Monday July 21 Housing and Economic stories

Top Stories:

Here are government plans to put us back in the middle ages. Under the following proposals, some citizens could pay ~70% of earned income to Fed & State government. This is worse than the middle ages, and almost approaching slavery:
Obama Plans a Massive Hike in Social Security Taxes - Capital ... - (www.usnews.com) OBAMA’S DEFINITION OF A MILLIONAIRE AND BILLIONAIRE ARE THOSE MAKING $250k OR MORE. Per a speech by Obama in Columbus Ohio: Right now, the Social Security payroll tax is capped. That means most middle-class families pay this tax on every dime they make, while millionaires and billionaires are only paying it on a very small percentage of their income. That's why I think the best way forward is to adjust the cap on the payroll tax so that people like me pay a little bit more and people in need are protected. That way we can extend the promise of Social Security without shifting the burden onto seniors. And we should exempt anyone making under $250,000 from this increase so that the change doesn't burden middle-class Americans. This means that 97 percent of Americans will see absolutely no change in their taxes under my plan—97 percent.

Middle Ages Levels of Taxation for US Citizens Living in High Tax States under Barack Obama's Tax Plan – (www.heritage.com) – ******* Middle Ages Alert ****** Under Barack Obama, high earners living in high tax states like CA, NY, MD, etc. may be paying 70% of their income to Federal or State governments. This does not include property taxes, sales taxes or other fees. Under this plan, what is the incentive to work???? Plans to tax high earners at this high tax rate will reduce all incentive to work, start businesses, and will be de-motivational. It is pure socialism and puts the US in the top 5-6 countries of combined income taxes. Here is a breakdown of the 70% number:
- Top two tax rates would be increased to 36% and 39.6%
- Social Security payroll tax cap would be lifted for high income individuals. There would be no cap so individuals will pay a pure 15.65% to Social Security and may likely never see this money
- Proposals for State Income tax rate increases in CA from 9.3% to 11% for “wealthy” individuals. CA is using the term wealthy very liberally. These are not millionaires or billionaires. These are people making in the lower quarter of six-figure earners which isn’t that much based on housing, gas, and food prices.
- Combined, you are looking at 67% tax rate to pay the freaking idiots in our federal government and state government.

Democrats present plan to tax California's wealthy – (www.latimes.com) Denise Moreno is a complete moronic idiot. Here is her perspective: They noted that raising the tax paid by high earners from the current top rate of 9.3% of income to as much as 11% is exactly what the state did during the budget crisis of the mid-1990s, when Pete Wilson was governor. “These are really just rolling back tax cuts that have been made,” said Senate Budget Committee Chairwoman Denise Moreno Ducheny (D-San Diego).

Pelosi: Veterans' Bill Has Hidden Provision for Citizens Trying to Ex-Patriate to Get Taxed as if they were Liquidating all Assets. - (www.reuters.com) In hidden provision deep within the new Veteran’s Bill, the US government is trying to prevent US citizens from protecting their assets. Similar to when California tried to tax citizens for leaving the state due to high taxes, the Federal government is trying to do the same:
- The bill strengthens current law to ensure that high net-worth taxpayers cannot renounce their U.S. citizenship or terminate their U.S. residence in order to avoid U.S. taxes.
The bill would require that individuals that renounce their citizenship or terminate their long-term residency recognize income as if they had sold all of their assets on the date of expatriation. Such individuals will be required to pay taxes on income to the extent it exceeds $600,000.

So what are companies and individuals doing in California? They are leaving the state. There are many of these stories, and I will list more in the future:
Business - AAA call centers in California to close - (www.sacbee.com) - California State Automobile Association will close its California call centers - including its 500-employee Elk Grove facility - earlier than expected and send the jobs out of state, citing the cost to do business in California. AAA's Elk Grove site on West Taron Drive will close by the end of 2010, said spokeswoman Cynthia Harris. Last October, AAA officials had said they planned to close the facility by 2011. AAA's Livermore facility will close on Sept. 1. Its Irvine center will close in March 2009. In all, about 900 people work at the three centers. "It costs more to do business in California than other states," she continued, adding that increased demand for AAA's services and AAA's expanded geographic reach were also factors.

Businesses leaving California - (www.r21.org) About 40 percent said their companies have an explicit policy to move jobs elsewhere in the United States, with Texas cited as the most frequent destination. Not counting those companies that must stay in California, such as retailers or health care providers, the proportion of businesses that said their policy is to move jobs rose to 55 percent. Another group of executives, just under 20 percent of those interviewed, said their policy is to avoid adding jobs in California, except when absolutely necessary. Businesses are clamping down on California job growth because of high costs and a burdensome regulatory environment, Bain concluded. The cost of doing business in California is about 30 percent higher than in the average Western state, largely because of higher wages and benefits, according to the study. Bain also attempted to measure the cost, uncertainty and complexity of California's environmental, labor and other regulations. It constructed what it called a regulatory hassle index that took into account such factors as compliance costs, the threat of lawsuits and delays in obtaining permits that hamper operations. The index showed that "California is far worse than any other state in the union, by a very significant margin," said Jeff Melton, a partner in Bain's San Francisco office.

The Sacking of America - (www.financialsense.com) - Once the most powerful and productive economy in the world, the US, indebted by bankers and government spending beyond its ability to repay, is headed towards sovereign bankruptcy. The recent request by US Treasury Secretary—and more importantly former Chairman and CEO of investment bank Goldman Sachs— Henry Paulson to bail out Fannie Mae and Freddy Mac with US taxpayer dollars is but another indication of this destructive and parasitic relationship between bankers, government and the economy. That a private banker from a large Wall Street investment bank is also Secretary of the US Treasury is no coincidence. It is also no coincidence that once again, public monies from the US Treasury are being used to rescue private bankers and to indemnify their losses. Receiving taxpayer dollars from the US Treasury for their private benefit is not new to Goldman Sachs. In 1990s, when the Mexican government defaulted on its bonds, investors at Goldman Sachs’ stood to lose billions of dollars. They didn’t. Buried deep in the subsequent $40 billion US bailout of Mexico was a $4 billion payment to Goldman Sachs, gratis of the US Treasury indemnifying Goldman Sachs against any losses on their investment in Mexican bonds.

Phil Gramm's UBS Problem - (www.slate.com) - Luckily (for John McCain), Gramm has resigned from his campaign. The Texas senator and McCain adviser was supposed to keep the Swiss bank out of trouble, he's made a mess of it.
Former Texas Sen. Phil Gramm has emerged as the key behind-the-scenes economics/Wall Street guy for John McCain and is being touted as the treasury secretary in waiting. Since 2002, Gramm has been an executive with the U.S. operations of UBS, the giant Swiss Bank. An unintentionally hilarious interview with Gramm on the Wall Street Journal editorial page last week asserted that Gramm has "been a key instigator of some of the biggest money-making UBS deals of recent years." The interview was noteworthy not just for first-class butt-kissing, but for deliberately gliding over the avalanche of disasters in the past year that has turned UBS from a respected Swiss titan of discretion and risk management into a laughing stock. As this one-year chart shows, UBS's stock lost nearly 70 percent of its value and now stands at levels not seen since 2002, when Gramm signed up.

WaMu wary of IndyMac cashier's checks - (www.latimes.com) – I believe WaMu could go under during this 8 week wait: MacPhee said a WaMu manager told her that under a new corporate policy, the bank was not accepting IndyMac checks. If a customer insisted on depositing the check, it could be eight weeks or more before the full amount would be accessible, she said she was told.

Given a Shovel, Americans Digging Deeper Into Debt - (www.nytimes.com) Diane McLeod describes how she came to owe more than $280K. But right up until she hit the wall financially, Ms. McLeod was a dream customer for lenders. She juggled not one but two mortgages, both with interest rates that rose over time, and a car loan and high-cost credit card debt. Separated and living with her 20-year-old son, she worked two jobs so she could afford her small, two-bedroom ranch house in suburban Philadelphia, the Kia she drove to work, and the handbags and knickknacks she liked.
Ms. McLeod, who is 47, readily admits her money problems are largely of her own making. But as surely as it takes two to tango, she had partners in her financial demise. In recent years, those partners, including the financial giants Citigroup, Capital One and GE Capital, were collecting interest payments totaling more than 40 percent of her pretax income and thousands more in fees.

Mystery Surrounds Wells Fargo’s Earnings - (www.ml-implode.com) - WFC earnings announcement looks very suspicious and it looks like they have juiced their earnings. On April 1st, they changed when they recognize losses on HELOCs from being 120 days past due to being 180 days past due. In essence, their numbers don't include 2 months of HELOC losses.This story concerns their massive $84 BILLION Home Equity Line/Loan portfolio, of which much is now underwater due to massive house price depreciation. Technically (and realistically) these have become unsecured. This is a real problem for banks.

SEC Short-Sale Rule Gets Negative Reviews - (online.wsj.com) In a letter to Mr. Cox, the American Bankers Association, a trade group that represents the interests of 8,500 banks, said it fears short sellers will now focus on banks not covered by the new rules, many of which are already big targets of short sellers. "The emergency order could further exacerbate a loss of confidence in the safety and soundness of this country's banking industry," the ABA wrote, as it called for an expansion of the order to including stocks of banks and bank holding companies. The Financial Services Roundtable, an organization that represents 100 of the largest U.S. financial companies, also asked the SEC to extend the order. It wants to have all financial-services companies covered in the second week.

Is America too big to fail? - (www.iht.com) So it made for a strange spectacle last weekend as the current Bush administration, which does cast itself in the Reagan mold, hastily prepared a bailout package to offer the government-sponsored mortgage companies, Fannie Mae and Freddie Mac. The reasoning behind this rescue effort - like the reasoning behind the government-induced takeover of Bear Stearns by JPMorgan Chase just a month before - sounded no different from that offered in defense of many a bailout in Japan and Europe: The mortgage giants were too big to be allowed to fail. Big indeed. Together, Fannie and Freddie own or guarantee nearly half of the nation's $12 trillion worth of home mortgages. If they collapse, so may the whole system of finance for American housing, threatening a most unfortunate string of events: First, an already plummeting real estate market might crater. Then the banks that have sunk capital into American homes would slip deeper into trouble. And the virus might spread globally. The central banks of China and Japan are on the hook for hundreds of billions of dollars worth of Fannie's and Freddie's bonds - debts they took on assuming that the two companies enjoyed the backing of the American government, argues Brad Setser, an economist at the Council on Foreign Relations.

Suddenly Everyone Agrees With Ron Paul! - (www.campaignforliberty.com) A few months ago, everyone thought Ron Paul was an edge case. It seemed that Ron Paul was everywhere today, and that everyone was in agreement with him. Let’s start with Fed Chairman Bernanke: “Congressman, I couldn’t agree with you more that inflation is a tax, and that inflation is currently too high.” (Video here, quote at 5:10). CNBC anchor Larry Kudlow: “Oh, Mr. Paul! I heard [you accusing Fed Chairman Bernanke of being the biggest taxer in the country] this morning and I got so excited sir I just had to have you on! I’m so glad you’re around today. I say almost nightly that inflation is the cruelest tax of all.” (First video, 0:24)

Phoenix Area MLS Loses 20% Of It’s Members In June - (www.ml-implode.com) - The listing service Valley real-estate agents use to advertise homes for sale canceled more than 20 percent of its memberships this month after raising fees by about 70 percent in June.
"In July, we had to turn off 8,000 agents due to non-payment," said Bob Bemis, Arizona Regional Multiple Listing Service chief executive officer. Bemis said he was expecting about 4,500 agents to drop the service, which renews memberships annually on July 1, mainly because so many of them are leaving the business. "It’s been going on nationwide," Bemis said, adding that the real-estate industry expects to lose 150,000 agents this year across the country. Membership in the service went from about 36,000 in June to 28,000 in July, but Bemis said he expects about 3,000 of those former members to rejoin.

End of Illusions for GSEs - (www.ml-implode.com) - "This is the single best piece I have read to date on Fannie Mae and Freddie Mac via the Economist:"


Other Stories:

Peter Schiff on Charles Osgood's Sunday Morning: The Economic Crisis - (www.ml-implode.com) - Good segment.
US Mortgage Insurers' Troubles May Worsen - (www.researchrecap.com)
Concern grows over a fiscal crisis for U.S. - (www.sfgate.com)
FBI probing IndyMac for possible fraud - (www.reuters.com)
SEC Restricts Shorting 19 Financial Stocks - (Mish at globaleconomicanalysis.blogspot.com) Big brother has now decided to step in and force the price of all financial stocks up with this SEC short sale order. The U.S. Securities and Exchange Commission issued an emergency order on Tuesday placing restrictions on the short selling of shares of certain major financial firms. The SEC's order will require that anyone effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement. The order takes effect Monday, July 21, and will terminate at the end of July 29. The SEC said the order may be extended, but for no more than 30 calendar days in total duration. The agency identified the following securities affected by its order:
- BNP Paribas Securities Corp, Bank of America Corp, Barclays PLC, Citigroup Inc, Credit Suisse Group, Daiwa Securities Group Inc, Deutsche Bank Group AG, Allianz SE, Goldman Sachs Group Inc, Royal Bank ADS, HSBC Holdings Plc ADS, JPMorgan Chase & Co, Lehman Brothers Holdings Inc, Merrill Lynch & Co Inc, Mizuho Financial Group Inc, Morgan Stanley, UBS AG, Freddie Mac, Fannie Mae

Orange County house slump equals $411-a-day loss - (lansner.freedomblogging.com)
Panic isn't the problem for the banks - (money.cnn.com)
Bargain hunting up as Southern CA houses fall further - (www.latimes.com)
Wall Street's Great Deflation - (www.thenation.com)

Tossed To The Dogs? - (Mish at globaleconomicanalysis.blogspot.com) While pondering SEC Restricts Shorting 19 Financial Stocks I could not help but notice the financial institutions conspicuously absent from the ruling. Who Is Missing? Where is Washington Mutual (WM)? Wachovia (WB)? Were they tossed to the dogs? What about Corus Bank (CORS), Bank United (BKUNA), National City Corporation (NCC)? It is beyond all belief that naked short selling is affecting Goldman Sachs (GS) more than Washington Mutual, Wachovia, Corus Bank, Bank United, and National City Corporation. Is this a hint of the banks and brokers the Fed and SEC want to protect at all costs? Or is this some kind of setup play, an open invitation to short the others before the same stunt is pulled again. The only problem I have with the latter kind of thinking is that it gives these bureaucrats credit for thinking and executing a plan. Of course whatever it is they are doing is going to blow sky high anyway because that is the nature of all such market manipulations.
The US: the World’s Biggest Blue Light Special - (www.ml-implode.com) - "The blowback that I repeatedly warned about from the monetary loosening, and crony capitalist interventions has succeeded in tr...
Why No Outrage? - (www.ml-implode.com) - I have another theory, and that is that the old populists actually won. This is their financial system. They had demanded paper ...
"One of the Wildest Chapters in the History of Lending and Borrowing" - (www.ml-implode.com)
The Verdict - (www.ml-implode.com) – On a FoxNews video, Judge Andrew Napolitano says the gov. bailout of FRE and FNM is illegal!
At housing's bottom, many will be priced out - (msnbc.msn.com)
Fannie, Freddie spent $200M to buy influence - (www.politico.com)
Freddie Mac CEO made $20 million last year - (www.ml-implode.com) Dick Syron, Freddie Mac chairman and CEO took home nearly $20 million last year and can take home another $20 million this year reports the Associated Press. This for the man that has guided Freddie Mac’s stock to it’s lowest point since 1991 and presided over a $3 billion net loss for the company in 2007. Hey, let's be realistic. The man is being paid handsomely for being a political pincushion, not running a legitimate company. But still, this is yet another example of privatized gains and socialized losses.
Commercial bankruptcies soar, reflecting widening economic woes - (www.ml-implode.com)
Zillow And The Future of Real Estate Tools - (www.ml-implode.com)
Canada: A Sign Of Things To Come - (www.housingdoom.com) - Canadian real estate reporters have it easy these days. All they need to do is Google the "we won’t bust here" stories from the U.S., then insert their favorite northern city. The Canadian Real Estate Association announced this week the first drop in housing prices nationally in almost a decade, but characterized it as a one month blip that is not likely a sign of things to come.
Bailing Hard and Getting Soaked - (www.washingtonpost.com)
Don't Forget Government Failure - (www.cdobs.com)

Armed and Dangerous - (www.ml-implode.com) - At its heart Paulson's argument assumes the GSE's problems are simply a function of confidence. He believes that if the U.S. Treasury signals that it will stand behind both firms to the bitter end, then investors would have no reluctance in buying their bonds. But assuring that creditors will be repaid (albeit with cheaper dollars) does nothing to address the root cause of the problem, which is that both firms are losing money on their loan portfolios, and on the loans that they insure


GM's Pain Hits Retirees - (www.baltimoresun.com) Automaker drops health coverage for ex-workers 65 and older. When Charles Miller went to work at General Motors' Broening Highway plant in 1954, he was attracted to the company by its reputation for good salaries and stellar benefits. He stayed for 31 years. Since he retired from his job as a data processor in 1985, he has gotten health coverage from the automaker, which helped pay for his heart surgery last year. But now the 77-year-old Perry Hall resident and thousands of other white-collar GM retirees and their spouses or survivors, including hundreds in the Baltimore area, are losing that. The automaker, hemorrhaging sales in its core U.S. market, announced yesterday deep cuts and other actions to raise cash that would generate $15 billion in savings through 2009. Among the casualties: health benefits for salaried retirees 65 and older.85% of US Unhappy With Economy - (www.time.com)
Regional US banks in fears of cash calls - (www.ft.com) - US regional banks will draw scrutiny during earnings season this week amid fears that losses on home equity and residential construction loans may force some to raise fresh capital or put themselves up for sale in turbulent markets. Shares of regional lenders have come under heavy pressure on fears about the ability of smaller institutions to ride out the turmoil in the banking sector.
US food groups plan hefty price rises - (www.ft.com) US food companies are preparing another round of hefty price increases as soaring commodity costs force them to pass on rises to consumers

Credit seen drying up for small business - (www.reuters.com) As losses mount at American banks and the pain of the credit crisis spreads from housing and finance to the broader economy, many small companies complain it is increasingly difficult to obtain loans. Tighter credit could not only help to push the United States into recession, but prolong the downturn as ideas for new businesses get stymied once entrepreneurs sit down with local bank managers, small business representatives warn.

More bank results, housing data this week - (biz.yahoo.com/ap)
Uncomfortable Answers to Questions on the Economy - (www.nytimes.com) - You have heard that Fannie and Freddie, their gentle names notwithstanding, may cripple the financial system without a large infusion of taxpayer money. You have gleaned that jobs are disappearing, housing prices are plummeting, and paychecks are effectively shrinking as food and energy prices soar. You have noted the disturbing talk of crisis hovering over Wall Street. Something has clearly gone wrong with the economy. But how bad are things, really? And how bad might they get before better days return? Even to many economists who recently thought the gloom was overblown, the situation looks grim. The economy is in the midst of a very rough patch. The worst is probably still ahead.

Don't count on Fed bailout for plunging U.S. currency - (www.sfgate.com)
Borrowers and Bankers: A Great Divide - (www.nytimes.com)
Venture Financing Drops for Youngest Companies As Older Ones Suck Up More Cash - (www.nytimes.com)
Paulson `Very Optimistic' on Freddie, Fannie Rescue - (www.bloomberg.com)
US builders forced to sell off holdings - (www.ft.com)
Freddie and Fannie rescue package hopes grow - (www.ft.com) Richard Shelby, the Republican lawmaker, yesterday said that the US Treasury department's plan to rescue Fannie Mae and Freddie Mac could be approved by Congress within two weeks, in a sign that opposition to the proposal on Capitol Hill is waning. "The concept that the Treasury put forward is what we are working toward," Mr Shelby, the top Republican on the Senate banking committee, told the Financial Times in an interview. "I think it will move down [to the White House] before the break at the end of the month."

Citigroup Posts $2.5 Billion Loss on Write-Downs - (www.nytimes.com)
Soaring food prices felt around the globe - (www.sfgate.com)