the daily column

A little diversion into economics

First: an observation on house prices being driven by land use regulations: Rethinking Urban growth boundaries:

A related unintended consequence of urban consolidation is that ‘densification’ has often ceased to occur at its historically natural locations nearer the urban core and has instead shifted further away into less efficient locations (i.e. far away from employment and amenities). The reason for this is that the price of land is forced up so much by the growth constraint that households are unable to afford the ‘premium’ price commanded by more efficient locations, and are forced to locate instead at ‘less unaffordable’ but also less efficient locations. Essentially, budgets are squeezed so much by high land prices that households are forced to trade-off both space (smaller homes) and location efficiency (i.e. live further out).

This is happening in Sydney; closer to the city or in the east, NIMBYism and high prices to begin with leave those suburbs close and most easily commutable as medium density at best, while further out in brownfield sites like Rhodes are getting high density developments. Rhodes makes little sense; transport is severely constrained by georgraphical limitations, and it’s still a 30 minute commute to the CBD, but it’s getting two 25 storey apartment towers that would never be approved in Potts Point or Paddington because it wouldn’t be “in keeping with the character of the area”.

And second, a question regarding ratings agencies that I’ve had on my mind since before the 2008 crash – who rates the ratings agencies?

The 2008 crash might have been thought to have dented the agencies’ credibility. Enron products were still getting investment-grade ratings four days before it went bust. Freddie Mac preferred stock was top-rated by Moody’s till mid-2008. Shortly before its bail-out by the Fed, the insurance giant AIG had entered into credit default swaps to insure $441 billion of AAA-rated securities on the London market. In the FCIC’s words, ‘the three credit rating agencies were key enablers of the financial meltdown’. Moody’s comes in for particular flak. In 2000-7, it rated nearly 45,000 securities as AAA. Eighty-three per cent of the securities given that rating in 2006 were ultimately downgraded.

Not that there’s any answers on that page, but I have no idea how S&P, Moody’s and Fitch have a fig-leaf of credibility remaining, but yet governments remain hooked to maintaining the highest credit rating possible from these three agencies that utterly failed in their role as independent advisors of risk. It’s insane, and yet the circus continues.

thinking too loud

Rememberance Day

On the 95th anniversary of the Armistice of “The Great War”, words composed early on in that grand folly are recalled:

They shall grow not old, as we that are left grow old:
Age shall not weary them, nor the years condemn.
At the going down of the sun and in the morning,
We will remember them

The resonance in these words is powerful, and though we continue to go to war, it is an increasingly civilian world that marks this anniversary for the sake of recalling those lost in war.

Let us hope that one day in the not too distant future this truly becomes an anachronism, and not a day on which more names are inscribed in the halls of the departed.