Monthly Archives: October 2013

The Rentership Society

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From the econtalk with Russ Roberts and Tyler Cowen. Tyler says,

I do think there will be a big generational shift away from the physical product. There will be a general decline of stuff, including the desire to own a home of your own. And we see this in the data–lower rates of household formation, lower rates of owning stuff… we see in collectibles markets is that overall the prices of collectibles have fallen after the advent of e-Bay. That to me suggests a net desire to get rid of stuff

I hear that the bike-sharing network in Manhattan is doing well. Driverless cars, if and when they become commonplace, call out to be rented rather than owned.

Foreclosure Relief Has Consequences

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Nick Timiraos writes,

it’s become more expensive to process loans that default. While banks typically sell to other investors the mortgages they make, they often hold onto what’s known as the mortgage “servicing”—that is, the process of collecting loan payments on behalf of investors. Because the foreclosure crisis has led to higher costs associated with servicing delinquent loans, the easiest way to avoid against having to service a defaulted loan, of course, is to make risk-free loans.

The “foreclosure crisis” is the huge outcry against foreclosures, which caused politicians to impose all sorts of new procedures and fines against mortgage servicers. As a result, nobody wants to service anything other than a squeaky-clean loan. I’ve tried to explain the economics of mortgage servicing in testimony on the Hill and in my housing finance course for MRuniversity.

Unemployment: Long-term vs. Short-term

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Tyler Cowen points to an analysis that says that short-term unemployment is at reasonably low levels, but long-term unemployment is much higher than normal. I have written about this before, and there is no single uncontested interpretation. Possibilities:

1. The long-term unemployed really are different. They are destined to drop out the labor force. In some sense, we are now close to full employment.

2. As I wrote before, when the job-finding rate falls, it is natural for some unemployment spells to lengthen.

3. Firms have finished firing, but they have not started hiring. So initial claims for unemployment insurance are low, and short-term unemployment is low. But the job market is still weak. However, the problem is concentrated among young people, who transition in and out of the labor force quickly. Instead of remaining unemployed for a long time, they might go back to school.

By the way, from a PSST perspective, I cringe at writing “the job market is still weak.” Jobs are not some commodity that is scarce. Jobs are created when the decentralized trial-and-error of entrepreneurs leads to the discovery of comparative advantage.

Sentence to Ponder

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From Peter Stella.

What many are calling central bank “money creation” “helicopter money” or “rolling the printing presses” may – in combination with tighter leverage ratios – lead to a tightening of bank credit and deflationary pressures.

Pointer from John Cochrane.

Read (and re-read) the whole thing. Stella’s interesting argument is that highly-rated securities are more liquid than bank reserves. Therefore, when the Fed supplies bank reserves in exchange for highly-rated securities, it is draining liquidity from the system.

My initial reaction is that this is just too cute. It makes it sound as though investment bankers make loans, using securities as reserves. I think of investment bankers as holding inventories of securities, financed by short-term debt. The larger the inventories they have to finance, the lower their demand for securities, and the higher the interest rates on those securities. So I still think that the Fed’s purchases go in the direction of pulling down rates on securities. Of course, I count myself as a skeptic that these effects are significant.