Foreclosure pulse

I found, via the Guardian, Foreclosurepulse.com. Amongst other things, they provided this splendid graphic of foreclosure intensity in the US:

As well as a good form of what is – or ought to be – the standard analytical response to the idea of stimulus, vis homeowners.

The Fed’s interest rate cut is largely symbolic. It makes more funds available to depository institutions — old-fashioned banks — but old-fashioned banks aren’t where the crisis is centered. The Fed’s move will do little for what ails the U.S. economy: Falling home prices, tighter lending standards, rising foreclosures and the ever-growing number of unsold houses on the market.

Nor will President George W. Bush’s $150 billion economic stimulus plan prevent Americans from losing their dream of homeownership to foreclosure. The Fed’s move will spark an avalanche of refinancing for homeowners with good credit. But that won’t necessarily translate into lower mortgage costs for some 2 million Americans with risky subprime home loans with rates that are scheduled to adjust sharply higher over the next year.

Many subprime borrowers have mortgages larger than what the properties are worth, ruling out the possibility of refinancing from an adjustable rate loan into a fixed mortgage rate.

If I stay in the US, this is certainly looking like a/the year to consider buying that house (or, hell, two).

Outsourcing clinical trials

If Union Carbide taught us anything, it’s that we don’t, truly, care so much about catastrophic outcomes when they’re in other countries.

During the 20th century, clinical trials – for many years a legal necessity to demonstrate that experimental medicines are safe and effective before their approval – were predominantly conducted on patients in North America and western Europe, close to companies’ scientists, regulators and principal markets. Since 2000, however, the expansion of western pharmaceutical companies around the world and the emergence of local rivals in developing countries have meant that the number of trials taking place in the emerging economies of China, India, eastern Europe and Latin America is catching up.

…

recruitment in western markets is increasingly difficult and costly. Patients are generally willing to participate in Phase 2 and Phase 3 trials, designed to measure efficacy, assess the appropriate dose and identify any side effects. But for rarer diseases, including for many cancers, the number of patients who are not already enrolled in trials for rival new drugs is limited – and the cost of finding them high.

By contrast, a number of the emerging markets offer good and improving medical infrastructure, at least for a significant proportion of their population, supported by well-trained doctors and assistants available at a fraction of western salaries – including many who speak English and were partly educated in the west. That can reduce the direct costs of trials by half or more.

Just as important, such countries offer large pools of patients willing to be tested, including many who are “treatment naive”, because the relatively low standard of healthcare compared with western countries means they have not had access to the latest and most expensive medicines.

Trouble is – and anyone who read or saw the Constant Gardener will, with all their cynicism intact, not be surprised, just because a cost can be saved, doesn’t mean that it should. Just as it was in Bhopal. The Financial Times provides this handy diagramme:

Transferability and generalisability are also serious issues. There are two key questions to be applied to clinical trial results: 1) Was the trial representative of the population to which the treatment will be offered? Will the effects measured be generalisable in the population? 2) Was the trial structure representative of the treatment delivery structure in the population? Will the effects measured be transferable to patients in the real world?

Odds are that, if the trial for a US-bound pharma product for a rich-man’s-burden kind of disease took place in Bihar, the answers to those questions will be no – in which case the uncertainty surrounded the results, ex poste, are probably unacceptably high for FDA, PBAC, NICE, etc.-level approval.

The FT also offers an impressive ethical dilemma:

Another is that patients may be unduly coerced to take part because a trial offers access to medical care they could not otherwise afford; and because they may lack adequate “informed consent” to understand they are taking risks by using an experimental medicine – or from receiving a placebo rather than the new drug.

A third concern is the lack of post-trial access to medicines. The country where a trial is conducted may not gain access until long after the drug is approved in the west. Often even the patients on whom a medicine is successfully tested are not guaranteed that they will continue to receive it once a trial comes to an end.

Pretty interesting debate, well-handled by the FT.

The only thing heating up in China is commodity prices

Officially, fuel is up anywhere from 8 to 11% over last year, in China (click for larger image):

Of course these are official statistics – possibly implying they are subject to bias but, more specifically, that they are subject to local temporal and geographical variation. Big variation, sometimes: forget not the death-tainted sale of cooking oil in China, last year.

So, given this story:

Severe snowstorms over broad swaths of eastern and central China have wreaked havoc on traffic throughout the country, creating gigantic passenger backups, spawning accidents and leaving at least 24 people dead, according to state news reports.

In many areas, where snow has continued falling for several days, the accumulation has been described as the heaviest in as many as five decades.

…

“Due to the rain, snow and frost, plus increased winter use of coal and electricity and the peak travel season, the job of ensuring coal, electricity and oil supplies and adequate transportation has become quite severe,” said Prime Minister Wen Jiabao in a statement issued late Sunday.

Shanghai’s weather is, according to the BBC, not all that bad:

But (a) I’m not poor. I live in a rich country, making more than enough money to keep myself in heated (in New York, of course, you’ve no choice. Half the time we’re opening windows to keep from being baked alive: NY apartments represent, for me, exactly why building-wide heating is a daft idea), (b) I live where it’s routinely that cold. I’m prepared, my clothes are appropriate, my diet is appropriate (I can cook) and my buildings are made appropriately.

Shanghai – historically – hasn’t had all that bad a January, to date. At its worst, however, its minima have still been at or above freezing, looking at the last 10 years:

Nothing that would prepare a people for snap freezes – particularly poorer/rural people with less insulation (or, mid-winter, spare heating/cooking fuel). It will be interesting to see how cooking and heating oil prices do, for the rest of their winter.

New lexicon: “intentional foreclosure”

Originally spotted at the Big Picture (where else?).

This is how it works. Bob paid $420,000 for his home. Then he notices the house across the street, with more upgrades, and is selling for $315,000.

So Bob, who has pretty good credit, decides to buy the cheaper house. He can’t afford both, so then he walks away from his original home, letting it fall into foreclosure. That will hurt his credit, but he’s willing to take the hit for a more affordable home.

“Works” is, of course, a matter of perspective: (a) the bank will be stuck with a house in the worst market possible (until next month), dragging down (on aggregate) the economy – poetically just, if Bob ends up losing his job and the other house as a result; (b) it could be market-based. Just because his mortgage is 420K doesn’t mean his house it. He could move across the street and see his house going for 300k – will be repeat the procedure?

The LA Times has a varied take on the issue:

A homeowner who can’t sell his house tells the L.A.Times, “Foreclose me. … I’ll live in the house for free for 12 months, and I’ll save my money and I’ll move on.”

Banks and lenders fear this kind of thinking – that walking away from a house could be the smart economic move – appears to be on the rise. Wachovia, in a conference call yesterday, warned investors that increasing numbers of homeowners are walking away from their homes by choice: “… people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they’ve lost equity, value in their properties…”

Calculated Risk notes this is “one of the greatest fears for lenders … that it will become socially acceptable for upside down middle class Americans to walk away from their homes.”

Oof. If banks have bread-baskets, I reckon such a fashion as this would count as a punch right in it. That would have to be the banker equivalent of being chased by giant carrots as a child, surely. Terrifying.

Funnily enough, my wife opened a new bank account over the weekend (with Wachovia: Bank of America, you’re just too big a bunch of dicks). During it she commented on her credit rating (good) – I told her that, 6 months from now, there’d probably be so many bad credit ratings going around that people wouldn’t know what to even do with a credit rating anymore (I’m a foreigner – this will all benefit me because, while mine is good, I barely have one at all)

How to escape inflation: cryo-preservation

Context: I was reading this piece in Wired, about a photographer who shoots top-secret ‘things’. I highly recommend it: the pictures here include radioactive waste, a practice-field for the study of decomposing bodies and – seriously – a bottle of HIV. I believe I will purchase her book. I’m not expecting any alien autopsies, but it was quite strange to see such things even existing, let alone photographed with such ordinary composition.

Anyway. Amongst them is this (click for larger version):

The Cryonics Institute in Clinton Township, Michigan, currently preserves 74 legally dead human patients and 44 dead pets, charging the same price it has charged since its establishment in 1976: $28,000 with advance reservation.

And I paused. Of all the strange things in this set of photographs, a price that has remained the same since 1976 was truly the most odd. Jumping over to The Bureau of Labour Statistics’ Inflation Calculator, I found that USD28,000 in 1976 would get you USD102,031.21 in 2007. Now, the Cryonics Institute lists itself as non-profit, but that’s just crazy.

The package up for which one signs includes up-front and ongoing costs – but those, too, appear not to be indexed although they must be, surely. If they aren’t, then new cryonics clients (customers? Patients?) have to be charged more, to cross-subsidise the existing, too-expensive ones.

And what about the attendant services? Ah. Your USD28,000 gets you frozen. It doesn’t get you prepared for the freezing, and it doesn’t get you shipped to Clinton Township, Michigan, for storage.

Click the image for the larger version. So all the stand-by, transport services appear to be fully-indexed. Treatment, stabilisation, air-ambulance, etc. are all provided by Suspended Animation, though – another company entirely. Between municipal electricity, gas and water, not to mention land taxes, cleaning services, ‘parts’ (lightbulbs, paint-job, an electrician every now and then), etc., there is still no explanation for how/why the cryo-preservation service can remain the same price it was more than 20 years ago.

So, there you go. You can literally beat inflation by restricting your consumption solely to an apparently inflation-free basket of goods and services. Of course if you stay alive, you can earn money and get ahead of the entire game (for example if you’d invested your USD28,000 in 1976, you could enter cryo-preservation today with (at least) nearly USD75,000 in the bank, so there is that), so I wouldn’t recommend actually doing it.

Sovereign Wealth Funds

My position on Sovereign Wealth Funds (“i” before “e” except after “c” and in “sovereign” – very confusing) has hopefully-consistently been with regard to their potential for destabilisation. I don’t trust them any less – in fact, probably more – than hedge funds. Mostly because I would expect Sovereign Wealth Funds for most nations to (a) take very long and stable positions, and (b) take very solid and far-horizon’d positions specifically when, say, bailing out banks in tanking developed markets.

This was reinforced when I was discussing the matter with a colleague from Saudi Arabia, and who works within their finance ministry, and who worked within the setup for the Gulf Common Market. As far as he was aware, there was little more at work in the gulf funds than taking up cheap exposure in foreign financial markets. I still distrust, say, Chinese Sovereign Wealth Funds (because their government has stated publicly their willingness to do things like push economies around when beneficial).

At Davos, it seems, the issue looms large:

The funds are controversial in countries like the U.S. because they already have a lot of firepower, and it is growing fast thanks to high oil prices and U.S.trade imbalances. Richard Fuld, chairman and chief executive officer of Lehman Brothers (LEH) said the wealth funds, whose present value he pegged at as much as $3 trillion, could command as much as $20 trillion in five years. “The impact will be huge,” he said, though he noted pension funds command some $60 trillion.

While few U.S. and European politicians have raised objections to the large stakes various funds have taken (BusinessWeek.com, 12/7/07) in blue chip U.S. and European banks such as Citigroup (C), Morgan Stanley (MS), Merrill Lynch (MER), and UBS (UBS), greater tensions may well be brewing as the funds grow larger and more ambitious. The notion of foreign entities buying up blue chip assets goes against the grain in the U.S. and other Western countries. Perhaps the greatest danger arising from the huge growth of these funds isn’t that they will buy strategic assets in the U.S. and elsewhere, but rather that they will trigger a wave of protectionism that could gum up the international financial system.

One of the interesting things about them is that, while hedge funds and equity groups were ‘ours’, we have no money for a Sovereign Wealth Fund (or we did, but we blew it in Iraq). So we have at best a small seat in the room – probably not at the table. That frightens us. I like the idea, though, that non-US/EU Sovereign Wealth Funds are bad because of our protectionist reaction to them. Are we seriously suggesting that the Gulf, China and Russia have to save us from ourselves? Sit by while we continue in smugness with our business as usual.

We’ve been trying for a while now to make OPEC bend itself to our macroeconomic convenience. It’s probably time we just stopped trying.

Only briefly seen was this sort of response:

Muhammad al Jasser, the deputy governor of the Saudi Arabian Monetary Agency, the central bank, which manages most of Saudi Arabia’s overseas assets, was more relaxed. But he brushed off Summers’ suggestion that the funds would be wise to adopt a good-conduct code to ease worries, claiming there has been huge resistance in the U.S. to regulating hedge funds and rating agencies—even those “who created turmoil in the world economy.”

He might also have reminded us that the money controlled by Sovereign Wealth Funds currently is still a lot less than the amount that said turmoil is going to cost the world economy (how much, already, in central bank intervention money, has it cost? A few Sovereign Wealth Funds’ worth, certainly).

Should remittances count as foreign aid?

This is no small matter. The US, for example, has consistently (until recently) given the least (per GNI) amongst the OECD:

They recently moved off the bottom (while pipping Japan as the no. 1 in dollar terms). More generally, the fabled promise in the 1970s to double aid as a percentage of GNI has gone walkabout for everyone – it has about halved, as I understand it. The shortfall on this promise is some USD3.1tr, now (with USD2.6tr having been spent – 2005 dollars). Denmark, Norway, Sweden, Luxembourg and the Netherlands the generous exceptions to that rule.

Using the US as an examplar, again, the concept of Foreign Aid is also repeateadly muddied by Military Aid (accounting practices that called military assistance ‘foreign aid’ to make the money numbers look better after the Asian tsunami, an excellent example in international relations) and Food Aid (previously seen here, last Summer).

Across the world, aid aid is declining in proportion to our wealth – illustrated well, I think, by the Davos World Economic Forum consisting almost entirely, this year, of financial murmuring and jumping at the shadows of Sovereign Wealth Funds.

This is context and motive. If we send the army to help dig out a village, is that budgeting expense not Foreign Aid? If we give migrants jobs, and then those migrants send USD300bn of the money they earn back home (and with remittances growing substantially faster than Foreign Aid or Foreign Direct Investment), is that not Foreign Aid?

No way, says Ambassador Munir Akram of Pakistan, until recently chairman of the 130-member Group of 77 developing nations.

“We have to be very careful not to allow these remittances to be portrayed by the North as contributions on their part to development. They are trying to do this,” he told IPS.

Akram said Pakistan receives about 4.5 billion dollars annually as remittances from workers worldwide.

As a general rule, he pointed out, those who are poorest among the migrants send the most money to their families back home.

“These are our people, our workers. We invested in them, they studied in our countries, they got their education, and they are sending a small proportion of their earnings back home,” he said.

Akram said there is a move by Western donors to treat expatriate earnings as part of development assistance to developing nations.

He said these unnamed donors want to count remittances from North to South, but at the same time, they don’t want count repatriation of profits — from South to North.

“They will try and project expatriate remittances as an element of the contribution from the North to the South as a reason for not meeting other aid targets. We need to expose them,” said Akram, the permanent representative of Pakistan to the United Nations.

The answer is “no”, any more than my purchase of Oxfam coffee should be counted as Foreign Aid, for a couple of reasons. First, as above, it’s a scam. We can’t let our international aid accounting consist of shenanigans – that’s what we call a slippery slope (yes, before we know it, Rick Santorum will be given dogs to countries for their people to marry. Or something).

The second is more straight-forward for me, probably less straight-forward for some. Migrant workers are no different from any other worker (besides getting a rawer deal in just about every dimension, of course). They are hired according to the market supply of their labour, and paid according to demand for what they help produce, and the Marginal Revenue Product of Labour in what they produce. Less so, actually (refer to the part about them getting the raw deal).

There is no factor in the labour market for migrants that includes remittances. They do not demand higher wages because of the higher costs they incur as remitting migrants (trademark, I think, for that one), and firms most certainly do not factor in that need when they make a wage-offer. There is nothing deliberate about financing remittancing, from the perspective of the domestic OECD labour market.

The domestic economy involved loses income from remittances, yes – but (a) it allows, freely, the markets that service remittances to form, and make a profit, which means everything is working smoothly (in fact a lot of remittances are still made through unofficial channels, meaning the domestic economy is inefficiently benefitting from the practice, and should improve market-based services for remittances), and (b) the destruction of domestic income/money supply due to remittances pales in comparison to things like military expenditure.

If anything, remittances should be considered a better investment than expenditure by migrants: bullets are destroyed, yet their manufacture means a job. Given their income, a migrant’s spending of that money would be on consumption, which is the slow contributor to economic growth. Well, by sending money home, migrants are boosting the GDP in, and living standards of, underdeveloped countries, strengthening them as markets for exports – and future sources of skilled labour – for the OECD.

Making remittances not aid.

As the IPS article also details, the emigration of skilled labour – particularly health professionals – is a serious and growing public health and human capital development issue for under-developed nations.

So, a compromise. The OECD should start adding remittances by skilled migrants to our Foreign Aid, but we should subtract the balance of their wage or salary from Foreign Aid, since our having them means their own country is left behind. Seems only fair.

Pawnbroking up 15-20%

When everyone is losing money but Wal-Mart, we call that a signal; specifically, that people are pessimistic and will only spend money on things with low prices, everyday (now: “Save money. Live better” – weird). This is another signal of the same, thought markedly worse, kind:

Hard times in the US are benefiting pawnbrokers as beleaguered consumers pledge jewels, electronics and other goods in return for loans with interest rates running as high as 300 per cent a year.

Dave Adelman, president of the National Pawnbrokers Association, said the number of loans at US pawn shops had risen 15-20 per cent since October. He attributed the increase to rising fuel prices and deteriorating economic conditions – an assessment echoed by other industry executives.

…

On Manhattan’s 47th Street, the New York block through which about 90 per cent of US diamonds are sourced, some merchants report a sharp uptick in the amount of jewellery being brought in for sale.

“Its real sad – they don’t want to sell,” said Ruben, a 52-year-old street hawker who buys jewellery from passers-by in the diamond district.

“They might have paid $150,000 for a necklace but they will get back $25,000 or $30,000 at most. But it’s either that or lose their house.”

That would be a rung more than somewhat lower than sales only being up at discount retailers. This is made worse only by, say, the number of gold teeth being sold by immigrants going up significantly.

Soros, Davos and threats to the financial system

Five-minute-or-so interview with George Soros, hosted over at the Financial Times.

He’s talking Monolines (single-type instrument firms), the Fed, the banking system and the real economy going forward.

He also gives his take on the use of tax-payers money to deal with the problems (and the increased regulation required from using our money to underwrite others’ debt), and the relative position of the financial world in the US, UK and European economies (quite insightful).

The economics of crime

Reminds me of one of the great lines in cinema: Cary Grant’s “I must remember to yell ‘timber’, occassionally”, from To Catch a Thief.

An excellent post over at Environmental Economics, about this story:

Across the country, trees are disappearing in cases that are often small in scale but largely unsettling, probably prompted by the rise in timber value and the increase in worldwide demand for American hardwood — particularly from builders in Europe and China. The total value of the American log export market has more than doubled since 2000, industry experts said, and it continues to grow.

In the United States, forests are not being illegally logged on a systemic scale, … Here, the issue is often scattered and intimate, and often affects homeowners, parks and public forests.

A couple of years ago it was gangs stealing the rail lines in Italy, to sell the copper (and let’s not forget those thefts of bronze sculptures – not to mention bronze plaques and, believe it or not, footpaths!).

Bizarrely, a lot of it seems to be neighbours stealing timber from neighbours – which is just messed up. The joy of the post is John Whitehead’s suggested efficient fine.