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September 14, 2010

We know that the new economy is rewarding workers with more education, but it turns out that there is a crowd effect: highly educated workers earn more when they are living and working in areas with lots of other smart workers.

College graduates make more money in a labor market where there are more college graduates. Skilled workers create demand for other skilled workers. "The presence of a larger number of college graduates might put downward pressure on wages for all college graduates," says Julie Hotchkiss, a research analyst from the Atlanta Fed. "As it turns out, college graduates tend to benefit in terms of earnings

June 23, 2010

The recession, coupled with its supporting burst of the housing bubble, is prompting a re-evaluation of the role for rental housing. Knowing that it is time to rethink assumptions about home-ownership and rental housing is easy. It gets harder when people ask what should be done. That is because there is no clear agreement on rental demand.

Let's start with a fact: rents increased this quarter, for the first time since 2008. That should tell us that things are getting better.  However, it gets more complicated when people try to read into the messages underneath the numbers.

Why Rental Housing Is About to Boom

Some would conclude that the foreclosure crisis will put more families into the market for rentals. Call it the Transformation Hypothesis. Homeowners are being transformed into renters. Fannie Mae is foreclosing on tens of thousands of mortgages every day. Certainly, says the reasoning of some, this would mean more renters.That view is

June 16, 2010

Regional Gulf Coast banks, particularly those operating as portfolio lenders, are already suffering.Yet while most of the press on the environmental damage has focused on Louisiana, the real damage for banking is likely to be located among community banks in Florida.

Barron's recently identified three "top" Gulf Coast banks: MidSouth Bancorp, Iberia Bank, and Teche Holding. Those would not be the only institutions at risk. Regions has always been an active partner with real estate developers in Alabama, Georgia, and Florida. BB&T had a big presence in Florida. This year, it added to that when it acquired the assets Colonial Bank. Synovus owns scores of small town banks throughout the area.

June 15, 2010

Most efforts to monetize the costs to taxpayers from the Deepwater Horizon oil spill in the Gulf suffer from one big problem. They do not have a means to account for people that do not have a financial stake in the health of the Gulf of Mexico.

It seems easy to agree that Gulf Coast fishermen and fish house restauranteurs would experience a loss as the result of BP's folly. Their livelihoods have been destroyed, or at least harmed, by this disaster. Once the days of skimming oil off of the surface have passed, things will get really bad. It seems possible that it could be years, or even decades, before fisherman can genuinely make a good living in Louisiana or Alabama.

The protagonist of this nightmare is clear. BP is on the hook for a lot of damages. It wouldn't surprise me if Transocean and Halliburton experience some hurt, too. But, for how much?

My thought is that there are a lot of people that still care about the Gulf Coast, even though they don't work there or own property there. Those include people that are fairly well affected, such as anyone that operates a business that is indirectly dependent for their revenue from demand created by wages made in the Gulf. That would include ice cream salesman in Houma, or mall operators in Gulf Shores. It could include municipalities in the Gulf area. It could include turf grass installers in Pensacola. All of those groups are likely to experience some downside because of the Gulf spill.  There will be less demand for new turf grass if there are fewer vacationers seeking to play golf in the area, and there will probably be fewer families taking their earnings to see a movie at the Houma mall.

Those are people with indirect financial losses.

Then, there are another group that stands to lose, even though they can't quantify those losses in dollars.

June 10, 2010

How does a bill that offers a short-term extension of unemployment benefits, paid for raising taxes on hedge funds for ten years, end up adding $80 billion to the deficit?

The answer is that HB 4213 is full of giveaways. I know that they are calling it the Closing Tax Loopholes Act, but perhaps they should extend that title to include, "Thinking Up a Few New Ones, Too."

Consider these elements of a bill that is supposed to help the poor make it through the recession, while simultaneously "eliminating loopholes."

  • Tax Breaks for NASCAR: Owners of race tracks (Bruton Smith and the other owners of NASCAR) can accelerate the depreciation schedule on their investments in race tracks to just seven years!
  • Help for corporate farmers (i.e., Cargill): Relief for cottonseed and fish farm producers of not more than $42 million and $25 million, respectively.
  • Happy Sheep: Special grants, from money held by the Treasury Department that was previously set aside from tarriffs, to wool manufacturers.
  • Help for the oil industry: Small oil and energy firms will be able to take a special deduction of 15 percent of their gross income, even if that 15 percent is larger than their net income.
  • Deductions of state sales taxes. Useful for itemizers.  See mortgage interest deduction.
  • Provisions that penalize small businesses:  If passed, employees in some service-oriented S-Corporations with fewer than 3 workers will have to pay self-employment tax.

Perhaps the least palatable handout to the rich is the "active financing exception." This language, inserted by Sen. Baucus and Sen. Hatch, extends for one more year a tax break that was temporarily established in 2007 and which only applies to American

June 7, 2010

The Federal Reserve's new data on consumer credit suggests that people are continuing to be careful about accumulating new debt.

Some newspapers are already saying that this is a good sign, but I'm not sold.

Sure there are some things to be positive about:  The quality of debt is getting better: there is less revolving debt and more non-revolving debt. The former dropped by $8.5 billion, whereas the latter increased by almost $9.5 billion. Taken together, there is a bit more credit out there.

Part of what makes this less than outstanding is that the gains in debt issued by governments exceed the sum of new credit. The banks hardly budged - non-revolving debt supplied by commercial banks by just $100 million, and $6 billion in commercial bank revolving debt withered away. So the banks are actually doing less.  Even an increase of

May 25, 2010

Where is the outrage over LLPA and AMDC, the GSE guidelines that have placed additional costs on mortgages that are purchased on the secondary market by the agencies?

The Loan Level Pricing Adjustment (LLPA) imposes charges, ranging from 25 basis points to 200 basis points, for mortgages that have higher risk characteristics.  Those categories include

May 24, 2010

The latest reports from the Federal Reserve Bank of Richmond and the Census Bureau are not that promising.

May 19, 2010

Jamie Dimon earns more in one hour than one of his bank tellers earns in an entire year.

May 11, 2010

Holders of more than 1 billion shares of Bank of America stock voted against the election of two of their directors.  1.19 billion ballots were cast against Virgis Colbert, and 1.47 billion were voted against the election of Charles Rossotti.