KeNo's Housing and Economic Portal: Thursday September 10 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Price deflation will bump California income taxes up - (www.sacbee.com) The Legislature raised California's income taxes in February. Now, the phenomenon known as price deflation will nudge them yet a little higher. Because of deflation, which occurs when consumer prices fall, California's six tax brackets now kick in at slightly lower income levels, according to new rates posted Thursday by the Franchise Tax Board. It's the first time that's happened since 1983, according to the tax agency. The change will translate into more money for the treasury when Californians pay their taxes next spring. Perry Ghilarducci, a Sacramento accountant, called that "a horrible result" for taxpayers. But Brenda Voet, a spokeswoman for the Franchise Tax Board, called it a fair outcome at a time when consumer buying power is actually rising. "Your dollar is worth more now," she said. In any event, experts said the bracket math won't be particularly costly to most Californians, and likely will have less impact than the higher taxes imposed by the Legislature in February as part of its effort to eliminate the budget deficit. The income tax brackets, under the terms of a 1982 voter initiative, are indexed to the California Consumer Price Index. The idea is to prevent residents from paying higher taxes merely because they received cost-of-living raises. When prices go up, as they almost always do, the brackets go up as well, keeping a lid on taxes. But the system works in reverse, too. The California CPI fell 1.5 percent in the 12 months ending in June, the period used by the Franchise Tax Board to calculate the brackets. That means the brackets have fallen 1.5 percent. Californians who have seen their incomes reduced by pay cuts, furloughs and layoffs probably won't see a big tax increase because of the bracket changes, however. Their taxes are likely going down, not up. "Their tax bill is going to go down a little bit less than they might have anticipated," said economist Jeff Michael of the University of the Pacific. Of far greater consequence, Michael said, are the higher taxes enacted by the Legislature in February. Everyone's rates are going up 0.25 percentage points for two years. The Legislature also slashed the dependent credit from $309 to $98 in February. That will mean considerably higher taxes for those with lots of dependents, Michael said. The tax news for consumers isn't all bad, however. Deflation in home values means that millions of Californians may pay lower property taxes next year. The state Board of Equalization is weighing a ruling that potentially could mean mild property tax relief for most property owners in California next year if consumer prices remain low. Although property taxes are collected by counties, the board sets the guidelines.

Toyota to Close Union Plant in California - (www.nytimes.com) Toyota’s directors voted Thursday to close the company’s only unionized plant in the United States, a joint venture with General Motors in California that G.M. abandoned as part of its recent bankruptcy. The plant, in Fremont, Calif., employs 4,700 people and is the country’s only remaining auto plant west of San Antonio. It opened in 1984 as a way for Toyota to experiment with building cars in North America and for G.M. to learn more efficient production techniques from Japan. It will become Toyota’s first experience with closing a plant in the United States. Production will end by March. Atsushi Niimi, a Toyota executive vice president for North America, said in a statement that officials “deeply regret having to take this action” but that “over the mid- to long-term, it just would not be economically viable” to maintain the plant. The United Automobile Workers union, which represents the plant’s hourly workers, called the decision “illogical” and “devastating.” The U.A.W.’s president, Ron Gettelfinger, said he understood the need to reduce capacity, but he was more critical of Toyota’s decision than of other recent cuts by the Detroit automakers. The Toyota workers “deserve better than to be abandoned by this company, which has profited so richly from their labor, their productivity and their commitment to quality,” Mr. Gettelfinger said in a statement. “It’s unfortunate the company chose to close a U.S. facility after benefiting so greatly from the federal cash-for-clunkers program.” Toyota builds the Corolla compact sedan and a pickup truck, the Tacoma, at the plant, which is known as New United Motors Manufacturing, or Nummi. The Corolla was the most popular vehicle in the “clunkers” program, which ended this week. Toyota had to bring more workers into Nummi to keep up with demand. Toyota said it planned to import the Corolla from Canada and Japan, and it would shift production of the Tacoma to its underutilized truck plant in Texas. G.M. discontinued the Pontiac Vibe, a small crossover vehicle built at Nummi, last week. In June, G.M. said its half of the Nummi venture would not be part of the reorganized company, forcing Toyota to determine the plant’s future. Mr. Gettelfinger did not mention G.M.’s decision in his statement. The move opened the door for Toyota to also leave the venture at a time when it has been hit hard by the global slump in auto sales. Without G.M. acting first, company insiders have said Toyota likely would not have taken the political risk of shutting a union-represented plant.

Banks 'Too Big to Fail' Have Grown Even Bigger - (www.washingtonpost.com) Behemoths Born of the Bailout Reduce Consumer Choice, Tempt Corporate Moral Hazard. When the credit crisis struck last year, federal regulators pumped tens of billions of dollars into the nation's leading financial institutions because the banks were so big that officials feared their failure would ruin the entire financial system. Today, the biggest of those banks are even bigger. The crisis may be turning out very well for many of the behemoths that dominate U.S. finance. A series of federally arranged mergers safely landed troubled banks on the decks of more stable firms. And it allowed the survivors to emerge from the turmoil with strengthened market positions, giving them even greater control over consumer lending and more potential to profit. J.P. Morgan Chase, an amalgam of some of Wall Street's most storied institutions, now holds more than $1 of every $10 on deposit in this country. So does Bank of America, scarred by its acquisition of Merrill Lynch and partly government-owned as a result of the crisis, as does Wells Fargo, the biggest West Coast bank. Those three banks, plus government-rescued and -owned Citigroup, now issue one of every two mortgages and about two of every three credit cards, federal data show. A year after the near-collapse of the financial system last September, the federal response has redefined how Americans get mortgages, student loans and other kinds of credit and has made a national spectacle of executive pay. But no consequence of the crisis alarms top regulators more than having banks that were already too big to fail grow even larger and more interconnected. "It is at the top of the list of things that need to be fixed," said Sheila C. Bair, chairman of the Federal Deposit Insurance Corp. "It fed the crisis, and it has gotten worse because of the crisis." Regulators' concerns are twofold: that consumers will wind up with fewer choices for services and that big banks will assume they always have the government's backing if things go wrong. That presumed guarantee means large companies could return to the risky behavior that led to the crisis if they figure federal officials will clean up their mess. This problem, known as "moral hazard," is partly why government officials are keeping a tight rein on bailed-out banks -- monitoring executive pay, reviewing sales of major divisions -- and it is driving the Obama administration's efforts to create a new regulatory system to prevent another crisis. That plan would impose higher capital standards on large institutions and empower the government to take over a wide range of troubled financial firms to wind down their businesses in an orderly way.

‘Blood Oath’ Sealed Stanford Deal, Court Is Told - (www.nytimes.com) R. Allen Stanford’s relationship with the chief regulator of his Antigua bank was closer than most. At a meeting in 2003, they became blood brothers, cutting their wrists and mixing their blood in a “brotherhood ceremony” that Mr. Stanford’s chief financial officer said promoted an elaborate scheme to hide a multibillion-dollar fraud from American and other regulators. The assertion that the two took a “blood oath” was laid out in a plea agreement signed by the officer, James M. Davis, and filed Thursday. After the pact, Leroy King, Antigua’s chief banking supervisor, called Mr. Stanford “Big Brother.” He received Super Bowl tickets, valued at thousands of dollars, for himself and his girlfriend. And he accepted regular bribe payments from a secret Swiss bank account that Mr. Davis said he was told to handle by Mr. Stanford. The unusual twist to the case, in which Mr. Stanford is accused of operating a multibillion-dollar Ponzi scheme

, was disclosed by Mr. Davis as he pleaded guilty on Thursday to fraud and conspiracy in Federal District Court in Houston. Mr. Davis, who oversaw the movement of vast sums of money at Stanford International Bank, also said in a plea agreement that Mr. Stanford ordered him to report false revenue and false investment portfolio balances to banking regulators as far back as 1988, when Mr. Stanford ran an offshore bank on the Caribbean island of Montserrat. “I did wrong. I’m sorry. I apologize. And I take responsibility for my actions,” Mr. Davis said after the hearing. Mr. Stanford was also supposed to appear in court on Thursday, but he was hospitalized in the morning after his pulse rate soared, his lawyer said. While he has repeatedly denied accusations that he ran a Ponzi scheme involving certificates of deposit issued by Stanford International Bank, he has also insisted that if anything illegal did happen, it must have been Mr. Davis’s fault. Mr. Davis, who had been a friend of Mr. Stanford’s since they were roommates at Baylor University in Waco, Tex., started his own church in Mississippi and led prayers before bank business meetings. His lawyer, David Finn, said Mr. Davis was now working on a family farm in Michigan doing manual labor for $10 an hour as an expression of penance. He now faces up to 30 years in prison. “He had a very heavy heart,” Mr. Finn said. “He was very contrite, and not all of my clients are.” The plea agreement and a court presentation on Thursday by prosecutors repeated many facts that were outlined in June in an indictment of Mr. Stanford, several Stanford aides and Mr. King. Mr. Stanford and others are accused of defrauding 30,000 investors of $7 billion, filing false reports to regulators and investors, diverting more than $1.6 billion into undisclosed personal loans to Mr. Stanford, and conspiring to obstruct an investigation by the Securities and Exchange Commission.