KeNo's Housing and Economic Portal: Tuesday May 11 Housing and Economic stories

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Obama suggests value-added tax may be an option - (www.news.yahoo.com/s/ap) President Barack Obama suggested Wednesday that a new value-added tax on Americans is still on the table, seeming to show more openness to the idea than his aides have expressed in recent days. Before deciding what revenue options are best for dealing with the deficit and the economy, Obama said in an interview with CNBC, "I want to get a better picture of what our options are." After Obama adviser Paul Volcker recently raised the prospect of a value-added tax, or VAT, the Senate voted 85-13 last week for a nonbinding "sense of the Senate" resolution that calls the such a tax "a massive tax increase that will cripple families on fixed income and only further push back America's economic recovery." For days, White House spokesmen have said the president has not proposed and is not considering a VAT. "I think I directly answered this the other day by saying that it wasn't something that the president had under consideration," White House press secretary Robert Gibbs told reporters shortly before Obama spoke with CNBC. After the interview, White House deputy communications director Jen Psaki said nothing has changed and the White House is "not considering" a VAT.

Thousands of protesters at Illinois Capitol to press for tax increase - (www.chicagotribune.com) Thousands of protesters bused down by labor unions and social service advocates rallied at the Capitol today in an attempt to pressure state lawmakers into raising the income tax to avoid more budget cuts. A spokesman for Illinois Secretary of State Jesse White estimated the rally crowd at 15,000, with more than 12,000 marching around the building. That would appear to make it the largest Capitol protest since the Equal Rights Amendment crowds a quarter-century ago. Bus after bus pulled up on streets surrounding the Capitol complex and dumped sign-waving protesters clad in purple, green, red and blue shirts that represented a show of strength from a variety of public employee unions and dozens of groups that formed what they named the “Responsible Budget Coalition.” "Raise my taxes! Raise my taxes! Raise my taxes!" they chanted, lined up shoulder to shoulder for a few hundred yards stretching a street in front of the Capitol.

The Busted Homes Behind a Big Bet - (online.wsj.com) The government's civil-fraud allegation against Goldman SachsGroup Inc. centers on a deal the firm crafted so that hedge-fund king John Paulson could bet on a collapse in U.S. housing prices. It was a dizzyingly complex transaction, involving 90 bonds and a 65-page deal sheet. But it all boiled down to whether people like Stella Onyeukwu, Gheorghe Bledea and Jack Booket could pay their mortgages. They couldn't, and Mr. Paulson made $1 billion as a result. Mr. Booket, a 44-year-old heating and air-conditioning repairman, owed $300,000 on his three-bedroom home in Aberdeen Township. His house was one of thousands that wound up in a pool of mortgages that were referenced in the so-called collateralized debt obligation, or CDO, which Goldman created for Mr. Paulson. The hedge-fund manager invested heavily in a form of insurance that could yield huge gains if the borrowers grew unable to pay. In 2006, Mr. Booket got hit by a car while riding a motorcycle from a late-night party, was unable to find much work and couldn't pay the bank. In October 2008, he lost the house to foreclosure and plans to move out by next week. One mortgage in the Abacus pool was held by Ms. Onyeukwu, a 43-year-old nursing-home assistant in Pittsburg, Calif. Ms. Onyeukwu already was under financial strain in 2006, when she applied to Fremont Investment & Loan for a new mortgage on her two-story, six-bedroom house in a subdivision called Highlands Ranch. With pre-tax income of about $9,000 a month from a child-care business, she says she was having a hard time making the $5,000 monthly payments on her existing $688,000 mortgage, which carried an initial interest rate of 9.05%. Nonetheless, she took out an even bigger loan from Fremont, which lent her $786,250 at an initial interest rate of 7.55%—but that would begin to float as high as 13.55% two years later. She says the monthly payment on the new loan came to a bit more than $5,000. She defaulted in early 2008 and was evicted from the house in early 2009. Fremont didn't respond to requests for comment.

NJ voters in 'no' mood for school tax hikes - (www.app.com) With record-breaking turnouts for a school board election, tax levy proposals in Monmouth and Ocean counties mostly went down in flames on Tuesday, as a backlash against school spending won the day. Less than 30 percent of the Monmouth districts saw their budget questions approved, according to unofficial results, the lowest in at least a decade. In Ocean County, the passage rate was 39 percent, with 11 budgets approved and 17 defeated. The voter turnout in each county was approximately 24 percent of registered voters. For comparison, the statewide turnout in the school vote was 13.4 percent a year ago. No statewide turnout has topped 18.6 percent in the 27 years of records compiled by the New Jersey School Boards Association. The march to the polls came in the wake of a contentious dialogue between Gov. Chris Christie and the leaders of the state's teachers union, which fought Christie after he rolled out a proposal to cut $820 million from local education. The cuts left school districts juggling the options of layoffs, tax increases or program cuts. Residents finally got their chance to weigh in. They mostly said they wanted no part of tax increases. For the defeated budgets, more cuts of programs or personnel, or both, may be required, with rejected spending plans being sent to a town's governing body for review and possible changes.

Regional Banks Bemoan Lack of Lending - (online.wsj.com) For large regional banks, the bread-and-butter business of lending remains challenging. The loan books at a string of regional banks reporting first-quarter results continued to shrink. The banks' earnings from the lending business hardly fared any better. Bankers continue to bemoan the lack of what they consider credit-worthy borrowers taking out loans that would lift lending income and brighten the revenue outlook for future quarters. Borrowers aren't even doing much to tap their existing lines of credit. The enervated condition of regional banks, and their resulting lackluster earnings, stand in contrast to the buoyant profits earned by big banks. But for companies such as J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc., those profits were powered by their Wall Street operations, which the regional banks largely lack. The irony for regional banks is that their loans are drying up just as the potential profit from lending is high, mainly because banks can borrow cheaply. Customers placed more money in deposit and savings accounts in the first quarter, and banks paid less interest on those deposits, improving the profit margins of regional banks' lending business. The cost for troubled loans, meanwhile, fell, requiring banks to put less money aside to cover losses from delinquent loans— though losses from commercial real estate remain a headache.

Greece's Credit Ratings Are Cut by Moody’s - (www.bloomberg.com) Greece had its credit rating cut one step by Moody’s Investors Service as the government’s surging debt-servicing costs undermine deficit-cutting efforts. Moody’s lowered the rating to A3 from A2, four grades above junk, the company said in a statement today. Moody’s also put a negative outlook on Greek debt, indicating it’s more likely to cut it again than raise it or leave it unchanged. Greek bonds plunged today after the European Union said the nation’s 2009 budget deficit was larger than previously forecast and investors grew concerned the government will cut or delay debt-cutting efforts. Greece yesterday entered talks with officials from the euro region and the International Monetary Fund on a 45 billion-euro ($60 billion) aid package. “The decision was really an acknowledgement of the considerably more difficult environment that Greece faces in achieving the targets it set out,” Sarah Carlson, the lead Moody’s analyst on Greece, said in an telephone interview. “Because of the more difficult economic and financial environment, there are more considerable headwinds.”