in Britain because Cameron has never varied from his insistence that it would work. Liberals tend to be much worse at this kind of economic message discipline. When the economy improves, they get a lot less credit because they haven’t relentlessly prepared the public with a very simple message about what they’ve been doing.
On a related note, Wren-Lewis points out that Britain’s central government deficit in 2013 was 7.5 percent of GDP. Cameron touts this as evidence of his fiscal stinginess. In America, the federal deficit in 2013 was 4.1 percent of GDP. Conventional wisdom ignores this and continues to wail that we need ever more spending cuts in order to reduce our still-unconscionable deficits. One again, note the difference that message discipline makes.

My point is not that message discipline is everything. The real world matters more. But it does matter. If you want credit for good things, you have to make up a simple, plausible story about what you’re doing and then stick to it like glue until things finally turn up. It worked for Reagan and it’s working for Cameron. Obama, on the other hand, never had a consistent story, so he’s not getting any credit as the economy improves.

POSTSCRIPT: Needless to say, Obama also had much less control over the economy than Cameron, who doesn’t have to put up with a fractious Congress. So from a message point of view, maybe he was just screwed. Still, I suspect Obama could have done better than he did.

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If You Want Credit For an Improving Economy, You Have to Seize It

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Elizabeth Warren Introduces Bill to Prevent Employers From Discriminating Against Poor People

by Junepps1b Posted on December 17, 2013

Mother Jones

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On Tuesday, Sen. Elizabeth Warren (D-Mass.) and six of her colleagues in the Senate introduced a bill that would prevent employers from using credit checks in the hiring process, a practice that disproportionately hurts poor people.

Over the past few decades, credit reporting bureaus have begun selling their services not just to lenders, but to a wide range of employers. Forty-seven percent of employers check applicants’ credit history as an indicator of their employability, according to a 2012 survey by the Society for Human Resource Management. But research shows that a person’s credit score has nothing to do with her likelihood of succeeding in the workplace. The Equal Employment for All Act—co-sponsored by Sens. Richard Blumenthal (D-Conn.), Sherrod Brown (D-Ohio), Patrick Leahy (D-Vt.), Edward J. Markey (D-Mass.), Jeanne Shaheen (D-N.H.), and Sheldon Whitehouse (D-R.I.)—would prohibit the judging of applicants by this metric.

“A bad credit rating is far more often the result of unexpected medical costs, unemployment, economic downturns, or other bad breaks than it is a reflection on an individual’s character or abilities,” Warren said. “Families have not fully recovered from the 2008 financial crisis, and too many Americans are still searching for jobs. This is about basic fairness—let people compete on the merits, not on whether they already have enough money to pay all their bills.”

The bill, which is backed by over 40 community, financial reform, labor and civil rights organizations, would be a boon for low-wage workers, minority communities, and women. Credit checks used in the hiring process disproportionately disqualify people of color. Divorce tends to hit women’s finances harder than men’s, and women are also more likely to receive subprime loans than men.

Chi Chi Wu, a staff lawyer at the National Consumer Law Center in Boston, told the New York Times in May that most of the people who contacted her group complaining that they’d been denied a job because of poor credit were low-wage workers applying to big retail chains. “Someone loses their job,” she said, “so they can’t pay their bills—and now they can’t get a job because they couldn’t pay their bills because they lost a job? It’s this Catch-22 that makes no sense.”

There is ample support for the senators’ bill. In 2011, Rep. Steve Cohen (D-Tenn.) introduced a similar bill in the House. Nine states have adopted legislation that curbs the use of credit reports to in the hiring process.

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Elizabeth Warren Introduces Bill to Prevent Employers From Discriminating Against Poor People

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Report: Most Tax-Based College Aid Goes to the Least Needy Families

by Merv Carlson Posted on December 10, 2013

Mother Jones

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The federal government helps to make college affordable in a number of ways, from low-interest student loans to grants for low-income students. It also offers a host of lesser known subsidies for higher education through the tax code, by way of such things as 529 tax-free college savings plans and exemptions for loan interest and college expenses—expenditures that don’t show up as a budget line item the same way Pell Grants do. A new report from the Consortium of Higher Education Tax Reform suggests these tax credits aren’t doing much to increase the number of low-income families who send kids to college. Instead, they’re subsidies to the 20 percent of American households making more than $100,000 a year—people who would send their kids to college even without a 529 plan.

The nation spends $34 billion annually on Pell Grants, which allow lower-income kids to go to college and leave without owing major debt. Meanwhile, the US spends $35 billion on higher education tax breaks, most of which go to people who need them the least. Tax credits in general are poorly targeted at those most in need, but some are worse than others. Take the Exemption for Dependent Students, which allows families to reduce their taxable income by up to $3,900 if they have a dependent student between the ages of 19 and 23. More than half of all these exemptions go to people making over $100,000 a year. Also regressive: the deduction for tuition and fees, half of which goes every year to families making over $100,000. The median income of a family with a 529 college savings plan is $120,000.

One reason tax credits don’t benefit lower-income families as much as they should is the fact that they aren’t refundable, so the money generally isn’t available to families when the college bills are due, only when they file their taxes. The consortium also points out that federal tax breaks are still available to colleges and universities that are doing a poor job of enrolling and graduating low-income students, noting that more than 100 institutions getting federal tax breaks have graduation rates under 20 percent—a serious problem that can leave low-income kids both saddled with college debt and without a degree that might help them earn enough to repay it.

Research shows that financial aid can make a huge difference in whether a low-income kid decides to go to college. It has a miniscule impact on the college attendance rate of upper class kids, who are seven times more likely than low-income students to complete a bachelor’s degree by the age of 24. The consortium recommends some big cuts in higher ed tax breaks for the affluent and a shift in focus to directing aid to where it can do the most good. Among its proposals: ending taxation of Pell Grants; allowing people with drug convictions to access the American Opportunity Tax Credit, one of the few refundable higher ed tax credits; and imposing income limits on college savings plans. All of these things seem reasonable and something both parties ought to be able to get behind, but it’s hard to see middle-class families giving up all this aid without a huge fight.

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Report: Most Tax-Based College Aid Goes to the Least Needy Families

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Wage Subsidies Might Be a Good Idea, But Republicans Will Never Support It

by Kornelajjb Posted on December 3, 2013

Mother Jones

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James Pethokoukis, after citing some research suggesting that a higher minimum wage reduces employment among low-skill workers, wonders why progressives seem so obsessed with the idea:

These studies aren’t some secret. So why do so many smart people keep advocating for a higher minimum wage? The best answer I can come up with is that they think it is more politically likely than the better economic answer: wage subsidies

….Noah Smith explains: When a company offers you a wage, the government matching would have already done behind the scenes. Someone comes and offers to pay me $20 an hour, the government is paying $12 of that. I would be making $8 an hour, but I would feel like a person who making $20 an hour. Unlike the Earned Income Tax Credit where you get a check from the government based on how much income you earned, I think people would feel a lot better in term of the framing of it if the government matched their wages instead.

I’d make several points about this. First, as Pethokoukis says, no one thinks wage subsidies are politically feasible. If there’s even a single Republican politician who favors them, I’d like to hear about it. Conversely, even if the minimum wage is a second-best alternative, it’s well-known, popular, widely understood, doesn’t require higher taxes, and is part of the political status quo. It wouldn’t be easy to raise the minimum wage, but it’s not impossible either.

Second, Pethokoukis is cherry picking the minimum wage research. It’s true that some studies show a small disemployment effect from a higher minimum wage, but there are others that show no effect at all. A fair reading of all the research suggests that the employment impact of a modestly higher minimum wage would be either very small or zero.

Third, wage subsidies can be tricky to implement. Are they temporary or permanent? Targeted or universal? Are they in addition to the EITC or a replacement? How do you prevent employers from gaming the system and reducing wages because they know the wage subsidy will make up the difference? There may be answers to these questions, but they aren’t trivial.

Finally, wage subsidies haven’t been widely adopted elsewhere, which means there isn’t a lot of compelling research to show how well they’d work. There are good reasons to be optimistic about wage subsidies, but as far as I know, they’re still fairly untested.

In any case, I really think the first point is the critical one. Wage subsidies would supposedly distort the labor market less than a higher minimum wage, but that’s because it would remove the onus of higher wages from employers and place it on the federal government. That means higher taxes to pay for the subsidy, and that’s just flatly a no-go for the modern Republican Party. This in turn means it could be implemented only as a tax credit, and that inherently places some restrictions on its reach and effectiveness. So Democrats would be in the position of backing either a good policy that will never get Republican support because it requires a tax increase, or else a mediocre policy that would still probably be a very heavy lift.

Incentives matter in politics as much as they do in the market economy, and there’s no incentive for Democrats to expend political capital on a policy change that’s highly unlikely to ever get any Republican backing. If and when that changes, perhaps wage subsidies will become a live option. Until then, a higher minimum wage is the only game in town.

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Wage Subsidies Might Be a Good Idea, But Republicans Will Never Support It

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Solar installations soar in California

by vserko45 Posted on July 12, 2013

Solar installations soar in California

By John Upton

The Golden State is going into overdrive on solar power.

California utility customers installed a record-breaking 391 megawatts of solar power systems last year. That was a banner year for the nation’s largest photovoltaic rebate scheme, with installations up 26 percent compared with 2011.

Those panels were installed with the assistance of the California Solar Initiative [PDF], a $2.2 billion program started in 2007 that aims to help residents meet the costs of installing 1,940 megawatts of solar capacity by the end of 2016. The program is on track to meet that target well ahead of schedule, meaning incentives will begin to dwindle.

From the L.A. Times:

The bulk of that money has been poured into incentives, per-watt rebates that have gradually declined as the solar industry grows. This is on top of the federal Solar Investment Tax Credit — 30% of the cost of each residential or commercial system is paid back to the owner of the home or business — and the net metering that accounts for all but 92 megawatts of the state’s existing solar capacity. Net metering doles out energy credits to customers for the solar power they produce but don’t consume, easing the strain of monthly electric bills. …

“Customers are choosing solar at a time when there are all sorts of major challenges to traditional energy,” [the Sierra Club’s Evan] Gillespie said, citing the shutdown of the San Onofre Nuclear Generating Station. California’s major utilities are scrambling to draft a long-term plan to make up for the lost power. As officials consider their alternative options, Gillespie said, “It’s amazing that rooftop is now ready to play an integral role in energy that San Onofre would have provided.”

“California’s groundbreaking efforts to encourage homeowners and businesses to install rooftop solar panels were so successful in 2012,” the San Jose Mercury News notes, “that the program is now effectively winding down.”

John Upton is a science fan and green news boffin who tweets, posts articles to Facebook, and blogs about ecology. He welcomes reader questions, tips, and incoherent rants: johnupton@gmail.com.

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CHART: How Climate Change and Your Wine Habit Threaten Endangered Pandas

by jackman0022 Posted on April 8, 2013

green4us

Global warming is shifting wine country straight onto sensitive habitats. Conservation International One group that’s been keeping a close eye on climate change is wine growers. Since a 2006 study predicted global warming could fry over 80 percent of the US’s wine grapes, vinters have been planning new heat-resistant varietals, adopting big-data-driven water saving techniques, and mapping out what could become the new Napa Valleys of a warming world. That last trend is the focus of a new study out today that examines how shifting wine cultivation geography could have implications for endangered species. Lee Hannah, an ecologist at Conservational International, used a suite of global climate models to plot where ideal wine conditions will migrate to as temperatures warm and precipitation patterns fluctuate. “In a lot of these places, what’s there now is good wildlife habitat,” Hannah said. Chart by Tim McDonnell Up to 73 percent of the area currently suitable for wine cultivation could be lost by 2050, according to the study, which was published in the Proceedings of the National Academy of Sciences. While temperate places like inland California and Mediterranean Europe lose good wine country, other, cooler or higher elevation areas, like the Northwest US and mountainous parts of China, are likely to open up for cultivation. Unfortunately, Hannah and his colleagues found, some of those areas are already home to animals like grizzly bears and pandas, respectively, that already have enough conservation issues on hand without having to negotiate a sprawling new vineyard in the middle of their migration path. The problem goes the other direction, too: Stick a winery in the middle of a moose’s stomping grounds, Hannah said, and he’d “love to go in and eat wine grapes.” By 2015, global wine consumption is expected to rise by nearly two billion bottles, an increase of 4.5 percent since 2006, with China’s growing middle class boosting the country into the top five world wine markets. And while China now imports most of its wine from France, Australia, and the US, Hannah predicts the Chinese could be sipping more home-grown wine within a few decades. But, he said, “turns out the best place to produce wine in China is exactly the mountains that harbor pandas.” Hannah’s study also examined the impact of decreasing rainfall on an industry that, in many places, already exacerbates water shortages. In California, for example, total wine-suitable area could decrease by as much as 70 percent in the next four decades—but declining precipitation could still leave more than 30 percent of that smaller area under water stress. Conflict between wine and wildlife is already being addressed by groups like the World Wildlife Fund’s Biodiversity and Wine Initiative, which pairs conservationists with wine growers in South Africa’s ecologically rich Cape Floral Region. But Hannah said the wine industry globally will need to pay more attention to the issue in the future, and work together to ensure the world’s appetite for reds and whites doesn’t drive any critters to extinction. “This is not under the control of any one vineyard,” Hannah said. “This is the next natural step for the industry, and it takes collaboration to consider how they might protect wildlife.”

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CHART: How Climate Change and Your Wine Habit Threaten Endangered Pandas

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CHART: How Climate Change and Your Wine Habit Threaten Endangered Pandas

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Daring Greatly – Brené Brown

by muistenam Posted on March 19, 2013

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Daring Greatly

How the Courage to Be Vulnerable Transforms the Way We Live, Love, Parent, and Lead

Brené Brown

Genre: Self-Improvement

Price: $12.99

Publish Date: September 11, 2012

Publisher: Penguin Group US

Seller: Penguin Group (USA) Inc.


Researcher and thought leader Dr. Bren&eacute; Brown offers a powerful new vision that encourages us to dare greatly: to embrace vulnerability and imperfection, to live wholeheartedly, and to courageously engage in our lives. “It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; . . . who at best knows in the end the triumph of high achievement, and who at worst, if he fails, at least fails while daring greatly.” —Theodore Roosevelt Every day we experience the uncertainty, risks, and emotional exposure that define what it means to be vulnerable, or to dare greatly. Whether the arena is a new relationship, an important meeting, our creative process, or a difficult family conversation, we must find the courage to walk into vulnerability and engage with our whole hearts. In Daring Greatly , Dr. Brown challenges everything we think we know about vulnerability. Based on twelve years of research, she argues that vulnerability is not weakness, but rather our clearest path to courage, engagement, and meaningful connection. The book that Dr. Brown’s many fans have been waiting for, Daring Greatly will spark a new spirit of truth—and trust—in our organizations, families, schools, and communities.

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Daring Greatly – Brené Brown

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Oil companies aren’t happy that the government is making them fix defective offshore rig parts

by donnajansen Posted on February 7, 2013

Oil companies aren’t happy that the government is making them fix defective offshore rig parts

By Philip Bump

The U.S. government has asked Chevron, Shell, and our old friends at Transocean to halt drilling on wells in the Gulf of Mexico. Why? Because the systems connecting the rigs to the ocean floor contain defective parts.

From Bloomberg:

[The companies] have been directed by U.S. regulators to suspend work aboard rigs that employ General Electric Co. devices connecting drilling tubes to safety gear and the seafloor. The equipment must be retrieved so defective bolts can be replaced, the U.S. Bureau of Safety and Environmental Enforcement said in an alert issued on Jan. 29. …

The defect was discovered last month after a leak of drilling fluid was linked to bolts that failed because of stress corrosion, according to the Jan. 29 alert. The regulator didn’t identify the owner of the rig or which oil company was leasing it. GE declined to identify the manufacturer of the bolts.

Thanks for your help, GE.

How big a deal is this for the companies?

Installing new bolts and resuming drilling may take as long as three weeks for each rig, Credit Suisse Group AG said. For oil companies paying upwards of $600,000 a day to rent the most-sophisticated deep-water vessels and another $500,000 a day to staff and supply each of them, the delays may be significant, said Craig Pirrong, director of the University of Houston’s Global Energy Management Institute.

“This certainly will be costly for the industry,” Pirrong said in a telephone interview yesterday. “This is a result of increasing government scrutiny of deep-water activities. The question is, will the increased costs be so onerous that they discourage some companies” from searching the deep oceans for crude.

1. You know what’s more expensive than spending $1.1 million a day to replace faulty bolts? Massive oil spills.

2. If a company is going to be discouraged from drilling offshore because it might have to fix defective, leaky parts, it’s probably for the best.

Source

U.S. Halts Drilling on Gulf Wells With Flawed Bolts, Bloomberg

Philip Bump writes about the news for Gristmill. He also uses Twitter a whole lot.

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