Friday, April 20, 2012

It's The Economy Stupid: Another Slow News Day

Okay, so far there’s not much in the way of economic news today.  So here is some random sh…..stuff.




The Bank of Japan sees protecting its own balance sheet as more important than ending deflation and spurring the world’s third-largest economy, according to the former minister who led a clean-up of the nation’s banks. “This isn’t difficult -- it’s Economics 101,” Heizo Takenaka, 61, said in an interview in Tokyo yesterday. “They think the balance sheet is more important than Japan’s economy. That’s why they are ok with leaving deflation,” said Takenaka, who served in former Prime Minister Junichiro Koizumi’s cabinet.




Prior to 2008 it seems that the main requirement for qualifying for a home mortgage was that the borrower have a heartbeat.  Those no doc loans didn’t work out so well – for all of us.  To prevent this from happening again, the Dodd-Frank financial-reform act of 2010 required that changes be made. Mortgage instruments as “interest-only”, “negative-amortization”, and “no doc” loans, which allowed marginal borrowers to buy more house than they could have ever possibly afforded.  So Dodd-Frank mandated a rule requiring institutions that place securities in the asset-backed secondary market to have a financial stake in ensuring that mortgage products are quality products. With a summer deadline for this new “Ability to Repay” rule, there is heightened concern in the housing industry that a highly restrictive regulation will cut more borrowers out of the market than the situation warrants.


So in typical government fashion, they will create a solution to a problem that doesn’t exist. The subprime loans and no-income-verification loans are gone. The underwriting criteria currently in place are tough enough.  New regulations that are too restrictive will smother the little improvement we’ve seen in the housing market.




The global economic recovery is facing a critical moment although some optimism has returned in recent months, and collective global action is critical for sustaining the recovery momentum, World Bank chief economist Justin Yifu Lin has said.


Weak recovery will likely resume in major advanced economies, as lingering structural challenges including low industrial capacity utilization rates, high unemployment rates and large public debts are weighing down the growth, Lin said in a recent interview with Xinhua prior to the spring meetings of the International Monetary Fund (IMF) and its sister organization the World Bank.


Structural reforms targeted at resolving long-term growth bottlenecks are crucial and should be carried out in a forward-looking manner, he said on the sidelines of a recent book launch event hosted by the Washington-based think-tank Center for Global Development.


The extent to which the IMF's financial firewall needs to be strengthened is a hot issue of the spring meetings and is of great importance to restoring market confidence and bolstering the fragile global recovery, noted Lin, also the World Bank's senior vice president.


Another highlight of the spring meetings would be pushing forward an array of development priorities, including job generation, social safety nets, financial inclusion, protecting the world's most vulnerable and advancing Millennium Development Goals (MDGs).




And just in case you’ve been lulled into thinking all is well in Euro land….


The head of the International Monetary Fund says the officials managing Europe's debt bailout fund should consider providing financial support directly to European banks that need more capital reserves.


IMF Managing Director Christine Lagarde said Thursday that supplying more capital directly to European banks could help ease the debt crisis.


Speaking at a news conference to open three days of meetings on the global economy, Lagarde noted that the banks can now receive bailout money only from European governments. She said that officials should change that so banks could receive money directly from the European bailout fund.





John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury


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