Secondary Sources: Recession Costs, Doomsday Cycle, Commercial Real Estate
A roundup of economic news from around the Web.
- Who Pays for Recession?: On Economist’s View, Mark Thoma looks at who pays the cost of recession. “The recession is taking away opportunity for the young to gain employment experience, and many who are employed are working below their abilities in jobs they are likely to get stuck in for many years, if not forever. The recession is wiping out the accumulated assets of the unemployed as they try to bridge the gap until jobs return, and since many of these are older workers, this will have a large detrimental effect that lasts throughout their retirement years. Recessions cause skills to depreciate, there are psychological costs, there are costs to family members, the loss of a job generally means loss of health care, the costs to working class households go on and on. And there are other ways in which the costs have been spread unequally, and in many cases these have not been thoroughly examined. For example, there is evidence that minority groups were agreed higher cost and highly profitable mortgages when lower cost but less profitable loans were available. This also served to wipe out accumulated assets of minority borrowers in addition to all the other problems that come when a high cost mortgage cannot be paid.”
- Doomsday Cycle: On voxeu, Peter Boone and Simon Johnson suggest the economic system is in a doomsday cycle. ” Over the last 30 years, the US financial system has grown to proportions threatening the global economic order. This column suggests a ?doomsday cycle? has infiltrated the economic system and could lead to disaster after the next financial crisis. It says the best route to making a safer system is to have very large and robust capital requirements, which are legislated and hard to circumvent or revise.”
- Money-making Real Estate: Mike Shedlock looks at a Congressional Oversight Panel report on money-making real estate. “The report prominent that ‘Reserves officials believe that the money-making real estate problem is one that the economy can manage through, and analysts believe that the current condition of money-making real estate, in isolation, does not pose a systemic risk to the banking system.’ The key words in that paragraph are ‘in isolation’. What about credit card defaults? What about another wave down in housing? What about the cumulative effect of banks being so undercapitalized they could not lend if they wanted to? What if more businesses choose to walk away for properties? What happens to mortgage rates and rates for money-making loans when the Fed stops buying mortgage backed securities? A quick look at the above questions shows risk is overwhelmingly to the downside? Perhaps the economic miracle fairy waves her wand and cures all of these systemic risks, but I would not bet on it.”
Compiled by Phil Izzo