Wednesday September 23 Housing and Economic stories

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More US Wealthy Opt to Surrender Their Citizenship - (www.wealth-bulletin.com) As offshore havens comply with transparency demands, a growing number of ultra-wealthy Americans are handing back their passports. Private client lawyers and relocation specialists are reporting a surge in wealthy Americans living abroad who are prepared to give up their citizenship to avoid the scrutiny of US tax authorities. Although such a move means they have to pay an exit tax, lawyers say this is a price people have become more willing to pay this year, now the fall in asset values has reduced the size of the imposition. Jay Krause, a partner at private-client specialist law firm Withers, said: “The number of inquiries from US citizens wanting to expatriate from their citizenship has increased rapidly in the last year.” The level of interest is set to increase following the tax disclosure deal between the US Government and UBS of Switzerland, involving the names of 5,000 alleged US tax evaders being handed over to the authorities. The UK concluded a tax deal with Liechtenstein last week. Because of this, many ultra-wealthy individuals who have chosen to become stateless now cruise outside coastal waters in their mega-yachts in the belief that if they stay on the move, tax authorities will not be able to catch up with them. One analyst who did not want to be named, has estimated the number of stateless tax evaders amounted to a few thousand. This implies the quantity of money outside the grasp of global tax authorities could be trillions of dollars. Under US tax laws, the worldwide income of any US citizen or resident is subject to tax. The US is the only country in the world that requires its citizens to stump up, no matter where they live. Krause said current economic conditions are making it more conducive for Americans to contemplate paying exit tax demands from the US Internal Revenue Service. “The mark-to-market provision in the Exit Tax from the IRS is a big incentive,” he said. In the final months of the Bush administration, the US Government introduced a package of tax reforms that included an amendment to the exit tax on US citizens and long-term green card holders who expatriate the US. The tax allows US citizens and permanent residents wanting to renounce citizenship or permanent residency to pay a one-off income tax on gains over $600,000 (€420,000). All assets beyond this amount are valued at mark-to-market. The exit tax allows a clean break from the US tax system from the date of expatriation without imposing the previous 10-year period after expatriation where tax rules used to apply – another big incentive, say lawyers. One of the other benefits of the amended exit tax is that a former US citizen who has expatriated will be able to travel to the US without his income becoming taxable. Under the previous exit tax this was not possible.

Priceless: How The Federal Reserve Bought The Economics Profession - (www.huffingtonpost.com) The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found. This dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed's thrall, the economists missed it, too. "The Fed has a lock on the economics world," says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. "There is no room for other views, which I guess is why economists got it so wrong." One critical way the Fed exerts control on academic economists is through its relationships with the field's gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll -- and the rest have been in the past. The Fed failed to see the housing bubble as it happened, insisting that the rise in housing prices was normal. In 2004, after "flipping" had become a term cops and janitors were using to describe the way to get rich in real estate, then-Federal Reserve Chairman Alan Greenspan said that "a national severe price distortion [is] most unlikely." A year later, current Chairman Ben Bernanke said that the boom "largely reflect strong economic fundamentals." The Fed also failed to sufficiently regulate major financial institutions, with Greenspan -- and the dominant economists -- believing that the banks would regulate themselves in their own self-interest. Despite all this, Bernanke has been nominated for a second term by President Obama. In the field of economics, the chairman remains a much-heralded figure, lauded for reaction to a crisis generated, in the first place, by the Fed itself. Congress is even considering legislation to greatly expand the powers of the Fed to systemically regulate the financial industry.

Another Wave of Foreclosure Looms - (www.washingtonpost.com) The housing market faces the prospect of a new round of foreclosures as hundreds of thousands of risky home loans known as option adjustable-rate mortgages reset to significantly higher payments that could force borrowers to fall behind, according to a report released Tuesday by Fitch Ratings. About 70 percent of the $189 billion in outstanding option ARMs will reset by 2011, the report said, which would be another setback to a teetering housing market still struggling to recover from the mortgage meltdown that precipitated the financial crisis. Option ARMs make up only 1.3 percent of percent of outstanding mortgages and were used by a far smaller segment of the population than subprime mortgages, according to First American CoreLogic, so the fallout from the resets should not be as devastating. But the unraveling of the option ARMs could be felt for years. "It does tell you there's going to be continued front-page news about high levels of foreclosures as these loans continue to struggle," said Paul Miller, an analyst at FBR Capital Markets. Option ARMs, also called pick-a-pay loans, allow borrowers to choose how much to pay each month. Nearly all the borrowers who took out this type of loan from 2004 to 2007 chose to pay less than the interest due. Sometimes they paid as little as 1 percent interest. But the loans eventually require the borrowers to start paying the principal and full interest rate, so the payments shoot up. "It's a ticking time bomb for some people," said Brian Bethune, an economist at IHS Global Insight, who said banks have already written off about $500 billion of these loans and other risky mortgages. Consequently, foreclosures have substantially reduced the number of outstanding option arms.

Guardian UK: What Exactly Did the Fed Do With $2 Trillion? - (www.guardian.co.uk) To combat the financial crisis set off by the collapse of the housing bubble, the Federal Reserve Board has lent out more than $2tn through various special lending facilities. While the Fed discloses aggregate information on the loans made through each of the facilities, it will not disclose how much money it lent to specific banks or under what terms. By contrast, the Treasury puts this information about its $700bn TARP bailout up on its website. Partly in response to this huge increase in the Fed's power (its secret lending is equal to two-thirds of the federal budget), more than 270 representatives in Congress have co-sponsored a bill that would have the Government Accountability Office audit the Fed. In principle, this audit would examine the Fed's loans and report back to the relevant congressional committees, which could decide to make this information public. Most people might consider it perfectly reasonable to have Congress's auditing arm review what the Fed has done with $2tn of the taxpayers' money to ensure that everything is proper. After all, we wouldn't let other government agencies spend one millionth of this amount ($2m) without some sort of record that could be verified. However, the Fed and its chairman Ben Bernanke, do not see it this way. Bernanke warned Congress last month that such an audit could jeopardise the Fed's independence, which in turn, "could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability". OK, Bernanke warned Congress that if the Fed had less independence, it could lead to "reduced economic and financial stability." We have just been through a year in which the Great Depression was a more frequent topic of conversation than the Superbowl, World Series, and Oscars combined. In fact, Bernanke is given credit for preventing another Great Depression. The Congressional Budget Office is now projecting that unemployment will average in the double digits throughout 2010 and it will not be until 2014 that the unemployment rate falls back to its normal level. Did Bernanke forget about the current state of the economy and the financial collapse that he was frantically trying to head off when he warned Congress that if the Fed were less independent, it could lead to "reduced economic and financial stability"? After all, how do you get less economic and financial stability than the Great Depression?

Civilian Patrols Grow as Recession Puts Citizens on Guard - (online.wsj.com) After parking her truck in this beachside town in July, local resident Pamela Miller says she was confronted by a man wearing a neon-lemon "Parking Enforcement" T-shirt. He accused her of parking illegally, called her "retarded," and, after she refused to move her truck, bumped her legs with his Ford Crown Victoria, she later told town officials. With the economic downturn, there's been a fresh boom across the country in volunteer cadres of citizens taking on some of the routine duties of short-staffed police departments. While a court will decide who did what to whom in the ticket dispute between the 39-year-old Ms. Miller and 70-year-old volunteer George Coleman, the standoff shows how civic involvement isn't always civil. While many communities appreciate the help, friction has surfaced in some locales, with residents using terms like "little Napoleon" and "gung-ho" to complain about the citizen patrollers and their tactics. Wareham's Crime Watch has grown quickly over the past year, adding a number of volunteers, opening its own storefront office and taking over the job of writing parking tickets from an overstretched police force that had let enforcement lapse. The tanned, gray-haired Mr. Coleman acknowledges over the cackle of a police scanner that the ramp-up hasn't been entirely smooth. "We got so doggone many enemies," he says, arguing that the 60-member Crime Watch he heads is simply too good at doing its job. This summer, its members wrote 600 $30 tickets, a huge jump from years past, nailing drivers for everything for staying too long in one spot to parking too far from the curb. "They cry, throw things at you and call you everything, thinking it will get them out of a ticket," he chuckles. "It does not." Citizens' patrols and their lower-key cousins, neighborhood watch groups, have grown rapidly this decade, fueled by big boosts in times of trouble. Their ranks swelled after the Sept. 11, 2001, terrorist attacks. Now, the deep recession is drawing in a new wave of recruits. The National Association of Citizens on Patrol, a Corona, Calif., nonprofit that promotes civilian volunteerism in law enforcement, says there are about 5,000 citizen patrol units working alongside police departments in the U.S., up 25% from 2008. "This is a sign of the economy," says Art Femister, the group's president. "The number of patrols is just going up and up and up." Police departments are actively recruiting volunteers. In addition, people are paying more attention to problems in their neighborhoods, according to the National Association of Town Watch, a Wynnewood, Pa., nonprofit promoter of citizen crime-prevention programs. Neighborhood watches, up 25% from 2008, are growing fast in areas of the country hit hard by foreclosures, says Chris Tutko, director of neighborhood watch for the National Sheriffs' Association. Orlando, Fla., for instance, saw about 100 neighborhood watch groups spring up in 2008, more than triple its 2007 start-ups, police there say. Appreciative police in the Phoenix neighborhood of Tomahawk Village say residents formed a neighborhood watch to keep an eye out for thieves stripping copper plumbing off foreclosed homes. Volunteers typically act as observers and call in the police if they witness anything suspicious. Still, their work can be dicey. Late one Saturday night in August, the regular police in Fruitland Park, Fla., encountered a man who "went off the deep end," tracking down and shooting at someone for giving drugs to his wife, says Police Chief Mark Isom. After a citizen patrol spotted and started trailing the suspect's minivan, the suspect hopped out with a rifle and fired twice at the volunteers.

OTHER STORIES:

U.S. Loses Top Competitive Ranking To Switzerland - (business.theatlantic.com)
China Alarmed by US Money Printing... - (www.telegraph.co.uk)
...To Issue Yuan-Denominated Bonds in Hong Kong - (www.nytimes.com)

Consumer Credit Suffers a Record Plunge - (www.bloomberg.com)
Video: Peter Schiff Predicts Gold to Break $2,000, $3,000 - (www.dailypaul.com)
First Solar to Build Huge Chinese Solar Plant - (www.reuters.com)
They Used to Say Whale Oil Was Indispensable, Too - (www.nytimes.com)

Fed Says Economy Stable or Improving in Most of U.S. - (www.bloomberg.com)

Mortgage applications jump 17% last week: MBA - (www.marketwatch.com)

Waiting for Deep Pockets to Open - (www.washingtonpost.com)

Bankruptcy filings up 22% in August vs. last year - (www.usatoday.com)

Defaults on Banks’ Commercial Mortgages Seen Rising Above 5% - (www.bloomberg.com)

Taxpayers face heavy losses on auto bailout - (www.usatoday.com)

Overspending on Debit Cards Is a Boon for Banks - (www.nytimes.com)

More mortgage servicers will be sued: Ohio attorney general - (www.reuters.com)

Barrick Gold plans to raise $3.5bn - (www.ft.com)

Finance Overhaul Falters as '08 Shock Fades - (online.wsj.com)

Sleep-At-Night-Money Lost in Lehman Lesson Missing $63 Billion - (www.bloomberg.com)