Secondary Sources: Small Business, Canadian Banking, More Foreclosures
A roundup of economic news from around the Web.
- Small Businesses: On the Atlanta Fed’s macroblog, David Altig looks at the connection between small businesses and jobs. “An fascinating bit of information about business start-ups has been lurking in the details of the U.S. Bureau of Labor Statistics’ Business Employment Dynamics data on yucky job flows. If you look at the share of jobs made by opening businesses — as opposed to jobs made from expansions of unfilled businesses — that share has really risen through the midpoint of 2009 (these data come with an excruciatingly long lag). These opening businesses are weighted solidly toward smaller firms, with somewhere around three-fourths of these businesses being represented by firms with fewer than 10 employees. Of course, job creation has fallen a lot for both huge and small businesses. As the Bureau of Labor Statistics’ data from the Job Openings, Layoffs, and Turnover Survey (JOLTS) indicates, the tale going forward is not going to be about layoffs and discharges?which have been diminishing steadily since last jump?but as a replacement for job creation, which has bottomed out (though remaining well below prerecession levels).”
- Canadian Banking: Writing for Economix, Peter Boone and Simon Johnson say the Canadian model isn’t the answer for the U.S. banking system. “If Canadian banks were more leveraged and less capitalized, did something else make their assets safer? The answer is yes: guarantees provided by the government of Canada. Today over half of Canadian mortgages are effectively guaranteed by the government, with banks paying a low price to insure the mortgages. Virtually all mortgages where the loan-to-value ratio is greater than 80 percent are guaranteed indirectly or frankly by the Canadian Mortgage and Housing Corporation. The system facility well for banks; they originate mortgages, then pass on the risk to government agencies. The United States, of course, had Fannie Mae and Freddie Mac, but lending standards slipped and those agencies could not resist a plunge into assets more risky than prime mortgages. Let?s see how long Canada resists that temptation. The other systemic strength of the Canadian system is camaraderie among the regulators, the Bank of Canada and the individual banks. This oligopoly means banks can make profits in approximate era — they can charge higher prices to customers and can raise assets more cheaply, in part because of the knowledge that no politician would dare bankrupt them.”
- More Foreclosures: Barry Ritholtz says the U.S. needs more not less foreclosures. “We should allow the real estate market to experience a healthy price normalization process. Even though home prices have fallen dramatically, they have yet to reach their historical means relative to returns or the cost of renting. This is to say nothing of the usual careening past the median towards under-valuation that typically follows a massive misallocation of capital? The mortgage mods and foreclosure abatement programs are really all about propping up insolvent banking institutions on the taxpayer dollar at the expense of the midpoint class. These programs are another bringing up the rear round of helping Wall Street at the expense of Main Street. It is the worst kind of trickle down economics that has been seen in decades”
Compiled by Phil Izzo