US house prices rose in August by 1.2 per cent, apparently confirming an upward trend. Enjoy it while it lasts, says Lex: “The real question is how long this government-built floor can last.”
The housing recovery has been driven by Washington – evidenced by Congress battling to extend the tax credit. The Senate seems close to passing an extension of the credit in time and scope – it is currently due to end Nov 30. An extension would be politically popular but is it economically rigorous? The NYT points out that since February, only 15 per cent of buyers have actually needed the money to make the purchase: “it’s not stimulus to pay someone to do something they would have done anyway.” The Washington Post says that a longer-term credit would just inflate prices by that amount, helping sellers and not buyers. Calculated Risk agrees, saying the best way to help housing is to reduce unemployment, thereby encouraging household formation.
Away from the real economy, there is a lot of debate today on how banks should be regulated. John Kay says quite simply: “Too big to fail is too dumb an idea to keep… It is impossible for regulators to prevent business failure, and undesirable to pursue that objective. There is a sense in which the bankruptcy of Lehman was a triumph of capitalism, not a failure.” Even former Citi chair John Reed has called for a reinstatement of the Glass Steagall Act (see a history, here).
But US legislators appear to assume that big banks will continue: they are considering a draft bill that would give the Fed greater powers over big banks (allowing the Fed to force institutions to sell risky divisions or stop dangerous trading activity, for example). Like the US, Europe’s response includes better monitoring, with a proposal for a new pan-European risk board. It’s a good idea in principle, says Willem Buiter, but the current plan includes too many central bankers, who have neither the technical knowledge, tools, instruments or legitimacy to dominate the macro-prudential financial stability framework
Other countries may avoid such rearguard action. Australia looks likely to raise interest rates again next week following stronger-than-expected inflation data on Tuesday. And India is taking steps to draw liquidity out of its financial system too, saying local banks must increase their capital holdings, partly through the purchase of government bonds.
Less good news from Russia: it is the only BRIC member to have experienced a drop in syndicated loans since the start of the year – a staggering 89% fall.
A few days after taking four of the top five world prosperity slots, Nordic countries have again topped the rankings, this time of gender equality, with Iceland coming top.
And if the financial troubles have seemed a little abstract, a worrying change might be afoot. A couple has been charged with torturing suspected mortgage fraudsters.