KeNo's Housing and Economic Portal: Wednesday June 16 Housing and Economic stories

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Democrats call for new oil tax, borrowing from Wall Street, raiding pop bottle revenues - (www.latimes.com) State Assembly Speaker John A. Perez on Tuesday outlined an alternative path to balancing California's budget that would raise oil taxes, delay corporate tax breaks and borrow billions from the nickel-and-dime deposits consumers make on recyclable bottles -- and would not require any Republican support. At the heart of the proposal is the idea of raiding the state's bottle deposits for the next 20 years and then getting an $8.7-billion loan from Wall Street. The programs currently funded by bottle deposits would be reimbursed by a new tax on oil production. Perez (D-Los Angeles) called his budget plan a "unique and creative approach." A spokesman for Gov. Arnold Schwarzenegger called it "legal gymnastics." Under his plan, the speaker would cast aside almost all the budget cuts Schwarzenegger proposed earlier this month. The state would use the borrowed money from the bottle deposits to fund programs this year. To pay back the loan in the future years, the state would then levy a nearly 10% oil severance tax. Got all that? Good. There's going to be a quiz at the end of this blog post. Perhaps the key feature to his plan, according to Perez's office: Democratic lawmakers could bypass their GOP colleagues, whose votes are typically required to raise taxes, in approving the proposal. How? A convoluted mechanism that would swap existing state sales taxes for local sales taxes in order to skirt state law that requires a two-thirds vote of the Legislature to raise taxes. Consumers would pay the same on taxable purchases. The governor's office immediately dismissed the idea.

Banks Trim Debt, Obscuring Risks - (online.wsj.com) Three big banks—Bank of America Corp., Deutsche Bank AG and Citigroup Inc.—are among the most active at temporarily shedding debt just before reporting their finances to the public, a Wall Street Journal analysis shows. The practice, known as end-of-quarter "window dressing" on Wall Street, suggests that the banks are carrying more risk most of the time than their investors or customers can easily see. This activity has accelerated since 2008, when the financial crisis brought actions like these under greater scrutiny, according to the analysis. The Journal reported last month that 18 large banks, as a group, had routinely reduced their short-term borrowings in this way. The new analysis looks at individual banks. Over the past 10 quarters, the three banks have lowered their net borrowings in the "repurchase," or repo, market by an average of 41% at the ends of the quarters, compared with their average net repo borrowings for the entire quarter, according to an analysis of Federal Reserve data. Once a new quarter begins, they boost those levels. The banks' overall "leverage"—that is, their use of borrowed funds to boost returns—frequently has declined at the end of quarterly periods as well, the analysis shows. The data suggest "conscious balance-sheet management," said Robert Willens, an accounting specialist who heads Robert Willens LLC. If there are big gaps between average quarterly and quarter-end data, he said, the quarter-end numbers "are at best meaningless and at worst misleading and disingenuous."

Derivatives Spinoff Proposal 'Goes Too Far,' Says Frank - (online.wsj.com) A key House Democrat signaled Tuesday that a controversial derivatives provision in the Senate's financial-regulation bill could be stripped out during negotiations when the two chambers hammer out compromise legislation that could be signed into law by July 4. House Financial Services Committee Chairman Barney Frank (D., Mass.) said the Senate bill's requirement that banks spin off their derivatives operations "goes too far." His comments are significant because he will play a central role in crafting any merger of the House bill passed in December and the Senate version approved last week. Bankers and regulators have tried for weeks to torpedo the derivatives provision, inserted by Senate Agriculture Committee Chairman Blanche Lincoln (D., Ark.). The provision was seen as politically untouchable because it likely would hit big banks' profits, helping to assuage anti-Wall Street sentiment among voters in both parties. Mr. Frank's willingness to weigh in on the matter could reflect Democrats' desire to rework some of the measure's most contentious elements. The Obama administration and several lawmakers also are trying to kill a Senate provision inserted by Sen. Susan Collins (R., Maine) that could force changes to the reserves banks must hold. Derivatives are complex financial instruments that can help companies hedge against fluctuations in such things as energy or commodity prices. But they can also be used as speculative investments, and many blame an unregulated derivatives market for helping to fuel the recent financial crisis. The debate over how they are traded turns on technical points but could play a major role in determining where risk migrates in the financial system. If the derivatives spinoff rule survives, hedge funds or separately regulated bank affiliates could take over the derivatives market.

OECD urges tax rises and spending cuts - (www.ft.com) Public spending cuts and tax rises in advanced economies are required by next year at the latest to deal with “very unfavourable government debt dynamics”, the Organisation for Economic Co-operation and Development warned on Wednesday. In its twice-yearly Economic Outlook, the Paris-based international organisation for advanced economies also saw the need for interest rates in the US, UK and Canada to start rising by the end of the year, as the world economic recovery continues. Calling for urgent action in both fiscal and monetary policy in unusually strident language, the OECD worried that the market turmoil of recent weeks in response to the Greek sovereign debt crisis risked spreading if governments failed to get a grip on their budgets and central banks delayed normalisation of interest rates unnecessarily. With its forecasts expecting a continuation of growth in the world economy at faster rates than before the crisis, the OECD economists urged governments to announce credible deficit reduction plans to start soon.

Price of single-family homes drop for sixth straight month - (www.washingtonpost.com) Home prices remained weak through the early months of this year, according to a closely watched housing index released Tuesday, an indication that the housing market continues to struggle despite recent improvements. The Standard & Poor's/Case-Shiller home price index showed that prices of single-family homes were down 0.5 percent between February and March, the sixth consecutive month-over-month decline. On a seasonally adjusted basis, prices were flat, according to the index. Prices in 13 of the 20 cities tracked by the index fell in March, including the Washington region, where prices were down 0.7 percent. Detroit and Minneapolis saw the largest price declines, 4.1 percent and 2.7 percent, respectively.