Data does not lie; and this data point is pretty disgusting…

Enjoy your green beer weekend!

“It is a well-known fact that our society is structured like a pyramid. The very few people at the top create conditions for the majority below. Who are these people? Can we blame them for the problems our society faces today? Guided by the saying “A fish rots from the head”we set out to follow that fishy odor. What we found out is that people at the top are more likely to be psychopaths than the rest of us.

Who, or what, is a psychopath? Unlike Hollywood’s stereotypical image, they are not always blood-thirsty monsters from slasher movies. Actually, that nice lady who chatted you up on the subway this morning could be one. So could your elementary school teacher, your grinning boss, or even your loving boyfriend.

The medical definition is simple: A psychopath is a person who lacks empathy and conscience, the quality which guides us when we choose between good and evil, moral or not. Most of us are conditioned to do good things. Psychopaths are not. Their impact on society is staggering, yet altogether psychopaths barely make up one percent of the population.

Through interviews with renowned psychologist Professor Philip Zimbardo, leading expert on psychopathy Professor Robert Hare, former President of Czech Republic and playwright Vaclav Havel, authors Gary Greenberg and Christopher Lane, professor Nicholas Christakis, among numerous other thinkers, we have delved into the world of psychopaths and heroes and revealed shocking implications for us and our society.”

Source

(MoneyWatch) COMMENTARY China’s economy is now in bad enough shape that Beijing can’t hide it anymore.

The cause is the air rushing out of its housing bubble and, just as in the U.S., taking everything down with it.

“If you look at the Chinese data, you should stop debating about a hard landing,” said Adrian Mowat, JPMorgan Chase (JPM) chief Asian and emerging-market strategist. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”

What’s especially scary is that if the official data is showing a downturn, then the reality is certainly much worse. Economic statistics from the People’s Republic are notoriously unreliable. They are produced to serve political ends, a fact acknowledged by no less than Vice President Xi Jinping, who is expected to be the nation’s next leader.

Bloomberg recently added up all the debt disclosed by China’s 231 local government financing companies through Dec. 10. It found they had borrowed $622 billion. This is more than the European bailout fund and dwarfs the amount reported by the government and Chinese banks. While that is bad, it gets worse: There are 6,576 such entities in China, according to the National Audit Office. That audit office put the total debt for all those entities at $759 billion. This means 231 borrowers — or 3.5 percent of the total number — are responsible for more than three-quarters of the overall debt. If you believe that …

The whimsical nature of official Chinese data explains why markets reacted so badly when Chinese Premier Wen Jiabao said 2012 GDP growth would be 7.5 percent instead of the 8 percent it has been for the previous seven years. China always hits or surpasses its numbers because it makes them up. (The official China Daily newspaper offered a priceless explanation for Wen’s announcement: “By decelerating its GDP growth to 7.5 percent, the slowest since 2005, the Chinese government aims to promote the quality of its economic growth.”)

So, what does it mean when even the made up number has to be lowered? Nothing good….”

Read more

Source

Economists are scratching their heads over the recent failure of a textbook economic law: In order for the unemployment rate to be where it is today, our economy should be growing faster than it is.   

FORTUNE — Lately the improving jobs picture has stumped many Wall Street economists, who say the labor market seems to be doing better than what the pace of economic growth would suggest.

Goldman Sachs (GS) and a few other Wall Street firms forecast annualized GDP growth of less than 2% this quarter. And yet, the unemployment rate in January dropped to 8.3% – the lowest level in three years. The decline goes against Okun’s Law, which economists have historically relied on to forecast what the job market might look like given how quickly (or slowly) the economy is growing. As a rule of thumb, Okun holds that year-on-year economic growth of 2 percentage points above the trend — widely considered 2.5% — is needed to lower unemployment by one point. And vice versa.

Since the Great Recession, the unemployment rate has defied the law.

James Pethokoukis of the American Enterprise Institute, a Washington DC-based think tank, has laid out three instances: In 2009, the unemployment rate edged to 10% following a 3.5% drop in GDP. But under Okun, unemployment should have risen higher to 10.4%.

At the end of 2010, the unemployment rate fell to 9.4% from 9.9% the previous year. But given that the 3% rise in GDP was barely above trend, the jobless rate should have stayed flat. And in 2011, when GDP rose a point below trend to 1.7%, Okun would have predicted that unemployment would rise to 9.9%. However, it actually fell to 8.5% from 9.4%.

All this has made many wonder if the economy is doing better than what the data currently shows or if unemployment seems artificially low.

It could be that today’s GDP statistics are wrong. The economy might actually be growing much faster than we think, which wouldn’t be too surprising since it’s not unusual for growth statistics to get revised years later as economic data comes in. In a research note to clients on Monday, JP Morgan (JPM) economist James Glassman pointed to the 2008-2009 recession in which GDP was significantly revised downward last year.

“At the time employment trends were much weaker than the impression left by the real GDP trends,” he noted. “That was three years after the fact. With the economy now recovering, there is a high probability that preliminary estimates of national output eventually will be revised up.”

Certainly that could happen, but that still doesn’t capture the whole jobless picture.

The unemployment rate is also influenced by the labor participation rate – that is, the percentage of working-age persons who are employed as well as unemployed and searching for work. While labor participation has been stabilizing recently, it has declined considerably over the years. AsFortune pointed out last week, the drop might have less to do with discouraged workers giving up their job hunt (as economists widely believe), but also the flux of aging baby boomers retiring and leaving the labor pool altogether…..”

Read more

In classic Chinese gimmickry is has been discovered that many Chinese companies were forced to give false statistics in relation to revenues and overall business growth. In some cases it appears the numbers were rigged by nearly 10%….

Full article  

Read here:

As the Obama administration tries to respond to rising gas prices by touting an all-of-the-above strategy for energy independence, its own alternative energy initiatives are getting slammed from both sides.

The administration for the past six months has been under fire for blowing through nearly $530 million on Solyndra, the solar panel firm that filed for bankruptcy last September. A new government report now finds the loan program that funded Solyndra continues to suffer from management problems.

The administration was also just hit with a lawsuit from the gas companies’ trade association over a biofuels mandate that dates back to the George W. Bush administration — one which the industry says is unworkable.

Meanwhile, companies that are trying to secure government funding for fuel-efficient vehicles in the wake of Solyndra say the fallout from that controversy has led to a bureaucratic freeze at the Department of Energy and prevented their firms from getting any money.

Several companies applying for loans for their vehicle projects have abandoned that process in recent weeks.

The frustration was encapsulated in a letter sent by Bright Automotive to the department in late February, just days before the firm withdrew its loan application and started to close down shop.

“Unfortunately, irrationality and petty politics have paralyzed your agency at a time America needs you most. One cannot score if one does not shoot,” the executives of the now-defunct company wrote to Energy Secretary Steven Chu.

Mike Donoughe, chief operating officer with Bright, told FoxNews.com that Energy Department officials told them repeatedly they were under a directive to never put the department through another Solyndra.

“Those were their sort of marching orders,” Donoughe said of the department officials his firm dealt with. He said officials are so wound up they “do nothing. And they’re good at that.”

Read here:

I’m glad to have the chance to speak again to the Independent Community Bankers of America, even if it’s by way of prerecorded remarks. This will be the first time in quite a few years that I haven’t been with you in person, but, as you may know, the Federal Open Market Committee met just yesterday in Washington, so I am unable to join you in Nashville. I have very much enjoyed attending these annual ICBA get-togethers, especially since I get the chance to hear directly from you about what’s happening in your local economies and in community banking more generally. It’s a tradition I hope to reestablish in the future.

The Role of Community Banks in a Challenging Economy
Community banks remain a critical component of our financial system and our economy. They help keep their local economies vibrant and growing by taking on and managing the risks of local lending, which larger banks may be unwilling or unable to do. They often respond with greater agility to lending requests than their national competitors because of their detailed knowledge of the needs of their customers and their close ties to the communities they serve.

As you well know, however, community banks are also facing difficult challenges. Their close ties to local economies are, on balance, a source of strength, but a drawback of those ties is that the fortunes of communities and their banks tend to rise and fall together. Another concern for community banks is the narrowing of the range of their profitable lending activities: Because larger banks have used their scale to gain a pricing advantage in volume-driven businesses such as consumer lending, community banks have tended to specialize in other areas, such as loans secured by commercial real estate. That said, I know that community banks are continuing to look for ways to prudently diversify their revenue sources.

Like larger banks, community banks are also being affected by the state of the national economy. Despite some recent signs of improvement, the recovery has been frustratingly slow, constraining opportunities for profitable lending. And, as I will discuss momentarily, actual and prospective changes in the regulatory landscape have also raised concerns among community bankers.

The good news is that, for the most part, community banks appear to be meeting their challenges. Profits of smaller banks were considerably higher in 2011 than in the previous year, nonperforming assets were lower, provisions for loan losses fell appreciably, and capital ratios improved.

via WSJ.com

By SUMATHI REDDY

The morning after two groups of diners didn’t show up at the restaurant Noma in Copenhagen last month, chef and co-owner René Redzepi took to Twitter. “And now a message from the Noma staff: to the people of two different no-show tables last night,” he wrote, and sent a picture of staff members showing their middle fingers.

The tweet, deleted shortly after it was posted, was a joke, says Peter Kreiner, managing director of Noma. But at a restaurant that has just 12 tables and takes in as much as $500 per person for a meal, no-shows aren’t taken lightly. “It’s quite a large percentage of the sales that we missed out on,” he says.

As more people don’t show up for their reservations, some high-end restaurants are taking action, from charging no-shows to shaming them on social media. Sumanthi Reddy has details on Lunch Break.

Fickle diners are every restaurant’s worst nightmare. A select group of high-end chefs and restaurants are fighting back—from charging people who don’t cancel in time to using Twitter and other social media to call out no-shows.

The impact of an empty table can be a significant in an industry where average profit margins run as low as 3% to 5%. In cities like New York, it’s not unusual to find 20% of diners unaccounted for on any given night.

Restaurant owners expend tremendous resources trying to confirm reservations. Some restaurants, like Wylie Dufresne’s wd~50, will turn down a reservation from someone with a history of not showing up. Other chefs, like Ron Eyester of Rosebud in Atlanta, will jot down a note if a diner seems wavering on the phone, so that the staff knows not to hold the empty table too long.

A number of high-end restaurants now require credit-card numbers from anyone reserving a table. Some, like Hearth in New York and Cochon in New Orleans, seek credit cards only for larger parties and for special occasions. Others, like Eleven Madison Park in New York and Coi in San Francisco, extend the policy to parties of any size.

In January, Eleven Madison began charging anyone who didn’t show up or cancel a reservation 48 hours beforehand $75 a head. Owner Will Guidara says the restaurant was losing eight to 10 people per night. He adds, “With the length of our wait list and how many people we’re turning away, it just became really difficult to say, ‘No, no, no,’ to so many people and then have people who were supposed to be joining us just not showing up.”

Since the policy has been in place, Mr. Guidara says he has had to charge only a couple of cards a week.

According to online-reservation system OpenTable, 10% of restaurants nationally seek credit-card numbers for certain reservations, while about 15% of restaurants in New York do so. Those numbers have been trending down, the company says.

Eleven Madison Park / Francesco TonelliManhattan’s Eleven Madison Park requires credit cards for reservations and charge people who don’t show.

But Sherri Kimes, a professor at the Cornell School of Hotel Administration, thinks the practice will only increase. Ms. Kimes says her research has found that consumers are open to being charged for last-minute cancellations—as long as restaurants keep up their end of the bargain. “When the customer shows up… their table better be ready,” she says.

In Australia, a campaign to publicly name no-show diners through Twitter has been gaining steam. Erez Gordon, owner of Sydney’s Bistro Bruno, said in an email that he has outed customers just a few times, when they failed to respond to his calls. He likened it to diners’ jumping online to anonymously rate restaurants. “With Twitter, we are given the opportunity to respond in exactly the same manner as our guests respond if they feel we have let them down,” he said.

In the U.S., too, frustrations run high. “Every single day I will look at how the previous night went and every single day there’s upwards of 40—four, zero—no-shows at Nobu,” says Drew Nieporent, owner of the Myriad Restaurant Group.

Mr. Nieporent has called people the next day to find out why they didn’t show up. “Quite frankly, it’s worse now, because with online reservations we’re not even speaking to the customer,” he says. “So it could be someone in theory who is a concierge at a hotel or a broker who can book prime-time tables 30 days in advance, hold on to tables for 29 days and maybe, if they feel like it, call to cancel.”

Often, the price charged for a no-show doesn’t compensate a restaurant for its loss. At New York City’s Del Posto and Jean-Georges, the no-show fee for OpenTable.com reservations is $50 a head. In October, Mr. Nieporent’s Corton began requiring credit cards to reserve tables on Friday and Saturday nights and charging no-shows a $50 fee if they don’t cancel 48 hours ahead.

Daniel Patterson, the owner of Coi, says that when he started a $25 and then a $50 penalty for no-shows about three years ago, he saw few results. It wasn’t until he upped the amount to $100 that the rate dropped from 20% to 10%. “Our menu is $165, so we’re still losing money,” he says. “It’s really not about charging people. It’s really more about making sure they’re serious about the reservation.”

Other restaurants charge more. When Torrisi Italian Specialties in Manhattan began accepting reservations in November, it chose to charge diners for the full $125 tasting menu if they don’t cancel 24 hours ahead. Diners who reserve its shorter $60 menu have until 4 p.m. that day.

At the Chef’s Table at Brooklyn Fare, where reservations are snapped up six weeks ahead of time, consumers pay the full $225 prix-fixe price about a week in advance.

Perhaps most radical is the system started last year at Grant Achatz’s Chicago restaurant Next. To dine there, customers must buy nonrefundable tickets for a meal in advance. A dynamic pricing system makes tickets at prime times pricier. Mr. Achatz’s business partner, Nick Kokonas, says the system has been so successful they plan to use it at their Alinea restaurant.

Mr. Kokonas is working on a system for other restaurants. Another Chicago restaurant will pilot-test it soon. He sees one reaction from restaurateurs: “Show me how to do it.”

Write to Sumathi Reddy at [email protected]

By MICHAEL J. BOSKIN and JOHN F. COGAN

Long a harbinger of national trends and an incubator of innovation, cash-strapped California eagerly awaits a temporary revenue surge from Facebook IPO stock options and capital gains. Meanwhile, Stockton may soon become the state’s largest city to go bust. Call it the agony and ecstasy of contemporary California.

California’s rising standards of living and outstanding public schools and universities once attracted millions seeking upward economic mobility. But then something went radically wrong as California legislatures and governors built a welfare state on high tax rates, liberal entitlement benefits, and excessive regulation. The results, though predictable, are nonetheless striking. From the mid-1980s to 2005, California’s population grew by 10 million, while Medicaid recipients soared by seven million; tax filers paying income taxes rose by just 150,000; and the prison population swelled by 115,000.

California’s economy, which used to outperform the rest of the country, now substantially underperforms. The unemployment rate, at 10.9%, is higher than every other state except Nevada and Rhode Island. With 12% of America’s population, California has one third of the nation’s welfare recipients.

Partly due to generous union wages and benefits, inflexible work rules and lobbying for more spending, many state programs and institutions spend too much and achieve too little. For example, annual spending on each California prison inmate is equal to an entire middle-income family’s after-tax income. Many of California’s K-12 public schools rank poorly on standardized tests. The unfunded pension and retiree health-care liabilities of workers in the state-run Calpers system, which includes teachers and university personnel, totals around $250 billion.

Meanwhile, the state lurches from fiscal tragedy to fiscal farce, running deficits in good times as well as bad. The general fund’s spending exceeded its tax revenues in nine of the last 10 years (the only exceptions being 2005 at the height of the housing bubble), abetted by creative accounting and temporary IOUs.

Now, the bill is coming due. After running a $5 billion deficit last year and another likely deficit this year, Gov. Jerry Brown’s budget increases spending next year by $7 billion and finances the higher spending with income and sales-tax hikes. Specifically, he’s proposing a November ballot initiative raising the state’s top income tax rate to 12.3%, making it the nation’s highest, and raising the basic state sales tax rate, already the nation’s highest, to 7.75% from 7.25%.

Read the rest here.

On Friday, Prof. Allan Meltzer of Carnegie Mellon University, a well-known conservative economist, offered a commentary in The Wall Street Journal arguing against policies to equalize the distribution of income.

His key piece of evidence is the chart below, from a study by the Swedish economists Jesper Roine and Daniel Waldenstrom, that shows the share of income accruing to the top 1 percent of earners in seven Western democracies. They all follow the same trend line, Professor Meltzer says, and it proves that “domestic policy can’t be the principal reason for the current spread between high earners and others.”

Leaving aside the fact that the ultrarich have gained far more in the United States than any other country in his sample and that there is no upward trend at all in the Netherlands, he seems to have missed an important implication of his own conclusion.

If the rich are going to continue to get richer in low-tax countries and high-tax countries alike, then it must mean that high tax rates have far less of a disincentive effect on the rich than conservatives like Professor Meltzer continually proclaim.

Read the rest here.

State Controller John Chaing continues to uphold the California Great Seal Motto of “Eureka”, i.e., ‘I have found it’. But what Chaing is finding as Controller is that California’s economy as measured by tax revenues is still tanking. Compared to last year, State tax collections for February shriveled by $1.2 billion or 22%. The deterioration is more than double the shocking $535 million reported decline for last month. The cumulative fiscal year decline is $6.1 billion or down 11% versus this period in 2011.

While California Governor Brown promises strong economic growth is just around the corner, Chaing proves that the best way for Sacramento politicians to hurt the economy and thereby generate lower tax revenue, is to have the highest tax rates in the nation.

California politicians seem delusional in their continued delusion that high taxes have not savaged the State’s economy. Each month’s disappointment is written off as due to some one-time event.

The State Controller’s office did acknowledge that higher than normal tax refunds for February might have reduced the collection of some personal income taxes. Given that 2012 has an extra day in February for leap year, there might have been one day more of tax refunds sent out. But the Controller’s report shows personal income tax collections fell by $325 million, or 16% versus last year. Furthermore, leap year would have added another day for retail sales and use tax collection, but those revenues also fell during February-by an even larger $813 million, 25% decline from 2011.

The more likely reason tax collections continue falling is that businesses and successful people are leaving California for the better tax rates available in more pro-business states.

Derisively referred to as “Taxifornia” by the independent Pacific Research Institute, California wins the booby prize for the highest personal income taxes in the nation and higher sales tax rates than all but four other states. Though Californians benefit from Proposition 13 restrictions on how much their property tax can increase in one year, the state still has the worst state tax burden in the U.S.

Spectrum Locations Consultants recorded 254 California companies moved some or all of their work and jobs out of state in 2011, 26% more than in 2010 and five times as many as in 2009. According SLC President, Joe Vranich: the “top ten reasons companies are leaving California: 1) Poor rankings in surveys 2) More adversarial toward business 3) Uncontrollable public spending 4) Unfriendly business climate 5) Provable savings elsewhere 6) Most expensive business locations 7) Unfriendly legal environment for business 8) Worst regulatory burden 9) Severe tax treatment 10) Unprecedented energy costs.

Vranich considers California the worst state in the nation to locate a business and Los Angeles is considered the worst city to start a business. Leaving Los Angeles for another surrounding county can save businesses 20% of costs. Leaving the state for Texas can save up to 40% of costs. This probably explains why California lost 120,000 jobs last year and Texas gained 130,000 jobs.

Read the rest here.

via economist.com

THE past few years have been “as miserable as I can remember”, says Johnny Boyer of Boyer Allen Investment Management, a British hedge fund focused on Asia. The fund, which looked after $1.9 billion at its peak, faced the prospect of spending the next few years trying to claw its way back to pre-crisis asset levels. Instead the founders decided to shut the fund and give investors their money back.

Others have also had enough. “I’ve been doing this for 15 years and I’ve never seen as many people give up as in the last three months,” says Luke Ellis of Man Group, a large listed fund. This trend is distinct from the round of closures in 2008. Then, managers were hit by investors’ redemptions and had no choice but to close; today many are electing to walk away.

For some managers, the markets have become too stressful. Running a hedge fund today is “three times as much work for a third of the fun,” says one. But many are motivated by economics. Hedge funds typically get paid a 2% management fee on assets to cover expenses and a 20% performance fee on the returns they achieve for investors. Most funds do not earn performance fees unless they outperform their peak level or “high-water mark”. At the end of 2011, 67% of hedge funds were below their high-water marks, according to Credit Suisse, and 13% have not earned a performance fee since 2007 or earlier.

Funds can survive off a management fee for a couple of years, but four is a long time to go hungry. Most managers were banking on a recovery in 2011 but the average hedge fund slid by 5.2%—much worse than the S&P 500, which returned 2%. Poor performance is causing changes in the way the industry markets itself (see article). It also means many funds will have to wait even longer to earn a performance fee again. According to Morgan Stanley, 18% of hedge funds are more than 20% below their high-water marks.

 

 

Smaller funds have been more likely to close than their larger peers. That’s partly because it used to be possible to run a hedge fund with $75m under management. Today funds need at least double that amount because administrative and compliance costs are higher than ever. Larger funds also depend less on performance fees because their management fees bring in so much cash. John Paulson, a hedge-fund giant whose flagship fund was clobbered last year, has pledged to make up investors’ losses but his fund is so large that he can easily afford to carry on. That risks distorting the original point of hedge funds—that they are small, limber operations which come and go often (see chart).

For investors, it is generally a good thing if underperforming managers are returning cash and not milking them for fees. But others worry that high-water marks could skew funds’ investing decisions. Managers who have not earned a performance fee in years could take bolder bets to get back into the black. Leverage levels have been creeping up. Some may prefer to go out with a bang, not a whimper.

That is a problem for the “richest generation on the planet”

vía Politico.com

1. “They [OPEC] want to go in and raise the price of oil because we have nobody in Washington that sits back and says you’re not going to raise that f—-ing price, you understand me?” — Donald Trump (April 2011)

2. “I figured out Karl Rove’s political strategy – make gas so expensive, no Democrats can afford to go to the polls.” — Sen. John Kerry (May 2004)

3. “President Obama must announce today in his Nashua address that he is firing Secretary Chu and replacing him with a pro-American-energy appointment. If he doesn’t, then the American people will know the president is still committed to his radical ideology, which wants to artificially raise the cost of energy.” — Newt Gingrich (March, 2012)

4. “You’ve got Donald Trump saying don’t pay OPEC $100 for the oil. Just tell them you’ll give them $50. Really? I go into Trump’s hotel, it’s $1,000 for a suite and I say I’m not going to give you that, I’ll give you $200. I’m on the street looking for another place to sleep. You can’t tell them I’ll give you $50 when the world market is $100. It just doesn’t work that way.” – T. Boone Pickens (Feb. 2012)

5. “We went into a recession in 2008 because of gasoline prices.” – Rick Santorum (Feb. 2012)

6. “I can get you a gallon of gasoline for a dime. … You can buy a gallon of gasoline today for a silver dime. A silver dime is worth $3.50, it’s all about inflation and too many regulations.” – Ron Paul (Sept. 2011)

7. “Since the president has been president, the cost of gasoline has doubled. Not exactly what he might have hoped for. … He’s said it’s not my fault. By the way, we’ve gone from ‘Yes, we can’ to ‘It’s not my fault.’ Well, this is in fact his fault.” – Mitt Romney (March 2012)

8. “Somehow, we have to figure out how to boost the price of gasoline to the levels in Europe.” – Energy Secretary Steven Chu (Sept. 2008)

9. “The next time you hear some politician trotting out some three-point plan for $2 gas, you let them know, we know better. Tell them we’re tired of hearing phony, election year promises that never come about.” — President Barack Obama (March, 2012)

10. Honorary mention: Dan Aykroyd, playing President Jimmy Carter in a Saturday Night Live skit in the 1970s, had some fun with Carter’s famous suggestion that Americans put on sweaters and turn down the heat:
Read more: http://www.politico.com/news/stories/0312/73891.html#ixzz1ovXMQif3

Oh yeah, that’ll work well…(sarcasm). Idiot academics; then why the hell should anyone pay their mortgages at all?

They’re not going to avoid another round of foreclosures, they’re going to make it worse.

Read here:

There’s a growing consensus among economists, investors, academics, and consumer advocates that more “principal reduction” — writing off a portion of a mortgage that exceeds a home’s value in exchange for a higher likelihood of repayment — can help avoid another wave of costly and economy-crushing foreclosures. That’s good for homeowners and lenders, and because millions of underwater mortgages are controlled by the government, it’s also good public policy.

But the country’s two biggest mortgage companies are not convinced, according to Edward DeMarco, acting director of the Federal Housing Finance Agency — which oversees the government-controlled mortgage giants Fannie Mae and Freddie Mac.

“Both [Fannie and Freddie] have been reviewing principal forgiveness alternatives and both have advised me that they do not believe it is in the best interest of the companies to do so,” DeMarco told Congress last week. He added that principal reduction is inconsistent with his mandate to protect taxpayers, who have invested more than $150 billion in the companies since 2008.

“The single largest obstacle to meaningful economic recovery is a man who most Americans have probably never heard of, Edward J. DeMarco.

From his perch as acting director of the Federal Housing Finance Agency, DeMarco oversees Fannie Mae and Freddie Mac, the government-owned mortgage behemoths that collectively control about half of all home loans in the land. What he does shapes both the national housing market and the ability of troubled borrowers to hang on to their homes. What he has been been doing lately has been so unhelpful that Democratic lawmakers and grassroots advocacy groups are properly demanding his ouster.

DeMarco steadfastly refuses to allow Fannie and Freddie to help distressed homeowners by writing off principal balances on their mortgages. This has ensured that tens of millions of borrowers remain “underwater,” meaning they owe the banks more than their homes are worth — a status that has an alarming tendency to portend foreclosure. His refusal is based on logic that is both elegantly simple and tragically flawed: He is responsible for cleaning up the books at Fannie and Freddie, so he is against spending money.

If DeMarco were fire chief and your house became engulfed in flames, you could forget about calling 911. By his reasoning, the taxpayer would be best served by keeping the fire engines in the station, lest they get damaged in the line of duty. It would not matter whether the flames licking your windows were the result of your recklessness or the product of an explosion at, say, the methamphetamine lab down the street. He would not run up the municipal water bill by saving your block.

Many housing experts have long argued that writing down balances for underwater homeowners is the key to limiting foreclosures. Even the Obama administration — which previously fought against principal reduction — has come to embrace this strategy. The $25 billion foreclosure settlement that the administration brokered last month with the nation’s five largest banks includes provisions that will write down balances.

But if DeMarco keeps refusing to go along, the new program will be irrelevant. Only he has the power to make principal reduction happen broadly because only he has his hands on the levers at the institutions that control most of the mortgages.

“He is standing in the way,” Rep. Jerrold Nadler, the New York Democrat, told me on Thursday. “He is single-handedly saying that he’s opposed to any write-downs because all he cares about is the fiscal solvency of Fannie and Freddie — a legitimate concern, but not the only concern. If he doesn’t do what he ought to do, then he ought to be fired.”

Read more

Source

“A lack of demand for China’s factory goods could be triggered by a slowdown in demand, particularly from EU countries. That almost certainly would hurt GDP growth in the People’s Republic. Chinese authorities likely would push more money into the economy, which has happened in the past month. What has not been discussed often is that, if China’s economy slows considerably, the problems created by lack of demand for its exports could cause a recession in the United States.

S&P recently put out a list of potential problems for the U.S. credit markets and economy. Among those are the usual risks, including the housing market and contagion for a collapse of one of more of the European economies. Also included among the threats is that China’s gross domestic product could drop to 5%.

S&P reports that a Chinese GDP collapse is entirely possible:

As Europe’s leaders grapple with a debt crisis and recession, and the Obama administration looks for ways to bolster the U.S. economy, world growth in 2012 will rely heavily on China. After real GDP growth in China slowed slightly to 9.2% in 2011, our base-case economic scenario calls for about 8% GDP growth this year from double-digit expansion in recent years.

We view the risk of only 5% GDP growth in China as plausible, although a stable one at this point. If such a scenario were to materialize, its negative effect on the U.S. and global economies could be substantial, particularly in the commodities and materials markets, where China is a large source of demand.

The normal position of the tables would be turned. China could become a less potent market for U.S. exports. And American GDP would be badly battered by a drop in demand for its agricultural products and manufactured inventories for expensive items such as airplanes. Just as bad would be a slowing of demand for U.S. intellectual property, which runs from software to services.

It is sometimes forgotten, particularly when trade numbers show that China’s export machine has hurt the U.S. trade balance, that the People’s Republic is one of the largest countries for U.S. exports. It would be ironic, but a Chinese recession could spread to America and sink GDP here as well.”

Douglas A. McIntyre

Full article

“BEIJING (Reuters) – China’s trade balance plunged $31.5 billion into the red in February as imports swamped exports to leave the largest deficit in at least a decade and fuel doubts about the extent to which frail foreign demand or seasonal distortion drove the drop.

Import growth of 39.6 percent on the year in February was the strongest in a year, well ahead of the 27 percent expected and more than twice the rate of export growth of 18.4 percent that was barely more than half the pace forecast — albeit at a six month high.

“It’s a very mixed picture,” said Zhang Zhiwei, chief China economist at Nomura in Hong Kong, who cautioned against reading too much into the data given the underlying volatility caused by the Chinese Lunar New Year holiday that saw a week-long factory shut down in January 2012 and February last year.

By Zhang’s calculations that adjust for days worked and exclude the volatility of the 2008/09 financial crisis, exports appear to have posted one of their lowest month-on-month growth rates since the mid 1990s….”

Read more 

Doug Saunders

You have to drive far out into the West Country, through forested hills and ancient villages, if you want to find the last of the mad British inventors. His wide glass desk perches amid a clutter of aluminum tubes, DC-pulse motors, lithium-polymer batteries and whirring prototypes in a distant corner of a sleek, silver building that contains 1,450 engineers, accountants, marketing people, managers and lawyers, and not a single labourer.

Behind that desk sits the silver-haired man who has become the only living British inventor every school kid here can name, a guy known for building actual things. Five years ago, that status would have been almost quaint. Today, it puts him in the political vanguard, both at home and, increasingly, across the Atlantic.

James Dyson’s surname adorns an expanding array of bag-less vacuum cleaners, blade-less fans and washroom hand dryers that actually dry your hands. His private company claimed more than a billion pounds in worldwide sales last year, growing right through the recession.

Now, though, Mr. Dyson, 64, is even better known as the leading proponent of the suddenly popular idea that Western nations ought to return to manufacturing and exporting physical goods, after decades of shifting the roots of their economies to services, property and finance.

His call for an assemblyline renaissance has echoed far beyond Britain, where he was appointed a senior adviser to Prime Minister David Cameron’s coalition government and has spawned a raft of policies.

Read the rest here.

How behavior effects the markets…

Cheers on your weekend !