Monday, November 29, 2010

France seizes pension funds

Zero Hedge:

If the recent Hungarian “appropriation” of pension funds, and today’s laughable Irish bailout courtesy of domestic pension funds sourcing 20% of the “new” money was not enough to convince the world just how bankrupt the entire European experiment has become, enter France. Financial News explains how France has “seized” €36 billion worth of pension assets: “Asset managers will have the chance to get billions of euros in mandates in the next few months for the €36bn Fonds de Réserve pour les Retraites (FRR), the French reserve pension fund, after the French parliament last week passed a law to use its assets to pay off the debts of France’s welfare system. The assets have been transferred into the state’s social debt sinking fund Cades. The FRR will continue to control the assets, but as a third-party manager on behalf of Cades.” FN condemns the action as follows: “The move reflects a willingness by governments to use long-term assets to fill short-term deficits, including Ireland’s announcement last week that it would use the country’s €24bn National Pensions Reserve Fund “to support the exchequer’s funding programme” and Hungary’s bid to claw $15bn of private pension funds back to the state system.” In other words, with the ECB still unwilling to go into full fiat printing overdrive mode, insolvent governments, France most certainly included, are resorting to whatever piggybanks they can find. Hopefully this is not a harbinger of what Tim Geithner plans to do with the trillions in various 401(k) funds on this side of the Atlantic.
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Friday, November 26, 2010

Nigel Farage on the Euro

I hadn't really considered this idea that the Euro can cause false low interest rates, leading to a boom then a bust. It makes sense though.

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Saturday, November 13, 2010

How Incumbents are favored in elections

Cato (1997):

This fall Congress will take up campaign finance reform --specifically, a bill drafted by Reps. Christopher Shays (R-Conn.) and Marty Meehan (D-Mass.) that would limit any House candidate to $600,000 in campaign spending. Although many critics have argued that this limit violates the First Amendment, few have discussed how it would help incumbents and hamstring challengers.

In 1994 and 1996 only 3 percent of House challengers who spent less than $600,000 won election, but 40 percent who spent over $600,000 were victorious. That suggests two things: challengers must spend a certain amount of money to win, and the Shays-Meehan limits would prevent most of them from winning.

Challengers already face an uphill battle. Thanks to a vast array of taxpayer-funded benefits, each incumbent enters the election hundreds of thousands of dollars ahead of any challenger in real campaign spending. Shays-Meehan would institutionalize that difference by making it impossible for challengers to offset the countless perks that incumbents enjoy.

Eric O'Keefe and Aaron Steelman are the authors of "The End of Representation: How Congress Stifles Electoral Competition," just published by the Cato Institute.

Taxpayer-funded mail. Members of Congress can send nearly 1 million pieces of "franked" mail a year at the taxpayers' expense. It is not surprising that in 1994, 63 percent of voters received mail from incumbents but only 25 percent heard from challengers.

Taxpayer-funded recording studios. Congress has developed facilities for preparing audiotapes and films that are available to members free of charge. Needless to say, challengers have no access to those facilities. This benefit has widened the gap between voters' exposure to incumbents and their exposure to challengers. In 1994, 61 percent of voters reported seeing the incumbent on television; only 34 percent said they had seen the challenger.

Taxpayer-funded Web sites. Members of Congress have used their unlimited access to the Internet to develop Web sites that contain a vast array of information, including position papers, bills that Members have sponsored, and biographical information. In 1996 CompuServe decided to level the playing field a bit by offering free sites to incumbents and challengers alike, but the Federal Election Commission prevented it, stating in a letter to CompuServe, "The Commission still concludes that your proposed gift to Federal candidates of valuable services which enable them to communicate with voters and advocate their candidacies would constitute in-kind contributions to those candidates and would be prohibited."

Taxpayer-funded constituent service. As the federal bureaucracy becomes larger, citizens must routinely ask their representatives for help in navigating the vast maze of federal regulations. Members of Congress are happy to provide such constituent service, since they know they will be rewarded at the polls. Indeed, in a recent survey of senior congressional staffers, 56 percent said that effective constituent service is the most important factor in boosting a legislator's political support. In contrast, the member's legislative record was cited by only 11 percent of respondents. Perhaps more telling, an American National Election Study found that, of voters who contacted their representative for constituent service and reported being "very satisfied," 64.7 percent voted for the incumbent. Only 3 percent voted for the challenger, and 32.3 percent did not vote.

Taxpayer-funded personal staff. In 1957 the total number of personal House staffers was 2,441. By 1993 that figure had more than tripled to 7,400. Staffers regularly "volunteer" for their bosses' reelection campaigns.

Taxpayer-funded district offices. In 1964 only 4 percent of members of Congress listed more than one district office. Today multiple offices are the rule and many members employ additional "temporary" district offices that are set up as booths at county fairs and outside sporting events.

Taxpayer-funded travel. In 1977 members were "limited" to 33 paid trips to their districts yearly. Since 1978, however, travel expenses have come out of each member's personal expense account. Not surprisingly, many members now visit their districts every weekend on campaign-style junkets.

In 1996 the reelection rate for the Members of the House of Representatives exceeded 94 percent, largely because of the factors mentioned above and other benefits of incumbency such as pork-barrel spending. Campaign spending limits would outlaw adequate funding for the rare challenger who might pose a credible threat to a sitting legislator. In the business world, that would be called using government to crush competition. In today's Congress, it's called "reform."
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Cartoons make sense of the Federal Reserve

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Tuesday, November 2, 2010

What does 'smart growth' do to land prices?

New Geography:

One of the starkest impacts of smart growth policies is the huge differentials in property prices that occur on virtually adjacent properties on either side of an urban growth boundary.

The extent to which regulatory restrictions can drive up prices is illustrated by the differences between the values of undeveloped lands just a few steps from each other, but across the urban growth boundary. Research from more than a decade ago in Portland indicated that land on which development is permitted inside the urban growth boundary tended to be 10 times as valuable per acre as land immediately outside the urban growth boundary, on which development was not permitted. In Auckland, New Zealand, recent research found virtually adjoining undeveloped land value differences at 10 times or more as well. Research in the London area by Dr. Timothy Leunig of the London School of Economics indicates that this difference can be as much as 500 times.

Recently (February), I examined tax assessment records for all parcels in Portland's Washington County that abut the urban growth boundary to see if value differences exist. The properties had to be 5 or more acres and be undeveloped. Research was conducted based upon Internet information in February 2010. Property along 25 miles of the urban growth boundary from Cedar Hills to Hillsboro to southwest Beaverton was included in the analysis.

* The land adjacent to, but outside the urban growth boundary (on which development is prohibited) was assessed at approximately $16,000 per acre.
* The land adjacent to, but inside the urban growth boundary (on which development is permitted) was assessed at approximately $180,000 per acre, approximately 11 times the price of land that is virtually across the street (across the urban growth boundary)
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More on zoning costs


The loss of housing affordability in Sydney and Melbourne can be traced to their more prescriptive land use regulation, which has virtually eliminated affordable land for building. Today, the median income household would be required to pay more than 50 percent of its income to service a new mortgage on the median priced house in Sydney or Melbourne. In Dallas-Fort Worth or Atlanta, the household would pay under 20 percent (Table ES-5)

[...]The devastating impact of more prescriptive land use regulation (urban consolidation or compact development) policies on housing affordability can be shown by comparing four comparable metropolitan areas: severely unaffordable Sydney and Melbourne in Australia and affordable Dallas-Fort Worth and Atlanta in the United States.

In 1981, Sydney and Dallas-Fort Worth were approximately the same population. Dallas-Fort Worth has grown much faster and is now nearly 50 percent larger than Sydney. In 1981, Melbourne was larger than Atlanta. Atlanta has also grown faster and is approximately 50 percent larger than Melbourne and more than a quarter larger than Sydney (Figure 3).

[...]The explosion in Sydney and Melbourne housing prices can be traced to land price increases. For housing to be affordable, the land on which it is built must be affordable. This means that the development ratio (the price of the land ready for house construction to the total house and land package) must be kept at less than 25 percent for new housing on the urban fringe. The balance is the cost of house construction.

[...]As has been noted above, the extraordinary increase in land costs has been the principal driver of higher house prices.
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What is the effect of 'smart growth' policies?


These results differ from predictions made by proponents of smart growth. The authoritative smart growth advocacy volume, The Costs of Sprawl---2000 predicted that from 2000 to 2025 house prices in smart growth markets would decline relative to house prices in markets without smart growth. Yet between 2000 and 2007, median house prices in major metropolitan markets with more restrictive land use regulation rose $161,500 more than in major metropolitan markets with less restrictive regulation.24

[...]Even in the authoritative smart growth advocacy volume, The Costs of Sprawl---2000, proponents of smart growth note the potential for the first seven of their top ten strategies to increase house prices (Table).26 Thus, despite the denials of the advocates, the question is only the extent to which smart growth strategies increase housing prices.

More Restrictive Land Use Regulation (Smart Growth): Policies Including Potential to Increase Housing Prices (Per Advocates)

1 Regional Urban Growth Boundaries YES
2 Local Urban Growth Boundaries YES
3 Regional Urban Service Districts YES
4 Local Urban Service Districts YES
5 Large-Lot Zoning in Rural Areas YES
6 High Development Fees & Exactions YES
7 Restrictions on Physically Developable Land YES
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Monday, November 1, 2010

How does China keep its debt so 'low?'

This mostly insightful piece is written by statist Keynesian Ellen Brown, who after doing all this research ends with the conclusion that we should be more like the Chinese: "We might take a lesson from the Chinese and put our own banks to work for the people." What!? Are you kidding? The only two banking options aren't being socialistic or fascistic.

OpEd News

According to the IMF, China's cumulative gross debt is only about 22% of 2010 GDP, compared to a U.S. gross debt that is 94% of 2010 GDP.

What is China's secret? According to financial commentator Jim Jubak, it may just be "creative accounting" -- the sort of accounting for which Wall Street is notorious, in which debts are swept off the books and turned into "assets." China is able to pull this off because it does not owe its debts to foreign creditors. The banks doing the funding are state-owned, and the state can write off its own debts.

Jubak observes:

"China has a history of taking debt off its books and burying it, which should prompt us to poke and prod its numbers. If we go back to the last time China cooked the national books big time, during the Asian currency crisis of 1997, we can get an idea of where its debt might be hidden now."

The majority of bank loans, says Jubak, went to state-owned companies -- about 70% of the total. The collapse of China's export trade following the crisis meant that its banks were suddenly sitting on billions in debts that were clearly never going to be paid. But that was when China's largest banks were trying to raise capital by selling stock in Hong Kong and New York, and no bank could go public with that much bad debt on its books.

The creative solution? The Beijing government set up special-purpose asset management companies for the four largest state-owned banks, the equivalent of the "special purpose vehicles" designed by Wall Street to funnel real estate loans off U.S. bank books. The Chinese entities ultimately bought $287 billion in bad loans from state-owned banks. To pay for the loans, they issued bonds to the banks, on which they paid interest. The state-owned banks thus got $287 billion in toxic debt off their books and turned the bad loans into an income stream from the bonds.

Sound familiar? Wall Street did the same thing in the 2008 bailout, with the U.S. government underwriting the deal.

[...][L]ocal-government investment companies had a total of $1.7 trillion in outstanding debt at the end of 2009, or about 35% of China's GDP. Banks have extended $1.9 trillion in credit lines to local investment companies on top of that. Collectively, the debt plus the credit lines come to $3.8 trillion. That is about 75% of China's GDP, which is proportionately quite a bit smaller than U.S. GDP. None of this is included in the IMF's calculation of a gross-debt-to-GDP figure of 22%, says Shih. If it were, the number would be closer to 100% of GDP.

Proportionately, then, China may be more heavily in debt than we are.
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