Dallas home prices

Dallas Home prices are down 5.7% since the peak before the Financial Crisis. Here is a nice map from Dallas Morning News, showing the finer details of the one-year price changes in the metroplex.

And here is a chart from Calculated Risk, showing the Dallas price declines in relation to the price declines in other metro areas. (Look for Dallas on far right)

Walk away from mortgage - by political party

Pew Research Center just put out a very interesting report on American's beliefs regarding walking away from a mortgage. People were asked if it is ok to walk away from a mortgage. Something that stood out to me was the Political party difference associated with the answers.

• Democrats were more than twice as likely as Republicans (23% vs 11%) to believe it is ok to stop making payments on a mortgage.

Why is that? Any ideas?

Small health insurers stop writing new coverage

Dallas Morning News reports that small insurers are having trouble meeting the 'medical loss ratio' requirement in the new National health legislation, which requires that 80% of their premiums be paid out for medical services. Some are discontinuing writing certain policies to their customers, since they do not believe they will be able to pay their employees, cover their administrative costs, etc. with just 20% of the premium money.

There are a couple of things interesting about this story.

1. Is this pressure on private providers really an unintended consequence of the new health legislation?
2. Insurers are walking away even before the policies interpreting the new law have been crafted. (What the businesses and individuals have to do in response to laws in the US depends on the policies that administrators write, based on the text of the law that is signed by the President) US DHHS has yet to write many of the policies based on the new law, but insurers are already seeing the writing on the wall.
   
   Surprisingly, the Secretary of DHHS Kathleen Sebelius is telling the insurers that they are making a mistake by walking away. "It is premature for insurers to make business decisions about participation in particular markets based on rules that have yet to be published...", said Sebelius. That is rather funny! So the businesses are staring in the face of new laws that go into effect on January 1; law that may make their continued actions illegal (with penalties ranging from fines to jail-time) and the person writing the policies is telling them, 'Don't worry about it! Surely whatever we write is going to be just fine!'
   Does she really want businesses to carry on through the rest of this year hoping that in the months between now and January the clear text of the law will be overturned by an administrative policy? Those who do business and provide people with valuable services cannot afford to sit by and run on hope, they have paychecks to meet and services to provide, and when one avenue is shut down for them (private health insurance), they they have to plan ahead to divert their resources into another area that is valuable for their customers.

The article about the particulars is worth reading. Good reporting by DMN!

Prices move faster than traffic in China's gridlock

(image from 'politics and world')

What a story from China! A 60 mile traffic jam is going on its 10th day now, with drivers moving forward at half-a-mile per day. In an almost universally typical fashion, the local townsfolk who weave between cars with water or noodles, supplying the drivers with precious food and water, are being accused of price-gouging because they dare to sell the goods at higher than a certain previous price.

Think of this 10-day jam on the way home tonight, when you are in traffic for a few minutes!

Moral Hazard is coming home to roost

What a sad, sad, predictable, sad state of affairs.

I am disgusted to be living in an era when so many people are forging a new 'morality' of walking away from their contractual obligations; and - what's worse - when they are being encouraged to do so. Respect for contracts, property protection, and common decency seem to have been (unintentionally?) sacrificed in an effort to bail out mistakes big and small. Having seen high risk activity (corporate and private) 'rescued' by those taxpayers who have made prudent decisions, is it any wonder that the marginal homeowner is now more likely than ever to think it is OK to simply not re-pay the debt?

I don't know how it is possible to read these quotes from the New York Times without some sense of despair about the morality that has been encouraged by the moral hazard that well-intentioned actions have put in front of the nation's borrowers:

During the great housing boom, homeowners nationwide borrowed a trillion dollars from banks, using the soaring value of their houses as security. Now the money has been spent and struggling borrowers are unable or unwilling to pay it back.

"... the more money you borrowed, the less likely you will have to pay up.

“It rewards immorality, to some extent.”

“Americans seem to believe that anything they can get away with is O.K.”

Many also say that the banks were predatory, or at least indiscriminate, in making loans, and nevertheless were bailed out by the federal government. Finally, they point to their trump card: they say will declare bankruptcy if a settlement is not on favorable terms.

Fewer than 5 percent of these clients said they would continue paying their home equity loan no matter what. ... 85 percent said they would default and worry about the debt only if and when they were forced to.

“It’s come to the point where morality is no longer an issue.”

“I’m kind of banking on there being too many of us for the lenders to pursue,” [a defaulted homeowner] said. “There is strength in numbers.”

(Read the entire article from the NYT here)

Who here really thinks that this is a way to build a great society?

Bonds move stocks and currencies

Today the Fed announced that (among other things) it will buy Treasuries to help bolster the recovery (read: prevent a recession). This announcement, other things equal, should push up prices of Treasury bonds, push down their yields, push up stock prices, and also move currencies. People will expect that the Treasury yields will fall (or stay low), that return-seekers will be less likely to invest in dollar denominated assets and more in other currencies, leading to sales of dollars and purchases of other currencies, leading to a fall in the value of the dollar.

This analysis is nothing new, of course, but I do enjoy living in today's world of technology where such moves can be observed in real-time. Here are the post-announcement screenshots from Yahoo Finance:

(I am still pessimistic about the Dow)

'Who owns GM' and other car company relationships

According to this graphic linked on coolinfographics.com GM is owned by:

• US government: 61%
• United Autoworkers: 17.5%
• Canada: 11.7%
• Bondholders: 9.8%

Did you know?

Follow the link for more of the car company ownership relationships all around the world.

By the way (and unrelated) - I am now pessimistic about Dow.

Personal Income in Dallas - $39,514 (-3%)

According to the BLS release today, the per-capita personal incomes of the major Texas metro areas are (with the percentage change from 08 to 09 in parentheses):

Houston-Sugar Land-Baytown: $43,568 (-2.6%)

Dallas-Ft. Worth-Arlington: $39,514 (-3.0%)

Austin-Round Rock-San Marcos: $35,522 (-2.0%)

San Antonio-New Braunfels: $34,500 (+0.8%)

Waco: $30,731 (+1.0%)

Here is also a nifty little map of all the metro areas, classified by how much their incomes changed from 08 to 09. More orange means that the incomes increased more in these areas than in others, and more blue means that incomes decreased more here than elsewhere.

Worst paying college degrees

Here is a list of the worst-paying college degrees. What do they have in common?

Worst-Paying College Degrees in 2010
College Degree	Starting Pay	Mid-Career Pay
1. Child and Family Studies	$29,500	$38,400
2. Elementary Education	$31,600	$44,400
3. Social Work	$31,800	$44,900
4. Athletic Training	$32,800	$45,700
5. Culinary Arts	$35,900	$50,600
6. Horticulture	$35,000	$50,800
7. Paralegal Studies/Law	$35,100	$51,300
8. Theology	$34,700	$51,300
9. Recreation & Leisure	$33,300	$53,200
10. Special Education	$36,000	$53,800
11. Dietetics	$40,400	$54,200
12. Religious Studies	$34,700	$54,400
13. Art	$33,500	$54,800
14. Education	$35,100	$54,900
15. Interdisciplinary Studies	$35,600	$55,700
16. Interior Design	$34,400	$56,600
17. Nutrition	$42,200	$56,700
18. Graphic Design	$35,400	$56,800
19. Music	$36,700	$57,000
20. Art History	$39,400	$57,100

This is from Yahoo Finance.

Christopher Hitchens

From Christopher Hitchens on his terrible diagnosis and fight ahead:

"...

Against me is the blind, emotionless alien [his euphemism for terminal cancer], cheered on by some who have long wished me ill. But on the side of my continued life is a group of brilliant and selfless physicians plus an astonishing number of prayer groups. On both of these I hope to write next time if—as my father invariably said—I am spared."

Who would have thought that Christopher Hitchens would kindly refer to "prayer groups"?

I pray for him also.

Breakfast to cost more

Breakfast is an important meal. In Latvia they say "Eat breakfast yourself, share lunch with a friend, give dinner to your enemy".

It seems that the weather this year is cutting into supply of major breakfast ingredients - wheat, coffee, OJ - causing the prices to go up by 25% since June. I better load up on my bagels and coffee before the rise of ingredients' prices is reflected in the prices on supermarket shelves!

(from The Economist magazine)

Dallas City Budget

Dallas Morning News has created a nice interactive graphic for the Dallas City Budget.

Dallas General Fund Budget (09-10)

I didn't know Dallas spends $64 million on Parks and Recreation, did you? I do visit the trails at Cedar Ridge Preserve frequently and White Rock Lake occasionally (both of which are in the City of Dallas Parks), and they are both great! But $64 million annually does seem like a large number.

I need to go visit these parks more often!!

Map - Credit ratings of the various states

I was thinking about the budgetary problems of various states in the news recently, and I wanted to see a map overview of the various states' credit ratings. Here is the result:

Click map for larger view.

(map original; data from Financial Times)

Moody's and S&P provide credit ratings as they assess the fiscal position of states. The more "red" the state in this map, the higher the likelihood that those who lent money to the state might not see all of it repaid.

Texas Strong

Texas is a good state to call home during a bad economy! A nice write-up in the Atlantic briefly explains why Texas is doing well even amidst poor conditions in the national economy. Here are some facts about Texas:

• more people are moving to Texas than to any other US state
• more Fortune 500 companies are based in Texas than in any other state
• Texas economy would rank as 15th largest in the world, ahead of Australia, Turkey, Argentina
• Texas is the biggest exporting state in the US, exporting 33% more than the next on the list - California

God Bless Texas!

What happens when things are DEregulated?

Students often ask about the consequences of deregulation. If the government is closely regulating an industry, be it railroads, the airlines, banking, or cable tv, then it does so in the name of ensuring competition. Without the regulation, wouldn't the businesses just "charge whatever they want" and "take advantage" of the customers? Without the regulation prices would go up, and the greedy firms would just sit back on their past achievements not being productive, right?

Wrong! Not according to the data we have. According to history, when industries are closely regulated, prices tend to go up (not down) and productivity tends to stay low. When industries are DEregulated, prices actually fall, and productivity increases. Here is a graph dramatically illustrating this fact from this week's Economist magazine:

(the red line indicates deregulation of the US railroads)

Notice - after railroads were deregulated, prices dropped by 50%. The insightful article in the Economist discusses the fact that, prerhaps surprisingly, the US has the most competitive and the cheapest freight rail system in the world. Did you know that? So why is it that the passenger railways are not doing so well in the US? (Hint: it has to do with regulation!)

Click the image below to go to the full article on US railroads in the Economist.

Economic Indicators at a glance

I wanted to look at a whole range of economic indicators side-by-side. I am a bit surprised about the good performance of the stock market over the last month, but unfortunately I do not take that to be an indicator of what is to come in the broader economy. Take a look at the indicators, and decide for yourself!

(click image for a larger view)

All charts from http://economix.blogs.nytimes.com/ with data from Bloomberg.

"Unintended" consequences

Stories are beginning to emerge about the "unintended" consequences of the new US Health Care bill. The first of these consequences is that insurance companies in three states are no longer under-writing new policies for children. Parents can continue to buy policies and have children covered on their plans, but these companies (and surely others will follow) no longer insure individual children.

Why?

Because the new law mandates that companies that underwrite children must issue policies to cover underlying conditions. In effect, this means that the parents can chose not to insure their children until they need coverage (this will save money on monthly premiums) and then, once a need arises, the child can be insured while on the way to a doctor; the company will need to cover the child. Insurers are realizing that continuing with business as usual will reduce their cash inflows (premiums on these policies) and increase their cash outflows (as more parents buy policies when children are in need, and then immediately file claims). In order to protect their other customers from undue rate increases (increases which would solicit a further frown from the regulators) these insurers are choosing to stop underwriting individual children altogether.

The only thing to add, is that this consequence may be unintended, but it is hardly unexpected. Other consequences that are not unexpected are that (a) other private insurers will cut services and coverages, and (b) regulators and media will rise up to lay blame at the feet of these insurers very soon.

Barter is still alive

This guy traded an old phone - through fourteen barter trades - into a convertible Porsche; all through Craigslist swaps. Pretty neat, isn't it? Story is here.

From the Ministry of Truth

The White House has just released their animated explanation of the "Financial Regulation Bill".

It's a nice effort. They have built the video taking their cues from last year's trailblazing and very popular The Crisis of Credit. This is clearly their effort to communicate their spin on the regulation and also to win back some popularity points. I am afraid it looks too much like something from The Ministry of Truth.

According to the video, the 2000+ page Financial Regulations bill will help simplify the transactions between a bank and a borrower. :) Good luck with that!

Persecution for Christ's sake... 7/19/2010

From the Wall Street Journal Photo blog: "Pakistani volunteers carried away the bodies of a pair of Pakistani Christian brothers accused of blasphemy against Islam The brothers were shot to death Monday as they left a court in Faisalabad."

Here is the full story of this crime from the Associated Press.

Let us pray for the family of the victims, and also for all those who are persecuted for Christ's sake today. We must work to enhance and protect the freedom of speech and thought.

“Blessed are those who are persecuted for righteousness' sake, for theirs is the kingdom of heaven.

Blessed are you when others revile you and persecute you and utter all kinds of evil against you falsely on my account. Rejoice and be glad, for your reward is great in heaven, for so they persecuted the prophets who were before you."

--Matthew 5:10-12

Why go to college?

Here is one reason - from BLS:

Wage disparity

Click the image to enlarge

Source: Fixr

Taxes and speed

Usain Bolt will not compete in Britain this year because doing so would make him pay taxes on his huge endorsements collected in 2010. Here is the story:

Britain's sports minister offered to help resolve the tax issues that have caused Olympic champion Usain Bolt to withdraw from the Crystal Palace Diamond League meet.

Bolt announced on Monday he would not compete at the August 13-14 event because his earnings in London would be greatly diminished after taxes.

Sports Minister Hugh Robertson told the BBC he'll see what he can do, but said "three weeks doesn't give us a whole lot of time to organize a tax concession."

The British finance ministry has already exempted visiting soccer players from local tax laws to ensure the Champions League final can be staged at Wembley Stadium next year. (From USA Today). More at NY Times economix blog.

It is great seeing governments compete! Competition is what forces businesses to keep costs low and quality high. Typically governments have not had to compete much, but in the increasingly globalized world athletes like the Champions League soccer players or Usain Bolt can increasingly "shop" among jurisdictions for where to offer their entertainment services. This will put long overdue pressure on jurisdictions to be more people-friendly. US states and cities are also experiencing the same pressures to have competitive tax environments, as illustrated by this story about choices of locations for boxing bouts.

tax-transfer payments - grade transfers

I came across this quote yesterday in my reading of the forthcoming "Common Sense Economics":

"To see the negative effect of almost any transfer policy on productive effort, consider the reaction of students if a professor announces at the beginning of the term that the grading policy for the class will redistribute the points earned on the exams so that no one will receive less than a C. Under this plan, students who earned A grades by scoring an average of 90 percent or higher on the exams would have to give up enough of their points to bring up the average of those who would otherwise get Ds and Fs. And, of course, the B students would also have to contribute some of their points as well, although not as many, in order to achieve a more equal grade distribution.
Does anyone doubt that the students who would have made As and Bs will study less hard when their extra effort is "taxed" to provide benefits to others? And so would the students who would have made Cs and Ds, since the penalty they paid for less effort would be cushioned by point transfers they would lose if they earned more points on their own.
The same logic applies even to those who would have made Fs, although they probably weren't doind very much studying anyway. Predictably, the outcome will be less studying, and overall achievement will decline. The impact of tax-transfer schemes will be similar: less work effort and lower overall income levels."

I'm itching to offer at least one quiz in my economics course this fall on the terms described above, so that the results could be demonstrated to class and effects of redistribution explained!

Mind the Gap

http://bostonreview.net/BR35.4/fischer.php

Interesting review and response article to a new book, The Spirit Level: Why Greater Equality Makes Societies Stronger.

US External Debt

Nice dynamic chart of the evolution of the US external debt.

Enjoy!

Who Owns America's Debt - A Dynamic Perspective on Major Foreign Holders of Treasury Securities (2002-Present) from Computational Legal Studies on Vimeo.

The Interactive Obama Budget

The New York Times recently created a cool, interactive breakdown of the Obama Administration's proposed budget for 2011. Please note that the federal fiscal year runs from October 1 through September 30. The budget is subject to congressional after analysis by the congressional Budget Office. The approval process is time-consuming which is why the administration completed its proposal in January.

The federal budget process has many troubling aspects. Agencies have long followed the "use=it-or-lose-it" approach to spending. In other words, saving money only means the agency gets less money next year. That concerns me as a taxpayer.

This feature allows you to distinguish non-discretionary/mandatory from discretionary. Defense is discretionary. Also, another budgetary concern is that most mandatory budget items like Social Security must have annual cost of living increases commensurate with the rate of inflation. Of cruse, the Federal reserve said there was no inflation last year so no COLA for seniors. This did not go over well as you might imagine.

Students may enjoy reviewing which programs enjoy an increase in the budget. Why are some programs costing more while others are getting less money? did the president allude to these changes in any of his speeches?

Finally, note the increase in interest payments to the federal debt. This is the scariest part of the budget!!

E-Books

I found an interesting blog covering how the publishing industry is managing the transition from paper to electronic books. Of course, this could transform the industry and increase profit margins.

However, we must consider the employment consequences. What happens to the printing side of the business? Distribution? How long will the transition take and what will the book industry eventually look like?

Huge Deficits May Alter U.S. Politics and Global Power

"Projections suggest there is virtually no room over the next decade for new domestic initiatives for President Obama or his successors."

This is a fascinating and startling article.

What Me, Worry??

This article provides excellent historical context to presidential approval ratings in general and President Obama's predicament in particular. While the author poohs poohs any concern over the president's political fortunes at this stage, I found one of his disclaimers/footnotes to be very interesting:

Let me add a bit more nuance here: I think you can make a good (although probably not rock-solid) case that the idea of a substantially progressive Obama presidency is on the line right now. But there are a lot of scenarios where the combination of voters getting a little something out of their system in 2010, combined with (eventually) an improving economy and perhaps a foreign policy success or two, could leave Obama personally in fairly good shape in 2012

In essence, Silver sees no cause for the White House to have immediate concern that they will be looking for new jobs come 2013. However, the change liberals hoped for may be DOA.

Before Republican types rejoice, never forget the lessons of Bill Clinton. His pivot to the center salvaged his administration.

The Mortgage Market Tightens

The Federal Housing Administration announced today a tightening of its lending standards for borrowers.

A little background is in order. The FHA provides an alternative financing option for borrowers who are short on cash. While private market lenders historically expected down payments in the 10-20% range of the sale price, the FHA underwrote loans with down payments of 3.5%. FHA interest rates are very competitive.

The agency has an interesting and pivotal history itself. Founded in 1934 as part of the New Deal, the FHA primed the housing market and accelerated middle class wealth accumulation and home ownership. Basically, the agency does not fund loans as much as it indemnifies private lender against default. This makes the agency carries out a credit insurance function as opposed to a banking function. Bankers traumatized by the collapse of the American financial system were suddenly incentivized to lend since the government covered their losses.

Additionally, the FHA did not spend tax dollars. Borrowers paid for the insurance as part of their closing costs and monthly payments. This is similar to mortgage insurance for those readers who own a home.

Prior to the FHA, bankers required borrowers to bring 50%-60% of the sale price to the closing table. Loans typically lasted five years and included a balloon payment which forced homeowners to scurry to the nearest lender and re-finance. The FHA changed this reality permanently by requiring willing and conforming lenders to fiance borrowers for 20 years with reasonable interest rates. This allowed middle income Americans to enter the housing market which created a real estate explosion.

While the FHA is still very much a significant player in the housing market, the agency simply cannot afford to underwrite loans for questionable borrowers absent some assurance of re-payment. This reality forced the FHA to increase the down payment to 10% for some borrowers with low credit. This move could significantly affect the housing market since 40% of all current mortgages are FHA paper.

One final note-bankers in the 1930's and 1940's were still leery of doing business with the FHA. specifically, the 20 year term (which eventually became 30 years) scared many lenders. While the mortgage insurance against default was nice, 20 years was a long time to tie up capital. enter the Federal National Mortgage Association or Fannie Mae. Fannie Mae paid lenders cash for their existing loan which allowed the banking industry to increase the churn rate of capital. This churn provided more money to lend and contributed to the American real estate explosion.

What are the lessons here? Both the FHA and Fannie Mae have changed the way they do business. of course, Fannie Mae has bigger problems than the FHA. Also, remember these lessons when the banking industry cries fouls over government regulation and interference. The government they criticize for limiting their wealth options actually played a large role in creating the modern real estate market.

The Massachusetts Miracle

The Democrats and the Obama Administration suffered another stinging defeat yesterday in Massachusetts of all places. This is the same state that last elected a Republican Senator in 1979 and provided the current president a comfortable margin of 26% in November of 2008. Massachusetts is simply among the bluest of blue state.

So, what happened? How or why did a little known local politician with scant political resources take Edward Kennedy's seat from the Democrats?

1. Special Elections often Create special/memorable results

True to its moniker, special elections emerge via special circumstances. Typically, an incumbent resigns or passes away while in office. While these circumstances might well alter the political environment, the comparative brevity is the real equalizer in special elections. For example, This campaign had a six week election cycle. Normal election cycles run 9-10 months and even longer for big races.

Basically, Scott Brown had enough money and momentum to thrive for six weeks. Additionally, this time-frame limited the effectiveness of TV ads while also simply reducing available air-time. A candidate with less name recognition like Brown also benefits from the short cycle since the favored candidate's campaign has less time to conduct opposition research.

1. The National Political Context

What can the White House make of this election? Well, combine this result with earlier Democratic losses in New Jersey and Virginia gubernatorial races. Things look grim. Should Democrats prepare for political Armageddon in November? That is a topic for another post!

Bottom line, moderate voters are worried about the economy, health care, Iraq and the corrupt banking system. People simply do not think President Obama is moving in the right direction on these issues.

1. The Blame Game

While there is plenty of blame to go around, the bottom line is that Democrats are now in trouble. How much trouble is yet to be determined.


What Happens Now?

The results from Tuesday create endless questions and numrerour blogging opportunites for me. The following questions flow from last nights head shaker:

1. What happens to Congress in November? Can the GOP re-gain control of both chambers?
2. Do rank and file Republicans truly desire a new majority?
3. How does this affect our expectations for 2012?
4. What must the Democrats do to get out of this rut?
5. What must Republicans do to keep them in the rut?