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Housing Market Recovery in Full Swing, Just in Time for the Student Loan Meltdown

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Receiving Wide Coverage ...

Housing: The same market that dragged the U.S. into a nasty recession "is now a key economic driver at a time when other sectors are slowing," the Journal reports this morning. While GDP growth limps along and businesses fret about the fiscal cliff, "an improving housing market is buoying consumers' spirits and giving the economy its biggest lift since the real-estate boom." Mortgages remain hard to come by, but to the extent they can take on debt, homeowners are feeling more confident about doing so, and home equity borrowing is on the rise this year, the article says. The Journal's "Heard on the Street" column argues that the housing recovery could even "escape unscathed" from the broad economic damage that would occur if Congress failed to make a budget deal before Jan. 1. An economist quoted in the Post cautions that the housing market is about to head into the slow holiday season, so the price gains registered in September will be "the last hurrah" for the year. And in the bigger picture, it may take "more than a decade" for prices to rebound enough to erase all the negative equity weighing on consumers, he says. Meanwhile, the Times reports that an FHA rule change is encouraging development of condominiums in mixed-use, rather than residential-only, projects.

Consumer Debt: Overall, households are still paring debt, according to a New York Fed report. But student loan debt is swelling, and nearly all those loans are now "made directly by the government, which asks little or nothing about borrowers' ability to repay, or about what sort of education they intend to pursue," according to the lead story in today's Journal. (Remember that two years ago, the Obama administration eliminated private lenders from the federally guaranteed student loan program, in an effort to save money.) Delinquencies on student loans are also rising as credit performance improves or holds steady in other consumer debt categories. Wall Street Journal, Washington Post

Wall Street Journal

The paper has a fun front-page "gotcha" feature on executives in various industries who "made highly beneficial trades [in their own companies' stocks] shortly before their companies made market-moving news." The financial services industry is represented in the article by VeriFone Systems CEO Douglas Bergeron. Like other executives, he executed his fortuitous stock sales (before a Justice Department suit to block an acquisition hurt the POS terminal maker's share price) as part of a preset trading plan. Companies don't have to disclose many details of such plans, resulting in an opaque system that "can both raise suspicions about trades that are innocent, and provide cover for others that are less so," the article says.

In an op-ed, former SEC chairman Harvey Pitt says Dodd-Frank will make his old job more difficult for whoever succeeds the departing Mary Schapiro. "One pernicious aspect of Dodd-Frank was to vest in the administration, through the Financial Stability Oversight Council … the ability to compromise the independence of independent regulatory agencies," Pitt writes. "The FSOC can direct those agencies to take actions they are unable or unwilling to take." This is what happened with the money market mutual fund reform plan, which a majority of SEC commissioners voted against. "The FSOC has since tendered back to the SEC the rules it would not publish, demanding that the agency either adopt the rules or explain its refusal to do so."

"Banks are seeing a steep decline in profits from currency trading, as once-lucrative businesses are eroded by the rise of electronic trading and the proliferation of new platforms."

"Extension of FDIC Program [TAG] Gains Key Backer [Sen. Harry Reid] but Hurdles Loom [Republicans, including House Majority Leader Eric Cantor]."

New York Times

Intrade, the online "prediction market" that lets people bet on real-world events like the weather, election results, and the outcome of wars, suspended operations in the U.S. after the CFTC sued it. Apparently this was a priority for the agency that oversaw MF Global. The Dublin-based Intrade shouldn't have been selling its derivative-y contracts outside an official exchange without regulatory approval, the CFTC said. But who got hurt? We'll give the last word to a Times reader in the comment thread: "This is a classic regulatory capture situation. The Wall Street firms are using the regulatory agency to control competition."

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