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Article Artículo

The Big Short, the Housing Bubble and the Financial Crisis

I have yet to see the Big Short, but folks I know who have seen it say it's a great movie. But apart from its dramatic qualities, we have to once again raise the question of whether the story of the downturn is really a story of a financial crisis or a burst housing bubble.

I see that the generally astute Neil Irwin weighs in on the side of the financial crisis in his review of the movie.

"A lot of people thought a decade ago that there might be a housing bubble. Few of them understood the connections between housing prices and poor lending practices, and the connection from poor lending practices to complex, highly rated securities, the connection between those securities to the balance sheets of major banks, and the peril to the economy if just a few of them faltered.

"At each link in that chain, there were people aware that something was wrong, but lacked the ability to put those pieces together and connect bad lending in Florida suburbs with the existential risk being taken by companies like Bear Stearns and Lehman Brothers.

"The impossible job for the regulators (and journalists, and credit rating agencies) of the future is to better understand how the pieces within the infinitely complex economy and financial system connect with one another.

"'The Big Short' is a powerful reminder of how hard that will be."

I have been around the block on this one many times, most recently with Brad DeLong back in April (see also here and here). The basic point is that the demand created by the housing bubble was driving the economy prior to the crash. This demand was felt through two channels. First, record high house prices pushed residential construction to record levels of GDP. Second, at its peak the bubble had created $8 trillion (@ 60 percent of GDP) of ephemeral housing equity.This led to an enormous consumption boom as people were spending based on this bubble generated equity.

Dean Baker / December 22, 2015

Article Artículo

Haiti

Latin America and the Caribbean

World

Martelly Forms Commission to Evaluate Haiti Elections, But Can it Break Impasse?

After increasing pressure from opposition politicians, human rights organizations, religious leaders and diaspora organizations, Haitian president Michel Martelly has issued a decree forming a commission to evaluate the recent first-round presidential elections, held in October. Backed by the international community, the move is a last-ditch effort to save the December 27 run-off election.

Consisting of five individuals who were named in the presidential decree, the body will have three days to carry out its work and make recommendations to the electoral council and government. The election, set to be held next weekend, is expected to be delayed until January 2016, though no formal announcement has been made.

Contacted by HRRW, Rosny Desroches, a leader of a local observation group funded by the U.S. and Canada and a member of the commission, said that the exact terms of reference were still being debated and the commission likely wouldn’t get started until Friday or Saturday. Specifically, there was still debate about the time frame, as three days seemed too short, he said. “The main idea is to improve the process so that what happened on the 25th [of October] will not be repeated,” Desroches added.

The October election, in which 70 percent of registered voters stayed home, was plagued by widespread fraud and other irregularities according to local and international observer groups. Following the election, a group of eight presidential candidates, known as the G8, questioned the legitimacy of the results and demanded an independent verification commission to analyze the votes.  

Martelly has been ruling by decree since January 2015, when the terms of most of the legislative branch expired. On Wednesday, the 10 remaining Senators wrote to Martelly and the Provisional Electoral Council (CEP) requesting a suspension of the electoral process and the formation of a verification commission. Shortly after midnight, Prime Minister Evans Paul sent a letter to Martelly requesting a commission with a more limited scope, setting the stage for this morning’s announcement.

As momentum built over the previous week, even those close to the government acknowledged that something would have to be done. “You can’t stop a runaway train,” an advisor to President Martelly quipped, “It’s inevitable.”

But asked if this commission satisfied the request of the Senate, Jocelerme Privert, one of the 10 who remain, wrote curtly, “No way.” And already, there has been pushback to the commission from within the G8.

In a statement this morning, Renmen Ayiti, whose presidential candidate Jean Henry Céant is part of the G8, denounced the commission as “contrary to the request” of the G8. The party also called on one of its members, Euvonie Georges Auguste, who had been placed on the commission, to not participate.

Other commission members are Patrick Aris of the Episcopal Conference of Haiti; former Port-au-Prince Mayor Joseph Emmanuel Charlemagne; and Anthony Pascal, a journalist and TV personality.

Moïse Jean Charles, another member of the G8 who finished third according to official results, also expressed concerns over the new commission. It “doesn’t look to be shaping up like what we’ve been asking for,” he said. “What we demand is an independent commission that won’t be biased toward anyone,” he added, pointing out that it appeared some commission members were close associates of Martelly.

But key among the group is Jude Célestin, who placed second according to official results behind Jovenel Moïse of the ruling party. Despite increasing pressure from the international community, he has held firm on conditioning his participation in the second round on the formation of a verification commission.  

Célestin ran for the presidency in 2010 but was removed from the race after an internationally backed verification mission suggested he really came in third. That decision, which was accepted only after the revocation of visas and other pressure from the U.S., paved the way for Martelly’s ascension to the presidency.

Now, the international community finds itself on the other side of the equation, needing Célestin to participate in order for the election to have legitimacy. U.S. State Department Haiti Special Coordinator Kenneth Merten, who was the U.S. Ambassador during the 2010 election, was dispatched to Haiti in early December to meet with the stakeholders and reach a deal that would allow Célestin to participate and the process to continue on schedule.

Jake Johnston / December 17, 2015