Prosper Australia

photo credit: nflorence2012

How to avoid being caught short: US calls in old rules to shield its markets:

The slumping financial markets have been rebounding steadily in the past month for several reasons, including regulatory and legislative decisions in Washington. The Dow Jones Industrial Average closed on Friday above 8000, a dramatic increase from the 6500 level of four weeks ago.

The true nature of neo-conservative has been revealed as neo-con. We are being conned big time and this trifecta of policy addendums is adding to the mis-information in the marketplace:

• The removal of mark to market accounting
• The push to ban short selling with the upkick rule
• The Geitner Plan propping up the land market

Stiglitz rips into the Geitner plan (above) and Jeffrey Sachs expands on this to show just how easy the scheme would be to rip off with an off-balance sheet arrangement.

The change away from mark to market accounting will allow banks to embellish asset prices. Isn’t the market meant to correct itself? The con in neo-con comes back to haunt us….This move aims to save more banks from liquidation. Does it infer a return to Mark-to-Model?

The soon to be announced banning of short selling by the introduction of the upkick rule will prevent corporate whistleblowers from holding a company accountable. Whilst shorting does seem to be against the spirit of capitalism, it is a warning signal to others. Share prices will be propped up until one of the whistleblowers briefs a journalist.

All in all its another move to preserve the current players, maintain the wealth gap and increase the inter-generational gap.

Schumpeter would be turning in his grave with Creative Destructionism making way for Bailout the Destroyers.

Why do rent-seekers rule? The investment theory of politics explains why such priority is being given to these political operatives.

To top things off, read this white collar piece on AIG’s side letters and whether they intended to be bailed out or not.

Yawn, yawn, yawn…

photo credit: country_boy_shane

At least Timothy Geithner is showing a little spunk with his new shared equity plan. The government puts in effectively 93%, and the lucky bankers chosen put in just 7%. How does it work? Both the government and the bankers put in 7% equity, then the government lends the other 86%.

When the price of housing starts to rise, the properties can be sold off with the government reaping a 5 to 1 profit over the banks.

This might prick up a few reader’s ears. The government sharing in land based profits?

One of the biggest challenges to this plan is that the US has 800,000 homeless (Jan 08, not 09) but 19 million vacant houses. Admittedly, there are many many families taking up medium-term accommodation in motels throughout America, the so-called hidden homeless. But there is still an insufficient demand to buy these properties off the government, despite the tour buses of Chinese buying up $900 properties in good locations.

Now that the speculative splurge is over and Mr Ponzi has well and truly left the building, the time for the land market to correct itself could be years. This is especially so as Obama’s other priority is to pump prime the economy with infrastructure projects. This will act to increase the value of land, countering the need for mortgage payments to drop back to average trends.
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photo credit: pyramis

Rents up, but house prices down. It doesn’t make sense, but such is life for men and women in their prime trying to find a place to call home.

Land monopoly power exerts its ultimate influence over the rental market. As we have often stated, the final stages of a boom-bust market are that rents jag upwards (up 20%+ last year). This strangles the market and retail stores go first, drowning under high rents, unemployment starts to cascade, then housing repayments falter with foreclosures jumping.

Unfortunately real estate pundits emerge at this time of the cycle tempting first home buyers into the market, just as it is about to crash.

While the biggest savings can be made by buying resource rich areas of Western Australia (in one town it is nearly $4000 per month cheaper to buy a house than to rent it), there are opportunities Australia-wide.

It is simply outrageous that the media can promote stories such as the quote above and cronies for the property ‘investor’ market can be so influential in the information marketplace. Where is the balance to many of these stories?

The reason why it is $4000 per month cheaper to buy than rent in one mining town is that the monopoly power of land owners is still being exerted. Large unemployment cutbacks in the mining industry are seeing such dramatic falls in property prices. This is yet to flow through to rents. It will though in the coming months. The time lag can often be a year or 2 until enough properties get sold for massive losses. The difference between the land price paid and the land value it finally gets sold at is the speculative largesse such monopolists can extort from the market.
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photo credit: chauromano

Ahh the Age beats us to the story! Australian Real Estate Investment Trusts are down 73% year on year. Michael West covers this in Property Not So Safe After All

One of the “leading lights” of the sector, Goodman Group, handed down a $450 million half-year loss this morning: a shocker. Greg Goodman, while a net buyer of Goodman stock over the past 10 years, disposed of 78 million shares after a margin call last year at far higher prices than the 26.5¢ the shares were recently fetching.

The staggering destruction of wealth — principally brought about by the herd-like decision by managers across the sector to expand aggressively over the past few years by increasing their gearing (a decision that has now brought about “Rudd bank”, so the taxpayers can bail them out) — is sadly ironic in light of the property sector’s appeal to those who wanted to take on less risk.

Mum and Dad investors who have lost 73% of their investment must lie awake at night wondering if the multifarious REIT’s, often run as sub-branches of many property development companies, were used as risk taking vehicles for one branch to sell to the other. Or keeping things at arms length, sold perhaps to their colleague’s company.

Now that prices have peaked and fire-sales abound, would the parent company be buying the asset back for a steal? A more subtle version of insider trading, let’s hope someone puts the magnifying glass onto the issue at large.

photo credit: alexkon

Karl Fitzgerald

Project Coordinator and Web Editor
the Saturday Age – Business section, p2, Oct 25th.

FREE market principles are being put to the test like never before. With share prices collapsing, policymakers are scrambling to keep up with the loss of confidence in the market.

Prime Minister Kevin Rudd has stepped into the breach with gusto. A $1.5 billion injection into the property market via the first-home owners grant will keep the banks and property lobby happy. And yes, the ubiquitous financial analyst will support this, too. But what about single people?

The 1% cut in interest rates will save the property investor $200 a month. One can rest assured this will not be passed on to renters. Single renters will also miss out on the $1000 Christmas bonus.

With the market benefiting from this additional buying power, these economic forces will push housing prices even higher, strangling Rudd’s affordable housing credentials.

Pensioners must understand that these same forces will soak up their handout, too.

The planned infrastructure projects will also make prime locations more valuable. Meanwhile, property prices are dropping dramatically in sprawling suburbs.

The monopoly power inherent in land deems economic growth irrelevant. All social developments are captured in higher land prices.

Rising property prices are only good for banks and speculators. The IMF’s Boom-Bust Phases in Asset Prices and Fiscal Policy Behaviour report reveals that economic downturns are more pronounced when following a housing price bubble.
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by Karl Fitzgerald

as published in Arena Magazine, Feb-March, 2008, Edition 93

In a period where the twin crises of global warming and the wealth gap are attacking society from both sides, policy makers are continually limited in their effectiveness by a two dimensional approach to economics.

Land prices have increased at 4 times the rate of GDP and dwarfed wages growth by 1000 to 1 since WW2 (The Poverty Inquiry to end all Inquiries, Tony O’Brien, Figure 1, p5) . Such damning statistics beckon the ALP to take a hard look at the economic fundamentals undermining union wage demands. For Julia Gillard’s ‘War on Poverty’ to be successful, policymakers must look outside the square.

2008 marks the half way point in our promise to halve world poverty with the Millennium Development Goal’s 2015 deadline. With the wealth gap accelerating in both Developed and Developing countries, a serious flaw is evident in modern economics.
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