Taiwan and China Will Join in This Decade! Culture of Life News. On the completely unreported (here) and very significant victory of the Kuomintang Party in Taiwan (in an upset, it won 72% of the parliamentary seats) which is keen for closer ties with mainland China (for instance, this Bloomberg story is silent on the larger implications). Taiwan is single most important source of chips for the US. If the rise of sovereign wealth funds and their role in bailing out the US financial sector didn’t convince you that our economic sovereignty was coming to an end, this should.
Anna Schwartz blames Fed for sub-prime crisis Telegraph. Anna Schwartz is the co-author, along with Milton Friedman, of A Monetary History of the United States.
Some Fear Economic Stimulus Is Already Too Late New York Times. Conventional wisdom watch; we’ve gone from “the economy is strong” to “we may not be able to prop it up,” with nary a stage in between.
Does Politics Affect Moody’s Ratings? Dean Baker. We had commented with asperity that Moody’s statement that the US would face a downgrade in the long haul if it didn’t rein in Social Security and Medicare was politically motivated; Baker gives the report a more thorough thrashing.
Should China try to avoid a crisis, or minimize its impact? Michael Pettis, China Financial Markets.
Mortgage securitization James Hamilton, Econbrowser. A very nice post that gives an overview of the securitization process, then a synopsis of a paper by Federal Reserve Bank of New York economists Adam Ashcraft and Til Schuermann that says what they think went wrong with this scheme. A key element is their analysis of the securitization of a pool of 4,000 subprime mortgages.
Cruel Jokes, and No One Is Laughing Gretchen Morgenson, New York Times. OK, we have a Morgenson moment, when she make a comment about ARMs that is off beam and it later becomes clear she is talking about pay-option ARMs, a subset. But we do have an interesting section:
But it is possible to get a feel for what is happening on the ground from a new survey of 2,400 real estate agents sponsored by Inside Mortgage Finance Publications. The survey taps into the outlook of people who see troubled borrowers firsthand, when they try to sell their homes before foreclosure occurs.
For example, agents participating in the survey confirmed what many borrowers say: that loan servicers are downright unresponsive. This is especially true when distressed owners try to sell their homes before being put through the trials of foreclosure. When they sell at a price that is lower than the outstanding mortgage debt, that is known as a short sale.
Asked how servicers could streamline such sales, one said: “Allow you to go directly to the loss mitigation department without having to speak or argue with eight people before they finally give in and transfer you.” Another said: “Respond to offers within five business days — they are killing the market by taking upwards of three months to respond to an offer.”
A third participant said: “Answer their phone….”
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Re the China/Taiwan developments.
To get a better understanding of Chinese economic policy, read James Fallows in the current Atlantic, which is subscription-only…
He gives a clear explanation of how the Chinese government controls the flow of Chinese trade surplus dollars back to the United States. Repeat: the govt does not just regulate this flow–it CONTROLS it. Completely. The on-off switch to the U.S. economy is under the thumb of the Peking government. That government has vastly more power over our economy than Ben Bernanke could dream of.
Of course, we take comfort in the fact that the Chinese could not disrupt our economy without disrupting their own. Fallows compares it to the “mutual assured destruction” that kept the U.S. and the Soviet Union from nuking each other.
I would find this situation a lot MORE comforting if I were not currently reading a biography of Mao (by Jung Chang and Jon Halliday) explaining how Mao was willing to starve his own people by the millions to achieve his economic and political goals.
Yes, Mao is long gone. But the regime he established rules yet. Not to say they are capable of similarly destructive policies–but they might be. Their priorities–their calculus of costs vs. benefits–could be far different than ours.
We do have a bad habit of assuming that people and leaders in different cultures want what we want.