Review of Steve Keen, Debunking Economics:

The Naked Emperor of the Social Sciences London: Zed Books, 2001 Steve Keen's Debunking Economics is a provocative book; deliberately so is my conjecture. The anti-Vietnam war movement in Adelaide dichotomised into either militants or moderates. I belonged to the second group, because I thought it the proper way for academics to play a public role in vital political and social issues. I also thought it would be counter-productive to do otherwise (no prize for guessing the respective weights attached to the two reasons). Steve, I'm sure, would have been a militant. Certainly that is his approach here. I worry that this may backfire, for I have sympathy with his aims and many of his arguments and judgements. Time will tell who is right (perhaps I could say that the militants wanted the Australian revolution to occur first, then the troops could be brought home and conscription abolished. The moderates thought it better to get an ALP government elected because these two objectives were core items in Labor's election manifesto). Keen's object is to go behind what is currently taught to economics undergraduates in order to reveal the conceptual bases of their instruction and the ideological purposes involved. He comes to his task with a thorough knowledge of the classics of the subject, of Adam Smith as well as of Karl Marx, and with considerable analytical skills of the modern sort.He is a graduate of the political economy movement at the University of Sydney, and his Ph.D. dissertation was an amalgam of the theories of Dick Goodwin and Hy Minsky, two modern maverick greats, both alas now dead. Goodwin was a pupil and then a colleague of Wassily Leontief and Joseph Schumpeter at Harvard, and a pupil of Roy Harrod and Henry Phelps Brown at Oxford. He was much influenced by Maynard Keynes's writings and by Richard Kahn, Joan Robinson and Piero Sraffa of his Cambridge, England colleagues in the post-war period. Though he ceased to be a member of the communist party by the 1940s he remained an informed fan of Marx's writings, especially of Marx's deep knowledge of how capitalism works. (Joan Robinson used to say of Schumpeter that he was Marx with the adjectives changes.) This background, together with his love of Wicksell's economics and teaching physics at Harvard during World War II, led to Goodwin's pioneering contribution of models of cyclical growth. They incorporated his insight that trend and cycle are indissolubly mixed, not separable and determined by different sets of factors, as usually happens in orthodox economics. Minsky also knew his Marx. He worked with Oskar Lange as a young man. His great contribution was to show how real and monetary factors interrelated to produce cycles as capitalist economies evolved through time. While he drew on the writings of Keynes and Michal Kalecki, his financial instability hypothesis associated with the analysis of the effects on firms and on the economy, of the non-realisation of the expected cash flows arising from investment projects, is highly original. It has proved of greater and greater value in our understanding in recent years of the financial instabilities and crises in the world economy. Keen's contribution is to put these two strands together to provide a structure for illuminating the malfunctionings of modern interrelated capitalist economies. He does this in a way which not only draws on the insights of our past masters but also employs the most modern of analytical techniques. With such a background it is easy to understand his horror at the contents of modern textbooks. Increasingly they model the capitalist world as though it were conforming to the dictates of Frank Ramsey's benevolent dictator, choosing optimum paths of accumulation over time for all its citizens. Keynes's long run in which "we are all dead" (well, he's dead and we are in the long run, as an IMF wit recently put it) has returned to dominate our supposed understanding of what is happening. Short-term instabilities are viewed as mere aberrations, fluctuations around this long-period optimum trajectory. Against this macroeconomic background, modern microeconomics has a bias towards examining the behaviour of competitive markets (as set out most fully and rigorously in the Arrow-Debreu model of general equilibrium), not as reference points but as approximations to what is actually going on. Of course, departures from them are taught, increasingly by the clever application of game theory. Moreover, the deficiencies of real markets of all sorts are examined in the light of the implications, for example, of the findings of the asymmetric information theorists (three of whom - George Akerlof, Michael Spence, and Joe Stiglitz - have just (10/10/01) been awarded this year's Nobel Prize. From Amartya Sen on, the Nobel Prize electors seem to be back on track). While professional economists increasingly get to know of these and other developments, often through the pages of the excellent Journal of Economic Perspectives, the most used undergraduate textbooks are usually light years away from such enlightenment. Moreover, alternative approaches in our subject, economic history and the history of economic thought are either being marginalized in, or driven out altogether from most undergraduate courses. Keen's book is directed against these trends. He examines what is taught in macroeconomic and microeconomic courses and what their deficiencies and shortcomings are. And he suggest alternatives, some of which come out of the many influences on him and his own contributions. As I said, I understand his impatience and anger and I applaud his aims. I just worry that the tone of the book and, sometimes, his assertions may allow critics to sidetrack the arguments along byways which may seem plausible but ultimately miss the point - to the detriment of the training of future generations in what Keynes memorably called "our miserable subject". Nevertheless, if I were given a free hand to design a course, I would urge my pupils to read both Keen's book and Hugh Stretton's marvellous alternative text (Economics: A New Introduction, published by Pluto in 1999) as well as the best of the mainstream texts now available. (I would also urge them to read some of the great originals too!) Only then would I feel they had been introduced to the appropriate material with which to make up their own minds what approach(es) to take in their studies. As it is, without the insights of a Keen and a Stretton (and of the past greats), I fear we are likely to produce well trained but uncritical cogs, the better to fit the needs of our modern industrialised societies. It is not the proper role of university teachers either to be hired prize fighters or produce them. Geoff Harcourt(2002) “Review of Steve Keen, Debunking Economics: The Naked Emperor of the Social Sciences", post-autistic economics review : issue no. 11, January, article 5. __________________ This review originally appeared in the Financial Review

Tenants forced to give up pets.

Wednesday, 25 April 2007, 15:09 GMT 16:09 UK People who rent property in Jersey have been forced to give up their pets because of restrictive contracts, said Jersey's Animal Shelter (JSPCA). Residents who rent houses or flats have to obey a clause not to keep pets. JSPCA's chief executive Stephen Coleman said the amount of animals left in their care had risen by 15-20%. He said there was a significant rise in cats. But letting agent Julian Cubbage said he did not think renting contracts were becoming more stringent. He said there had always been an historic sensitivity to animals and that pets were not allowed in homes because of the damage they may cause. "There's also a nuisance factor to other owners - it's not very satisfactory if every time you walk past a flat door you have a dog barking at you from the other side," he said. Mr Cubbage advised residents to question the contracts as compromises could be made.

Real Estate Tax Levied On 300,000 Houses Up 90%

donga.com APRIL 30, 2007 03:43 The publicly assessed values of apartment and row houses largely increased this year by an average of 22.8 percent from last year. Detached houses increased by 6.22 percent in value.

In particular, there has been a sudden rise in many areas within the Seoul Metropolitan Area, including Yangcheon-gu (46.1 percent) in Seoul, and Gwacheon City (49.2 percent) in Gyeonggi Province. As a result, the tax burden caused by holding real estate, including composite real estate taxes and property taxes, increased.

The Ministry of Construction and Transportation (MOCT) announced yesterday that this year’s publicly assessed value of 9.03 million apartment houses would be released on April 30. The publicly assessed value of 4.05 million detached houses will also be released by each municipal and regional office on April 30.

This publicly assessed value has been confirmed through an opinion hearing period last month. Any issues can be raised to the MOCT, municipal and regional offices, and the Korea Appraisal Board by May 30. The number of houses valued over 600 million won almost doubles- As the publicly assessed value rose remarkably, the number of houses valued over 600 million won, which is a basis for composite real estate taxes, increased to 300,711, up by almost 90 percent from last year (159,115). Among the houses valued over 600 million won, 99.8 percent of apartment houses and 97.1 percent of detached houses are located in the Seoul Metropolitan Area, including Seoul City. According to an estimate conducted by the National Tax Service (NTS), the number of households subject to composite real estate taxes amounts to 381,000 this year, up 149,000 from last year (232,000). This is just from taking into consideration houses owned by individuals and, if corporation-owned houses and land were also considered, composite real estate taxes would be imposed on 505,000 households. The reason why the number of households subject to composite real estate taxes is larger than that of houses valued over 600 million won is because publicly assessed values of all the houses owned by a household are added all together to determine on whether composite a real estate tax should be levied. For example, in cases when a husband and wife own 400 million won and 300 million won apartment houses, a composite real estate tax is not imposed on each apartment house. However, the household should pay composite real estate tax based on the total of each apartment’s value. Those who own only one house will pay 2.31 million won on average in composite real estate taxes- The composite real estate tax burden for households is expected to increase rapidly. According to the NTS, this year’s average composite real estate tax burden for households that paid the composite real estate tax last year amounts to 4,743,000 won, more than double last year’s (2,108,000 won). This is because publicly assessed value has increased remarkably and the taxable amount basis increased to 80 percent from 70 percent last year. Households subject to composite real estate taxes for the first time this year will pay 799,000 won on average. Also, among those who own only one house, 139,000 households became subject to that composite real estate tax this year. These households will pay 2,317,000 won composite real estate taxes on average. Property tax increased by 11.1 percent on average compared to last year, but the tax amount imposed on houses valued over 600 million won jumped by 39.3 percent on average. Accordingly, holding taxes, which are the sum of composite real estate taxes and property taxes, are expected to be close to the tax burden ceiling (three times the tax paid previous year) in many areas. In terms of some areas which local governments exempted from property taxes, real estate holding taxes will actually triple since the exempted amount is not considered when determining the tax burden ceiling. According to Kim Jong-pil, a tax expert, a 34-pyeong unit in Eunma Apartments in Daechi-dong, Gangnam-gu, Seoul was subject to holding taxes of 2.16 million won last year; that went up to 5.80 million won this year. The holding tax amount for a 35-pyeong unit in new town complex 3 located in Mok-dong, Yangcheon-gu will almost triple from 1.35 million won to 3.71 million won. Sudden decline in sale prices followed by civil appeal for “publicly assessed vale adjustments”- There are some areas where publicly assessed value is higher than market value. Some publicly assessed values were dated on January 1, 2007, a time when the market value was higher than now. The actual transaction price of a 34-pyeong unit Eunma apartment reported on April 16 was one billion won, which is lower than this year’s publicly assessed value (1.008 billion won). If house prices continue to fall, the publicly assessed value, which was determined based on 80 percent of market value, will highly likely become similar to or higher than present house prices. Due to a large decline in sale prices, there has been a wave of civil petitions to lower publicly assessed value. The number of petitions sent to the MOCT in the 20 days after March 14 amounted to 56,355, up more than six times from last year (9,000). The MOCT explained, “The publicly assessed value cannot be readjusted with house prices changes since the assessment basis date, according to the rules.”

Fear of Foreclosure

By VALERIE COTSALAS

Published: April 22, 2007

WHEN Matilde Amico’s employer cut back her overtime in September, her working hours as a dispatcher for an alarm company fell from a high of 70 hours a week to about 40.

November she had missed two mortgage payments on the three-bedroomranch in Mastic that she had bought as a single mother in 1989, and hadkept by working either two jobs or long overtime hours. She received anotice from her lender threatening foreclosure.

“At that point, I didn’t know what I was going to do,” Ms. Amico said recently. She lives in the house with her 24-year-old son, whose own small business recently failed. “I could see the sheriff coming and putting all of my things on the street.”

Ms. Amico told her story at a news conference held on April 12 by Suffolk County officials to announce that there is help available for homeowners facing foreclosure.

The county at first said the number of foreclosures on Long Island in 2007 was expected to total 18,854, citing data received from the office of Senator Charles E. Schumer.

But the senator’s office later said that the county had misinterpreted the figures and that the 18,000 represented mortgages whose interest rates are likely to rise substantially this year.

It is a big step from rising mortgages rates to foreclosure, however. In all of 2006, 192 homes were lost through foreclosure on Long Island, according to RealtyTrac Inc., a firm that tracks foreclosures nationwide. (Other homes, of course, may have been sold to head off legal action.)

Foreclosure actions are often a result of illness or loss of income, as in Ms. Amico’s case. But many also result from risky loans given to home buyers during the recent real estate boom, officials say.

Higher payments have come due on large numbers of subprime mortgages, putting more borrowers in difficulty. Such mortgages — which often start with low “teaser” rates and then spike up to higher levels after a few years — are usually made to borrowers who have poor credit backgrounds or whose income may not be high enough to comfortably afford larger monthly payments.

As Steve Levy, the Suffolk County executive, said at the meeting, “Now we’re starting to see that these folks are starting to fall behind on mortgage payments.”

One recourse, a service set up by the county, refers those facing foreclosure to counselors certified by the United States Department of Housing and Urban Development. The counselors can help homeowners take one of several possible paths, depending on the severity of their financial plight: renegotiate monthly mortgage payments; provide bridge loans that don’t have to be paid back until the house is sold or refinanced; refinance the mortgage to a lower interest rate; or sell the house and find other living arrangements. Nassau announced a similar program the same day. In Suffolk, the telephone number is (631) 853-4800; in Nassau, (516) 571-4663. The counseling and assistance are free.

In the three days after the announcement, Suffolk received nearly 300 calls from homeowners. Nassau reported 260 calls.

The county can also provide limited financial assistance, up to $1,000 per homeowner, from a federally financed homeless prevention program. “This isn’t throwing good money after bad,” Mr. Levy said. “Foreclosed homes become eyesores in the community; they devalue other homes nearby.”

A day before the Suffolk press conference, the Joint Economic Committee of Congress proposed in a report released in Washington that the government provide funds ($3,300 per household) to help prevent foreclosures nationwide.

In the report, Nassau and Suffolk Counties ranked 37th among the 50 metropolitan areas with the highest foreclosure rates in 2006. (Detroit-Livonia-Dearborn, Mich., was first.) Across New York, 13 percent of subprime loans were 60 or more days delinquent as of the end of February, up seven percentage points since February 2005, with the highest increases in Long Island, Dutchess County and New York City, according to the report.

While Ms. Amico had a fixed-rate 30-year mortgage, her situation illustrated how quickly even a solid homeowner can fall into dire straits. In her case, help came by way of a friend who referred her to the Long Island Housing Partnership, a nonprofit organization that provides free counseling and garners public funds to help build affordable housing.

Kisha Wright, a counselor at the partnership, called the lender who held Ms. Amico’s mortgage and tried to restructure the loan. When the bank turned Ms. Amico down, the partnership lent her $13,500 in New York State grant money. Together with $4,000 that Ms. Amico had saved, the amount covered seven missed mortgage payments. Meanwhile, Ms. Amico was able to restore her overtime hours.

Ms. Wright said that 59 homeowners facing foreclosure had come to the partnership for help in the last three months. In previous years, there would typically have been “only a handful” of such cases in the same period.

By the time Ms. Wright sees them, homeowners have typically missed 3 to 12 months of payments.

The situation is likely to worsen on Long Island and elsewhere in the country, local and United States government officials say.

“Subprime loan foreclosures are expected to increase in 2007 and 2008 as 1.8 million hybrid ARMs — many of which were sold to borrowers who cannot afford them — reset in a weakening housing market environment,” the Congressional report read. (Hybrid adjustable rate mortgages have rates that climb, but only after an initial rate that can be locked in for, say, 3, 5, 7 or 10 years.)

Borrowers with interest-only mortgages may eventually be saddled with an additional payment against the principal amount of the loan. That could as much as double monthly payments, according to Pearl Kamer, chief economist of the Long Island Association.

With a glut of homes on the market, she added, prices are declining, particularly for homes listed for more than $500,000. And lenders have tightened requirements for borrowers, fewer of whom can thus qualify for mortgages.

She said she believed all neighborhoods on Long Island would be affected, not only the less affluent ones. When real estate was booming, less affluent buyers “got into these more expensive homes with subprime mortgages,” Ms. Kamer said, often to move to a better school district.

As home prices drop, she said, many homeowners are stuck owing more money than they can recover by selling the house, which could lead to foreclosure if they are unable to keep up with the monthly payments.

Ms. Amico of Mastic said she was initially embarrassed to face Ms. Wright, the counselor who helped her. “I thought, what was this woman going to think of me?” she said.

But she later told her story publicly in the hope that others would swallow their pride and seek help. “She really helped me save my house,” Ms. Amico said of Ms. Wright. “She was with me from Step 1 all the way to the end.”

ECONOMIX; A Word of Advice During a Housing Slump: Rent

April 11, 2007, Wednesday

By DAVID LEONHARDT (NYT); Business/Financial Desk

Late Edition - Final, Section A, Page 1, Column 2, 1176 words



DISPLAYING ABSTRACT - Analysis of housing costs reveals that people who bought over last two years have paid more for their housing than renters; housing prices may not yet have fallen far enough for buying to look better than renting, except for people who plan to stay in a home for many years; realtors insist that now is time to buy, but skeptics point to extended slump in housing prices in 1990s, following last boom, and argue that buying has never been quite as beneficial as realtors and others who make money off home purchases would have you believes

House flippers flop as market cools

By RYAN NAKASHIMA, AP Business Writer Sun Apr 29, 8:01 PM ET

LAS VEGAS - In the rampant real estate speculation of the Las Vegas valley three years ago, people lined up outside Pulte Homes sales offices overnight as if they were waiting for the release of the latest video game console or hot new movie.

Having seen his house in an upscale part of suburban Henderson, Nev. jump $200,000 in value in 18 months, Sam Schwartz felt he couldn't miss any part of the boom.

He spent the night in the parking lot with TV, snacks and drinks, along with about a hundred other people.

Schwartz intended to buy a new home and then quickly sell it within the year — for a huge profit. Most people waiting were flippers just like him, he said.

"We had seen real evidence of what was possible in this crazy, inflated market, and we just wanted to get a piece of that investment equity," Schwartz said.

But when home prices unexpectedly took a backward step, many investors seeking to cash in quickly were left "upside-down," or owing more on their mortgages than what their homes were worth.

The result was a glut of homes in the marketplace, communities spotted with empty houses and for sale signs — and a foreclosure rate in Nevada that leads the nation as owners unable to sell became saddled with unbearable debt payments.

Foreclosure filings across the United States rose 47 percent last month from a year ago to 149,150 — one for every 775 households, according to statistics from Realty Trac Inc., a foreclosure listing service. And for the third straight month, Nevada's foreclosure rate led the nation when it rose 220 percent from a year earlier to 4,738 filings, or one in every 183 households.

In Clark County, which encompasses Las Vegas, one of every 30 homes began the process toward foreclosure last year.

The day Schwartz reserved his home, the sales staff was raising prices $20,000 after every fifth buyer came inside. The $500,000 house he and his wife were eyeing had shot up to $540,000 by the time they sat down. Somehow, it still seemed like a good deal.

"Everybody was thinking, 'Hey it's not the end of the world, because the homes across town are selling for $720,000. We have almost $200,000 in equity in the house and it isn't even built yet,'" Schwartz said.

He and his wife put down $5,000 on a home that would end up costing $560,000 with upgrades.

While the Schwartzes were able to cancel before closing on a property that suddenly was worth only $490,000 — and recoup their deposit on a legal technicality — others were less fortunate.

Schwartz, a 44-year-old life coach, said he "narrowly escaped financial disaster." But the effects of the housing crunch would reverberate for years, he said, something he expects to see among the clients he coaches to succeed in their lives and careers.

"There's going to be a lot of depression, a lot of anger. A lot drinking, gambling, and desperate stuff going on."

More than other states hit by the mortgage lending crunch, the high foreclosure rate in Nevada, California and Florida was driven by speculation, said Rick Sharga, vice president of marketing for Realty Trac.

"It was a combustible mix of risky loans and risky real estate deals," he said.

Russ Valone, the chief executive of research firm MarketPointe Realty Advisors, said speculators in San Diego were putting deposits on downtown condo units under construction, assuming they could sell them at a profit when they were finished.

"There were guys out there that were rolling the dice just as if they were going to Las Vegas," Valone said.

When the market slowed, many buyers forfeited their deposits, or let their properties get repossessed by the banks. As a result, the inventory of unoccupied condo units downtown since early 2005 has soared fivefold, he said.

New home builders are slowing down the pace of new projects in Las Vegas and are giving agents commissions of up to 12 percent and up to $100,000 in upgrades such as pools, granite countertops and appliances.

"The speculators completely dried up," said Paul Murad, a real estate observer and author of "Manhattanizing Las Vegas."

In Miami, the rush of condo building and speculative buying has slowed to a crawl, said real estate agent Penni Hurley. Florida's foreclosure filings rose 54 percent from a year ago to 14,303 in March, or one filing for every 511 households.

"The market was on steroids and now it's going through a much-needed correction," Hurley said.

With forecasts of a nationwide 1 percent home price decline this year, there's no way to flip for a profit now, said Jay Brinkmann, vice president of research and economics with the Mortgage Bankers Association.

"One would have to logically assume that (flippers) are no longer in the market," he said.

But some are still feeling the pain.

Jason Beaver, a Sunnyvale, Calif.-based Apple Inc. programmer, got caught up in the talk of the hot housing market from friends who bought multiple homes in Las Vegas and made a killing.

His name was drawn in a buyers' lottery in the Solera subdivision and he put $35,300 down on a $353,000 home in February 2004. The community is restricted to people age 55 or older; the 37-year-old Beaver had no intention of moving in.

That summer, the housing market began to soften. He nervously put the house on the market for a break-even price the same day escrow closed. He got no offers.

A tight market had suddenly become flush with resale homes as investors sought to cash out. Pulte was one of several builders to slash new home prices, in some cases by as much as $80,000 in a single day. Beaver and others are suing, but the company has said it was simply reacting to new conditions in an overheated market.

Beaver has been renting the home out for about a $1,000 a month, despite monthly expenses around $2,000.

And the supply of available homes is growing.

In March, the number of resale listings for single family homes, condos and townhouses in the Las Vegas valley grew 30 percent from a year ago to 27,282, according to the Greater Las Vegas Association of Realtors. Sales and the value of homes sold were both down 38 percent from a year ago. About half the homes available have been on the market for more than two months.

"Two years ago, you'd set a price that looked right and you'd get offers that were $20,000, $30,000, $40,000 over your list price. You have to be more realistic today," said Devin Reiss, president of the Realtors association.

With Nevada's fast-growing population and an estimated 8,000 net new residents coming to Las Vegas every month, experts predict the glut of housing will be cleared in six months to more than a year.

State lawmakers are considering a range of bills that clamp down on the easy mortgage lending that helped heat up the market, including making it a crime for lenders to issue mortgages with little or no verification of a borrower's ability to pay.

"The biggest loan I ever saw, a person bought a $1 million property and only had to come up with $1,000 in cash," said Scott Bice, the state's commissioner of mortgage lending.

"I don't think anything will ever prevent speculation," he said, but added that new regulations and tighter credit requirements by lenders will eventually return the market to the good old days: "When it takes good credit and money in a transaction to close it."

For those caught up in the frenzy of a few years ago, the changes come too little, too late.

Beaver figures he has spent $50,000 on his investment home, and will have to come up with $30,000 more to pay off the mortgage after he sells it at a loss.

While he's not completely sworn off real estate investing, Beaver said next time he'll try a more traditional approach — to buy and hold for the long term.

"The fast-growth, make-a-quick-buck real estate investment, I don't think I'll try again," he said.

British banks told to plan for 40% crash in housing

By Patrick Hosking

The Times, London

Thursday, November 16, 2006



Banks in the United Kingdom have been ordered by financial regulators to assess how they would cope in the event of house prices crashing by 40 percent. The instruction to include a housing slump scenario in their stress-testing models comes after the Financial Services Authority found that some banks were failing to include gloomy enough assumptions in their modelling.



The FSA said yesterday that an "appropriate" benchmark was to assume property prices fell by 40 percent and that 35 percent of mortgages in default ended with homes being repossessed. It stressed that this was not a forecast but a "severe but plausible scenario" and one that banks should examine when deciding how robust their balance sheets were.



In a speech to the British Bankers' Association yesterday, Clive Briault, the FSA's managing director for retail markets, remarked on banks' differing views over the size and impact of a house market downturn, and hence the need for reference points.



He also warned bankers to ensure that they have properly stress-tested their mortgage portfolios in the wake of decisions by some to lend people greater multiples of their incomes.



In a letter to bank chief executives last month the FSA accused some of failing to consider scenarios in which they might be forced into losses, dividend cuts or capital shortfalls.



"We were struck by how mild the firm-wide stress events were at some of the firms we visited," wrote the FSA's director of major retail groups, David Strachan.



A few banks were "weak in all respects" in stress-testing.



House prices fell about 15 percent nationwide in, and in parts of East Anglia by 40 percent, leading to repossessions, write-downs, and bank losses.



Banks are obliged to stress-test hypothetical adverse movements in asset prices, interest rates, and exchange rates to ensure that they have a sufficient capital cushion. But stress-testing is only as robust as the assumptions made.



The FSA move came as UK house prices grew at their fastest for four years, according to new figures from RICS.

Enter your land price concerns as a quotable quote on the Site Rating Defence Alliance blog.

"Is It Too Late to Get Out?"

Housing Bubble Boondoggle

April 24, 2007 By MIKE WHITNEY Treasury Secretary Henry Paulson delivered an upbeat assessment of the slumping real estate market on Friday saying, "All the signs I look at" show "the housing market is at or near the bottom." Baloney. Paulson added that the meltdown in subprime mortages was not a "serious problem. I think it's going to be largely contained." Wrong again. Paulson knows full well that the housing market is headed for a crash and probably won't bounce back for the next 4 or 5 years. That's why Congress is slapping together a bailout package that will keep struggling homeowners out of foreclosure. If defaults keep skyrocketing at the present rate they are liable to bring the whole economy down in a heap. Last week, the Senate convened the Joint Economic Committee, chaired by Senator Charles Schumer. The committee's job is to develop a strategy to keep delinquent subprime mortgage holders in their homes. It may look like the congress is looking out for the little guy, but that's not the case. As Schumer noted, "The subprime mortgage meltdown has economic consequences that will ripple through our communities unless we act." Schumer's right. The repercussions of millions of homeowners defaulting on their loans could be a major hit for Wall Street and the banking sector. That's what Schumer is worried about---not the plight of over-leveraged homeowners. Every day now, another major lending institution unveils its plan for bailing out the housing market. Citigroup and Bank of America have joined forces to create the Neighborhood Assistance Corporation of America which will provide $1 billion for the rescue of subprime loans. This will allow homeowners to refinance their mortgages and keep them out of foreclosure. The new "30- year loans will carry a fixed interest rate one point below the prime rate, putting it currently at 5.5 percent. There are no fees, and the banks pay all the closing costs." But why are the banks being so generous if, as Paulson says, "the housing market is at or near the bottom." This proves that the Treasury Secretary is full of malarkey and that the problem is much bigger than he's letting on. Last week, Washington Mutual announced a $2 billion program to slow foreclosures (Washington Mutual's subprime segment lost $164 million in the first quarter) while Freddie Mac committed a whopping $20 billion to the same goal. In fact, Freddie Mac announced that it "would stretch the loan term to a maximum of 40 years from the current 30-year limit." 40 years!?! How about a 60 or 80 year mortgage? Can you sense the desperation? And yet, Paulson says he doesn't see the subprime meltdown as a "serious problem"! Paulson's comments have had no effect on the Federal Reserve. The Fed has been frantically searching for a strategy that will deal with the rising foreclosures. On Wednesday, The Washington Post reported that "Federal bank regulators called on lenders to work with distressed borrowers unable to meet payments on high-risk mortgages to help them keep their homes". Huh? When was the last time the feds ordered the privately-owned banks to rewrite loans? Never--that's when. That gives us some idea of how bad things really are. The details of the meltdown are being downplayed in the media to prevent panic-selling among the public. But the Fed knows what's going on. They know that "U.S. mortgage default rates hit an all-time high in the first quarter of 2007" and that "the percentage of mortgages in default rose to a record 2.87%". In fact, the Federal Reserve and the five other federal agencies that regulate banks issued this statement just last week: "Prudent workout arrangements that are consistent with safe and sound lending practices are generally in the long-term best interest of both the financial institution and the borrowerInstitutions will not face regulatory penalties if they pursue reasonable workout arrangements with borrowers." Translation: "Rewrite the loans! Promise them anything! Just make sure they remain shackled to their houses!" Unfortunately, the problem won't be "fixed" with a $30 or $40 billion bailout scheme. The problem is much bigger than that. There is an estimated $2.5 trillion in subprimes and Alt-A loans---20% of which are expected enter foreclosure in the next few years. Any up-tick in interest rates or unemployment will only aggravate the situation. Kenneth Heebner, manager of CGM Realty Fund (Capital Growth Management), provided a realistic forecast of what we can expect in the near future as defaults increase. Heebner: "The Greatest Price Decline in Housing since the Great Depression" (Bloomberg News interview) "The real wave of pain and foreclosures is just beginning.subprimes and Alt-A are both in trouble. A lot of these will go into default. The reason is, that the people who took these out never really intended to fully service the mortgage---they were counting on rising home prices so they could sign on the dotted line without showing what their income was and then 2 years later flip into another junk mortgage and get a big profit out of the house with putting anything down "There's a $1.5 trillion in subprimes and $1 trillion in Alt-A the catalyst will be declining house prices which is already underway. But as we get a large amount of these $2.5 trillion mortgages go into default, we'll see foreclosed houses dumped on an already weak market where homebuilders are already struggling to sell there houses. The price declines which have started will continue and may even accelerate in some of the hotter markets. I would expect that housing prices in "2007 will decline 20% in a lot of markets". "What you are going to see is the greatest price decline in housing since the Great Depression..The one thing that people should not do, is go near a CDO or a residential mortgage backed security rated Triple A by Moody's and S&P because these are going to get down-graded by the hundreds of millions---because they are secured by subprime and Alt-A mortgages where there'll be massive defaults". Question: "Will the losses in the mortgage market exceed those in the S&L crisis?" Heebner: "They're going to dwarf those losses because the losses could easily approach $1 trillion---that dwarfs anything that has ever happened. Enron was $100 billion---this will be far greater than that..The good news is that most of these loans are owned by Hedge FundsYou hedge funds buying these subprime and Alt-A loans and leveraging them at 10 to 1. They buy a pool of mortgages at 8% and they borrow against it in yen for 3% and then lever it at 10 to 1so you have a lucrative profit And the hedge fund you are running, the manager is going to get 20% of the gain---so even if it's a year before you go broke; you get rich until the fund is shut down". Heebner added this instructive comment: "The brokerage firms created "securitization" they know the products are toxic. I don't think they are going to suffer losses; they simply passed them on to everyone else. The only impact this will have is the profits that flow from it will get less.But it is less than 3% of revenues in even the most exposed brokerage firm so THEY'RE NOT GOING TO GET CAUGHT." Although Heebner believes the brokerage houses will do fine; the same is not true for the small investor. Nearly 70% of subprimes have been securitized. That means that the vast number of shoddy "no down payment, no document, interest-only" loans (that are headed for default) have been transformed into securities and sold to hedge funds. As the housing market continues to falter, these funds will plummet at an inverse rate to the amount of leverage that has been applied. That may explain why, (according to Bloomberg Markets) the "wealthiest Americans have been bailing out" of hedge funds at an alarming rate. A report in last Thursday's New York Times stated: "Americans with a net worth of at least $25 million, excluding the value of their primary homes, reduced their exposure to hedge funds in 2006"-- The amount of money held by wealthy investors in hedge funds has dropped dramatically-- "The average balance, which was $2.8 million in 2005, was just $1.6 million last year, a 43 percent decline". So, what do America's richest investors know that the rest of us don't? Could it be that the over-leveraged hedge funds industry is about to get hammered by the subprime implosion? If so, it won't be the brokerage houses or savvy insiders who get hurt. It'll be the little guys and the pension funds that take a drubbing. In Henry C K Liu's "Why the Subprime Bust will Spread" (Asia Times) the author states that the bursting housing bubble will trigger a major pension crisis. After all, who are the "institutional investors? They are mostly pension funds that manage the money the US working public depends on for retirement. In other words, the aggregate retirement assets of the working public are exposed to the risk of the same working public defaulting on their house mortgages". (Liu) The origins of the housing bubble are complex, but they are worth understanding if we want to know how things will progress. The housing bubble is not merely the result of low interest rates and shabby lending practices. As Liu says, "the bubble was caused by creative housing finance made possible by the emergence of a deregulated global credit market through finance liberalization. The low cost of mortgages lifted all US house prices beyond levels sustainable by household income in otherwise disaggregated markets". The deregulated cross-border flow of funds (via the yen low interest "carry trade" or the $800 billion current account deficit) have played a major role in inflating the US real estate market. Liu adds, "Since the money financing this housing bubble is sourced globally, a bursting of the US housing bubble will have dire consequences globally."Since nearly 50% of "securitized" mortgage debt is owned by foreign investors; the subprime meltdown is bound send tremors through the entire global financial system. The housing decline is further complicated by Wall Street innovations in derivatives trading which has generated trillions of dollars in "virtual" wealth and is affecting the Feds ability to control inflation through interest rate manipulation. As Kenneth Heebner said, "You have hedge funds buying these subprime and Alt-A loans and leveraging them at 10 to 1. They buy a pool of mortgages at 8% and they borrow against it in yen for 3% and then lever it at 10 to 1so you have a lucrative profit." In other words, low interest foreign capital has flooded US markets and contributed to distortions in housing prices. In her recent article "War Drags the Dollar Down", Ann Berg refers to Wall Street's "swirling galaxy of exotic finance" which has "worked magic for the government and the elite", but has yet to weather a severe downturn in the economy. But how will market deal with sudden downturn in the hedge fund industry? Will the dodgy subprimes and shaky collateralized debt obligations (CDOs) trigger a crash or has the risk been wisely dispersed through derivatives trading? No one really knows. As Berg says, "Derivatives numbers are staggering. The Bank for International Settlements estimates that the notional amount of derivatives traded on regulated exchanges topped a quadrillion dollars last year and that the outstanding unregulated off-exchange (called over-the-counter OTC) amount stood at $370 trillion in June 2006. Because the OTC market is composed of endless strings of bilateral transactions the systemic risk is unknown." The comments of the President of the New York Fed, Timothy Geithner, help to clarify the abstruse activities of the modern market: "Credit market innovations have transformed the financial system from one in which most credit risk is in the form of loans, held to maturity on the balance sheets of banks, to a system in which most credit risk now takes an incredibly diverse array of different forms, much of it held by nonbank financial institutions that mark to market and can take on substantial leverage." Geither's right. The markets now operate as unregulated banks generating mountains of credit through massively leveraged debt instruments---a monster credit bubble larger than anything in the history of capitalism. So, where is all this headed? No one really knows. But when the housing bubble crashes into Wall Street's credit bubble,; we can expect the "big bang". That may explain why America's wealthiest investors are running for cover before the whole thing blows. (A number of investors have already cashed out and put there holdings into foreign funds and currencies) One thing is certain ---time is running out. With $1 trillion in subprimes and Alt-A loans headed for default the system is facing its greatest challenge. US- GDP has been revised to a measly 1.8%, foreign investment is down, and the dollar is losing ground to the euro on an almost weekly basis. Falling home prices have already precipitated a number of other problems. For example, Gene Sperling reports in "Housing Bust Meets the Equity Blues" that "The Fed data showed an amazing expansion (in Mortgage-Equity Withdrawal). In 1995, active MEW had been $37 billion. By the fourth quarter of 2005, it soared to $532 billion annualized, a 14-fold expansion". These equity withdrawals have translated into consumer spending which accounts for at least 1 full percentage point of GDP. Declining house prices means that extra boast for the economy will now disappear. Foreclosures are soaring and expected to get worse for the next two years at least. In California foreclosure filings jumped 79% in March alone. Other "hot markets" are reporting similar figures. The glut of new homes for sale on the market has slammed sales of the nation's major builders; most are reporting profits are down by 40% or more. The collapse of the subprime mortgage market is also pushing some big U.S. homebuilders toward Chapter 11. According to Bloomberg News, "Some builders are staying out of bankruptcy by relying on the profits they made when sales boomed" in 2004 and 2005. Starting next year they must begin to repay $3.6 billion in public debt in what will certainly be a falling market. The prospects don't look good. Also, Credit card debt is way up (nearly 7% in one year) and economists are predicting that the trajectory will continue now that home equity is vanishing. Americans savings rate is in negative numbers and the steep increase in credit card debt (with its high interest rates) only compounds the problem. The American consumer has now compiled more personal debt than anytime in history. The Grim Reaper Meets the Housing Bubble Those who follow developments in real estatehave heard many of the wacky anecdotes related to the housing bubble. Stories abound of young people buying homes just to pay off tens of thousands of dollars of collage loans with their "presto"-equity ---or low paid construction laborers securing 105% loans without any proof of income and a poor credit history. One of the stories that got national attention was about Alberto and Rosa Ramirez, who worked as strawberry pickers in the fields around Watsonville each earning about $300 a week. They (somehow?) qualified for a loan of $720,000 which paid for a "new" four-bedroom, two-bath house in Hollister. It's sheer madness! Obviously, those days are over. The speculative frenzy that was generated by the Fed's low interest rates, the banks lax lending standards, and the deregulated global credit market is drawing to a close. The fallout from the collapse in subprime-loans will roil the stock market and hedge funds, but, as Heebner says, the investment banks and brokerage firms will escape without a bruise. Where's the justice? Despite Hank Paulson's cheery predictions, we are no where "near the bottom". In fact, a recent survey showed that only 1 in 7 Americans believe that house prices will go down. Even now, very few people grasp the underlying issues or the potential for disaster. We're on a treadmill to oblivion and they think it's a merry-go-round. As housing prices tumble, more homeowners will experience "negative equity", that is, when the current value of their home is less than the sum of their mortgage. This is the very definition of modern serfdom. We can expect to see an erosion of confidence in the market, a rise in inventory, and a steady increase in defaults.More and more people will walk away from their homes rather than be hand-cuffed to an asset that loses value every day. This could transform a "housing correction" into a nation-wide financial calamity. Many peoples' futures are linked directly to the "anticipated" value of their homes.It is impossible to determine how shocked they'll be when prices retreat and equity shrivels. The housing flame-out has all the makings of a national trauma"another violent jolt to the fragile American psyche. So far, we're still in the first phase of a process that will probably play out for 10 years or more. (Judging by Japan's decades-long decline) None of the bailout plans are large enough to make any quantifiable difference.The numbers are just too big. Housing prices are coming down and the real estate market will return to fundamentals. That much is certain. The law of gravity can only be ignored for so long. Just don't count on a "soft landing". Special thanks to (Housing Crash News) See entire Kenneth Heebner interview at http://patrick.net/housing/contrib/future.html Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com

Sim City and John F. Kennedy

Signs of the Times for Tue, 07 Nov 2006

Laura Knight-Jadczyk

Conservatives are fond of telling us what a wonderful, happy, prosperous nation this is. The only thing that matches their love of country is the remarkable indifference they show toward the people who live in it. To their ears the anguished cries of the dispossessed sound like the peevish whines of malcontents. They denounce as "bleeding hearts" those of us who criticize existing conditions, who show some concern for our fellow citizens. But the dirty truth is that there exists a startling amount of hardship, abuse, affliction, illness, violence, and pathology in this country. The figures reveal a casualty list that runs into many millions. Consider the following estimates. In any one year:

* 27,000 Americans commit suicide.

* 5,000 attempt suicide; some estimates are higher.

* 26,000 die from fatal accidents in the home.

* 23,000 are murdered.

* 85,000 are wounded by firearms.

* 38,000 of these die, including 2,600 children.

* 13,000,000 are victims of crimes including assault, rape, armed robbery, burglary, larceny, and arson.

* 135,000 children take guns to school.

* 5,500,000 people are arrested for all offenses (not including traffic violations).

* 125,000 die prematurely of alcohol abuse.

* 473,000 die prematurely from tobacco-related illnesses; 53,000 of these are nonsmokers.

* 6,500,000 use heroin, crack, speed, PCP, cocaine or some other hard drug on a regular basis.

* 5,000+ die from illicit drug use. Thousands suffer serious debilitations.

* 1,000+ die from sniffing household substances found under the kitchen sink. About 20 percent of all eighth-graders have "huffed" toxic substances. Thousands suffer permanent neurological damage.

* 31,450,000 use marijuana; 3,000,000 of whom are heavy users.

* 37,000,000, or one out of every six Americans, regularly use emotion controlling medical drugs. The users are mostly women. The pushers are doctors; the suppliers are pharmaceutical companies; the profits are stupendous.

* 2,000,000 nonhospitalized persons are given powerful mind-control drugs, sometimes described as "chemical straitjackets."

* 5,000 die from psychoactive drug treatments.

* 200,000 are subjected to electric shock treatments that are injurious to the brain and nervous system.

* 600 to 1,000 are lobotomized, mostly women.

* 25,000,000, or one out of every 10 Americans, seek help from psychiatric, psychotherapeutic, or medical sources for mental and emotional problems, at a cost of over $4 billion annually.

* 6,800,000 turn to nonmedical services, such as ministers, welfare agencies, and social counselors for help with emotional troubles. In all, some 80,000,000 have sought some kind of psychological counseling in their lifetimes.

* 1,300,000 suffer some kind of injury related to treatment at hospitals.

* 2,000,000 undergo unnecessary surgical operations; 10,000 of whom die from the surgery.

* 180,000 die from adverse reactions to all medical treatments, more than are killed by airline and automobile accidents combined.

* 14,000+ die from overdoses of legal prescription drugs.

* 45,000 are killed in auto accidents. Yet more cars and highways are being built while funding for safer forms of mass transportation is reduced.

* 1,800,000 sustain nonfatal injuries from auto accidents; but 150,000 of these auto injury victims suffer permanent impairments.

* 126,000 children are born with a major birth defect, mostly due to insufficient prenatal care, nutritional deficiency, environmental toxicity, or maternal drug addiction.

* 2,900,000 children are reportedly subjected to serious neglect or abuse, including physical torture and deliberate starvation.

* 5,000 children are killed by parents or grandparents.

* 30,000 or more children are left permanently physically disabled from abuse and neglect. Child abuse in the United States afflicts more children each year than leukemia, automobile accidents, and infectious diseases combined. With growing unemployment, incidents of abuse by jobless parents is increasing dramatically.

* 1,000,000 children run away from home, mostly because of abusive treatment, including sexual abuse, from parents and other adults. Of the many sexually abused children among runaways, 83 percent come from white families.

* 150,000 children are reported missing.

* 50,000 of these simply vanish. Their ages range from one year to mid-teens. According to the New York Times, "Some of these are dead, perhaps half of the John and Jane Does annually buried in this country are unidentified kids."

* 900,000 children, some as young as seven years old, are engaged in child labor in the United States, serving as underpaid farm hands, dishwashers, laundry workers, and domestics for as long as ten hours a day in violation of child labor laws.

* 2,000,000 to 4,000,00 women are battered. Domestic violence is the single largest cause of injury and second largest cause of death to U.S. women.

* 700,000 women are raped, one every 45 seconds.

* 5,000,000 workers are injured on the job; 150,000 of whom suffer permanent work-related disabilities, including maiming, paralysis, impaired vision, damaged hearing, and sterility.

* 100,000 become seriously ill from work-related diseases, including black lung, brown lung, cancer, and tuberculosis.

* 14,000 are killed on the job; about 90 percent are men.

* 100,000 die prematurely from work-related diseases.

* 60,000 are killed by toxic environmental pollutants or contaminants in food, water, or air.

* 4,000 die from eating contaminated meat.

* 20,000 others suffer from poisoning by E.coli 0157-H7, the mutant bacteria found in contaminated meat that generally leads to lifelong physical and mental health problems. A more thorough meat inspection with new technologies could eliminate most instances of contamination--so would vegetarianism.

At present:

* 5,100,000 are behind bars or on probation or parole; 2,700,000 of these are either locked up in county, state or federal prisons or under legal supervision. Each week 1,600 more people go to jail than leave. The prison population has skyrocketed over 200 percent since 1980. Over 40 percent of inmates are jailed on nonviolent drug related crimes. African Americans constitute 13 percent of drug users but 35 percent of drug arrests, 55 percent of drug convictions and 74 percent of prison sentences. For non drug offenses, African Americans get prison terms that average about 10 percent longer than Caucasians for similar crimes.

* 15,000+ have tuberculosis, with the numbers growing rapidly; 10,000,000 or more carry the tuberculosis bacilli, with large numbers among the economically deprived or addicted.

* 10,000,000 people have serious drinking problems; alcoholism is on the rise.

* 16,000,000 have diabetes, up from 11,000,000 in 1983 as Americans get more sedentary and sugar addicted. Left untreated, diabetes can lead to blindness, kidney failure and nerve damage.

* 160,000 will die from diabetes this year.

* 280,000 are institutionalized for mental illness or mental retardation. Many of these are forced into taking heavy doses of mind control drugs.

* 255,000 mentally ill or retarded have been summarily released in recent years. Many of the "deinstitutionalized" are now in flophouses or wandering the streets.

* 3,000,000 or more suffer cerebral and physical handicaps including paralysis, deafness, blindness, and lesser disabilities. A disproportionate number of them are poor. Many of these disabilities could have been corrected with early treatment or prevented with better living conditions.

* 2,400,000 million suffer from some variety of seriously incapacitating chronic fatigue syndrome.

* 10,000,000+ suffer from symptomatic asthma, an increase of 145 percent from 1990 to 1995, largely due to the increasingly polluted quality of the air we breathe.

* 40,000,000 or more are without health insurance or protection from catastrophic illness.

* 1,800,000 elderly who live with their families are subjected to serious abuse such as forced confinement, underfeeding, and beatings. The mistreatment of elderly people by their children and other close relatives grows dramatically as economic conditions worsen.

* 1,126,000 of the elderly live in nursing homes. A large but undetermined number endure conditions of extreme neglect, filth, and abuse in homes that are run with an eye to extracting the highest possible profit.

* 1,000,000 or more children are kept in orphanages, reformatories, and adult prisons. Most have been arrested for minor transgressions or have committed no crime at all and are jailed without due process. Most are from impoverished backgrounds. Many are subjected to beatings, sexual assault, prolonged solitary confinement, mind control drugs, and in some cases psychosurgery.

* 1,000,000 are estimated to have AIDS as of 1996; over 250,000 have died of that disease.

* 950,000 school children are treated with powerful mind control drugs for "hyperactivity" every year--with side effects like weight loss, growth retardation and acute psychosis.

* 4,000,000 children are growing up with unattended learning disabilities.

* 4,500,000+ children, or more than half of the 9,000,000 children on welfare, suffer from malnutrition. Many of these suffer brain damage caused by prenatal and infant malnourishment.

* 40,000,000 persons, or one of every four women and more than one of every ten men, are estimated to have been sexually molested as children, most often between the ages of 9 and 12, usually by close relatives or family acquaintances. Such abuse almost always extends into their early teens and is a part of their continual memory and not a product of memory retrieval in therapy.

* 7,000,000 to 12,000,000 are unemployed; numbers vary with the business cycle. Increasing numbers of the chronically unemployed show signs of stress and emotional depression.

* 6,000,000 are in "contingent" jobs, or jobs structured to last only temporarily. About 60 percent of these would prefer permanent employment.

* 15,000,000 or more are part-time or reduced-time "contract" workers who need full-time jobs and who work without benefits.

* 3,000,000 additional workers are unemployed but uncounted because their unemployment benefits have run out, or they never qualified for benefits, or they have given up looking for work, or they joined the armed forces because they were unable to find work.

* 80,000,000 live on incomes estimated by the U.S. Department of Labor as below a "comfortable adequacy"; 35,000,000 of these live below the poverty level.

* 12,000,000 of those at poverty's rock bottom suffer from chronic hunger and malnutrition. The majority of the people living at or below the poverty level experience hunger during some portion of the year.

* 2,000,000 or more are homeless, forced to live on the streets or in makeshift shelters.

* 160,000,000+ are members of households that are in debt, a sharp increase from the 100 million of less than a decade ago. A majority indicate they have borrowed money not for luxuries but for necessities. Mounting debts threaten a financial crack-up in more and more families.

A Happy Nation? Obviously these estimates include massive duplications. Many of the 20 million unemployed are among the 35 million below the poverty level. Many of the malnourished children are also among those listed as growing up with untreated learning disabilities and almost all are among the 35 million poor. Many of the 37 million regular users of mind-control drugs also number among the 25 million who seek psychiatric help.

Powered by ScribeFire.

Ministers stall radical shake-up of council tax

· No revaluation or extra bands before at least 2011

· Tourist tax and levies on charity shops also blocked



David Hencke, Westminster correspondent

Thursday March 22, 2007

The Guardian

The biggest review of local government for 40 years yesterday proposed radical reforms of council tax, including new bands for the most expensive homes and levies on charity shops as well as farms and derelict properties.

The sweeping proposals provoked an immediate response from ministers who tried to avoid a political row by either postponing or scrapping many of the ideas, although the study was commissioned by the Treasury three years ago.

---

---

Phil Woolas, the local government minister, kicked into the long grass proposals by Sir Michael Lyons, professor of public policy at Birmingham University, for a revaluation and rebanding of council taxes, until 2011 at the earliest.

The move would see multi-millionaires being asked for more than double the present amount of council tax - some paying £5,120 a year - for homes worth £2.5m or more. The decision also meant the poorest owners, living in properties worth less than £81,000, would continue to pay £846 a year.

Following furious reaction, the ministry also blocked plans to consider a new tourist tax on hotel beds and a proposal to look at ending council tax exemption for charities' premises, which would have raised £724m.

The British Hospitality Association said Sir Michael's tourism tax plan was "muddled and highly discriminatory" and amounted to another stealth tax.

Stephen Bubb, chief executive of the Association of Chief Executives of Voluntary Organisations, said: "This ill-judged recommendation will be bitterly opposed by the third sector. I have been in touch with the third-sector minister, Ed Miliband, to urge him not to implement the recommendation."

The government also blocked proposals to take council tax spending out of ministers' hands via an independent grants commission, and ruled out abolishing powers to cap huge council tax rises.

Ministers seized immediately on a proposal which would raise £1.3bn for local authorities by levying council tax on empty and derelict buildings. Although Sir Michael said this should be reviewed, Gordon Brown announced the first tranche of the new tax in the budget. The rest would follow. Ministers also committed to raising a further £450m by confirming they would review farmers' exemption from council tax, and will look at allowing councils to charge for rubbish collection.

Other proposals are to go to consultation. They include a plan, exclusively reported in the Guardian yesterday, for a supplementary business rate to pay for huge transport projects such as London's Crossrail, and Manchester's expanded tram system.

Sir Michael has wanted special help for pensioners and the low paid who claim council tax benefits. He proposed replacing the benefit with an automated rebate for all pensioners with savings of up to £50,000 a year. He said that the unclaimed £1.8bn could go to pensioners. Mr Woolas was not keen on immediately implementing this, preferring to promise to get councils to improve take-up of the benefit.

Launching the report in London, Sir Michael said: "Council tax is not 'broken' but is seen as unfair." He reluctantly accepted that the government's stance meant revaluation was "an issue for the future", but believed that any property tax should be revalued regularly.

His report said that local government needed to be more trusted by the public and lead regeneration, improve people's skills and have a big say on transport. "Central government needs to leave more room for local discretion ... while local government needs to strengthen its own confidence and capability ... and stop asking for central direction."

Yesterday the shadow local government secretary, Caroline Spelman, called the report a "tax bombshell" for working families and pensioners. "Nice neighbourhoods and the rising value of homes will all mean higher council tax bills. Regular revaluations will turn council tax into a home improvement tax - taxing your patio, your conservatory and garden."

She said "rubbish taxes" could damage public health and the environment, leading to a surge in fly tipping and backyard burning. "This isn't a green tax, it's an excuse to tax more by stealth."

Main points: Winners and losers

· Council tax to remain main source of local authority taxes. Local income tax rejected. Revaluation of all homes in England - above average income home owners will pay more, poorest less

· Three new top council tax bands for properties above £545,000 to £2.5m, new split lower tax band for lowest properties under £102,000

· Replace council tax benefit with an automated rebate with aim of giving £1.8bn unclaimed cash to pensioners and raise savings allowance to £50,000.

· Abolition of government capping of local authority council tax

· Examine removing council tax exemptions for farms and farm buildings to raise £450m. Examine removing council tax exemption on derelict and empty property to raise £1.3bn

· Examine removing council tax exemption on charity shops and HQs to raise £724m

· New powers to charge for domestic refuse collection to tackle waste

· New tourist tax

· New supplementary business rate to pay for major infrastructure projects from Crossrail in London to extension of metro in Newcastle and tram system in Manchester

· New powers for councils to co-ordinate and lead economic development and planning issues and to regulate bus services

· Independent grants commission to set local council spending levels

Powered by ScribeFire.

Lyons' lost pride

By shelving Sir Michael Lyons' recommendations on council tax reform, Gordon Brown has turned his back on a historic opportunity.

March 23, 2007 11:30 AM | Printable version

Gordon Brown should hang his head in shame. Not for the budget, but for the government's response to yesterday's side show, the convenient launch of the report he commissioned three years ago, calling for a radical reform of local government finance and powers.

The man who would be prime minister threw away an opportunity for a real change that would have hit the rich and helped the poor. Sir Michael Lyons, professor of public policy at Birmingham University, in a well-argued report, said the time had come for a radical overhaul of council tax. He proposed a really big increase for the multi-millionaire class in the amount - some 100-200% more - they contribute to the local community and some much needed help for the poorest first-time buyers, scraping to buy the last remaining homes worth less than £102,000 in England.

Phil Woolas, the local government minister, with Treasury backing, within hours of its publication threw out the plan for at least the next five years. This was great news for Russian oil tycoon and Chelsea football club owner, Roman Abramovich, and Labour donor and Indian steel magnate, Lakshmi Mittal, to name but two people with property worth in excess of £2.5m. They have saved paying anything up to an extra £3,000 a year - a cool £15,000 for the next five years. For magnates like them, this is loose change compared to the billions they spend every year, but no doubt they would be delighted that a Labour chancellor is so keen to make sure they avoid any unnecessary tax.

Rather surprising, though, is the reverse side of the coin of Gordon Brown's decision. By not doing anything, he has also mugged the wallets of the inner-city poor. For a chancellor who makes such a issue of taking millions of poor people and their families out of the poverty trap, he has actually thrown out, on Michael Lyons' figures, the chance of rebating £150 a year in council tax to those living in the cheapest property. Unlike the other group, I have a feeling they could find quite of lot of uses for the extra £750 they would have had for the next five years.

No doubt, Gordon will say that the poorest would be able to claim council tax benefit, anyway. But that case is crushed by Sir Michael as well, when he points out that there is £1.8bn unclaimed council tax benefit because of complications and stigma in filling in forms. He has a good answer for that: give them an automated rebate instead. But guess what? The government, faced with paying out with almost as much as they can raise on a 1p income tax, isn't keen on doing that immediately either.

If Gordon has wimped out on doing anything redistributive on council tax, the Tories have even been worse. Caroline Spelman, their spokeswoman, issued hysterical statements warning the middle class, Daily Mail readers, of tax bombshells if they repaved their patios. She appears to want to preserve the ludicrous 1991 valuations, which are presently used to work out council taxes (even for homes built in 2007), in aspic. No doubt, if council taxes had not been invented, she would still be defending medieval tithes, as the best way of raising taxes.

The Liberal Democrats' plan to replace the council tax with a local income tax is also exposed in the report as not being properly thought-out. This left Labour with a chance to be bold, to go out and argue that those who have made the most out of England's obession with ever-rising property prices should pay a little more tax. The change would have left those in the middle neither better-, nor worse-off. But I was forgetting that the old "s" word, socialism, is only used by Gordon as a bit of rhetoric at trade-union rallies.

sirmichaellyons gordonbrown philwoolas counciltax treasury chancellor carolinespelman propertyprices propertyvaluations

Single mothers with three-year-olds may have to seek work

By Andrew Grice, Political Editor

(Privilieged Champion)

Published: 06 March 2007

Single mothers could be forced to seek work when their youngest child reaches the age of three, or face benefit cuts under wide-ranging government plans to reform the welfare state.







At present, lone parents do not have to make efforts to find jobs until their youngest child is 16. That is expected to be reduced to 12 from next year under proposals by David Freud, an investment banker who reviewed the Government's welfare-to-work strategy.







Mr Freud said that Britain could eventually shift to a Scandinavian-style system where single mothers have to seek work when their youngest child is three. Ministers admitted that was only a long-term idea, but suggested the age could be lowered from 12 in stages as Labour honours its pledge to provide all-day child care from 8am-6pm from 2010.







If they did not try to find at least a part-time job, lone parents would face the same sanctions as the unemployed, who can lose benefits for refusing to attend job interviews or training.







Other elements in the Freud review include an expansion of the role of private and voluntary groups to help "hard to reach" jobless people back into work through one-to-one counselling. They will be paid a bonus if someone remains in work for three years, but trade unions criticised the "part-privatisation" of the benefits system and warned that jobs would be lost.







Another controversial proposal is for stricter tests for new claimants for incapacity benefit. The partners of the unemployed would face similar pressure to find work.







Gordon Brown, who is expected to become prime minister this summer, promised to "champion" the reforms set out in the Freud report and said they would be taken forward in his Budget in two weeks' time and a government-wide spending review this summer. The Chancellor launched the report yesterday along with Tony Blair and John Hutton, the Work and Pensions Secretary, in a clear signal that he would continue the reforms.







Mr Brown signalled a drive to prevent teenagers slipping through the net when they leave school. The 16-25 year-old age group could be offered special allowances, but they would lose them if they did not go into training, work or full-time education.







Mr Hutton said looking for work when a child reached the age of 12 was a "perfectly reasonable starting point", adding that there was a case for progressively reducing the age even further in the future.







But the plans have run into immediate controversy. Chris Pond, chief executive of One Parent Families, said: "Taking a strong-arm approach to these parents would be wholly counter-productive, intensifying the pressures on them while deterring those lone parents who are work-ready from coming forward for the excellent voluntary, New Deal scheme."





The Freud review recommendations







* JOBS







To achieve the Government's "extremely challenging" target of an 80 per cent employment rate, it should help get 1.3 million of the 3.1 million people who have been on benefits for more than a year into work - including 300,000 of the 780,000 lone parents on income support and one million of the 2.68 million people on incapacity benefit.







* PROVIDERS







Jobcentre Plus, the Government's network, should focus on the easier-to-place jobless while private firms and voluntary groups should tackle the hard-to-reach groups such as the long-term unemployed, who often suffer multiple deprivation and need one-to-one support.







* LONE PARENTS







The report's author, David Freud, said that "work is an escalator out of poverty" for single mothers. He proposed that they should have to seek work when their youngest child is 12, rather than 16 as at present, and said the age could be gradually reduced to as low as three. He cited the system in Denmark and Sweden, where the rate in effect is three but there is greater child care provision.







* SICK AND DISABLED







Stricter tests for new claimants of incapacity benefit should gradually be extended to all 2.68million people on the benefit. The system requires people capable of some work to take up job or training opportunities.

Powered by ScribeFire.

Foreclosures May Hit 1.5 Million in U.S. Housing Bust (Update3)

March 12 (Bloomberg) -- Hold on to your assets. The deepest housing decline in 16 years is about to get worse. As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries. The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month. ... Subprime lenders Ameriquest Mortgage Co. in Irvine, California; Ownit Mortgage Solutions LLC and WMC Mortgage Corp., a subsidiary of General Electric Co., in Woodland Hills, California; Mortgage Lenders Network USA Inc. in Middletown, Connecticut and Fremont General Corp. together have fired more than 5,600 workers in the past year...New Century already has cut 300 jobs and its 7,000 remaining employees are waiting to see if the company will survive. ...Defaults may dump more than 500,000 homes on a housing market already saturated with leftover inventory built during boom times, New York-based bond research firm CreditSights Inc. said in a March 1 report. ...Mortgage defaults may climb to $225 billion over the next two years, compared with about $40 billion annually in 2005 and 2006, according to debt strategists at Lehman Brothers Holdings Inc. The portion of subprime loans more than 60 days delinquent or in foreclosure rose to 10 percent as of Dec. 31, from 5.4 percentin May 2005, the highest in seven years, according to data compiled by Friedman Billings Ramsey Group Inc. of Arlington, Virginia. "What we're seeing in this narrow segment is the beginning of the wave, This is not the end, this is the beginning.'' Bies said.

To contact the reporter on this story: Bob Ivry in New York at bivry@bloomberg.net

Supervisors Re-Examine Affordable Housing

Mar 13, 2007 By Anthony Ha Hollister- The Board of Supervisors will discuss revising the county's affordable housing policies at its meeting today. County Planning Director Art Henriques said he will present a series of staff recommendations and ask the supervisors to provide further direction. Those recommendations include reducing the county's 30 percent inclusionary housing requirement, changes to its inclusionary housing fees and the addition of a full-time housing analyst to the county's planning staff. According to Henriques, the last sizable affordable housing development built in unincorporated San Benito County was the Riverview Estates, a development completed in 2002. The supervisors held a special study session on Jan. 30 to discuss affordable housing issues. At the meeting, planning staffers acknowledged that existing policies haven't led to the creation of much affordable housing - only three developers have paid the county's inclusionary housing fee since the fee was approved in 2003. And of those, two have received refunds. Many of the meeting's speakers were critical of the county requirement that developers sell 30 percent of their housing at less-than-market rates or pay in-lieu fees. Beverly Bryant, executive director of the Home Builders Association of Northern California, southern division, said the inclusionary housing requirement is too high and scares developers away from San Benito County. And since development is needed to fund affordable housing, everyone loses, she said. "I think what the county needs to do is look realistically at what it's set up," Bryant said. "If there has to be inclusionary zoning, there are ways to do it to make more housing available, more housing at lower cost." Henriques said the 30 percent requirement is much higher than that found in neighboring counties. "Our sense from surveys is that 15 to 20 percent is not unreasonable for communities in California that have (a similar) requirement," Henriques said. At January's meeting, county planner Byron Turner said that if the inclusionary housing fee is updated to match increasing affordability requirements, it could jump from $27,019 to $109,755 per unit. Henriques said Monday that the supervisors are interested in lowering the fee, as well as broadening it to include the builders of individual homes, not just the developers of large subdivisions. Henriques said the supervisors will need to tell staffers which efforts should take top priority. "Working on these issues takes staff time," he said. The lack of time, Henriques added, is the main reason he's recommending the addition of a full-time housing analyst who would both work on county housing issues and coordinate with the City of Hollister, local nonprofits and developers. "We don't have a person who can pull all this together," Henriques said. Supervisor Pat Loe said she's interested in looking at policies in other counties. She noted that - as described by Assemblywoman Anna Caballero in her recent visit to San Benito County - Salinas has an a flexible inclusionary housing requirement, ranging from 20 to 35 percent. Developers who provide more affordable housing also have more flexibility about how they build, Caballero said. "That's a good place to start," Loe said. Many believe that the supervisors aren't going to resolve the issue at today's meeting, or at their retreat next week. "The solutions are going to take a while," Bryant said. "They're not going to come overnight." Anthony Ha covers local government for the Free Lance. Reach him at 831-637-5566 ext. 330 or aha@freelancenews.com.

GE Money: Time to put the low doc loans genie back in the bottle.

Crikey.com Glenn Dyer writes: Some of the biggest names in US finance have been caught up in the spreading collapse of the so-called sub-prime mortgage market. These include Citigroup, HSBC, Goldman Sachs, GMAC and General Electric's finance arm, GE Money which operates in Australia and aggressively markets similar loans through the Wizard Home Loans operation it bought in late 2004. The crisis in the US sub-prime mortgage market (that's what we call no doc/low doc housing loans with no deposit) is worsening with the second biggest lender in the area likely to go bankrupt very shortly. It's just not an isolated event: the sub-prime mortgage market in the US has been responsible for much of the boom in home prices over the past two years as more and more money has been lent. Some US analysts say that it has been the single most important factor in the US housing boom, which peaked last year and then collapsed, threatening the rest of the US economy. Now billions of dollars of mortgages are going bad as default rates skyrocket, people lose their homes and new lending dries up. GE Money bought a small sub-prime lender called WMC Mortgage Corp in April 2004, fed it billions of dollars and watched it jump from number 12 to number five among sub-prime lenders. Last Friday it shut off new loans, closed several offices and laid off at least 20% of its staff, some 450 people, as the realisation grew that it is going to lose a lot of money for GE. The reason for the problems is that many loans were sold not only as 100% financings with no deposit and no or low documentation, but they contained cheap starter rates where the initial interest rate was held down for six months to more than a year. Those higher rates are now kicking in and many people can't afford them: as well as the value of their houses being dragged down by the fall in the overall housing market. It's a horrible double whammy that has seen the industry contract and turn off the lending tap in the space of a month. And why is this important in Australia? The purchase of WMC gave GE Money a taste for similar businesses and six months later it bought Wizard Home Loans and its parent, from a group of investors which included PBL, founder Mark Bouris and ABN Amro. Last weekend saw Wizard advertising a new offering of a no doc/low doc loan with 100% finance (ie, no deposit), the very product it has stopped offering in the US because the business is imploding. Here's the Wizard Website with its 100% finance offered in the banner headline at the top of the page. There are growing problems with no doc/low doc/no deposit loans here, especially in the suburbs of western and southwestern Sydney where foreclosures are still rising and house prices are falling. It's not the crisis it is in the US but it makes you wonder how GE can continue to offer this sort of finance here, with our problems, and knowing the problems that it has got itself into in the US.

Rental Crisis

Today's Perspective ABC Radio Natitional I hope I'm not the only one who sees the irony in Australia's economic crisis du jour-the chronic shortage of rental accommodation? A shortage of houses and apartments for rent? Hang on, didn't we just have Australia's biggest ever housing boom? Wasn't the boom driven by investors, rather than homebuyers? Weren't all those "Mum and Dad" investors building units for rental accommodation? If so, how come we've run out of rental housing, just two years after the boom ended in the Eastern States? And is the solution simply to drive rents up ten or twenty per cent, as seems to be happening? Or should we just abolish stamp duty to kick life back into the building industry and solve the problem with another round of speculative building, as the Property Council recommends? No way! What we should do instead is take stock of precisely why we've ended up in this completely senseless pickle. The root cause of the problem is that speculation, and not investment, has determined how many houses are built in Australia. So-called investors purchased apartments, not to rent them out, but to make a profit by selling them down the track for a higher price. In fact, they expect to lose on their rental income, because that earns a nice little tax break, from the combination of negative gearing and a 50% tax rate on capital gains. This scam worked a treat while housing prices went ever higher, and there was always another "investor" willing to grab the baton on this relay race into the stratosphere. But its days have come to an end. Prices have been driven so high that, not only can first home buyers no longer afford them, but even "investors" no longer believe that there will be other "investors" further down the track. As a result, the supply of new housing has dried up, and simultaneously we've realised that not all that much was being built anyway, relative to demand: why build a new place, when the negative gearing and capital gains tax trick work just as well on a second hand place? Let's face it: this was always a foolish way to run a property industry, and it was always going to come to grief. Many years ago, a certain prescient economist, writing of a similar period of economic madness, put it superbly: "Speculators", Keynes wrote, "may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done." Ill-done indeed! And the legacy of our speculation-driven property market is not restricted to the unpalatable combination of unaffordable houses, excessive rents and inadequate accommodation. The truly insidious side of the housing casino is the debt it's led us to accumulate. The Reserve Bank noted this week that housing prices rose 175 per cent from the mid-1990s. But mortgage debt rose by almost 450 per cent over the same period! As a result, if prices fall, many "investors" will have debts that exceed the value of their investments. We are now in the invidious situation of having house prices that we can't afford, and yet we also can't afford to have them fall. The solution is certainly not to alter policies so that the bubble resumes, speculators once again start building apartments in order to sell them to other speculators, and as a by-product, renters can once again find apartments rented by landlords who are losing money on the deal. Instead we have to find a way to have a housing industry that builds on the basis of demand for accommodation-and not on the basis of tax-supported speculative gains. That policy isn't likely to be found by looking in the Anglophile countries, all of which seem afflicted by the casino approach to property. It's more likely to involve rental arrangements similar to those of Europe, where tenants have-or had-greater rights and longer-term tenancies. Working out the details of such a policy, and introducing it into Australia's home-ownership obsessed culture, won't be easy. But ultimately something like it has to be done. What would be easier now, and what would have been impossible at any previous time, would be to abolish negative gearing and the preferential tax treatment of capital gains on property. Negative gearing, and the concession on capital gains, only work when property prices are rising-and not only is that the last thing we need, at the moment it's also the last thing most Australians expect. Guests Steve Keen Associate Professor Economics and Finance University of Western Sydney

Venezuela to begin imposing tax on idle lands in April

The Associated Press

Published: January 23, 2007

CARACAS, Venezuela: President Hugo Chavez's administration plans to impose an extra tax starting in April on landholders who fail to obey a government plan for their land, Venezuela's tax agency said Tuesday.

Under legislation approved in 2001, landholders must pay a tax if they fail to register their lands and put them to adequate use by following a government-designed production plan.

Jose Gregorio Vielma Mora, superintendent of the tax agency, told the local Globovision television channel that government officials have yet to establish rates for the levy.

The tax falls in line with Chavez's drive to establish what he calls "21st-century socialism," redistributing the country's immense oil wealth to the poor, the agency in a statement.

The government grades land into five different quality ratings based on soil, location and other factors. Owners must use land for products that are best suited to it. The new tax will be applied to those who fail to do so.

Chavez claims large landholdings are responsible for the failure of agricultural production in Venezuela, which depends heavily of oil production for economic development.

Government officials have begun inspecting large estates, many of which encompass more than 5,000 hectares (12,350 acres), to determine if they are underused or if their ownership may be legally disputed.

Critics of the land-reform initiative claim it violates property rights outlined in Venezuela's Constitution.

Vielma Mora said agency officials have not received details about Chavez's plan for a new luxury tax on property such as second homes, expensive cars and art collections. Chavez announced plans for the tax on Sunday during his weekly radio and television broadcast.

"I want you to know that there's no type of passion for taking away planes, helicopters, yachts, motorboats," he said. "We want those who make more (money), who have a superior quality of life, to contribute to improve our country through solidarity."