Abstract:
In recent years, there has been national alarm about the rising rate of home foreclosures, which now strike one in every 92 households in America and which contribute to even broader macroeconomic effects. The "standard account" of home foreclosure attributes this spike to loose lending practices, irresponsible borrowers, a flat real estate market, and rising interest rates. Based on our study of homeowners going through foreclosures in four states, we find that the standard account fails to represent the facts and thus makes a poor guide for policy. In contrast, we find that half of all foreclosures have medical causes, and we estimate that medical crises put 1.5 million Americans in jeopardy of losing their homes last year.
Half of all respondents (49%) indicated that their foreclosure was caused in part by a medical problem, including illness or injuries (32%), unmanageable medical bills (23%), lost work due to a medical problem (27%), or caring for sick family members (14%). We also examined objective indicia of medical disruptions in the previous two years, including those respondents paying more than $2,000 of medical bills out of pocket (37%), those losing two or more weeks of work because of injury or illness (30%), those currently disabled and unable to work (8%), and those who used their home equity to pay medical bills (13%). Altogether, seven in ten respondents (69%) reported at least one of these factors.
If these findings can be replicated in more comprehensive studies, they will suggest critical policy reforms. We lay out one approach, focusing on an insurance-model, which would help homeowners bridge temporary gaps caused by medical crises. We also present a legal proposal for staying foreclosure proceedings during verifiable medical crises, as a way to protect homeowners and to minimize the negative externalities of foreclosure.
Wednesday, December 30, 2015
Illness and Foreclosure (h/t Vanessa Perry)
Christopher T. Robertson , Richard Egelhof, and Michael Hoke have a paper:
Links to Cousins!
My counsin Jon's site:
http://www20.kellogg.northwestern.edu/facdir/facpage.asp?sid=1299
My cousin Scott's site:
http://www.google.com/search?hl=en&q=scott+rifkin+ph.d.+yale&btnG=Google+Search
If other cousins have sites, I will link to them too.
http://www20.kellogg.northwestern.edu/facdir/facpage.asp?sid=1299
My cousin Scott's site:
http://www.google.com/search?hl=en&q=scott+rifkin+ph.d.+yale&btnG=Google+Search
If other cousins have sites, I will link to them too.
About today's awful Case-Shiller number
A month ago, David Stiff of Fiserve informed me, "in general, sales of bank-owned (REO) properties are included in the repeat sales pairs used to estimate the indexes if they occur at least 6 months after a previous arms-length transaction."
There are currently markets in which foreclosure sales make up 40 to 50 percent of all sales. These transactions are almost surely not representative of the housing stock, and so the CSI is currently a biased estimate of house price changes. I admire both Case and Shiller a lot, but they really need to fix this.
There are currently markets in which foreclosure sales make up 40 to 50 percent of all sales. These transactions are almost surely not representative of the housing stock, and so the CSI is currently a biased estimate of house price changes. I admire both Case and Shiller a lot, but they really need to fix this.
Did California Overbuild its Housing Stock?
It all depends on the relevant time frame. If we look at the 00's in isolation, California overbuilt.
But California has grew by 7 million people between 1990 and 2015 and added about 2.43 million housing units (all data are from US Census-- assume that 98 percent of units permitted are actually built). The average household in California has 2.9 people (which is the second highest in the country, and compares with 2.5 nationally), which means that even without removals from the stock and no change in household size, the state needed 2.41 million new housing units. So if we look at the 18 year horizon, California did not overbuild--there we almost surely more than 20,000 demolitions over an 18 year period.
What if we go back to 1980? California grew by 13 million people and added 4.4 million housing units. At 2.91 people per unit, California demanded 4.46 million units. Again, it is safe to assume 60,000 demolitions over 28 years, so it is hard to make a case for long-run overbuilding.
Certainly, some housing was built in the wrong places, or was the wrong type of housing for the place (Lancaster and Beaumont come to mind). But it is hard to make a case that in aggregate California now has too many housing units.
But California has grew by 7 million people between 1990 and 2015 and added about 2.43 million housing units (all data are from US Census-- assume that 98 percent of units permitted are actually built). The average household in California has 2.9 people (which is the second highest in the country, and compares with 2.5 nationally), which means that even without removals from the stock and no change in household size, the state needed 2.41 million new housing units. So if we look at the 18 year horizon, California did not overbuild--there we almost surely more than 20,000 demolitions over an 18 year period.
What if we go back to 1980? California grew by 13 million people and added 4.4 million housing units. At 2.91 people per unit, California demanded 4.46 million units. Again, it is safe to assume 60,000 demolitions over 28 years, so it is hard to make a case for long-run overbuilding.
Certainly, some housing was built in the wrong places, or was the wrong type of housing for the place (Lancaster and Beaumont come to mind). But it is hard to make a case that in aggregate California now has too many housing units.
Tuesday, December 29, 2015
See Milk
Sean Penn is truly wonderful, and the story is both uplifting and tragic. MBA courses in organizational behavior could also use it as a teaching tool.
Ten favorite American Buildings
These are just personal favorites. One rule: no more than one building per city. There is no particular order to the list
1. Trinity Church, Boston (Richardson). Copley Plaza is among the best urban spaces I know.
2. Seagram's Building, New York (Mies van der Rohe and Johnson). It also has my favorite restaurant in it.
3. East Building, National Gallery, Washington (Pei)
4. Carson, Pirie, Scott, Chicago (Sullivan)
5. City Hall, Philadelphia (MacArthur and Walter) It is a silly, overdone, wonderful building.
6. IDS Building, Minneapolis (Johnson again). The rare, iconic, financially successful building.
7. Indiana University Campus, Bloomington. This is cheating, but I think IU has the nation's most beautiful college campus. And no, I never went or taught there.
8. Eastern Building, Los Angeles (Beelman). The city's best building is a lovely Art Deco number from 1930. The Wiltern Building is special too.
9. Coit Tower, San Francisco (Brown and Howard)
10. Terminal Tower, Cleveland (Van Sweringen brothers)
1. Trinity Church, Boston (Richardson). Copley Plaza is among the best urban spaces I know.
2. Seagram's Building, New York (Mies van der Rohe and Johnson). It also has my favorite restaurant in it.
3. East Building, National Gallery, Washington (Pei)
4. Carson, Pirie, Scott, Chicago (Sullivan)
5. City Hall, Philadelphia (MacArthur and Walter) It is a silly, overdone, wonderful building.
6. IDS Building, Minneapolis (Johnson again). The rare, iconic, financially successful building.
7. Indiana University Campus, Bloomington. This is cheating, but I think IU has the nation's most beautiful college campus. And no, I never went or taught there.
8. Eastern Building, Los Angeles (Beelman). The city's best building is a lovely Art Deco number from 1930. The Wiltern Building is special too.
9. Coit Tower, San Francisco (Brown and Howard)
10. Terminal Tower, Cleveland (Van Sweringen brothers)
Where is the J-Curve?
Paul Krugman notes that Exports have off-set declining housing investment:
http://krugman.blogs.nytimes.com/2015/12/29/why-we-havent-had-a-recession-so-far/
Jim Hamilton actually made this point some time ago:
http://www.econbrowser.com/archives/2015/11/some_observatio.html
All this is a natural result of the depreciation of the dollar. My question, though, is whether to be surprised by the fast improvement in net exports. I thought that when the currency depreciated as rapidly as the dollar has, the terms of trade effect in the short run is more important than how consumers adjust to changes in relative prices. That is, because foreign goods are more expensive, and because it takes awhile to substitute out of foreign goods, the net export position should actulaly worsen for awhile.
I am not complaining, but am rather looking for an explanation...
http://krugman.blogs.nytimes.com/2015/12/29/why-we-havent-had-a-recession-so-far/
Jim Hamilton actually made this point some time ago:
http://www.econbrowser.com/archives/2015/11/some_observatio.html
All this is a natural result of the depreciation of the dollar. My question, though, is whether to be surprised by the fast improvement in net exports. I thought that when the currency depreciated as rapidly as the dollar has, the terms of trade effect in the short run is more important than how consumers adjust to changes in relative prices. That is, because foreign goods are more expensive, and because it takes awhile to substitute out of foreign goods, the net export position should actulaly worsen for awhile.
I am not complaining, but am rather looking for an explanation...
An Obvious Point, but....
The large numbers of defaults in Inland California, Nevada, Arizona and Florida will cause pain for homeowners and endanger macroeconomic stability. That said, prices in these markets got well beyond fundamentals, and more corrosively, turned affordable housing markets into expensive markets (the USC group did some great work on how once inexpensive Riverside and San Bernardino Counties became havens for Southern Californians seeking homeownership.)
When prices in these places return to normal--and it is likely that they will--middle class household will again have large markets in which they can afford housing without strain. And that will be a good thing.
When prices in these places return to normal--and it is likely that they will--middle class household will again have large markets in which they can afford housing without strain. And that will be a good thing.
Anthrax outbreak near Scone, Upper Hunter
I was struck by a report (and here) that there had been an anthrax outbreak in the Upper Hunter, killing a number of cattle. I did not know that anthrax is a relatively common occurrence, with an anthrax belt from Victoria along the Western Slope to about Moree.
The outbreak in the Upper Hunter is unusual since this is not a known anthrax area, with the last reported outbreak in the 1940s. However, anthrax can survive dormant in soil for very long periods.
In the latest case, it seems possible that the recent drought breaking rains exposed the bacteria.
Monday, December 28, 2015
PE Ratios for Housing
Mark Thoma passes along comments from Paul Krugman and Brad Delong on the PE ratio for housing:
http://economistsview.typepad.com/economistsview/2015/12/more-links.html
Krugman thinks a 50 percent fall along the coasts is possible. I am doubtful. The problem with using a PE ratio is the composition of the rental stock evolves differently from the compostion of the owner stock--the quality of owner occupied housing is generally improving more rapidly than the quality of the renter stock. For a working paper on this, see my piece with Cutts and Chang:
http://www.gwu.edu/%7Ebusiness/research/workingpapers/Chang%20Cutts%20and%20Green%203-17-2005%201%20.pdf
This is under revision for a journal--I guess it is time to finish it up!
http://economistsview.typepad.com/economistsview/2015/12/more-links.html
Krugman thinks a 50 percent fall along the coasts is possible. I am doubtful. The problem with using a PE ratio is the composition of the rental stock evolves differently from the compostion of the owner stock--the quality of owner occupied housing is generally improving more rapidly than the quality of the renter stock. For a working paper on this, see my piece with Cutts and Chang:
http://www.gwu.edu/%7Ebusiness/research/workingpapers/Chang%20Cutts%20and%20Green%203-17-2005%201%20.pdf
This is under revision for a journal--I guess it is time to finish it up!
The Breadth of House Price Declines
The Case-Shiller Index is declining in most cities (see http://blogs.wsj.com/economics/2015/12/26/home-prices-few-metro-areas-spared/).
So far as I know, this is unprecedented in the post-WWII era. In the past, even when a few housing markets have seen price declines, most have not. This means thar default risk and cost has been managable to investors in Mortgage Backed Securities.
The current environment is much tougher to deal with, and could mean that default costs arising from sub-prime mortgages will be higher than I expected earlier. It also cannot help but have a negative impact on house price expectations nearly everywhere. As I have said before, it is hard to see a turnaround coming anytime soon.
One bright side: when the commerical real estate market collapsed in the early 1990s, some analysts thought it would take a decade to recover--instead in took around 3-4 years to do so. Strong population growth in Arizona and Neveda should put some cushion underneath those markets (although the slowdown in Florida's population growth will further weaken a market that is already pretty devastated).
So far as I know, this is unprecedented in the post-WWII era. In the past, even when a few housing markets have seen price declines, most have not. This means thar default risk and cost has been managable to investors in Mortgage Backed Securities.
The current environment is much tougher to deal with, and could mean that default costs arising from sub-prime mortgages will be higher than I expected earlier. It also cannot help but have a negative impact on house price expectations nearly everywhere. As I have said before, it is hard to see a turnaround coming anytime soon.
One bright side: when the commerical real estate market collapsed in the early 1990s, some analysts thought it would take a decade to recover--instead in took around 3-4 years to do so. Strong population growth in Arizona and Neveda should put some cushion underneath those markets (although the slowdown in Florida's population growth will further weaken a market that is already pretty devastated).
Memorial for Arthur Goldberger at AEA meetings.
Sunday, January 3, 2015: 10:15 am, Atlanta Marriott Marquis, Atrium Ballroom A Remembering Arthur S. Goldberger Presiding: James Heckman (University of Chicago) Speakers:
Lawrence Klein (University of Pennsylvania)
Glen Cain (University of Wisconsin)
Kate Antonovics (University of California-San Diego)
Gary Chamberlain (Harvard University)
Charles Manski (Northwestern University)
with remarks from Harry Kelejian (University of Maryland) read by James Heckman
Lawrence Klein (University of Pennsylvania)
Glen Cain (University of Wisconsin)
Kate Antonovics (University of California-San Diego)
Gary Chamberlain (Harvard University)
Charles Manski (Northwestern University)
with remarks from Harry Kelejian (University of Maryland) read by James Heckman
Some Great Scholarship at GW
The Eleanor Roosevelt Papers project is at GW. Information about it is here:
http://www.gwu.edu/~erpapers/publications/
This is something for which the university should be proud.
http://www.gwu.edu/~erpapers/publications/
This is something for which the university should be proud.
GW Studies itself for Reaccreditation
Our report is here:
http://www.gwu.edu/~gwaffirm/gwselfstudy/index.cfm
I was involved with the Chapter on the University's finances.
http://www.gwu.edu/~gwaffirm/gwselfstudy/index.cfm
I was involved with the Chapter on the University's finances.
Saturday, December 26, 2015
Ports and Social Costs
Yesterday the LA Times had a story on the "greening" of the two big ports in LA:
http://www.latimes.com/news/local/la-me-port25dec25,1,1611877.story?coll=la-headlines-california
Two paragraphs stand out:
and
If these numbers are remotely correct, then the policy of requiring the clean trucks is a no-brainer. Yet there is still a question about whether it will in fact get done, for reasons given in the remainder of the story.
The Coasian solution is to just assign property rights and step aside. If the people living near the port have the property rights, they can insist that the trucks get cleaner, and if the port is still profitable in the aftermath of incurring the costs, the port will continune to operate with lower levels of pollution (otherwise it will shut down, but this is highly unlikely); if truckers have the rights, the neighbors should find it worthwhile to pay for the trucks to get cleaner. The problem, though, is a coordination problem--it is difficult to get everyone to cooporate to get to the best economic outcome. This is why sometimes regulations really are the only practical method for getting something close to an economically efficient outcome.
http://www.latimes.com/news/local/la-me-port25dec25,1,1611877.story?coll=la-headlines-california
Two paragraphs stand out:
A month ago, they [the ports of Long Beach and San Pedro] approved a joint mandate to replace the area's fleet of 16,800 dirty cargo trucks with new or retrofitted models by 2012. Last week, the two ports approved a cargo fee to raise $1.6 billion to put the cleaner trucks into service.
and
The stakes are indeed high. The clean trucks program could yield a cumulative economic benefit of $5.9 billion from reductions in premature deaths, lost work time and medical problems, according to the Southern California Air Quality Management District.
If these numbers are remotely correct, then the policy of requiring the clean trucks is a no-brainer. Yet there is still a question about whether it will in fact get done, for reasons given in the remainder of the story.
The Coasian solution is to just assign property rights and step aside. If the people living near the port have the property rights, they can insist that the trucks get cleaner, and if the port is still profitable in the aftermath of incurring the costs, the port will continune to operate with lower levels of pollution (otherwise it will shut down, but this is highly unlikely); if truckers have the rights, the neighbors should find it worthwhile to pay for the trucks to get cleaner. The problem, though, is a coordination problem--it is difficult to get everyone to cooporate to get to the best economic outcome. This is why sometimes regulations really are the only practical method for getting something close to an economically efficient outcome.
Nouriel Roubini forecasts a hard landing...soon
It is here:
http://www.rgemonitor.com/blog/roubini/234115
To some extent, this sounds like a liquidity trap story: regardless of interest rates, people won't invest because they don't trust anything or anyone. The stubbornly high spreads on LIBOR and prime jumbo mortgages suggest that there is something to this. It also explains why people such as Larry Summers think a fiscal stimulous is necessary.
But even with a fiscal stimulous, it is hard to see how housing will not be a drag for awhile. Inventories are high, meaning house prices will have to come down in some markets to restore equilibrium. This will put pressure on mortgage performance, which will make lenders even more wary. Ironically, once prices fall to equilibrium levels, mortgages going forward will again be very safe loans. But evidence from Jeremy Stein in one paper and David Genesove and Chris Mayer in another implies house prices are sticky downward, so it may be awhile before we reach that equilibrium point.
http://www.rgemonitor.com/blog/roubini/234115
To some extent, this sounds like a liquidity trap story: regardless of interest rates, people won't invest because they don't trust anything or anyone. The stubbornly high spreads on LIBOR and prime jumbo mortgages suggest that there is something to this. It also explains why people such as Larry Summers think a fiscal stimulous is necessary.
But even with a fiscal stimulous, it is hard to see how housing will not be a drag for awhile. Inventories are high, meaning house prices will have to come down in some markets to restore equilibrium. This will put pressure on mortgage performance, which will make lenders even more wary. Ironically, once prices fall to equilibrium levels, mortgages going forward will again be very safe loans. But evidence from Jeremy Stein in one paper and David Genesove and Chris Mayer in another implies house prices are sticky downward, so it may be awhile before we reach that equilibrium point.
Thursday, December 24, 2015
News item on Fannie/Freddie CEO pay
Bob Hagerty in the Wall Street Journal says they will make $6 million each. This is absurd--they are now government agencies. It would not be unreasonable to cap GSE CEO pay at the President's pay (by that I mean the US President). I would even let them have a rent-free house. I could even see giving them a bunch of shares, so if by some miracle the GSEs became going concerns again, the CEO would benefit. But the current arrangement is bizarre.
Wednesday, December 23, 2015
When technology fails
My iPod is frozen, I can't get it unstuck, and I have a coast-to-coast flight tomorrow. Sigh.
Season's greetings to all the New England diaspora
I still have some part completed posts to bring up, but it is now Christmas eve. If I wait until all the back posts are complete it will be past Christmas. So I will run this post now and bring the others up over the break.
This blog began back in April 2006. Since then I have written some 224 posts on New England issues. I hope that I have played a small part in raising awareness on New England issues and in helping to keep the million or so - no one knows exactly how many there are - New England expats in touch with home.
I am looking forward to 2015. My feeling is that the blog is finally starting to play a useful role.
I wish all New Englanders everywhere the best for Christmas and the new year. May 2015 be a great year for all of us.
Paul Krugman should know better
Civility is important to me. I am all for fighting the other guys' arguments tooth and nail, but try not to engage in name calling, because name calling devolves into the sort of ugly spectacle we just saw in the US Senate, where a member (physician!) from Oklahoma encouraged prayer for the illness or death of a colleague.
I was thus disappointed when Paul Krugman, whose work I admire, encouraged the left to hang Joe Lieberman in effigy, and then issued a non-apology-apology is his column the other day. I am not crazy about Lieberman--he seems to have the Tartuffe-like combination of sanctimoniousness and naked ambition (ok, now I am name calling a bit)--but using violent imagery as part of a policy debate is not acceptable.
I was thus disappointed when Paul Krugman, whose work I admire, encouraged the left to hang Joe Lieberman in effigy, and then issued a non-apology-apology is his column the other day. I am not crazy about Lieberman--he seems to have the Tartuffe-like combination of sanctimoniousness and naked ambition (ok, now I am name calling a bit)--but using violent imagery as part of a policy debate is not acceptable.
Slate needs a geography lesson
Slate is running a slideshow called Christmas in non-Western countries. It is here--http://todayspictures.slate.com/20151221/--and it is very nice.
Two of the pictures, however, are from Mexico, and one is from Colombia. Last time I checked, they were in the West.
Two of the pictures, however, are from Mexico, and one is from Colombia. Last time I checked, they were in the West.
Ten Favorite Classical Recordings (as of today)
Something to think about while procrastinating:
Beethoven, Symphonies 5 and 7, Kleiber, VPO, DGG
Bach, Goldberg Variations, Schiff, Decca
Shubert, Symphony 9, Giulini, Chicago Symphony, DGG (Very weird, but I love it)
Mahler, Symphony 9, Haitink, Concertgebouw, Philips
Brahms, Piano Concerto 1, Serkin, Szell, Cleveland, Columbia
Hildegard of Bingen, 11,000 Virgins, Chants for the Feast of St. Ursala, Anonymous 4, Harmonia Mundi
Stravinky, The Rite of Spring, Davis, Concertgebouw, Philips
Beethoven, String Quartet, Op. 131, Tokyo Quartet, RCA
Mozart, Piano Sonata in c, K 310, Uchida, Philips
Chopin, Polonaises, Pollini, DGG
By next week, the list could be completely different.
Beethoven, Symphonies 5 and 7, Kleiber, VPO, DGG
Bach, Goldberg Variations, Schiff, Decca
Shubert, Symphony 9, Giulini, Chicago Symphony, DGG (Very weird, but I love it)
Mahler, Symphony 9, Haitink, Concertgebouw, Philips
Brahms, Piano Concerto 1, Serkin, Szell, Cleveland, Columbia
Hildegard of Bingen, 11,000 Virgins, Chants for the Feast of St. Ursala, Anonymous 4, Harmonia Mundi
Stravinky, The Rite of Spring, Davis, Concertgebouw, Philips
Beethoven, String Quartet, Op. 131, Tokyo Quartet, RCA
Mozart, Piano Sonata in c, K 310, Uchida, Philips
Chopin, Polonaises, Pollini, DGG
By next week, the list could be completely different.
Speaking of Transportation Costs
WMATA is raising peak travel-time fares on Metro by 30 to 60 cents. From the transit agency's perspective, this makes sense--demand is highest at these times (sometimes to the point where the system is over-capacity), and so raising peak fares will encourage riders to travel at off-peak times.
On the other hand, any policy that discourages metro ridership at peak periods encourages automobile use at times when DC area roads are already jammed. If there were a London or Singapore type arrangement, under which drivers would have to pay a fee to drive into the city, an increase in metro fares could be accompanied by an increase in the cost of driving, so that travelers who were flexible would be encouraged to avoid both metro and the roads during peak periods. But DC has no such mechanism. It really needs one.
On the other hand, any policy that discourages metro ridership at peak periods encourages automobile use at times when DC area roads are already jammed. If there were a London or Singapore type arrangement, under which drivers would have to pay a fee to drive into the city, an increase in metro fares could be accompanied by an increase in the cost of driving, so that travelers who were flexible would be encouraged to avoid both metro and the roads during peak periods. But DC has no such mechanism. It really needs one.
Different Market Baskets for Different Income Levels
I keep reading stories about food pantries being under particular pressure this year. The stories would be more helpful if they could explain explicitly why the food stamp program (perhaps the most successful anti-poverty program in the US) isn't sufficient to prevent this. We do know that not everyone eligible for food stamps uses them, but this has always been true, and so wouldn't explain a change in demand at the pantries; we need to look elsewhere for an explanation.
My suspicion is that an accurate measure of CPI would vary by income group. The most obvious example is that low income people spend a higher fraction of income on heat, electricity and transportation than higher income people. Even if the entire CPI is flat, if the energy and transportation sectors see large rises in prices, it will likely have a particularly large impact on the bottom quintile of the income distribution, and hence cause real incomes within this group to fall. Of course, gas and heating oil prices gave risen a lot over the past couple of years.
When I look at the BLS web site, I don't find anything about different market baskets for different income classes--I do wonder if there is something out there.
My suspicion is that an accurate measure of CPI would vary by income group. The most obvious example is that low income people spend a higher fraction of income on heat, electricity and transportation than higher income people. Even if the entire CPI is flat, if the energy and transportation sectors see large rises in prices, it will likely have a particularly large impact on the bottom quintile of the income distribution, and hence cause real incomes within this group to fall. Of course, gas and heating oil prices gave risen a lot over the past couple of years.
When I look at the BLS web site, I don't find anything about different market baskets for different income classes--I do wonder if there is something out there.
Tuesday, December 22, 2015
Life and Circuses
Photo: Gordon Smith, grave of Mary Ashton, Hanging Rock.
To quote Gordon's post:
I hadn't realised that the hamlet of Hanging Rock holds a link to a well known Australian Circus. Ashton's Circus still tours the country, but here at Hanging Rock, lies the grave of Mary Ashton, the young wife of circus founder James Ashton. She died in 1852, just days after giving birth to a daughter - the baby died a few months later. At that time Hanging Rock was a hive of activity due to its gold mining activities. It must have been a sizeable place as the circus performed over a period of 14 nights.
As a child I used to dream of running away to join a circus. It was one of those silly dreams, my hand-eye coordination is dreadful and I have no feel for heights. Still, it shows the the romance of the circus.
Circuses such as Wirth's and Ashton's toured on a regular basis, playing in big towns and small. This was a world of excitement and romance. Small kids would gather around as the tent went up, thinking how to persuade their parents to take them.
There is so much more entertainment today, but the romance lingers.
The real problem with John Taylor's paper...
...is that it asks the wrong question. The issue is not what would happen to rates without the Fed backstop to Fannie/Freddie, but whether there would be fixed rate mortgages at all.
30-year-fixed rated-80-percent-loan-to-value mortgages beyond the conforming loan limit basically do not exist at the moment [update: by conforming loan limit, I mean the high cost area loan limit, which in some places is now $729,750]. A conversation I had today with two bank executives confirmed this. Some would argue that 30-year fixed rate mortgages are over-rated, but not I.
30-year-fixed rated-80-percent-loan-to-value mortgages beyond the conforming loan limit basically do not exist at the moment [update: by conforming loan limit, I mean the high cost area loan limit, which in some places is now $729,750]. A conversation I had today with two bank executives confirmed this. Some would argue that 30-year fixed rate mortgages are over-rated, but not I.
Why we need newspapers
The blogosphere likes to take pot-shots at the main-stream media, some of which the MSM has earned. Political coverage is often vapid, and the culture of "balance" ("some say earth is round, others disagree') is often self-satirizing.
But every now and then, the hometown paper here, the once-great and rapidly deteriorating Los Angeles Times, reminds us that there is o substitute for great, shoe-leather reporting. Ken Ellingwood has been reporting the tragic story of Mexico under siegeover the course of the fall. The story is vivid, and could only be told be someone on the ground, with the resources behind him to visit many places and interview many people. This is the sort of thing that only a major news organization could do.
Newspapers used to be closely held by families--the Ochs-Sulzbergers in New York, the Grahams in Washington, the Pulitzers in St. Louis, the Binghams in Louisville, the Chandlers in Los Angeles. When a family owns a business, it needn't worry about quarterly results--it can focus on other values. In the end, we may not all always like those values (those of Charles Foster Kane, er. William Randolph Hearst come to mind). Nevertheless, beyond that fact that technological change is undermining the newspaper business, it would appear that the publicly traded company model for owning newspapers is fundamentally flawed. And heaven help us if we need to reply on the blogosphere alone for news.
But every now and then, the hometown paper here, the once-great and rapidly deteriorating Los Angeles Times, reminds us that there is o substitute for great, shoe-leather reporting. Ken Ellingwood has been reporting the tragic story of Mexico under siegeover the course of the fall. The story is vivid, and could only be told be someone on the ground, with the resources behind him to visit many places and interview many people. This is the sort of thing that only a major news organization could do.
Newspapers used to be closely held by families--the Ochs-Sulzbergers in New York, the Grahams in Washington, the Pulitzers in St. Louis, the Binghams in Louisville, the Chandlers in Los Angeles. When a family owns a business, it needn't worry about quarterly results--it can focus on other values. In the end, we may not all always like those values (those of Charles Foster Kane, er. William Randolph Hearst come to mind). Nevertheless, beyond that fact that technological change is undermining the newspaper business, it would appear that the publicly traded company model for owning newspapers is fundamentally flawed. And heaven help us if we need to reply on the blogosphere alone for news.
In Praise of Green Bay
Having dissed the city earlier today, I thought I should say a word or two in its favor. But before I do so, let me note that I am a Wisconsin homer--I grew up there, got my Ph.D. there, and taught on the faculty at Madison for a long time.
The thing that prompted me to note Green Bay's core strength is this piece by Dick Meyer that appeared in this morning's Post.
The piece is here: http://www.washingtonpost.com/wp-dyn/content/article/2015/12/21/AR2015122101886.html?hpid=opinionsbox1
It begins with:
As it happens, during my many years in Wisconsin, I was only able to obtain tickets to one Green Bay Packers game--a game against the Bears that took place in November 1989 (I remember the year because my wife was pregnant with our two girls). The Bears were very good at that time, and had long been the Packer's arch-rival. Green Bay fans are fiercely loyal to their team, and yet, I saw none of the behavior Meyer described from his experience at FedEx field. People in the stands were unfailingly polite. I should mention that Wisconsin had a pretty strong drinking culture--when I was a kid growing up there, I thought the three leading beverages must be milk, beer and Old Fashioneds. Yet I don't recall any obnoxious, loudmouthed drunks at the game.
Which brings me to the principal point--people in Wisconsin, and so far as I can tell, throughout Wisconsin, are friendly, modest and polite. Minnesota is this way too (Garrison Keillor pretty much nails the culture). I kind of miss that.
The thing that prompted me to note Green Bay's core strength is this piece by Dick Meyer that appeared in this morning's Post.
The piece is here: http://www.washingtonpost.com/wp-dyn/content/article/2015/12/21/AR2015122101886.html?hpid=opinionsbox1
It begins with:
I went to my last professional football game this month. My son and I braved frigid, remote FedEx Field to see our beloved Chicago Bears, the fallen Super Bowl champions, humiliated 24-16 by the struggling Washington Redskins. It wasn't the depth of our despair that will keep us away from football stadiums for good but the depravity of the fans. I suppose depravity is a strong word. But what better describes drunken adult men, egged on by other grown beer-swillers, belly-shouting the most spectacular obscenities imaginable as they stand next to a 13-year-old boy? Every play was a competition to produce a more vile insult or a different suggestion about which Bear body part might be stuffed up which orifice.
As it happens, during my many years in Wisconsin, I was only able to obtain tickets to one Green Bay Packers game--a game against the Bears that took place in November 1989 (I remember the year because my wife was pregnant with our two girls). The Bears were very good at that time, and had long been the Packer's arch-rival. Green Bay fans are fiercely loyal to their team, and yet, I saw none of the behavior Meyer described from his experience at FedEx field. People in the stands were unfailingly polite. I should mention that Wisconsin had a pretty strong drinking culture--when I was a kid growing up there, I thought the three leading beverages must be milk, beer and Old Fashioneds. Yet I don't recall any obnoxious, loudmouthed drunks at the game.
Which brings me to the principal point--people in Wisconsin, and so far as I can tell, throughout Wisconsin, are friendly, modest and polite. Minnesota is this way too (Garrison Keillor pretty much nails the culture). I kind of miss that.
Calculated Risk Points to an interview with BOA Chief Kenneth Lewis
It is here:
http://calculatedrisk.blogspot.com/2015/12/bofa-attitudes-changing-towards-default.html
The gist is that prime borrowers are more ruthless about default compared with the past. I am not so sure. The distribution of borrowers is very different from the past, because many households who previously would never gotten close to a mortgage were able to obtain one within the past five years.
The default rate on prime mortgages remains quite low. I am not sure that we have any evidence that prime borrower attitudes have changed. We will need to wait and see.
http://calculatedrisk.blogspot.com/2015/12/bofa-attitudes-changing-towards-default.html
The gist is that prime borrowers are more ruthless about default compared with the past. I am not so sure. The distribution of borrowers is very different from the past, because many households who previously would never gotten close to a mortgage were able to obtain one within the past five years.
The default rate on prime mortgages remains quite low. I am not sure that we have any evidence that prime borrower attitudes have changed. We will need to wait and see.
Bias and Media venue
Rush Limbaugh symbolizes Talk Radio; DailyKos symbolizes the Blogosphere. One could tell a variety of stories (and many have) about why this is true.
But there is another relationship between media venue and ideology where it would be harder to tell a story. Daily newspapers seem more conservative that the alternative weeklies (the one exception, perhaps, is that in my old town of Madison, the weekly paper, Isthmus, was a little less knee-jerk than the afternoon daily, the Capital Times. On the other hand, it was well to the right of the daily that people actually read, the Wisconsin State Journal. Isthmus was also the best paper in town). Put from another perspective, I have never seen a widely read weekly with conservative inclinations. One could speculate why this is the case--for example, writers for the weeklies don't get paid much. But from what little I know about the newspaper business, outside of the most famous papers, reporters for dailies don't get paid much either.
But there is another relationship between media venue and ideology where it would be harder to tell a story. Daily newspapers seem more conservative that the alternative weeklies (the one exception, perhaps, is that in my old town of Madison, the weekly paper, Isthmus, was a little less knee-jerk than the afternoon daily, the Capital Times. On the other hand, it was well to the right of the daily that people actually read, the Wisconsin State Journal. Isthmus was also the best paper in town). Put from another perspective, I have never seen a widely read weekly with conservative inclinations. One could speculate why this is the case--for example, writers for the weeklies don't get paid much. But from what little I know about the newspaper business, outside of the most famous papers, reporters for dailies don't get paid much either.
Cities as a Financial Strategy
I rarely use Internet Explorer (I'm a Foxfire guy), and so I have never changed the home page from the default MSN page. When I accidentally opened IE yesterday, I saw a teaser for a story about "best starter cities for young couples." The thrust of the story is that it if one is young, it is better to live in Baltimore than San Francisco, so that one can buy an inexpensive house and accumulate wealth.
The problem with that idea is that successful (more expensive) cities are often places where people accumulate human capital, which can also lead to riches (and life satisfaction). Successful cities allow labor specialization (specialists often learn higher wages than generalists), have sufficiently deep labor markets for both members of a married couple to get good job matches, allow the development of networks (Silicon Valley is Exhibit A; Wall Street is Exhibit B), and also provide a greater variety of consumer and service goods (Burmese Restaurants, for example).
For a really good take on the labor market issue, go here: http://ideas.repec.org/p/max/cprwps/57.html, although Rosenthal and Strange do not cast the issue in quite so positive a light as I.
Going bank to the MSN piece, the top five places it gives for young families are
I can see Atlanta (although while housing is cheap there, the commute will kill you) and Minneapolis (the only downside being, of course, the cold). But Des Moines and Green Bay? They are pleasant enough small cities, and housing is cheap in both places. But for long-term labor market opportunity, it is hard to make a case for either.
The problem with that idea is that successful (more expensive) cities are often places where people accumulate human capital, which can also lead to riches (and life satisfaction). Successful cities allow labor specialization (specialists often learn higher wages than generalists), have sufficiently deep labor markets for both members of a married couple to get good job matches, allow the development of networks (Silicon Valley is Exhibit A; Wall Street is Exhibit B), and also provide a greater variety of consumer and service goods (Burmese Restaurants, for example).
For a really good take on the labor market issue, go here: http://ideas.repec.org/p/max/cprwps/57.html, although Rosenthal and Strange do not cast the issue in quite so positive a light as I.
Going bank to the MSN piece, the top five places it gives for young families are
- Atlanta
- Minneapolis/St. Paul
- Des Moines, Iowa
- Provo, Utah
- Green Bay, Wis.
I can see Atlanta (although while housing is cheap there, the commute will kill you) and Minneapolis (the only downside being, of course, the cold). But Des Moines and Green Bay? They are pleasant enough small cities, and housing is cheap in both places. But for long-term labor market opportunity, it is hard to make a case for either.
Monday, December 21, 2015
John Taylor says that the Fed could sell its MBS without having a material impact on interest rates
His blog post is here. I will download the paper when I get into the office tomorrow ( I can only download NBER papers while on campus).
But one thing from the blog post strikes me as strange: he uses spreads on agency debt as his measure of credit risk. But the very fact that the Fed has purchased MBS could produce a perception that the government is standing behind the debt--as the Fed exits, so too might this perception. I would also imagine that the low current interest rates mean expectations about prepayment are unusual at the moment, and that the most common methods for pricing the mortgage call option might not be appropriate either.
The point is that it is very difficult to separate total mortgage interest rates into the term-adjusted risk-free interest rate, the credit spread and the prepayment spread. More after I actually read the paper.
[update: I just read the paper. Taylor describes it well in his blog post, which means that I have not seen anything to change my mind that it is not very convincing. More to come soon].
But one thing from the blog post strikes me as strange: he uses spreads on agency debt as his measure of credit risk. But the very fact that the Fed has purchased MBS could produce a perception that the government is standing behind the debt--as the Fed exits, so too might this perception. I would also imagine that the low current interest rates mean expectations about prepayment are unusual at the moment, and that the most common methods for pricing the mortgage call option might not be appropriate either.
The point is that it is very difficult to separate total mortgage interest rates into the term-adjusted risk-free interest rate, the credit spread and the prepayment spread. More after I actually read the paper.
[update: I just read the paper. Taylor describes it well in his blog post, which means that I have not seen anything to change my mind that it is not very convincing. More to come soon].
Foggy Bottom has long-term Mortgages--why not Korea?
Mortgages in South Korea generally have short terms--three to five years at most. As such, they resemble the bullet mortgage that predominated in the United States before the Great Depression.
One of the reasons for the short term is that the longest term Korean benchmark security is a five-year treasury note. When I ask Koreans why the longest term is so short, they tell me it is the same reason why the county does not get a AAA bond rating--investors are nervous about the folks just to the north. Now that the rhetoric out of Pyongyang and Washington seems to be cooling, it will be interesting to see whether this ultimately extends the yield curve in the South.
One of the reasons for the short term is that the longest term Korean benchmark security is a five-year treasury note. When I ask Koreans why the longest term is so short, they tell me it is the same reason why the county does not get a AAA bond rating--investors are nervous about the folks just to the north. Now that the rhetoric out of Pyongyang and Washington seems to be cooling, it will be interesting to see whether this ultimately extends the yield curve in the South.
Neckties
Both Brad Delong and the Wall Street Journal have written about neckties. The Delong post is here:
http://delong.typepad.com/sdj/2015/12/semiformal-ipho.html
And the Wall Street Journal Article is here:
http://online.wsj.com/article/SB119820646382444181.html
Personally, I love neckties. In general, men are allowed to wear four colors--black, gray, blue and brown--and black and gray aren't really colors, and I don't like brown. Ties allow men to wear something red, or yellow, or purple, or green, or even pink. For this reason alone I hope they never go away--Obama notwithstanding.
I did learn from the Journal, though, that when visiting Islamic countries, I should wear some kind of wool or cotton tie; the key is to avoid silk.
http://delong.typepad.com/sdj/2015/12/semiformal-ipho.html
And the Wall Street Journal Article is here:
http://online.wsj.com/article/SB119820646382444181.html
Personally, I love neckties. In general, men are allowed to wear four colors--black, gray, blue and brown--and black and gray aren't really colors, and I don't like brown. Ties allow men to wear something red, or yellow, or purple, or green, or even pink. For this reason alone I hope they never go away--Obama notwithstanding.
I did learn from the Journal, though, that when visiting Islamic countries, I should wear some kind of wool or cotton tie; the key is to avoid silk.
Sunday, December 20, 2015
Boundaries
I do real estate, so I like maps. Boundaries have some delicious anomalies. For instance, there is the notch of Massachusetts into Connecticut. Rhode Island and Connecticut don't align perfectly. Kentucky has an orphan on its West end. Florida's panhandle got cut off--it originally went all the way to the Mississippi. There is a notch in the Northeastern corner of New Mexico. And we won't even discuss Michigan.
How did this all happen? I know some answers (Michigan) but would welcome others. I would also be curious as to whether others have favorite anomalies. I have focussed on the US (for which there are many more), but I would welcome candidates from anywhere.
How did this all happen? I know some answers (Michigan) but would welcome others. I would also be curious as to whether others have favorite anomalies. I have focussed on the US (for which there are many more), but I would welcome candidates from anywhere.
Why Public Housing is Scorned
I came across this on You-tube:
http://www.youtube.com/watch?v=t29fgA5M7VA
This comes from the film Koyaanisqatsi (a Hopi word meaning life out of balance). From roughly minute 3 to minute 6 of this clip are shots of the notorious St. Louis public housing project Pruitt-Igoe, a subsidized housing project that was so awful, it was never more than 60 percent occupied. The eleven building complex of nearly 3000 units was torn down before it was 20 years old.
In a terrific essay ( http://www.soc.iastate.edu/sapp/PruittIgoe.html), Alexander Von Hoffman argues that even a well-designed Pruitt-Igoe would have been a failure, because St. Louis had been (and in fact continues to be) a dieing city. And so it has; the 4th largest city in the country in 1890 is now not among the top 50.
But Pruitt-Igoe was a representation of the modernist movement at its worst. The buildings were faceless and difficult to cool. Public spaces were neglected and shadowy, and bred crime. The shame is that the complex gave high-rise living for the poor a bad name. High rises can work well, so long as they are well maintained and managed (some of the most desirable places to live in Chicago, Vancouver, Hong Kong and, of course, New York are high rises). More important, the complex lent such a stigma to public housing that it eliminated it as a mechanism to house the poor.
Malpezzi and I have written that the public housing that the US has built has been invariably inefficient as a means for housing low-income people in expensive American cities. This doesn't necessarily mean that it must be so, but the disasters of Pruitt-Igoe and other large scale public housing projects (Cabrini-Green and Robert Taylor Homes in Chicago are almost as notorious) means we might never find differently.
http://www.youtube.com/watch?v=t29fgA5M7VA
This comes from the film Koyaanisqatsi (a Hopi word meaning life out of balance). From roughly minute 3 to minute 6 of this clip are shots of the notorious St. Louis public housing project Pruitt-Igoe, a subsidized housing project that was so awful, it was never more than 60 percent occupied. The eleven building complex of nearly 3000 units was torn down before it was 20 years old.
In a terrific essay ( http://www.soc.iastate.edu/sapp/PruittIgoe.html), Alexander Von Hoffman argues that even a well-designed Pruitt-Igoe would have been a failure, because St. Louis had been (and in fact continues to be) a dieing city. And so it has; the 4th largest city in the country in 1890 is now not among the top 50.
But Pruitt-Igoe was a representation of the modernist movement at its worst. The buildings were faceless and difficult to cool. Public spaces were neglected and shadowy, and bred crime. The shame is that the complex gave high-rise living for the poor a bad name. High rises can work well, so long as they are well maintained and managed (some of the most desirable places to live in Chicago, Vancouver, Hong Kong and, of course, New York are high rises). More important, the complex lent such a stigma to public housing that it eliminated it as a mechanism to house the poor.
Malpezzi and I have written that the public housing that the US has built has been invariably inefficient as a means for housing low-income people in expensive American cities. This doesn't necessarily mean that it must be so, but the disasters of Pruitt-Igoe and other large scale public housing projects (Cabrini-Green and Robert Taylor Homes in Chicago are almost as notorious) means we might never find differently.
New England's Universities - Academic Standards, Admission Marks and Competitive Strategies
I see from the Newcastle Herald (21 December) that the University of Newcastle's academic senate has expressed concern about the impact of lowering 2015 academic entrance requirements.
By way of background, at the start of 2015 the University reduced the UAI entry point cut-offs for entry by an average of 5.78 per cent in order to increase student numbers. This led to an 22.8 per cent increase in the number of offers made to students.
Without being fully aware of all the dynamics, I am inclined to share the senate's concern.
Each of New England's universities faces a different market problem. In my view, each has to aim for quality rather than quantity.
John McCain's getting grief...
... for saying he has a hard time understanding economics. I actually find his honesty refreshing. It strikes me that he is not acting proud of his misunderstanding (which is at the heart of some blogger's criticism); he is rather owning up to a limitation.
I am not a McCain supporter, but I think his roster of economic advisers is very good. John Diamond, Anne Krueger, Kenneth Rogoff, Harvey Rosen, and John Taylor are all incredibly strong academic economists, and Mark Zandi is among the very best business economists out there (I have some issues with the way he models things for his forecast, but he really wound up nailing the housing market). If he takes advice from these people (but not from Kevin Hassett, especially on the stock market), the country will be well served.
I am not a McCain supporter, but I think his roster of economic advisers is very good. John Diamond, Anne Krueger, Kenneth Rogoff, Harvey Rosen, and John Taylor are all incredibly strong academic economists, and Mark Zandi is among the very best business economists out there (I have some issues with the way he models things for his forecast, but he really wound up nailing the housing market). If he takes advice from these people (but not from Kevin Hassett, especially on the stock market), the country will be well served.
Assignee Liability
Consumer groups are complaining that the proposed Federal Reserve rules for subprime mortgages do not contain assignee liability provisions. Under such provisions, securities holders who invest in predatory mortgages could be sued by borrowers who were treated improperly.
As I have said in other venues, my thinking on subprime has evolved considerably over the past nine months. But I continue to think assignee liability it a really, really bad idea. Securities holders already have the right incentives: predatory loans that blow up harm the investors, and so they want to avoid them. Investors are learning this very painfully right now.
At the same time, securities markets are having a difficult time pricing MBS right now--participants at the moment have little confidence that they understand embedded risk, even in securities that are very safe. Assignee liability would add another layer of uncertainty to markets, and could cause them to seize up even more. It is an example where a "cure" could be worse than the underlying disease.
As I have said in other venues, my thinking on subprime has evolved considerably over the past nine months. But I continue to think assignee liability it a really, really bad idea. Securities holders already have the right incentives: predatory loans that blow up harm the investors, and so they want to avoid them. Investors are learning this very painfully right now.
At the same time, securities markets are having a difficult time pricing MBS right now--participants at the moment have little confidence that they understand embedded risk, even in securities that are very safe. Assignee liability would add another layer of uncertainty to markets, and could cause them to seize up even more. It is an example where a "cure" could be worse than the underlying disease.
Is the AMT so bad?
The House passed a one-year patch for the Alternative Minimum Tax, but failed to fund it. I am not sure that the AMT is actually so bad. It both removes deductions (that tend to be distortionary), and as such broadens the tax base. At the same time, it lowers the marginal tax rate, which improves incentives. Because it doesn't kick in until a household has well above median income, it is progressive over some range of the income distribution.
Larry Summers is saying a temporary tax cut is necessary to stave off recession, but he is talking about something more broad-based than this--I am not sure how stimulative a tax cut for those earning more (usually a lot more) than $75K would be.
Larry Summers is saying a temporary tax cut is necessary to stave off recession, but he is talking about something more broad-based than this--I am not sure how stimulative a tax cut for those earning more (usually a lot more) than $75K would be.
Saturday, December 19, 2015
David E. Bloom David Canning and Günther Fink find that Urbanization has no impact on growth
Science last February had a special issue on cities. Among the articles was the Bloom, Canning and Fink piece, which ran cross-country regressions that showed (1) that urbanization levels in 1970 did not predict economic growth in the years since then and (2) that urbanization did not Granger cause growth. They therefore recommend that policy makers avoid promoting or discouraging urbanization.
Around a year ago, I wrote:
"Every affluent country in the world is urbanized. Among OECD countries, 77 percent of people live in urban areas, and among World Bank-designated high-income countries, 78 percent of people live in urban areas. The poorest two countries in the OECD, Turkey and Mexico, are 67 percent and 76 percent urbanized, respectively. The least urbanized affluent country, Portugal, is 55 or 59 percent urbanized, depending on source. At the same time, the world’s lowest income countries are generally not urbanized: in 2004, the urbanization rate among the World Bank’s designated low income countries was 31 percent. All of the countries with urbanization rates of less than 20 percent, Burkina Faso, Burundi, Cambodia, Ethiopia, Malawi, Nepal, Papua New Guinea, and Uganda, are low-income countries, all with Gross National Incomes Per Capita of less than $660, and most with GNIs that are substantially lower than that.[1] The correlation between urbanization and PPP Per Capita GDP in 2000 was .70. In short, urbanization accompanies affluence."
I continue:
"That urbanization accompanies affluence does not, however, mean that urbanization causes affluence. First, it is worth noting that Latin America and the Caribbean are 77 percent urbanized, and the countries in that region are certainly not among the World’s richest (nor are they in general, among the poorest). There are also very poor countries in Africa--Cameroon, Mauritania, and Senegal--that are at least 50 percent urbanized. All of these countries have per capita GNIs of less than $1010.[2] Hence affluence does not necessarily follow urbanization."
The thing that strikes me is that all rich countries are urbanized, but not all urbanized countries are rich. This suggests to me the following hypothesis: that urbanization is a necessary but not sufficient condition for economic growth. A linear regression does not allow one to test this particular hypothesis.
From a policy perspective, I am happy that an article in Science, perhaps the most prestigious place one can publish in the US, recommends the end of anti-urban policies. But I worry that the regressions suffer from mis-specification.
Around a year ago, I wrote:
"Every affluent country in the world is urbanized. Among OECD countries, 77 percent of people live in urban areas, and among World Bank-designated high-income countries, 78 percent of people live in urban areas. The poorest two countries in the OECD, Turkey and Mexico, are 67 percent and 76 percent urbanized, respectively. The least urbanized affluent country, Portugal, is 55 or 59 percent urbanized, depending on source. At the same time, the world’s lowest income countries are generally not urbanized: in 2004, the urbanization rate among the World Bank’s designated low income countries was 31 percent. All of the countries with urbanization rates of less than 20 percent, Burkina Faso, Burundi, Cambodia, Ethiopia, Malawi, Nepal, Papua New Guinea, and Uganda, are low-income countries, all with Gross National Incomes Per Capita of less than $660, and most with GNIs that are substantially lower than that.[1] The correlation between urbanization and PPP Per Capita GDP in 2000 was .70. In short, urbanization accompanies affluence."
I continue:
"That urbanization accompanies affluence does not, however, mean that urbanization causes affluence. First, it is worth noting that Latin America and the Caribbean are 77 percent urbanized, and the countries in that region are certainly not among the World’s richest (nor are they in general, among the poorest). There are also very poor countries in Africa--Cameroon, Mauritania, and Senegal--that are at least 50 percent urbanized. All of these countries have per capita GNIs of less than $1010.[2] Hence affluence does not necessarily follow urbanization."
The thing that strikes me is that all rich countries are urbanized, but not all urbanized countries are rich. This suggests to me the following hypothesis: that urbanization is a necessary but not sufficient condition for economic growth. A linear regression does not allow one to test this particular hypothesis.
George Bailey explains bank runs
Within the past two weeks the New York Times has had two reviews (here and here, where you click on the AO Scott video) of it's A Wonderful Life. They point out the real reason to movie is great--it is an extraordinarily dark and in some ways tragic film.
Beyond that, this scene does a great job of explaining financial disintermediation. It is fun to use in class.
Friday, December 18, 2015
Paul Carrillo, Stephanie Cellini and I have a new paper
Surfing for Scores:
School Quality, Housing Prices, and the Changing Cost of Information
The abstract:
I
Will post to SSRN soon.
School Quality, Housing Prices, and the Changing Cost of Information
The abstract:
I
n this paper we investigate the relationship between school quality and information disclosure in
housing markets. When presented with the option of identifying their local public school in a
real estate listing, we find that sellers with homes assigned to higher-performing schools are
more likely to provide this information, an effect that is driven by sellers of large single-family
units. Further, we find that controlling for school quality, information disclosure has no
independent effect on housing prices for single-family homes, implying that buyers with a high
willingness-to-pay for school quality will seek out information on school quality on their own.
On the other hand, we find that sellers’ disclosures about schools have a large positive impact on
the sale price of small multi-family residential units in 2001-02, but the effect disappears by
2006-07. Presumably, the increasing ubiquity of the Internet and the availability of new data
under No Child Left Behind dramatically reduced the cost of gathering information on school
quality over this period. Taken together the results reveal substantial heterogeneity in buyers’
willingness-to-pay for information on school quality, they support the findings of the education
literature on the importance of school quality in housing markets, and they confirm the
“unraveling” theory of information disclosure found in other markets.
Will post to SSRN soon.
New England Australia Film - entry page
Photo: Christopher Horsey, Adam Garcia, Matt Lee and Lee McDonald in Fox Searchlight's Bootmen (and here, here), a New England film released in Australia October 2000.One of the difficulties we face in not having our own New England Government is that there is no mechanism to promote the film industry in New England.
In saying this, I am not saying that New England can have its own unique film industry. That would be just plain silly at a time when the Australian film industry as a whole is still struggling to establish a viable commercial identity. However, a New England Government could do two things.
First, it could facilitate film making, including the use of New England locations. That way, we get at least a small slice of the pie.
Secondly, it could ensure that New England people at least have some access to visual material set in or about their own area. This is totally lacking at the present time. New Englanders have no idea as to what films have in fact been made in their own backyard.
As a first step in addressing this gap, I am establishing this page as an entry page for posts about New England films.
The Films
1949. Sons of Mathew. This Charles Chauvel film was filmed mainly in South East Queensland but combines the history of two adjacent areas. Entry point to the posts here.
1953. Captain Thunderbolt. The Cecill Holmes film Captain Thunderbolt is about the life of the legendary bushranger. It was shot in and around Armidale and Uralla with a cast including Grant Taylor and Bud Tingwell. Post here.
1957. Smiley. Filmed at Gundy in the Hunter Valley, Smiley is a classic Australian children's film about a mischievous boy living in the small Australian country town of Murrumbilla. Always getting into pranks, Smiley wants a bike. This he finally gets, but with many misadventures along the way. The film's cast includes Ralph Richardson, John McCallum, Chips Rafferty and Bud Tingwell, with Colin Petersen as Smiley.
1957. The Shiralee. Filmed at Gundy in the Hunter Valley and based on the novel by D'Arcy Niland, The Shiralee tells the story of a man and his daughter. When Jim Macauley (Peter Finch) finds his wife with another man, he takes their young daughter (Dana Wilson) and hits the road. With a young child as his responsibility, he finds he can't be quite the fancy-free wanderer that he had been. Nominated for two BAFTA awards, the film has become another Australian classic.
1958. Smiley Gets a Gun. Again filmed at Gundy in the Hunter Valley, sequel to Smiley (1957).
1968. Koya No Toseinin (The Drifting Avenger). Filmed on location at Nundle, this Japanese western starred Ken Takakura, the Clint Eastwood of Japanese film., in search of revenge for his murdered family. The movie was apparently never released in Australia.
2015. Streetsweeper. Set in Newcastle and directed by Neil Mansfield, this film explores the beauty and ugliness of city street streets through the eyes of a "a loner who finds poetry in the ordinary", played by actor and co-writer Marin Mimica. Mimica is the only actor. All others are pedestrians who become unwittingly involved in the streetsweeper's journey.
A Transportation Question
Last week, I picked up my wife (who will join me working at USC--she will be a physician-faculty member at Keck Med School), our two cats and our wine in Bethesda and drove across the country. It was the first time we had done so in more than 20 years, and other than the fact that it discomfited one of the cats (a nervous nelly about life in general), it was quite a lot of fun.
As we travelled I-66 to I-81 to I-40 to I-30 to I-20 to I-10, I couldn't help but admire the remarkable achievement that is the Interstate Highway system. But I also couldn't help but wonder whether it was sometimes overdone.
In particular, the drive across West Texas was striking for its lack of traffic. The speed limit there was 80, and it is fun to drive unmolested at that speed. The scenery is hauntingly beautiful, too. But I wonder whether a 4-lane superhighway is really necessary there. Wouldn't a 2-lane highway with passing lanes on up-grades and limited at-grade intersections do the trick for such places? Or are the network benefits of having four lanes everywhere worth the cost? I don't know the answer to this--perhaps there is some literature? If we are going to spend a lot on infrastructure, we need to think carefully about such things.
As we travelled I-66 to I-81 to I-40 to I-30 to I-20 to I-10, I couldn't help but admire the remarkable achievement that is the Interstate Highway system. But I also couldn't help but wonder whether it was sometimes overdone.
In particular, the drive across West Texas was striking for its lack of traffic. The speed limit there was 80, and it is fun to drive unmolested at that speed. The scenery is hauntingly beautiful, too. But I wonder whether a 4-lane superhighway is really necessary there. Wouldn't a 2-lane highway with passing lanes on up-grades and limited at-grade intersections do the trick for such places? Or are the network benefits of having four lanes everywhere worth the cost? I don't know the answer to this--perhaps there is some literature? If we are going to spend a lot on infrastructure, we need to think carefully about such things.
Flipping Signs
The purpose of regressions is to obtain conditional means (or medians), in part so that we don't draw incorrect inferences from spurious correlations. Thus regressions are especially useful when we see a significant bivariate correlation, and then the significance goes away after conditioning on other variables.
But what if the sign on an explanatory variable flips from significant and positive before conditioning to significant and negative after conditioning on other variables? Should we take that negative sign seriously? If the model is specified properly, the answer is yes, but my gut tells me such models are rarely specified properly.
But what if the sign on an explanatory variable flips from significant and positive before conditioning to significant and negative after conditioning on other variables? Should we take that negative sign seriously? If the model is specified properly, the answer is yes, but my gut tells me such models are rarely specified properly.
While the Fed Slept?
The Times this morning gives a brief history of the interaction between regulatory agencies (particularly the Fed) and subprime mortgages:
http://www.nytimes.com/2015/12/18/business/18subprime.html?_r=1&hp&oref=slogin
The story points out, correctly, the among the few to see the problem coming were Ned Gramlich and current FDIC Chair Sheila Bair. Their foresight was remarkable, and many of the ideas they had for avoiding the crisis--including closer scrutiny of lending practices--were sensible.
But one thing that bothers me is the idea that the way to prevent a future crisis is the imposition of an "ability-to-pay" standard. Consider the case of the 35 year old who had had a strong income and decides to drop out of the workforce for two years to get an MBA. She moves to Palo Alto to do so. Her income is close to zero for two years, but she wants to buy a condo instead of renting. Is this person really a default risk? Or consider the case of a family confronted with a large medical bill--they decide to take out a home equity loan that pushes up their payment to income ratio to 55 percent for a few years. Is this a worse outcome than having it see its credit record deteriorate because it can't pay its medical bills?
It is possible that these instances are sufficiently rare that putting in place an ability-to-pay standard would be welfare improving. But I would do at it a different way. If everyone involved in the lending chain has money to protect, they will have an incentive to avoid making loans that can't possibly perform. And that, in the end, is the point.
http://www.nytimes.com/2015/12/18/business/18subprime.html?_r=1&hp&oref=slogin
The story points out, correctly, the among the few to see the problem coming were Ned Gramlich and current FDIC Chair Sheila Bair. Their foresight was remarkable, and many of the ideas they had for avoiding the crisis--including closer scrutiny of lending practices--were sensible.
But one thing that bothers me is the idea that the way to prevent a future crisis is the imposition of an "ability-to-pay" standard. Consider the case of the 35 year old who had had a strong income and decides to drop out of the workforce for two years to get an MBA. She moves to Palo Alto to do so. Her income is close to zero for two years, but she wants to buy a condo instead of renting. Is this person really a default risk? Or consider the case of a family confronted with a large medical bill--they decide to take out a home equity loan that pushes up their payment to income ratio to 55 percent for a few years. Is this a worse outcome than having it see its credit record deteriorate because it can't pay its medical bills?
It is possible that these instances are sufficiently rare that putting in place an ability-to-pay standard would be welfare improving. But I would do at it a different way. If everyone involved in the lending chain has money to protect, they will have an incentive to avoid making loans that can't possibly perform. And that, in the end, is the point.
Thursday, December 17, 2015
Carlos Kleiber -Beethoven symphony No.7, Op.92 : mov.1(1)
Beethoven was baptized 237 years ago today. I think he might have liked what Kleiber did with him.
Literary Gifts and Successful Leadership
I am probably out of my depth here, but I have never been able to help but notice that successful Presidents (but for one) have been good writers. Jefferson wrote lyrically, and FDR wrote his own first drafts of important speeches, although he certainly got help from Sherwood Anderson, Samuel Rosenman and Harry Hopkins (for a look at how he went about composing the "Day of Infamy Speech," see http://www.archives.gov/publications/prologue/2001/winter/crafting-day-of-infamy-speech.html).
I don't care much for Ronald Reagan, but he was successful at accomplishing what he wanted to accomplish, and his letters reveal a graceful style. And of course, Lincoln was a towering literary figure. The only exception I can think of is my university's namesake, although he contributed a lot to the drafting of the Farewell Address (with help from his friends Madison and Hamilton).
As it happens, the guy (yes, it's a guy) I like best for this year knows how to put words on paper too. But the fact that I like him suggests that he is doomed. The first candidate I really went all out for was Mo Udall, another literate man who was famed for saying (among other things), "The voters have spoken. Bastards." I was 17 at the time, and I have done about as well at picking candidates ever since.
I don't care much for Ronald Reagan, but he was successful at accomplishing what he wanted to accomplish, and his letters reveal a graceful style. And of course, Lincoln was a towering literary figure. The only exception I can think of is my university's namesake, although he contributed a lot to the drafting of the Farewell Address (with help from his friends Madison and Hamilton).
As it happens, the guy (yes, it's a guy) I like best for this year knows how to put words on paper too. But the fact that I like him suggests that he is doomed. The first candidate I really went all out for was Mo Udall, another literate man who was famed for saying (among other things), "The voters have spoken. Bastards." I was 17 at the time, and I have done about as well at picking candidates ever since.
Very Sad News from Wisconsin--RIP Arthur Goldberger.
We lost one of our most influential econometricians and teachers of econometrics this week--Arthur Goldberger. The econ department's obit is here:
http://www.econ.wisc.edu/Goldberger%20remembrance.pdf
A week doesn't pass without me being grateful for my econometrics education at Wisconsin--in fact, there are times even now when it just starts to dawn on me what Charles Manski and Gary Chamberlain were trying to teach me. Professor Goldberger's (I never had the nerve to call him Art) class sticks with me whenever I even glance at data. His clarity of presentation allowed us to internalize thoroughly classical and "neoclassical" regression theory.
When I go to conferences on policy analysis, I am always struck by (and proud of) how many of the presenters are Wisconsin Ph.D.'s, and by how much of the work that they present is good. Arthur Goldberger deserves a large part of the credit for this. Professor Goldberger didn't only teach a terrific and influential class (his textbook, A Course in Econometrics, is essentially a set of his lecture notes). He infused the economics department at Wisconsin, along with its students, with an ethos that refused to tolerate sloppy empirical work. He shall be missed very much.
[Austin Kelly adds: "I never met the gentlemen, but I can't tell you how many times I have referred people to his classic pages on "micronumercy" - his slam at people who blame everything on multicollinearity."
He also taught me not to place too much faith in R-squared.]
http://www.econ.wisc.edu/Goldberger%20remembrance.pdf
A week doesn't pass without me being grateful for my econometrics education at Wisconsin--in fact, there are times even now when it just starts to dawn on me what Charles Manski and Gary Chamberlain were trying to teach me. Professor Goldberger's (I never had the nerve to call him Art) class sticks with me whenever I even glance at data. His clarity of presentation allowed us to internalize thoroughly classical and "neoclassical" regression theory.
When I go to conferences on policy analysis, I am always struck by (and proud of) how many of the presenters are Wisconsin Ph.D.'s, and by how much of the work that they present is good. Arthur Goldberger deserves a large part of the credit for this. Professor Goldberger didn't only teach a terrific and influential class (his textbook, A Course in Econometrics, is essentially a set of his lecture notes). He infused the economics department at Wisconsin, along with its students, with an ethos that refused to tolerate sloppy empirical work. He shall be missed very much.
[Austin Kelly adds: "I never met the gentlemen, but I can't tell you how many times I have referred people to his classic pages on "micronumercy" - his slam at people who blame everything on multicollinearity."
He also taught me not to place too much faith in R-squared.]
Wednesday, December 16, 2015
Eugene Fama on MBS
He is interviewed here:
http://www.minneapolisfed.org/pubs/region/07-12/fama.cfm
And he says:
I disagree on a couple of counts. First, the fact that investors are not sure what to make of AAA right now is one of the causes of our current problems. When I gave my talk at USC the other day, Larry Harris asked whether some of the AAA MBS was safe. The answer, of course, is that some of the AAA stuff is very safe. When an MBS gets the first 35 percent of promised cash flows from the underlying mortgages, it is, indeed, very safe, and yet it is trading at a substantial discount, because investors (and likely overseas investors in particular) do not know what to make of AAA right now.
Second, Mortgage Backed Securities are very tricky investments, because borrowers get control of two embedded options: a call option to prepay the mortgage when interest rates go down, and a put option to default on the mortgage when house prices fall. So far as I know, no one has yet to do a good job pricing these options acurately, because borrower behavior with respect to the puts and calls has been, shall we say, unstable.
http://www.minneapolisfed.org/pubs/region/07-12/fama.cfm
And he says:
Region: Some observers have suggested that regulators and others have put too much reliance on ratings agencies to determine the risk of mortgage-backed securities and that even financially sophisticated parties “didn’t really know what they were buying.” Is this evidence that credit markets are inefficient?
Fama: That story just doesn’t appeal to me. First of all, it’s well known that rating agencies tend to lag actual changes in credit worthiness. For example, stock prices predict changes in ratings better. The best models of credit quality are basically options pricing models that work off the stock price. So I’m very skeptical of these stories. The bond market is a simpler market than the stock market. Bonds are simpler to evaluate than stocks, because there’s downside risk, but you don’t have to worry much about the upside: They’re not going to pay you more than they promised. So bonds are much simpler to deal with. Now bond products have become more complicated because of the securitization of that market, but still not that big a deal.
I disagree on a couple of counts. First, the fact that investors are not sure what to make of AAA right now is one of the causes of our current problems. When I gave my talk at USC the other day, Larry Harris asked whether some of the AAA MBS was safe. The answer, of course, is that some of the AAA stuff is very safe. When an MBS gets the first 35 percent of promised cash flows from the underlying mortgages, it is, indeed, very safe, and yet it is trading at a substantial discount, because investors (and likely overseas investors in particular) do not know what to make of AAA right now.
Second, Mortgage Backed Securities are very tricky investments, because borrowers get control of two embedded options: a call option to prepay the mortgage when interest rates go down, and a put option to default on the mortgage when house prices fall. So far as I know, no one has yet to do a good job pricing these options acurately, because borrower behavior with respect to the puts and calls has been, shall we say, unstable.
How pro-transit people shoot themselves in the foot.
I read the following on the Seattle-based Alaska Viaduct project in the Infrastructurist:
Let me stipulate that the project may very well not pass a cost-benefit test. But the line "will only advance the interests of car commuters" reflects both snobbishness and detachment from reality. According to this blog, more than four-fifths of commuter trips and 85 percent of all trips in Seattle are made in private automobiles. Complaining that something advances the interest of auto commuters is like complaining about advancing the interest of, say, children--pretty much every one of us is one, or loves someone who is.
As the Onion so wisely headlined, "98 percent of US commuters favor public transportation for others."
McGinn’s statements suggest that this megaproject may still be defeated. For the sake of a city with exciting light rail plans and big-city potential, we hope this happens, since the tunnel is too expensive and will only advance the interests of car commuters, rather than encourage them to try transit.
Let me stipulate that the project may very well not pass a cost-benefit test. But the line "will only advance the interests of car commuters" reflects both snobbishness and detachment from reality. According to this blog, more than four-fifths of commuter trips and 85 percent of all trips in Seattle are made in private automobiles. Complaining that something advances the interest of auto commuters is like complaining about advancing the interest of, say, children--pretty much every one of us is one, or loves someone who is.
As the Onion so wisely headlined, "98 percent of US commuters favor public transportation for others."
Why I remain a New England New Stater 8 - the electricity asset grab
Note to readers: This post is one in a series using personal examples to illustrate why I continue to support both agitation for New England self-government and self-government itself. Agitation, because its very existence forces forces the Sydney Government to consider New England interests. Self-government, because there are some things that we cannot achieve without this.
The Sydney media has been full of the Sydney Government's plans to privatise the NSW electricity system. I have very mixed feelings on this one. I suspect that it is both inevitable and desirable. But it also rubs raw a past wound.
Back in the nineteen nineties, electricity distribution was controlled by country councils, some of whom also had generation capacity. The Sydney Government put forward a reform program for the electricity sector.
At the time I was running a consulting business out of Armidale. I was also chair of Tourism Armidale. In the first role, I was interested in the electricity sector as a possible consulting marketplace. In the second, I was interested in the New England County Council as a source of tourism funding.
As part of market scoping I looked at the official Government material on the proposed reforms. Essentially these involved folding the distributors into larger corporatised entities. Two justifications were advanced.
The first lay in the national restructuring of the sector, including introduction of competition and the creation of a national electricity marketplace. This, it was argued, required larger entities. Smaller entities could not compete.
The second justification lay in enhanced efficiency. According to the NSW Treasury, the existing country councils were not subject to proper disciplines to earn returns on the assets they held. So consolidation and corporatisation would increase revenues while benefiting consumers.
Now I had problems with these arguments at the time. The New England County Council was owned by local councils and was formed through the acquisition of Council assets. Its growth had been funded by surpluses plus borrowings. The State had controlled and guaranteed those borrowings, but to my knowledge had never contributed a dollar of funding.
As part of its development, the NECC had built its own small hydro power station. This had been funded by its consumers through higher electricity prices, significantly higher than the state average. This investment had reached pay-back time. The NECC was quite profitable, generating funds for local projects, while its electricity prices were some of the cheapest in NSW.
Local concerns across NSW about the plans, about the Sydney Government's grab for assets, were ignored. So what happened?
The first thing that the Sydney Government did was to increase borrowing against the assets, thus generating cash for its own purposes. The second thing was to strip money out through dividends, creating more cash for its own purposes.
In the drive for efficiency, many jobs were cut, in cases such as linemen over cut, creating later shortages that impeded efficiency. There was also underinvestment.
Did consumers benefit? This is hard work out accurately. Certainly bigger industrial users did.
Did the original local owners of the assets benefit? Almost certainly not in the case of NECC. The area lost higher level jobs, plus access to the surplus that had been available to fund local activities. I also suspect that local electricity prices have increased more than the state average simply because they were low to begin with.
Would self-government have prevented this asset grab? Perhaps not, because the Sydney Government's approach was in part part of a broader trend in public administration. But we would have had a much higher certainty of local benefit since funds would have been spent within New England, not sucked away to help fund the inefficiencies of the broader NSW system.
One Data Point on the Current Value of Cash
Yesterday we closed on the sale of our Bethesda house.
We received two potential offers on the same day: offer X, which had a financing contingency, and offer .94X, which was a cash offer. We took .94 X.
The amazing thing is that the offers came within a week of listing the house. Consistent with Levitt's thesis, the agent encouraged us to take one of those first two offers. But there was an identification problem--we didn't need a lot of convincing.
We received two potential offers on the same day: offer X, which had a financing contingency, and offer .94X, which was a cash offer. We took .94 X.
The amazing thing is that the offers came within a week of listing the house. Consistent with Levitt's thesis, the agent encouraged us to take one of those first two offers. But there was an identification problem--we didn't need a lot of convincing.
The Prius
I rented one for the past three days, and now I want one, but not because of the money they save on gas. A Corolla is a lot cheaper, and gets sufficiently good mileage that one cannot justify the price premium for a Prius on gas costs alone.
I want a Prius because they are a gas to drive (so to speak). They handle really well, are easy to see out of, and because of their transmission, are incredibly smooth. I think, though, that thanks to South Park, I would need a bumper sticker that says something like: no, I am not smug.
I want a Prius because they are a gas to drive (so to speak). They handle really well, are easy to see out of, and because of their transmission, are incredibly smooth. I think, though, that thanks to South Park, I would need a bumper sticker that says something like: no, I am not smug.
Asthetically Pleasing Freeways
I have spent the past couple of days in Los Angeles, visiting USC. I know I am strange for saying this, but I think some of the freeway interchanges there are rather beautiful. The most spectacular is the intersection of the Harbor and 105 freeways (photo comes from http://www.my-photo-blog.com/2015/11). While it is a terrific photograph, it doesn't really do the thing justice. It is otherworldly when you drive through it.
My guess is that the project cost considerably more than necessary to perform its function. But the graceful curves and views add more to the urban landscape than a normal interchange would. I think many tend to sneer at LA Freeways, but they are actually admired in other parts of the World. A Chinese municipal official who was in an executive class of mine said that he really admired LA because of the design of its freeways. Genevieve Giuliano, who directs a transportation research center at USC, notes that LA would have plenty of Freeway capacity, if only the front passenger seat in cars were occupied more often. Indeed, a car with two occupants is a pretty efficient transportation technology under many circumstances (you can, after all, then multiply MPG per passenger by two). The tough question, as Professor Giuliano puts it, is how to fill that passenger seats. HOV lanes really haven't done it. It will probably take tolls.
Tuesday, December 15, 2015
Gregg Easterbrook has a good piece on college sports this week
It begins:
I was harsh with him last week, so when I think his work is good...
Charlie Weis and Bobby Bowden had to go -- Notre Dame and Florida State weren't winning every game! Get rid of the bums! All we heard from sports commentators, and from alums and boosters, was get rid of the bums, we gotta win, win, win. Sorry to interject, but why? Why does Notre Dame or Florida State or any university need to win every game? Is it now official that big colleges care more about sports than education?
If an NFL team, which is strictly a commercial enterprise in the business of providing entertainment, doesn't win, get rid of the bums. But a university exists to educate; winning football games is a secondary concern. Don't get me wrong. I attend way too many college football games, and I always like it when the school I'm rooting for wins. But I am not so misguided as to think that a college's winning games means more than a college's educating students, including athletes. Why is this distinction practically absent from sports commentary?....
I was harsh with him last week, so when I think his work is good...
Monday, December 14, 2015
Federal Election 2015 - Final results for New England's seats
I am now in the process of uploading the final election results for the various New England seats on my election post. This will take a little while.
Once I have completed the task, I will prepare some consolidated tables to provide an overview.
Inquiry about Hyderabad
I will be making my second visit to the Indian School of Business this coming January. If anyone out there has expertise in the Hyderabad real estate market, I would very much appreciate hearing about it. richarkg@usc.edu.
Sunday, December 13, 2015
Recruiting for MBAs in the Middle East
I am home from recruiting MBA students in Dubai and Cairo.
Cairo is one of the greatest cities I have ever visited; the architecture, street life, and, oh yes, the antiquities are beyond compare. The people there were exceptionally hospitable, and the streets are safe, if heavily littered. I bought some cool if corny papyrus paintings; the Nefertiti will hang in honor next to my velvet Elvis.
I met great potential students in both Dubai and Cairo, and would love to bring at least a half-dozen from each place to George Washington. The sticking point, in their minds, was getting a student visa. The perception was that getting student visas to the US is too much of a hassle; as a friend of mine at National University of Singapore said to me, the difficulty in getting visas to the US has made recruiting at NUS much easier. Don't get me wrong, NUS is terrific (I have very much enjoyed my two visits there), but I would rather students come here.
My reasons for this are not entirely altruistic. I think having college and graduate students coming to the United States is extremely important to our image in the World. While people in Egypt complained bitterly about US Middle-East foreign policy, they nevertheless wanted to come to America. In the 17 years I have been teaching (has it been that long?), I have seen generation upon generation of international students transformed by their experience in America--and transformed for the better. Once students are here for a few years, they often appreciate America's openness, and generosity, and they embrace American ideals. They can't help but feel better about America's place in the world, even as they continue to oppose US foreign policy. In some small way, this must leave us safer.
A State Department Official in Cairo told me he get could get visas for students accepted at US universities in 3 days. If this is really true, I am optimistic about increasing the flow of students from Morocco to Jordan to Oman into the United States. This would benefit us all.
On my eight day trip, I took one morning off. This is what I saw:
I would say that if you get a chance to see one wonder in your life, this should be it. Astonishing.
Sameulson stands alone
From the time I was in high school, I was told of a symmetry in economics: that the world had two leading economists, one on the right (Milton Friedman)and one on the left (Paul Samuelson). But once I started reading their works in college and graduate school, I came to the view that there was no symmetry: that Friedman was a brilliant economist, but that Samuelson was at a different level altogether. Friedman was more like Gershwin, whereas Samuelson was more like Mozart.
Friedman's two masterpieces were A Monetary History of the United States 1867-1960 (which he coauthored with Anna Schwartz) and Essays in Positive Economics. The former is an astonishing work of scholarship,and rigorously uncovers data to make an important point about the quantity theory of money. The latter reads like a series of clever puzzles to be solved--it challenges you to figure out the underlying assumption that drives the result.
But Samuelson's Foundation of Economic Analysis was like Don Giovanni and the Magic Flute--it changed everything. I do not think it is an exaggeration to say that all economic thought since then has its (if you will excuse me for saying so) foundations in that work. At the same time, he was, like Mozart, astonishingly prolific, and had influence in pretty much every field of economics (macro, micro, public economics, trade, industrial organization, etc.), and at pretty much every level (as a scholar of original research, textbook author, popular press writer).
Friedman's two masterpieces were A Monetary History of the United States 1867-1960 (which he coauthored with Anna Schwartz) and Essays in Positive Economics. The former is an astonishing work of scholarship,and rigorously uncovers data to make an important point about the quantity theory of money. The latter reads like a series of clever puzzles to be solved--it challenges you to figure out the underlying assumption that drives the result.
But Samuelson's Foundation of Economic Analysis was like Don Giovanni and the Magic Flute--it changed everything. I do not think it is an exaggeration to say that all economic thought since then has its (if you will excuse me for saying so) foundations in that work. At the same time, he was, like Mozart, astonishingly prolific, and had influence in pretty much every field of economics (macro, micro, public economics, trade, industrial organization, etc.), and at pretty much every level (as a scholar of original research, textbook author, popular press writer).
How lending decisions produce sub-optimal social outcomes
The New York Times reports that many people who would like to refinance their mortgages into lower interest rate 30 year fixed rate mortgages are unable to do so.
Of course, were households able to refinance their mortgages, their probability of default would fall, because the present value of their mortgage balance would fall (effectively lowering the loan-to-value ratio) and payment-to-income ratios would also fall. At the same time, because the cost of capital for lenders is low, financial institutions would find the refinanced loans profitable.
But when a lender holds an underwater loan, it wants to earn as much profit as possible, and so hasn't sufficient incentive to lower the interest rate. The judgment of these lenders is that the profit gained by continuing to charge a high interest rate is greater than the potential losses from the increased probability of default. At the same time, other lenders do not want to take out a loan that is underwater. Hence, people are stuck.
This is surely socially less than optimal--keeping foreclosures as low as possible is in everyone's best interest at the moment. So here is a policy proposition--if a borrower has always been current on repaying their mortgage, they get to refinance at the current low rate of interest. Financial institutions are being subsidized with unnaturally low interest rates. Borrowers should get their share of those subsidies.
Of course, were households able to refinance their mortgages, their probability of default would fall, because the present value of their mortgage balance would fall (effectively lowering the loan-to-value ratio) and payment-to-income ratios would also fall. At the same time, because the cost of capital for lenders is low, financial institutions would find the refinanced loans profitable.
But when a lender holds an underwater loan, it wants to earn as much profit as possible, and so hasn't sufficient incentive to lower the interest rate. The judgment of these lenders is that the profit gained by continuing to charge a high interest rate is greater than the potential losses from the increased probability of default. At the same time, other lenders do not want to take out a loan that is underwater. Hence, people are stuck.
This is surely socially less than optimal--keeping foreclosures as low as possible is in everyone's best interest at the moment. So here is a policy proposition--if a borrower has always been current on repaying their mortgage, they get to refinance at the current low rate of interest. Financial institutions are being subsidized with unnaturally low interest rates. Borrowers should get their share of those subsidies.
Garages
I am a big fan of Witold Rybczynski. He writes books (such as City Life and Home) that are insightful, whimsical, and blessedly short. Yesterday, he had a wonderful slideshow in Slate about the state of garage architecture:
http://www.slate.com/id/2179373/
It actually makes sense for parking garages to go upscale. In Washington, it costs around $200 per month to rent a space downtown. A typical parking space is about 170square feet. The costs of maintaining a garage are pretty minimal, so let's say that a parking garage owner nets $170 per month, or $1 per square foot per month, or $12 per year. At a cap rate of 8 percent, this means that parking spaces are worth $150 per square foot, or around $25,500 per space: this is not chump change for something that requires no interior walls, no heat, etc. [Update: of course this is value per space. Because garages have lots on non-leasible space, the value of the entire garage will be less]. Washington is not remotely the most expensive city for parking, either. New York (of course), Boston, San Francisco and Philadelphia (!!) are more expensive places to park.
Given the expense of parking spaces, one does begin to wonder why garages don't start charging by the square foot rather than by the space. Part of the garage could be configured for Honda Fits and Cooper Minis; another to Hummers and Escalades. I know this adds a layer of complexity, but all other types of real estate come in various configurations.
In my ideal world, Hummers and Excalades would pay higher tolls on East Coast Turnpikes too--they do, after all, take up more space, and therefore impose higher marginal costs of congested roads. I think people should be able to drive whatever they like, so long as they internalize the costs of doing so.
http://www.slate.com/id/2179373/
It actually makes sense for parking garages to go upscale. In Washington, it costs around $200 per month to rent a space downtown. A typical parking space is about 170square feet. The costs of maintaining a garage are pretty minimal, so let's say that a parking garage owner nets $170 per month, or $1 per square foot per month, or $12 per year. At a cap rate of 8 percent, this means that parking spaces are worth $150 per square foot, or around $25,500 per space: this is not chump change for something that requires no interior walls, no heat, etc. [Update: of course this is value per space. Because garages have lots on non-leasible space, the value of the entire garage will be less]. Washington is not remotely the most expensive city for parking, either. New York (of course), Boston, San Francisco and Philadelphia (!!) are more expensive places to park.
Given the expense of parking spaces, one does begin to wonder why garages don't start charging by the square foot rather than by the space. Part of the garage could be configured for Honda Fits and Cooper Minis; another to Hummers and Escalades. I know this adds a layer of complexity, but all other types of real estate come in various configurations.
In my ideal world, Hummers and Excalades would pay higher tolls on East Coast Turnpikes too--they do, after all, take up more space, and therefore impose higher marginal costs of congested roads. I think people should be able to drive whatever they like, so long as they internalize the costs of doing so.
Saturday, December 12, 2015
The capitalization rate for Priuses?
I am in Southern California for a few days, and when a Prius was available in the National Car Emerald Aisle, I took it. It is actually a lot of fun to drive--it makes no noise at stop lights, and is remarkably smooth on the freeway.
A limited number of Prius' get stickers that allow them into HOV lanes even if the driver has no passengers. A friend of mine pointed out that these stickers add substantial value in the secondary market. A story from last spring on NPR notes:
A limited number of Prius' get stickers that allow them into HOV lanes even if the driver has no passengers. A friend of mine pointed out that these stickers add substantial value in the secondary market. A story from last spring on NPR notes:
The California legislature approved 85,000 permits that will allow lone drivers of hybrid cars to drive in carpool lanes. The permits come along with big, yellow decals.
In February, the DMV mailed out the last of the 85,000 sets of stickers. Now the only way to get a new one is to buy a car that already has the stickers.
That difference is turning up in the cost of used cars, say the people at Kelley Blue Book. The re-sale analysts have figured out that a used Prius that already has the stickers is going for $4,000 more than one that lacks them.
There have been reports of stickers being stolen off cars — but the DMV doubts this is happening. The decals are tamper-proof. If you remove them they crumble and read "VOID."
Friday, December 11, 2015
Preliminary Syllabus for GW Finance 279 Part I, Spring 2015
Course: Finance 279 Semester: Spring 2015
Course
Description: This is a course on fixed income real estate securities. It will explore the peculiarities of mortgages and mortgage-backed securities. While there is a suggested text with good background, I do not “teach the text.” I hand out notes and expect you to learn largely by doing.
We will value these securities and analyze their risk using tools from finance theory and real estate valuation theory. Most of the work will be performed in spreadsheets. We will do spreadsheet work in class—if you have a laptop, please bring it to class. Data for class will be posted on the class web site.
Learning To apply fixed income pricing and option pricing techniques to mortgage pricing
Goals: problems.
To understand urban land markets sufficiently well to underwrite mortgage default risk.
Professor: Richard K. Green
507 Funger Hall
202-994-2377 (o)
301-467-3582 (m)
drgreen@gwu.edu
Office Hours: Thursdays and Fridays, 5-6 pm.
Requirements: Assignments 1-5 10% each
Exam I 25%
Exam II 25%
Texts (suggested reading)
Frank Fabozzi, Bond Markets, Analysis and Strategies, Sixth Edition, Prentice Hall.
January 24-25
The Primary Residential Mortgage Market
An Institutional Overview of Government Sponsored Enterprises
Richard K. Green and Susan M. Wachter, The US Mortgage in Historical and International Contexts, Journal of Economic Perspectives, Fall 2005.
Text, Ch. 10.
Assignment 1: Qualifying a primary borrower and Housing Affordability Indexes
January 31, Feb 1
Text, Chs. 4, 6, and 21.
Mortgage Backed Securities and Pass-through Certificates
Three kinds of risk:
-default risk
-prepayment risk
-bond-like interest rate risk
Exercise in Class: Measuring Duration
Assignment 2: Pricing a security with ruthless default
February 7-8
An Overview of Modeling Prepayment Risk for MBS
-Option pricing models
-PSA models
-Empirical survivor function models
Text, Chapter. 11.
Richard K. Green and Michael Lacour-Little, Some Truths about Ostriches, Journal of Housing Economics, 1999, vol. 8, issue 3, pages 233-248
Yongheng Deng & John M. Quigley & Robert Van Order, 2000. "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Econometrica, Econometric Society, vol. 68(2), pages 275-308, March.
Exercise in Class: Calculating an Empirical Survival Function
Assignment 3: Developing a PSA spreadsheet
February 14-15
Derivatives and Hedging
-Collateralized Mortgage Obligations
-Strips
-Secondary Market Institutions Funding Mechanisms
-Swaps
Text, Chs. 12, 26, 27 and 28.
EXAM 1
February 21-22
Asset Backed Securities, Sub-prime loans, CDOs, Adjustable Rate Mortgages
Assignment 4: To be determined
Readings TBA
February 28-29
The Primary Commercial Mortgage Market
-Underwriting Issues—the pro forma
-Structural Issues
-Roles of Institutions
In class exercise: Pro Forma Development
Assignment 5: Leverage, Risk and Returns
Reading: Handout
March 6-7
The Secondary Commercial Mortgage Market
Low Income Housing Tax Credits
Text, Chapter 13.
EXAM II
Course
Description: This is a course on fixed income real estate securities. It will explore the peculiarities of mortgages and mortgage-backed securities. While there is a suggested text with good background, I do not “teach the text.” I hand out notes and expect you to learn largely by doing.
We will value these securities and analyze their risk using tools from finance theory and real estate valuation theory. Most of the work will be performed in spreadsheets. We will do spreadsheet work in class—if you have a laptop, please bring it to class. Data for class will be posted on the class web site.
Learning To apply fixed income pricing and option pricing techniques to mortgage pricing
Goals: problems.
To understand urban land markets sufficiently well to underwrite mortgage default risk.
Professor: Richard K. Green
507 Funger Hall
202-994-2377 (o)
301-467-3582 (m)
drgreen@gwu.edu
Office Hours: Thursdays and Fridays, 5-6 pm.
Requirements: Assignments 1-5 10% each
Exam I 25%
Exam II 25%
Texts (suggested reading)
Frank Fabozzi, Bond Markets, Analysis and Strategies, Sixth Edition, Prentice Hall.
January 24-25
The Primary Residential Mortgage Market
An Institutional Overview of Government Sponsored Enterprises
Richard K. Green and Susan M. Wachter, The US Mortgage in Historical and International Contexts, Journal of Economic Perspectives, Fall 2005.
Text, Ch. 10.
Assignment 1: Qualifying a primary borrower and Housing Affordability Indexes
January 31, Feb 1
Text, Chs. 4, 6, and 21.
Mortgage Backed Securities and Pass-through Certificates
Three kinds of risk:
-default risk
-prepayment risk
-bond-like interest rate risk
Exercise in Class: Measuring Duration
Assignment 2: Pricing a security with ruthless default
February 7-8
An Overview of Modeling Prepayment Risk for MBS
-Option pricing models
-PSA models
-Empirical survivor function models
Text, Chapter. 11.
Richard K. Green and Michael Lacour-Little, Some Truths about Ostriches, Journal of Housing Economics, 1999, vol. 8, issue 3, pages 233-248
Yongheng Deng & John M. Quigley & Robert Van Order, 2000. "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Econometrica, Econometric Society, vol. 68(2), pages 275-308, March.
Exercise in Class: Calculating an Empirical Survival Function
Assignment 3: Developing a PSA spreadsheet
February 14-15
Derivatives and Hedging
-Collateralized Mortgage Obligations
-Strips
-Secondary Market Institutions Funding Mechanisms
-Swaps
Text, Chs. 12, 26, 27 and 28.
EXAM 1
February 21-22
Asset Backed Securities, Sub-prime loans, CDOs, Adjustable Rate Mortgages
Assignment 4: To be determined
Readings TBA
February 28-29
The Primary Commercial Mortgage Market
-Underwriting Issues—the pro forma
-Structural Issues
-Roles of Institutions
In class exercise: Pro Forma Development
Assignment 5: Leverage, Risk and Returns
Reading: Handout
March 6-7
The Secondary Commercial Mortgage Market
Low Income Housing Tax Credits
Text, Chapter 13.
EXAM II
Congratulations to UNE's (and Kempsey's) Phil Schubert
I see from the Macleay Argus (11 December) that Phil Schubert has graduated from UNE with a combined bachelor's degree in arts and law.
Phil studied at the now defunct Collombatti Rail Primary school and then Kempsey High. He gained early admission to UNE through the Principal's admission scheme.
I mention Phil because he combined study with extra-curricula life, something that I as a UNE alumnus value highly. Phil was President of the Students' Association in 2004, a member of the University Council 2004-2206, and recipient of the New England Award for services to the university community.
My congratulation to Phil and his family including dad Graeme and grand mum Nettie.
For FIn 397, A clearer description of Odds-Ratios and the Rare Disease Assumption
Odds
Gerard E. Dallal, Ph.D.
The odds o(E) of an event E is the ratio of the probability that the event will occur, P(E), to the probability that it won't, 1-P(E), that is,
For example, if the probability of an event is 0.20, the odds are 0.20/0.80 = 0.25.
In epidemiology, odds are usually expressed as a single number, such as the 0.25 of the last paragraph. Outside of epidemiology, odds are often expressed as the ratio of two integers--2:8 (read "2 to 8") or 1:4. If the event is less likely to occur than not, it is common to hear the odds stated with the larger number first and the word "against" appended, as in "4 to 1 against".
When the odds of an event are expressed as X:Y, an individual should be willing to lose X if the event does not occur in order to win Y if it does. When the odds are 1:4, an individual should be willing to lose $1 if the event does not occur in order to win $4 if it does.
The Fascination With Odds
A common research question is whether two groups have the same probability of contracting a diseaase. One way to summarize the information is the relative risk--the ratio of the two probabilities. For example, in 1999, He and his colleagues reported in the New England Journal of Medicine that the realative risk of coronary heart disease for those exposed to second hand smoke is 1.25--those exposed to second hand smoke are 25% more likely to develop CHD.
As we've already seen, when sampling is performed with the totals of the disease categories fixed, we can't estimate the probability that either exposure category gets the disease. Yet, the medical literature is filled with reports of case-sontrol studies where the investigators do just that--examine a specified number of subjects with the diesease and a number without it. In the case of rare diseases this is about all you can do. Otherwise, thousands of individuals would have to be studied to find that one rare case. The reason for the popularity of the case control study is that, thanks to a little bit of algbera, odds ratios give us something almost as good as the relative risk. allow us to obtain something almost as good as a relative risk.
There are two odds ratios. The disease odds ratio (or risk odds ratio) is the ratio of (the odds of disease for those with some exposure) to (the odds of disease for those without the exposure). The exposure odds ratio is ratio of (the odds of exposure for those with disease) to (the odds of exposure for those without disease).
When sampling is performed with the totals of the disease categories fixed, we can always estimate the exposure odds ratio. Simple algebra shows that the exposure odds ratio is equal to the disease odds ratio! Therefore, sampling with the totals of the disease categories fixed allows us to determine whether two groups have different probabilities of having a disease.
1. We sample with disease category totals fixed.
2. We estimate the exposure odds ratio.
3. The exposure odds ratio is equal to the disease odds ratio. Therefore, if the exposure odds ratio is different from 1, the disease odds ratio is different from 1.
A bit more simple algebra shows that if the disease is rare (<5%), then the odds of contracting the disease is almost equal to the probability of contracting it. For example, for p=0.05, , which is not much different from 0.05. Therefore, when a disease is rare, the exposure odds ratio is equal to the disease odds ratio, which, in turn, is approximately equal to the relative risk!
Gerard E. Dallal, Ph.D.
The odds o(E) of an event E is the ratio of the probability that the event will occur, P(E), to the probability that it won't, 1-P(E), that is,
For example, if the probability of an event is 0.20, the odds are 0.20/0.80 = 0.25.
In epidemiology, odds are usually expressed as a single number, such as the 0.25 of the last paragraph. Outside of epidemiology, odds are often expressed as the ratio of two integers--2:8 (read "2 to 8") or 1:4. If the event is less likely to occur than not, it is common to hear the odds stated with the larger number first and the word "against" appended, as in "4 to 1 against".
When the odds of an event are expressed as X:Y, an individual should be willing to lose X if the event does not occur in order to win Y if it does. When the odds are 1:4, an individual should be willing to lose $1 if the event does not occur in order to win $4 if it does.
The Fascination With Odds
A common research question is whether two groups have the same probability of contracting a diseaase. One way to summarize the information is the relative risk--the ratio of the two probabilities. For example, in 1999, He and his colleagues reported in the New England Journal of Medicine that the realative risk of coronary heart disease for those exposed to second hand smoke is 1.25--those exposed to second hand smoke are 25% more likely to develop CHD.
As we've already seen, when sampling is performed with the totals of the disease categories fixed, we can't estimate the probability that either exposure category gets the disease. Yet, the medical literature is filled with reports of case-sontrol studies where the investigators do just that--examine a specified number of subjects with the diesease and a number without it. In the case of rare diseases this is about all you can do. Otherwise, thousands of individuals would have to be studied to find that one rare case. The reason for the popularity of the case control study is that, thanks to a little bit of algbera, odds ratios give us something almost as good as the relative risk. allow us to obtain something almost as good as a relative risk.
There are two odds ratios. The disease odds ratio (or risk odds ratio) is the ratio of (the odds of disease for those with some exposure) to (the odds of disease for those without the exposure). The exposure odds ratio is ratio of (the odds of exposure for those with disease) to (the odds of exposure for those without disease).
When sampling is performed with the totals of the disease categories fixed, we can always estimate the exposure odds ratio. Simple algebra shows that the exposure odds ratio is equal to the disease odds ratio! Therefore, sampling with the totals of the disease categories fixed allows us to determine whether two groups have different probabilities of having a disease.
1. We sample with disease category totals fixed.
2. We estimate the exposure odds ratio.
3. The exposure odds ratio is equal to the disease odds ratio. Therefore, if the exposure odds ratio is different from 1, the disease odds ratio is different from 1.
A bit more simple algebra shows that if the disease is rare (<5%), then the odds of contracting the disease is almost equal to the probability of contracting it. For example, for p=0.05, , which is not much different from 0.05. Therefore, when a disease is rare, the exposure odds ratio is equal to the disease odds ratio, which, in turn, is approximately equal to the relative risk!
30 years ago in Time Magazine
The more things change...
Politics and policy rend a big lender
The White House has become involved in a maneuver to oust yet another top-level holdover Republican appointee. He is Oakley Hunter, chosen by Richard Nixon as chairman of the Federal National Mortgage Association, known as Fannie Mae, the nation's largest provider of housing finance. As boss of Fannie Mae, Hunter has been feuding with Patricia Harris, Secretary of Housing and Urban Development. Largely to appease her, the White House acted last week on a HUD memo urging that an emissary be chosen to end the quarrel, perhaps by bringing about Hunter's "voluntary resignation." The memo named five men as possible mediators, including Bert Lance, but the White House gave the job to Robert Strauss, the President's special trade negotiator.
There is a personality clash between the liberal, Humphrey-style Democrat Pat Harris and Oakley Hunter, a former Republican Congressman from Southern California. Their deeper problems center on policy: Should Fannie Mae retain its semi-independence, as Hunter wants, or should it bow to HUD directives, as Harris insists? Specifically, Harris feels that Fannie Mae is far too concerned about making money—last year its profits rose from $127 million to $165 million—and too unconcerned with stimulating mortgage lending for low-income housing in the cities.
For its first 26 years, Fannie Mae was a Government agency. In 1968 Congress turned it into a private, profit-oriented company answerable primarily to its stockholders, both individuals and institutions. But the President was given the right to fire its directors "for cause," and HUD was granted some powers to limit Fannie Mae's borrowing. It raises billions of dollars a year in private markets and then buys mortgages from banks, savings and loan associations and other lenders, giving them money to invest in other mortgages. Currently, Fannie Mae holds about $34 billion worth of housing debt. In a war of nerves, Harris in recent months has not granted big new borrowing authority to Fannie Mae, but instead has doled it out in dribs and drabs.
Hunter, who earns $140,000 a year, also faces opposition within Fannie Mae's board; of its 15 directors, five are appointed by the President and ten are voted in by stockholders after being nominated by a management committee. Last October, one stockholder-chosen director, Julian Zimmerman, a mortgage banker who was head of the Federal Housing Administration under President Eisenhower, called for Hunter's resignation on the grounds that Fannie Mae's management had grown aloof and unresponsive to both its own board and the Government. In November a motion to censure Hunter barely lost, by an 8 to 6 vote.
The latest crisis was set off because HUD executives heard that Zimmerman and one other anti-Hunter director would not be nominated for re-election at a board meeting scheduled for this Tuesday. So the White House dispatched Strauss to settle the fight and get Hunter's terms for resigning. Meeting with Strauss last week, Hunter talked about quitting in the future, provided that the Administration would guarantee Fannie Mae's "fiscal integrity and independence." Hunter also wanted all of HUD'S authority over Fannie Mae transferred to the Treasury. But Pat Harris rejected any such deal, and so the White House remains in the middle of an ongoing fight.
Cliver Crook of the FT channels Barney Frank
Normally it falls to conservatives to cry “moral hazard” when policies such as this, expressly designed to reward imprudent behaviour, are announced. This time, the indispensable Barney Frank, the Democratic chairman of the House financial services committee, is leading the chorus. As he points out, the plan bizarrely confines its promised assistance to borrowers with poor credit histories. More than a third of mortgages currently in foreclosure were granted to prime borrowers; and, of those, more than half were adjustable-rate loans. Under the Paulson scheme, prime borrowers who get into trouble when their teaser rates reset will have to refinance, if they can; otherwise, they are on their own. Borrowers who struggled to improve their credit scores before taking out their mortgages are going to feel aggrieved. In many cases, the reward for those efforts will be eviction.
When Odds make no Sense
Betting markets usually are good at prediction, but this morning I read that the betting action has made the Patriots odds-on favorites to have a perfect season.
Two things make me skeptical--Tom Brady's touchdown-to-interception ratio, and the number of games left on the Patriot's schedule.
Tom Brady has a 9-1 touchdown to interception ratio this year. This is astonishing, and surely reflects luck. Over his career before this season, his ratio has been an excellent 2-1 (stat comes from TMQ). A ratio that improved to 3-1 or 4-1 could reflect fundamentals (better line play, better play calling, Randy Moss, etc), but 9-1 must reflect a lucky draw.
If Brady returns to normal, it would be reasonable to expect New England's probability of winning to drop to .9 against most teams, and .6 against the Colts at home. They have five games remaining before they (presumably) play the Colts for the Super Bowl. So the chance of the Colts winning the last 6 is .9^5*.6, or .354.
This is still a ridiculously high probability for going undefeated, but it makes it a 2-1 fair bet, rather than less than 1-1.
Two things make me skeptical--Tom Brady's touchdown-to-interception ratio, and the number of games left on the Patriot's schedule.
Tom Brady has a 9-1 touchdown to interception ratio this year. This is astonishing, and surely reflects luck. Over his career before this season, his ratio has been an excellent 2-1 (stat comes from TMQ). A ratio that improved to 3-1 or 4-1 could reflect fundamentals (better line play, better play calling, Randy Moss, etc), but 9-1 must reflect a lucky draw.
If Brady returns to normal, it would be reasonable to expect New England's probability of winning to drop to .9 against most teams, and .6 against the Colts at home. They have five games remaining before they (presumably) play the Colts for the Super Bowl. So the chance of the Colts winning the last 6 is .9^5*.6, or .354.
This is still a ridiculously high probability for going undefeated, but it makes it a 2-1 fair bet, rather than less than 1-1.
I think I was just insulted
A reporter called to ask me if I would go on TV to put positive spin on economic news. I don't mind if people think I'm cheerful...but I don't want them to think I'm a cheerleader.
The Month's Supply Measure Keeps Rising
The NAR Existing Home Sales report came out yesterday, with one not-terrible number (pending sales seem to have flattened) and one bad one (the months of inventory available for sale continues to rise).
The official line of NAR is that New Home Sales will fall next year, while Existing Home Sales will turn around. I am doubtful on both the relative and absolute picture for existing home sales. Builders, who are usually high leveraged, need to get rid of houses, and are willing to slash prices to do so. As Genesove and Mayer showed in a terrific paper on nominal loss aversion, homeowners seem to have a strong distaste for selling at a loss. Second, while NAR asserts that the mortgage market is improving, I don't really see it. Spreads on jumbos had narrowed some, but the subprime market seems to be gone for the time being. The fact that inventories continue to rise relative to sales also makes it hard to foresee a turnaround. And in certain regions of the country (the inland empire of California), foreclosures will make things even worse.
If I were NAR, I would be advising their members to advise their sellers to expect to take a price cut; until that happens, inventory will continue to be a drag on the market. Then again, turning points are tough to call, and I could be all wet. But I don't think so.
The official line of NAR is that New Home Sales will fall next year, while Existing Home Sales will turn around. I am doubtful on both the relative and absolute picture for existing home sales. Builders, who are usually high leveraged, need to get rid of houses, and are willing to slash prices to do so. As Genesove and Mayer showed in a terrific paper on nominal loss aversion, homeowners seem to have a strong distaste for selling at a loss. Second, while NAR asserts that the mortgage market is improving, I don't really see it. Spreads on jumbos had narrowed some, but the subprime market seems to be gone for the time being. The fact that inventories continue to rise relative to sales also makes it hard to foresee a turnaround. And in certain regions of the country (the inland empire of California), foreclosures will make things even worse.
If I were NAR, I would be advising their members to advise their sellers to expect to take a price cut; until that happens, inventory will continue to be a drag on the market. Then again, turning points are tough to call, and I could be all wet. But I don't think so.
Thursday, December 10, 2015
The USC Casden forecast is on line
It is at
http://www.usc.edu/schools/sppd/lusk/casden/reports/pdf/2015-USC-Casden-Industrial-and-Office-Report.pdf
We handed it out today on flash drives instead of hard copy reports. The audience seemed to like this. Kudos to Lusk staffer Jennifer Frappier for coming up with the idea.
http://www.usc.edu/schools/sppd/lusk/casden/reports/pdf/2015-USC-Casden-Industrial-and-Office-Report.pdf
We handed it out today on flash drives instead of hard copy reports. The audience seemed to like this. Kudos to Lusk staffer Jennifer Frappier for coming up with the idea.
Deepak Bhattasali on China
Deepak Bhattasali from the World Bank gave a nice talk here at GW tonight to officials from Wuhan and Shaoxing. Some takeaways I got:
(1) The unevenness of China's income distribution is approaching the US. Part of the reason for this is that internal migration is still stunted by government policy. The lack of labor mobility means that skilled labor that happens to already be in manufacturing cities commands a premium.
(2) With five levels of government, China may overdo federalism just a bit.
(3) Banks have to learn modern underwriting techniques. The ratio of GDP growth to investment in China is much lower than it is in India. In light of how poor India's infrastructure is, and how good China's is, this is remarkable. (My own view--China needs private sector banks).
(4) China has cut its poverty by 3/4 in less than 20 years. This is breathtaking.
Deepak is an engaging and informative speaker.
(1) The unevenness of China's income distribution is approaching the US. Part of the reason for this is that internal migration is still stunted by government policy. The lack of labor mobility means that skilled labor that happens to already be in manufacturing cities commands a premium.
(2) With five levels of government, China may overdo federalism just a bit.
(3) Banks have to learn modern underwriting techniques. The ratio of GDP growth to investment in China is much lower than it is in India. In light of how poor India's infrastructure is, and how good China's is, this is remarkable. (My own view--China needs private sector banks).
(4) China has cut its poverty by 3/4 in less than 20 years. This is breathtaking.
Deepak is an engaging and informative speaker.
Newcastle's Vibrant Cultural Life - entry page
Photo: Central Newcastle viewed from Stockton across the Hunter River.
Newcastle, New England's biggest city with a population of 289,000, lies towards the southern edge of New England, 153k (2 hours) north of Sydney, 394k (4 hours 50 minutes) south of Armidale.
Newcastle is often seen just as an industrial city - Australia's original steel city - and increasingly as simply an outer part of the ever expanding Greater Sydney metro conglomeration.
Newcastle is indeed an industrial city. This is an integral part of its culture, one that distinguishes the city from other parts of New England. But part of Sydney it is not. Newcastle always has been and remains its own very distinct entity.
It is hard for those living in Sydney to see and recognise Newcastle's distinguishing features.
Sydney and Newcastle have little in common in terms of history or culture. The Sydney media carries few Newcastle stories. Few in Sydney think of Newcastle as having a distinct cultural life of its own. Yet the city does, one arguably different from any other part of Australia.
I say this with a degree of frustration because, living in Sydney as I now do as part of the New England diaspora, I find it difficult to keep across Newcastle activities.
To fully understand a place like Newcastle you need to live there, or at least visit regularly. I do not and presently cannot. Still, accepting that I will make errors, I am establishing this page to provide an entry point for future posts about Newcastle cultural life.
Subscribe to:
Posts (Atom)