KeNo's Housing and Economic Portal: Sunday August 8 Housing and Economic stories

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Americans Splurge on IPads While Broke in New Abnormal Economy - (www.bloomberg.com) In March, Ralph Ronzio went to a warehouse in a seedy part of Orange County, California, and watched a man auction off his condo for half what he’d paid for it. Ronzio had bought the place for $329,000 in 2005, when he moved to Southern California from Rhode Island to take a job at a data-storage company. It was the first place he’d ever owned. “It was totally my bachelor pad,” he says. “Not much inside other than the usual leather couch and the big screen TV. My fiancée made me sell the couch.” That wasn’t the only thing that changed when Ronzio got engaged. His fiancée had two young children, and there wasn’t enough room in the condo for all four of them. So last year, Ronzio bought a house nine miles (14 kilometers) away and they all moved in. He figured he could rent the condo and cover his costs. He figured wrong, Bloomberg Businessweek reports in its Aug. 2 issue. The more he thought about the money he was losing, the more it stressed him out. Finally, Ronzio enlisted the help of a firm called You Walk Away and did exactly that from the remaining $319,000 on his condo mortgage. When the bank foreclosed, he says he felt a sense of relief. He also had more cash. He and his fiancée took the kids to Disneyland. Ronzio, 31, gave himself a treat as well. “I bought myself an iPad,” he says.

GDP: 3 Years of Massive Downward Revisions; Inventory Adjustments Run their Course; Where to From Here? Fed's Counterproductive Policies - (Mish at globaleconomicanalysis.blogspot.com) The BEA has finally admitted something anyone with a modicum of common sense already knew: The recession was far deeper and the "recovery" far weaker than previously reported. Please consider BEA report Gross Domestic Product: Second Quarter 2010 (Advance Estimate) Revised Estimates: 2007 through First Quarter 2010. The real story in the report was not the continuing ratcheting down of GDP forward estimates, but rather massive backward revisions, most of them negative, dating back three full years.

Revision Lowlights

· For 2006-2009, real GDP decreased at an average annual rate of 0.2 percent; in the previously published estimates, the growth rate of real GDP was 0.0 percent. From the fourth quarter of 2006 to the first quarter of 2010, real GDP increased at an average annual rate of 0.2 percent; in the previously published estimates, real GDP had increased at an average annual rate of 0.4 percent.

· For the revision period, the change in real GDP was revised down for all 3 years: 0.2 percentage point for 2007, 0.4 percentage point for 2008, and 0.2 percentage point for 2009.

· For the revision period, national income was revised down for all 3 years: 0.4 percent for 2007, 0.6 percent for 2008, and 0.4 percent for 2009.

· For the revision period, corporate profits was revised down for all 3 years: 2.0 percent for 2007, 7.2 percent for 2008, and 3.9 percent for 2009.

· For 2007, the largest contributors to the revision to real GDP growth were a downward revision to PCE, an upward revision to imports, and a downward revision to state and local government spending;

· The percent change from fourth quarter to fourth quarter in real GDP was revised down from 2.5 percent to 2.3 percent for 2007, was revised down from a decrease of 1.9 percent to a decrease of 2.8 percent for 2008, and was revised up from an increase of 0.1 percent to an increase of 0.2 percent for 2009.

· National income was revised down for all 3 years: $51.8 billion, or 0.4 percent, for 2007; $77.4 billion, or 0.6 percent, for 2008; and $55.0 billion, or 0.4 percent, for 2009. For 2007, downward revisions to corporate profits and to supplements to wages and salaries were partly offset by an upward revision to wages and salaries.

· Personal outlays -- PCE, personal interest payments, and personal current transfer payments -- was revised down for all 3 years: $15.4 billion for 2007, $15.0 billion for 2008, and $79.1 billion for 2009. For all 3 years, downward revisions to PCE more than accounted for the revisions to personal outlays. The personal saving rate (personal saving as a percentage of DPI) was revised up for all 3 years: from 1.7 percent to 2.1 percent for 2007, from 2.7 percent to 4.1 percent for 2008, and from 4.2 percent to 5.9 percent for 2009.

California Democrats to Unveil Budget Plan, 1% State Income Tax Increase - (www.bloomberg.com) Yes, the CA state democrats are trying to bump up state income tax rates for the 2nd consecutive year, so that they can continue to feed money to many of the worthless non-profits, welfare programs and other pet projects.

California’s Democratic leaders plan to unveil a budget proposal to erase a $19.1 billion deficit as early as next week that may include a 1 percentage-point rise in the personal income-tax rate. The increase would affect all taxpayers except those in the highest tax bracket, according to Senate President Darrell Steinberg, a Democrat. To make it more palatable to voters, California’s highest-in-the-nation sales tax would be cut simultaneously by 2.5 percentage points. Unlike sales levies, state income taxes are deductible from federal returns. The swap would add as much as $3 billion to the general fund. “The idea is to increase some taxes that are already federally deductible and to allow taxpayers to take advantage of that while lowering some taxes that are not federally deductible, while the state general fund can gain $2 billion to $3 billion for education and other vital services,” Steinberg said in an interview yesterday. California’s legislative leaders have been meeting for the past three weeks to discuss ways to close the deficit for the fiscal year that began July 1. Controller John Chiang said he may issue IOUs to creditors in August if a budget isn’t passed soon. Steinberg said the proposals will be vetted during a joint budget committee of state Senate and Assembly members next week.

US Regulators Close Five Banks In Four States - (online.wsj.com) U.S. regulators closed five more banks in four states Friday evening, as a still-weak economy continues to batter the banking industry. Federal regulators said banks in Georgia, Florida, Washington and Oregon have failed, bringing the 2010 total to 108. The pace of failures so far this year far outstrips that of 2009, which still saw high numbers of closures. At this point last year regulators had shuttered 69 banks. The Federal Deposit Insurance Corp. said the five failures would cost its insurance fund nearly $335 million.

US banks in rush for cheap finance - (www.ft.com) US banks are taking advantage of improving earnings and growing investor demand to raise billions of dollars in debt at historically low interest rates, a move that could boost the sector’s profits in coming years. The burst of fundraising in the US is in stark contrast to Europe where banks have struggled to issue debt as the eurozone crisis and worries about the financial industry have undermined market confidence. The cheap finance locked in by big institutions such as JPMorgan Chase, US Bancorp,Goldman Sachs and Morgan Stanley in recent days marks a remarkable comeback for a sector that was shunned by investors during the financial crisis. Less than two years after the government was forced to intervene to ease a dramatic credit crunch, US banks sold more than $7bn in debt last week – the largest weekly total since September 2009, says Dealogic.