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I have had plenty of occasions to criticize the editorial views of both the NYT and the Washington Post, but there are major differences between these two pillars of the national media. It would be hard to find a better statement of these differences than the Times and Post‘s view of the impact of the sequester on air travel.
One could also add that the sequester is throwing around 600,000 people out of work according to the Congressional Budget Office. These are people who have the necessary skills to fill jobs in the economy but who will not be working because people in Washington lack the skills to design policies to keep the economy near full employment.
I have had plenty of occasions to criticize the editorial views of both the NYT and the Washington Post, but there are major differences between these two pillars of the national media. It would be hard to find a better statement of these differences than the Times and Post‘s view of the impact of the sequester on air travel.
One could also add that the sequester is throwing around 600,000 people out of work according to the Congressional Budget Office. These are people who have the necessary skills to fill jobs in the economy but who will not be working because people in Washington lack the skills to design policies to keep the economy near full employment.
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One of the big issues left to be resolved in the debate over housing finance is the size of the down payment that homebuyers must put down in order for a mortgage to be considered a “qualified” mortgage. If a mortgage fits this definition, securitizers would not be required to hold capital against the mortgage.
NYT’s Dealbook had a post discussing the topic which highlighted research by Roberto G. Quercia, director of the Center for Community Capital at the University of North Carolina at Chapel Hill, which purports to show that there is not much additional risk of default with lower down payments. In fact, the numbers presented in the piece imply that Quercia’s research implies that low down payment loans have far higher risks of default. This means that lenders would either have to charge considerably higher interest rates or be subsidized for making these loans.
The NYT piece reports that Quercia found that the default rate during the years of the housing crash on a set of loans that met certain quality standards was 5.8 percent. However the default rate on loans with down payments of 20 percent or more was just 3.9 percent.
The piece reports that this higher down payment group comprised less than half of the loans in the study. If we assume that the 20 percent down payment group comprised 40 percent of the loans then this means that the default rate for home buyers putting less than 20 percent down was over 7.0 percent, more than 80 percent higher than for the 20 percent down payment group.
Furthermore, the losses for the less than 20 percent down payment group would be considerably higher on each default since there is less of a down payment cushion. If the loss for a default on a 20 percent down payment averages 25 percent, and we assume that the average down payment for the less than 20 percent group is 10 percent, then the losses for this group would average 39 percent of the amount loaned. (A 20 percent down payment is 25 percent of mortgage loan. A 10 percent down payment is just 11 percent of the amount loaned.)
Multiplying the increased probability of default (1.8) by the higher loss per default (1.6), the cost of default for the less than 20 percent down payment mortgages would be over 180 percent higher for the more than 20 percent down payment group, according to Quercia’s research. That would not seem to be a good argument to apply the same lending standards for this low down payment group.
It is also worth noting that Quercia’s assessment, as presented in the NYT post, that the 20 percent down payment would have excluded more than half of the borrowers does not follow from the evidence presented. If homebuyers knew that they had to put down 20 percent to get a lower cost mortgage, then they would be more likely to have a 20 percent down payment than in a context where this was not a requirement, as was true for the period examined by Quercia.
One of the big issues left to be resolved in the debate over housing finance is the size of the down payment that homebuyers must put down in order for a mortgage to be considered a “qualified” mortgage. If a mortgage fits this definition, securitizers would not be required to hold capital against the mortgage.
NYT’s Dealbook had a post discussing the topic which highlighted research by Roberto G. Quercia, director of the Center for Community Capital at the University of North Carolina at Chapel Hill, which purports to show that there is not much additional risk of default with lower down payments. In fact, the numbers presented in the piece imply that Quercia’s research implies that low down payment loans have far higher risks of default. This means that lenders would either have to charge considerably higher interest rates or be subsidized for making these loans.
The NYT piece reports that Quercia found that the default rate during the years of the housing crash on a set of loans that met certain quality standards was 5.8 percent. However the default rate on loans with down payments of 20 percent or more was just 3.9 percent.
The piece reports that this higher down payment group comprised less than half of the loans in the study. If we assume that the 20 percent down payment group comprised 40 percent of the loans then this means that the default rate for home buyers putting less than 20 percent down was over 7.0 percent, more than 80 percent higher than for the 20 percent down payment group.
Furthermore, the losses for the less than 20 percent down payment group would be considerably higher on each default since there is less of a down payment cushion. If the loss for a default on a 20 percent down payment averages 25 percent, and we assume that the average down payment for the less than 20 percent group is 10 percent, then the losses for this group would average 39 percent of the amount loaned. (A 20 percent down payment is 25 percent of mortgage loan. A 10 percent down payment is just 11 percent of the amount loaned.)
Multiplying the increased probability of default (1.8) by the higher loss per default (1.6), the cost of default for the less than 20 percent down payment mortgages would be over 180 percent higher for the more than 20 percent down payment group, according to Quercia’s research. That would not seem to be a good argument to apply the same lending standards for this low down payment group.
It is also worth noting that Quercia’s assessment, as presented in the NYT post, that the 20 percent down payment would have excluded more than half of the borrowers does not follow from the evidence presented. If homebuyers knew that they had to put down 20 percent to get a lower cost mortgage, then they would be more likely to have a 20 percent down payment than in a context where this was not a requirement, as was true for the period examined by Quercia.
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The United States emits more than twice as much greenhouse gas per person as the average for West Europe. If countries like Germany, France, and Spain emitted as much per person as the United States, there would be no point worrying about greenhouse gas emissions because the planet would be fried. The world’s emissions levels over the last three decades would be so much larger that there would be no hope of reducing emissions enough to prevent catastrophic levels of global warming.
This fact (i.e. undeniably true statement) makes the Washington Post’s lecture to Europeans about the United States being “the world leader in fighting climate change” laughable. Apparently the Washington Post thinks the United States should get big points for improvement and somehow that Europe should emulate us even if we still are emitting far more greenhouse gas per person than Europe.
No one ever accused the Washington Post of having much grasp of logic and arithmetic. After all, they are doubling down in their support of austerity even after the Reinhart & Rogoff errors had been exposed. But this one seems to be below even the Post’s incredibly low standard. Come on, we know that the Post hates Europe because they don’t give all of their money to the rich, and ordinary workers can expect to get health care and a decent retirement, but this one is really off the deep end.
The United States emits more than twice as much greenhouse gas per person as the average for West Europe. If countries like Germany, France, and Spain emitted as much per person as the United States, there would be no point worrying about greenhouse gas emissions because the planet would be fried. The world’s emissions levels over the last three decades would be so much larger that there would be no hope of reducing emissions enough to prevent catastrophic levels of global warming.
This fact (i.e. undeniably true statement) makes the Washington Post’s lecture to Europeans about the United States being “the world leader in fighting climate change” laughable. Apparently the Washington Post thinks the United States should get big points for improvement and somehow that Europe should emulate us even if we still are emitting far more greenhouse gas per person than Europe.
No one ever accused the Washington Post of having much grasp of logic and arithmetic. After all, they are doubling down in their support of austerity even after the Reinhart & Rogoff errors had been exposed. But this one seems to be below even the Post’s incredibly low standard. Come on, we know that the Post hates Europe because they don’t give all of their money to the rich, and ordinary workers can expect to get health care and a decent retirement, but this one is really off the deep end.
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The NYT told readers about efforts to require city governments to disclose their pension liabilities in order to be able to continue to issue tax-exempt bonds. While better disclosure of pension liabilities may be desirable, there are important methodological issues that the piece neglects to mention.
The piece notes that Moody’s, the bond-rating agency, is now adjusting pension liabilities reported by city governments in making assessments of their financial situation. The methodology used by Moody’s to make its adjustment ignores the expected return from market assets. Moody’s methodology would have implied that pension funds were hugely over-funded at the peak of the stock bubble in 2000, even though any reasonable assessment of pension liabilities would have predicted very low returns on assets at that point.
If municipalities were to adjust pension contributions to sustain funding targets using the Moody’s methodology it would lead to highly erratic funding patterns. In most cases, governments would have to make large contributions for a number of years and then would have to contribute little or nothing as market returns exceeded the return assumptions used by Moody’s. This would be comparable to having city governments accumulate large bank deposits so that they could pay for their schools or fire departments from the annual interest.
Usually public finance economists advocate funding mechanisms that imply an even flow through time so that no particular cohort of taxpayers is excessively benefited or penalized. The Moody’s methodology, which is also being pushed as part of the bill being debated in Congress, goes in the opposite direction. This fact should have been noted in the piece.
The NYT told readers about efforts to require city governments to disclose their pension liabilities in order to be able to continue to issue tax-exempt bonds. While better disclosure of pension liabilities may be desirable, there are important methodological issues that the piece neglects to mention.
The piece notes that Moody’s, the bond-rating agency, is now adjusting pension liabilities reported by city governments in making assessments of their financial situation. The methodology used by Moody’s to make its adjustment ignores the expected return from market assets. Moody’s methodology would have implied that pension funds were hugely over-funded at the peak of the stock bubble in 2000, even though any reasonable assessment of pension liabilities would have predicted very low returns on assets at that point.
If municipalities were to adjust pension contributions to sustain funding targets using the Moody’s methodology it would lead to highly erratic funding patterns. In most cases, governments would have to make large contributions for a number of years and then would have to contribute little or nothing as market returns exceeded the return assumptions used by Moody’s. This would be comparable to having city governments accumulate large bank deposits so that they could pay for their schools or fire departments from the annual interest.
Usually public finance economists advocate funding mechanisms that imply an even flow through time so that no particular cohort of taxpayers is excessively benefited or penalized. The Moody’s methodology, which is also being pushed as part of the bill being debated in Congress, goes in the opposite direction. This fact should have been noted in the piece.
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Ilyana Kuziemko and Stefanie Stantcheva seem determined to win the contest for greatest out to lunch op-ed column of all time. They note the huge rise in inequality in wealth and income over the last three decades. They tell readers that the public is aware of this increase. However they say that the public doesn’t trust the government to do anything to address inequality:
“Whether or not the rise in inequality has itself lowered Americans’ faith in government, the low opinion in which Americans hold their government may well limit their willingness to connect concern with inequality to government action.”
Sorry folks, but the public is way ahead of our researchers here. The public recognizes that inequality did not just happen, as the our oped authors seem to believe. Inequality was the result of deliberate government policies. For example, we have high unemployment now because of government policies that are reducing demand in the economy. Manufacturing workers lost jobs and have lower wages because of trade policy designed to put them in competition with low-paid workers in the developing world while protecting our doctors and lawyers.
Maybe if social scientists who did surveys understood a bit more economics, they would ask better questions.
Ilyana Kuziemko and Stefanie Stantcheva seem determined to win the contest for greatest out to lunch op-ed column of all time. They note the huge rise in inequality in wealth and income over the last three decades. They tell readers that the public is aware of this increase. However they say that the public doesn’t trust the government to do anything to address inequality:
“Whether or not the rise in inequality has itself lowered Americans’ faith in government, the low opinion in which Americans hold their government may well limit their willingness to connect concern with inequality to government action.”
Sorry folks, but the public is way ahead of our researchers here. The public recognizes that inequality did not just happen, as the our oped authors seem to believe. Inequality was the result of deliberate government policies. For example, we have high unemployment now because of government policies that are reducing demand in the economy. Manufacturing workers lost jobs and have lower wages because of trade policy designed to put them in competition with low-paid workers in the developing world while protecting our doctors and lawyers.
Maybe if social scientists who did surveys understood a bit more economics, they would ask better questions.
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