Good morning everyone. Here's what I'm reading to start the day.
Bank of England votes with its mouth
It wasn't long ago that central bankers believed the key to eternal life was through price stability. Keep inflation low, and everything else would fall into place. The Great Recession changed all that. Today, developed nations can boast of low inflation and not much else. So central bankers have turned to talk. For the first time, the Bank of England, under the leadership of Mark Carney, announced "explicit state-contingent forward guidance." The BOE will keep its benchmark rate at 0.5 percent at least until the unemployment rate, currently at 7.8 percent, drops to 7 percent. Oh, and that's a threshold, not a target. (See Ben Bernanke for clarification.)
What to do withFannie and Freddie
Everyone wants to reform Fannie Mae and Freddie Mac, the two mortgage-finance giants taken over by the federal government in 2008. Everyone wants to prevent the taxpayer from bearing the consequences of reckless lending. But how? Fannie, Freddie and the Federal Housing Administration backed 87 percent of new mortgage loans over the last five years compared with 40 percent before the crisis. In a speech yesterday, President Obama endorsed a Senate bill that would remove the implicit government guarantee. But he also talked about cutting the "red tape" and making housing affordable. Sound familiar? Memory is short; usually just not that short.
Hoping thatNo. 17is a winner
Former Congressional Budget Office Director Douglas Holtz-Eakin points out the contradictions in Obama's housing goals. "He wants a housing finance system that has the government backing to provide cheap mortgages and dedicated off-budget funding for low-income constituencies. But he does not want subsidies that encourage bad housing decisions and leave the taxpayer on the hook for losses. In short, he wants the upside of the traditional system without the downside." Easier said than done, Holtz-Eakin says. He also wonders why Obama's 17th mortgage modification/refinance program will do what the previous 16 didn't.
Did we waste the financial crisis?
That the New York Times' Adam Davidson has to ask that question speaks volumes. He says disagreements over whether banks are safer today usually divide along left-right lines. But he finds agreement among economists that "banks borrow too much, the regulations are too confusing and the public has been misled." The 2010 Dodd-Frank Act was supposed to fix things. Instead, it ushered in "a process of endless rules-writing by regulators," Davidson says. Hey, look at the upside. Think of all the new job opportunities Dodd-Frank created...for lobbyists.
Chicago Federal Reserve President Charles Evans, he of the "Evans Rule," told reporters he's seen "good improvement in the labor market" and would not rule out a decision to start tapering monthly bond purchases at the September meeting. Evans wants to see more data before he's comfortable that the not bad/not great July employment report is sustainable. The one thing the Fed doesn't have to worry about ever is that there is always more data.
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