From IMF lunacy to the Wall St whitewash

There have been a number of interesting articles and papers on the web over the past week that I've been meaning to comment on, but don't have time to go into detail on. Here's a selection below. 

What Drives House Prices in Australia (IMF)
Some of you may recall that the IMF's Prakash Loungani warned back in March that Australian housing prices were massively out of line with fundamentals (when measured by historical price/income and price/rent metrics). This mild statement provoked a storm of indignation from the Australian property lobby -- and consternation from Treasury and the RBA -- who argued the IMF wasn't taking into account that "Australia is Different". Low and behold, Loungani has apparently been banished to the Siberia bureau and after some "valuable suggestions" from Australian Treasury officials the IMF has come out with a new study that says Australian house prices are only overvalued by 5-10%. The IMF cites a number of fundamental factors such as the terms of trade boost from China, population growth, and "permanently lower nominal interest rates since 2000", but curiously, devotes little space at all to the possibility that some, if not all, of these conditions could be reversed.

Citizens awake and cast ye off the chains of home ownership
Somehow I missed this one, but it is currently the most commented story in The Age. In a refreshing departure from the kind of garbage that is served up on a daily basis by Australia's newspapers on the property market, economics writer Jessica Irvine writes:

I have a confession to make, one I fear will exclude me from every dinner party conversation in Sydney and forever mark me as deeply un-Australian. Here it is: I don't desire to own property... it's time to stop treating houses like a casino, throwing money in on the bet that house prices will go up. Investing in property serves no real productive purpose, in the sense of creating income and improving living standards. It just transfers wealth from young purchasers to older sellers....

Society would be better served if we invested our savings in shares - which companies use to invest and expand jobs and incomes. Or if we just invested them in the bank, earning a modest return of 5 per cent a year or so, and the bank could lend that finance to a entrepreneur to invest in new ideas and technology.

Predictably, Jessica's story touched off a firestorm of intergenerational warfare in the comments section, with many young folk in complete agreement, and older property owners making moronic statements such as: renters are suffering from a "typical victim mentality", are destined to become "impoverished pensioners", and are unable to save enough to buy because "the price in self discipline is just too high". Highly amusing stuff.

Newly Built Ghost Towns Haunt Banks in Spain 
An interesting story in the New York Times about the implosion of Spain's real estate market, especially in light of this recent report in Business Insider on China's empty ghost cities.

Wall Street Whitewash by Paul Krugman
An angry piece from Paul Krugman in the New York Times about the pitiful state of financial reform in the USA.

The bipartisan Financial Crisis Inquiry Commission was established by law to “examine the causes, domestic and global, of the current financial and economic crisis in the United States.” The hope was that it would be a modern version of the Pecora investigation of the 1930s, which documented Wall Street abuses and helped pave the way for financial reform... Last week, reports Shahien Nasiripour of The Huffington Post, all four Republicans on the commission voted to exclude the following terms from the report: “deregulation,” “shadow banking,” “interconnection,” and, yes, “Wall Street.”

Unbelievable. You can't make this stuff up.