Links to a few items I found interesting on non-residential structure investment, the “bad bank” proposal, and separation of powers.
If there’s one thing I’ve learned in 3-1/2 years of blogging, it’s that when Calculated Risk says “watch out,” we all better run for cover. Bill offers this assessment with some blunt words:
investment in non-residential structures only declined at a 1.8% annualized rate [in 2008:Q4]. As a percent of GDP, non-residential structure investment actually increased slightly in Q4. This story will change in 2009, and non-residential structure investment will be a significant drag on GDP.
Elsewhere on the web, Michael Mandel considers what will happen if the assets the government purchases to create a new “bad bank” turn out to be, you know, bad:
One straightforward solution is for the government to pay more for the bad assets than their current market price, assuming that values will eventually rebound…. However, this approach could leave taxpayers on the hook, big time. If unemployment and business failures keep rising, the mortgage-default rate will soar. The troubled assets absorbed by the bad bank will fall in value, and the U.S. government– and by extension, taxpayers– will become the biggest owner of foreclosed real estate in the world.
A cheaper and better way of solving this problem would be more difficult politically. Regulators can be sent into banks to take a close look at their books and assign a more realistic value to their assets, taking into account that housing prices may not bounce back anytime soon…. If a bank is found to be insolvent, the troubled securities and loans would be taken by the government, and its shareholders and debtholders would be partially or fully wiped out.
Finally, I was very interested to see this item from California Attorney General Jerry Brown. It appears that a receivership ordered by a federal court has declared itself to have the authority to dictate $8 billion in new spending on particular prison health facilities. This is ordered by the court for a state which is already facing what seems to be an unsolvable $42-billion budget shortfall for 2009-10. I agree very much with Brown that a decision of how much money to spend and where to spend it is one that needs to be made by the legislative and executive branches, not the judiciary.