KeNo's Housing and Economic Portal: Friday September 18 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

IRS to Mine Payment Data on Mortgages - (online.wsj.com) The Internal Revenue Service will expand a program designed to catch tax cheats that searches for inconsistencies between mortgage payments and income. After prompting from an IRS auditor, the agency will study whether it should make greater use of data on mortgage-interest payments provided to it by banks. The IRS currently uses such data to send notices to non-filers who it believes should have filed a return. The data could also be used to target for audits individuals who don't file tax returns, or who report less income than they paid in mortgage interest, according to a letter released Monday by the Treasury inspector general for tax administration. The IRS move will expand a regional research project on mortgage interest to a nationwide level by December 2011. Such initiatives, called Compliance Initiative Projects, typically involve examination of a small number of tax returns to evaluate new enforcement strategies. Howard Levy, a tax attorney with the Cincinnati firm Voorhees Levy, said mortgage-interest data might be the best source of information the IRS has on small-business owners, such as roofers or carpenters, who are paid in cash and don't report all their income to the IRS. "That [IRS Form] 1098 might be one of the few trails IRS could pursue to find out if there is income coming in," Mr. Levy said. One Republican lawmaker cautioned Monday that the IRS plan could snare taxpayers who have coped with job losses by borrowing or using savings or retirement accounts to make their house payments. "We shouldn't presume that these struggling families are tax cheats just because they continue to make their mortgage payments despite losing their income," said Rep. Charles Boustany (R., La.), the ranking minority member on the House Oversight Subcommittee. Highly paid former employees of investment banks who lost their jobs in the financial crisis but who, thanks to their savings, are still making their mortgage payments, could also draw scrutiny under the IRS plan, said Tom Ochsenschlager, vice-president for taxation at the American Institute of Certified Public Accountants. The Treasury inspector general said in a Monday report that tens of thousands of homeowners who paid more than $20,000 in mortgage interest in 2005 either didn't file a tax return or reported income that appears insufficient to cover their mortgage interest and basic living expenses. The data for 2005 was the latest tax data available when the Treasury inspector general's office began its audit last year.

Recession shakes Vegas' foundation - (www.latimes.com) Construction slows, tourism plummets, discounts pervade. Can the city keep believing that if it builds, visitors will come? The Currans of Granada Hills have been taking family vacations on the Las Vegas Strip for years. They weren't about to pass it up just because Jeff Curran's business selling upscale cookware is down sharply. But this summer it would be a smart Vegas vacation. A year ago they plunked down $100 each for tickets to the Blue Man Group show at the Venetian. This year, the family of four -- Jeff, 59, his wife, Michele, 55, and their adult son and daughter -- took in the Mac King Comedy Magic Show at Harrah's with tickets discounted to $10 apiece. Jeff used to spend up to $500 at the blackjack tables; his new limit was $150 -- on the penny and quarter slot machines. "I've never seen the penny slots so crowded," Michele remarked in July as the family jaunt was drawing to a close. The Strip's business model for the 21st century, which was to tap into an ever-expanding supply of free-spending visitors clamoring for first-class hotel rooms, four-star restaurant fare and high-priced shows, has been shattered by its worst recession in decades. Vegas' ability to weather previous declines made it seem recession-proof. No longer. The carnage left by the economic downturn that began last year is unlike anything this town has seen. Tourism is down for the second year in a row, and the people who come aren't spending with the abandon of the past. Last year Jeff Curran gave his son and daughter virtually free rein on the casino floor; this year their daily limit was $25 each. In 2007, the peak year, 39.2 million people visited. Last year 37.5 million visitors came to town. Tourism officials say convention business is down about 27% from a year ago. If current trends continue, Vegas may barely break 35 million visits this year, the lowest level since 1999. Even if the slump eases, its effect will be felt well into the future. The Strip -- the roughly four miles of Las Vegas Boulevard that churns out more than half the gambling revenue in Nevada -- is reassessing its habits of spending lavishly on new construction and of targeting the wealthiest or most spendthrift customers. Room rates on the Strip are so steeply discounted that the top resorts will put you up today for the same price that downscale hotels charged two years ago. At the Encore, which Vegas impresario Steve Wynn opened in December as an extension of his luxe Wynn resort, some customers were offered two-night stays this summer for $99. For some nights this fall, promotional rates as low as $90 are being offered at Bellagio, a premier Strip hotel where rooms customarily can reach $500 or more. Some of the city's top gourmet restaurants have offered half portions for (not quite) half price during slow times of the day. Cirque du Soleil, the acrobatics juggernaut that dominates the Strip with six shows, has done something that veteran Vegas watchers find more mind-blowing than anything it presents onstage: It's knocking as much as 40% off ticket packages for two.

Financial crisis has deep roots in academia - (www.latimes.com) Exotic mathematical models were devised by those who had no practical knowledge of the markets yet decided they knew better than the traders how markets operated, author Pablo Triana writes. Should the Nobel Prize for economics be abolished? That is one of the suggestions in Pablo Triana's provocative book "Lecturing Birds on Flying: Can Mathematical Theories Destroy the Markets?" Triana, formerly a derivatives trader and academic at the University of Madrid, makes a simple assertion. Financial models, such as value at risk and the famous Black-Scholes-Merton model, which won its founders a Nobel, have done more harm than good. "Make no mistake, quantitative finance had a very large hand in what could well be the worst financial crisis in the history of mankind," he writes. Triana's book is a critique bordering on an assault on mathematical, or quantitative, finance. From the opening chapter, "Playing God," Triana maintains that the fundamental assumptions on which mathematical finance theory are based are wrong. Yet the theory continues to hold sway. And the biggest villain of the piece is the financial academic establishment. Much of its work, he says, has been unnecessary. Before mathematical finance, traders had working models for things such as option pricing. By and large, these models were effective and accurate. Then came the Black-Scholes-Merton model, which Triana says does not work and was also largely responsible for the 1987 stock market crash. What is more, he maintains, most traders know it does not work and only pretend to use it because finance theory is fashionable and criticizing the model is a heresy. This is not the only case. The Gaussian copula model, which was intended to measure default probability, failed to identify toxic structured securities and led to massive errors in valuation and credit ratings, Triana says. Likewise, the value at risk model "failed to measure risks even half-accurately and, worse, decisively encouraged and sanctioned the wild risk-taking that brought Wall Street (and consequently the world) down." Old-fashioned common-sense methods were replaced by theoretical models based on math, developed by people who had no practical knowledge of markets yet decided they knew better than the traders how markets operated. Hence the book's "lecturing birds on flying" title. And, he says, everyone falls for this -- including the traders themselves. Finance academics continue "churning out quantitative hodgepodge" and Wall Street and others continue to use it. Triana devotes a chapter to the "quants," the mathematicians and physicists who became influential in many big finance houses and imported quantitative academic models with them. For a time, employing quants was trendy: It showed the firm was using science to beat the market. But the market had its revenge. "Markets can't be tamed with equations," Triana writes. "Maverick, unlawful human action rules the markets, unexpected and unimaginable monstrous events shape the markets." But in the end, he wonders whether people will ever come to terms with this. In one chapter, "An Unhealthy Yearning for Precision," Triana writes that our "fear of the unknown and our desire for certainty lead us to throw ourselves into the arms of perceived 'experts.' . . . We trust quantitatively flavored constructs to escort us away from the gloomy reality of unmeasurable uncertainty."

Obama is fast losing white voters' support - (www.latimes.com) After a summer of healthcare battles and sliding approval ratings for President Obama, the White House is facing a troubling new trend: The voters losing faith in the president are the ones he had worked hardest to attract. New surveys show steep declines in Obama's approval ratings among whites -- including Democrats and independents -- who were crucial elements of the diverse coalition that helped elect the country's first black president. Among white Democrats, Obama’s job approval rating has dropped 11 points since his 100-days mark in April, according to surveys by the Pew Research Center for the People and the Press. It has dropped by 9 points among white independents and whites over 50, and by 12 points among white women -- all groups that will be targeted by both parties in next year's midterm elections. "While Obama has a lock on African Americans, his support among white voters seems to be almost in a free fall," said veteran Republican pollster Neil Newhouse. Strategists in both parties blame Obama's decline on growing discontent with his policy agenda, particularly after a month of often-rowdy debate over his proposed healthcare overhaul, in which some conservatives accused him of socialism. Obama's ratings seem likely to rise again if he wins passage of healthcare legislation this fall. But the drop in support among whites also comes as some conservatives have stoked controversies that have the potential to further erode Obama's standing among centrists -- including some controversies that resulted from White House stumbles. One such episode came to a head Sunday when Van Jones, Obama’s green jobs czar, resigned after a week of criticism over past inflammatory statements and for signing onto conspiracy theories questioning whether the U.S. government played a role in the Sept. 11 attacks. A White House official acknowledged Sunday that Jones had been vetted less rigorously than other officials. In another episode, some conservatives have criticized a White House dinner invitation issued to the lead lawyer in the American Civil Liberties Union lawsuits that have forced the government to disclose Bush-era interrogation techniques. The lawyer was invited to an event for the Muslim holiday of Ramadan. And Obama's plan to address the nation's schoolchildren Tuesday has prompted an outcry among some conservative parents and GOP officials. Some of them have accused the White House of trying to infuse "socialism" into the minds of young people. These controversies have followed conspiracy theories that the president was born overseas and is ineligible to hold office, and that his true religion is Islam -- false rumors that some Democrats worry could be affecting the public's view of the president and his party. Pew first identified a slippage in white support immediately after a news conference in July, when Obama surprised many by saying that a white police officer had acted "stupidly" in arresting a black Harvard professor. Still unclear is whether Obama's slide in the polls is due solely to his policies, or questions about his personal background or allegiances. During the presidential campaign last fall, the nation's economic meltdown swamped any attempts by Republicans to portray Obama as having radical associations with figures such as his former pastor, the Rev. Jeremiah A. Wright Jr. Some conservatives, such as Fox's Glenn Beck and Sean Hannity, have argued that Jones, an outspoken Bay Area black activist who once described himself as a communist, fit the same pattern. One black congressman, Rep. Charles B. Rangel (D-N.Y.), was quoted last week alleging that opposition to Obama's healthcare policies was "a bias, a prejudice, an emotional feeling." "Some Americans have not gotten over the fact that Obama is president of the United States. They go to sleep wondering, 'How did this happen?' " Rangel said, according to the New York Post. Democratic pollster David Beattie conducted a survey last month in one competitive congressional district that found that more than a quarter of independents believed Obama had not proven his natural-born status. The same sentiment was expressed by nearly 6 in 10 Republican women -- a group that Beattie said would be important for a Democratic victory.

Natural Gas Hits a Roadblock in New Energy Bill - (www.nytimes.com) The natural gas industry has enjoyed something of a winning streak in recent years. It found gigantic new reserves, low prices are encouraging utilities to substitute gas for coal, and cities are switching to buses fueled by natural gas. But its luck has run out in Washington, where the industry is having trouble making its case to Congress as it writes an energy bill to tackle global warming. For all its pronouncements that gas could be used to replace aging, inefficient coal-fired power plants — and reduce greenhouse gas emissions in the process — lawmakers from coal-producing states appear committed to keeping coal as the nation’s primary producer of power. Those influential lawmakers, from both parties, say that new technologies under development to capture and bury emissions of coal are a better bet than gas for long-term solutions to climate change. The difference of opinion is about more than what is best for the environment, of course. Industry profits are riding on the outcome of the discussion — a rich mix of politics, environment, science and business. A climate-change bill that passed the House in June, intended to cap greenhouse gas emissions, delivered benefits to renewable fuels like wind and solar and strengthened building codes to conserve energy. But the cost of emitting carbon dioxide emissions under the terms of the bill remained at levels that would continue to provide a price advantage for coal in many regions of the country. The Senate is planning to begin writing its own bill later this month. “The Senate is more open to natural gas as a transition fuel than the House was,” said Senator Charles E. Schumer, Democrat of New York, “but the senators from the coal states who are crucial votes are going to want first consideration for coal.” The gas industry’s leaders say they will descend on Capitol Hill in coming weeks to press their case about the advantage of gas, including that it emits about half the greenhouse gases as coal. The industry has formed a new lobbying group, and it is planning a national campaign that includes television advertising. Executives want fewer allowances for coal. They also want legislation that gives incentives for companies to convert truck fleets from diesel to natural gas. “Never in my life have I been confronted with something so obviously easy and good to do and have such Congressional apathy,” said Aubrey McClendon, chief executive of Chesapeake Energy and a leading voice in the industry. He added that he was still hopeful the Senate can improve the House bill.