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NATIONAL GEOGRAPHIC’S 2007 SUSTAINABLE DESTINATIONS SCORES RELEASED
National Geographic released its 2007 Sustainable Destinations report. Published online in the November/December magazine, the report sets out “To see how the integrity of islands around the world is holding up, Traveler and National Geographic Center for Sustainable Destinations conducted a fourth annual Destination Scorecard survey, aided by George Washington University. A panel of 522 experts in sustainable tourism and destination stewardship donated time to review conditions in these 111 selected islands and archipelagos. The scores that follow reflect the experts’ opinions.”
Guide to the Scores:
Selected Caribbean island scores and comments:
|Dominica||77||“A serious dichotomy between lip service to preserving and protecting its wilderness, which is the major product, and the soliciting of more cruise ships, the proposed oil refinery, and support for Japan on the whaling issue.”|
|Grenadines||77||“One of the last, best hopes of the Caribbean. Bequia is a gem and the Tobago Cays, though overrun with boats, remain the best place to snorkel in the region. The only inauthentic place is Mustique and the two private resort islands.”|
|St. John||70||“St. John is the best in the Caribbean. Much of its natural environment has been saved by the Park Service and ecologically minded business people. Its long term prospects, especially for the locals, will depend on good sustainable tourism management.”|
|Nevis||70||“Great natural and historic beauty, but paradise is under serious threat. The government has ambitions to construct more resorts, which would be unsustainable both environmentally and socially (workers would need to come from elsewhere). The famous coconut plantations are dying thanks to a virus introduced via unquarantined plant stock imported by a luxury resort.”|
|Bermuda||66||“One of the most crowded places on Earth, and one of the tidiest. There is a remarkable dedication to the preservation of its archaeological, historic, and maritime heritage.”|
|Bahamas||66||“Some of the most beautiful islands in the world but are being threatened by big development, second homes, and a loss of everything Bahamian. Still there are some special places like Andros, San Salvador, and Inagua.”|
|St. Kitts||59||“Fragile ecosystems are under pressure from infrastructure and property development. Historic structures start to be appropriated and ‘Disneyfied.’ St. Kitts has opted for large resorts, casinos, golf courses, and cruise ships over smaller-scale tourism. With pending development of the so-far unspoiled southern peninsula by luxury chains, the wild beauty will be gone.”|
|Grenada||59||“A special place with rich culture, heritage, and biodiversity. Development is coming in and the government is so desperate they are selling off protected areas.”|
|St. Croix||53||“Social and cultural integrity the most intact of the U.S. Virgin Islands. Environment was drastically changed in the plantation era – a part of cultural heritage. Crime is a major problem, as is water quality on many beaches. Could be sustainable if rampant development is kept in check. Hotels mainly big, with a big footprint on the island. Few locals benefit from tourism. A real West Indian island where locals work and live, not a tourism-dedicated playground.”|
|Puerto Rico||51||“Suffering from too many people, both residents and tourists, and too little environmental sensitivity on the part of both.”|
|St. Maarten||47||“The Dutch side is a mess: out of control high- rise and strip development, loss of community character, traffic congestion, and schlock. The French side looks great by comparison.”|
|47||“Roatan is a cancerous growth slowly spreading to the north coast of Honduras. It is a greed-driven, unsustainable tourism model, degrading its terrestrial habitat and the surrounding reef system. Most businesses are owned by Americans, and short-term return on investment is paramount.”|
|Grand Cayman||47||“Grand Cayman is worthwhile only as a gateway to Cayman Brac or Little Cayman. The two smaller islands are delightful. Grand Cayman might as well be South Florida.”|
|Jamaica||44||“Both beautiful and ominous. The crime situation is well known, and the all-inclusive resort industry isolates foreign tourists from the country to an extreme degree. Over-fishing has taken a serious toll, and the national parks are under siege.”|
|St. Thomas||37||“Must have been a lovely place before it became the shopping mall for cruise ships. Still some pretty beaches away from the shoppers and stunning views from steep hills.”|
CONSERVATIONISTS WIN CRUCIAL VICTORY IN BELIZE
A large turnout, intense protest and public outcry carried out over the internet can all be credited as major factors in the rescuing of the Bacalar Chica National Park and Marine Reserve, a significant protected areas along the Mesoamerican Barrier Reef in Belize. In 1996, the national park was one of seven sites along the reef designated as a UNESCO World Heritage site as part of the Belize Barrier Reef Reserve System.
After a critical meeting held between both parties, the Belizean government has fully agreed to the demands of the conservationist’s group APAMO – the Association of Protected Areas Management Organizations. APAMO reports it will remain vigilant, and having successfully obtained all of its requested concessions, have called off a planned major protest.
The announcement reflects a change in the Belizean government’s prior stance to de-reserve, and open for sale, portions of the World Heritage Site. After the Minister of Lands announced that the deal was cancelled, the residents of San Pedro held its planned town meeting which overflowed with concerned residents who were soon celebrating the cancellation announcement. Elito Arceo, President of San Pedro Business Association, noted residents are still proceeding with caution as they want more than a press release and await an official document citing that the reserves will not be de-reservedLink here (scroll down).
HEALTH DISASTER FORECAST IN THE FRENCH WEST INDIES
Guadeloupe and Martinique face a “health disaster” with soaring cancer and infertility rates because of the massive long term use of banned pesticides on banana plantations, a top cancer specialist warned. Martinique and Guadeloupe are currently facing “an extremely serious crisis linked to the massive use of pesticides for a great many years,” states Professor Dominique Belpomme.
“The rate of prostate cancer is major. The French Caribbean is second in the world ranking. Extrapolations show that nearly one male in two will be at risk of developing prostate cancer,” he said. “In addition the rate of congenital malformation is increasing in the islands. And women are having fewer children than 15 years ago. The standard theory is that this is because of the pill, but I think it is linked to pesticides.”
Chlordecone, also known as kepone, which kills weevils, was banned in France’s Caribbean territories in 1993, but it was used illegally up to 2002. The French islands produce 260,000 tons of bananas a year, worth some €220 million ($305 million). The industry, which employs 15,000 people, also receives €130 million euros in EU aid.
“The tests we carried out on pesticides show there is a health disaster in the Caribbean. The word is not too strong. Martinique and Guadeloupe have literally been poisoned. The poisoning affects both land and water. Chlordecone establishes itself in the clay and stays there for up to a century. As a result the food chain is contaminated, and especially water. In Martinique most water sources are polluted,” Professor Belpomme said.Link here (scroll down).
ST. KITTS AND NEVIS TRY TO CHECK ESCALATING COST OF LIVING WITH PRICE CONTROLS
29 items oincluding basic food items such as chicken, meats, fish and rice as well as non-food goods including toothpaste, disposable diapers, and some pharmaceutical products are addressed in a Price Control Order announced by the St. Kitts and Nevis government.
At a press conference on Thursday at Government Headquarters, Minister of Industry, Commerce and Consumer Affairs Dr. Timothy Harris said the price control initiative is a direct intervention by Government to protect consumers and small businesses from the spiraling costs of goods, and to achieve a level of moderation in the cost of living.
“We are aware that the inflationary trajectory of prices is partly caused by imported inflation since we import almost all that we consume,” said the minister. “The Government, however, is concerned about the diminishing purchasing power of pensioners on fixed incomes, our workers on the Industrial Estate, our domestic workers and other categories of fixed income earners who continue to see their hard earn dollars stretched each week.”
The published Price Control Order will set the maximum wholesale and retail markup to be applied to the listed items. Harris explained that a 20% markup of the landing costs for frozen items and dry goods has been prescribed for wholesalers. A retail markup of 30% on frozen goods, 20% on dry goods and 35% on pharmaceutical products of the wholesale price is permitted.
The Minister said the matter of inflation is a national concern and government was careful in considering all factors when making a decision. He cited recent discussions with bakers – who recently sought to raise the price of bread and other baked goods, due to the increase in the cost of flour overseas – in emphasizing this point. “We had a wide acceptance of the view that the prices were moving too rapidly and too frequently,” he said.Link here (scroll down).
BAHAMAS BUSINESS COMMUNITY URGED TO UPHOLD IMMIGRATION LAWS
Minister of State for Immigration, Elma Campbell has urged the business community to uphold the country’s immigration laws, and has warned that flouting these laws could jeopardise the country’s political and economic status.
Despite an ongoing shortage of suitably qualified and skilled labor in the jurisdiction, Campbell recently told the Bahamas Chamber of Commerce that while the Department of Immigration is committed to approving Work Permits for foreign persons to be engaged in the Bahamas, this will be done only as and when a suitably trained Bahamian is unavailable or unwilling to accept such employment.
Campbell has now announced that the government’s recently initiated comprehensive immigration policy is “well underway”, and is addressing the challenges facing the Department of Immigration in the areas of illegal migration and the processing of work permits.
Since the launching of the new immigration policy, the Immigration Board convenes weekly in New Providence and twice a month in Grand Bahama. Campbell revealed that in August, 1,650 work permits and 360 permits to reside were considered. In September, 1,100 work permits and 100 permits to reside were considered, and in October, 1,300 work permits and 90 permits to reside were considered. Of these, for the financial services sector there were 50 applicants in August, 140 in September and 60 in October.
Campbell also restated that it is the policy of the government to refuse work permits for persons who enter the country as visitors, although she revealed that the government makes every effort to expedite work permit applications where there is an urgent need to engage that particular employee.Link here.
During the past five years Latin America has reaped the benefits of surging commodity prices and low interest rates. Unlike past commodity-driven booms, this one has not been accompanied by fiscal profligacy. Indeed, net public debt issuance has declined sharply, with many countries buying back some of their outstanding debt. Some have also continued down the free-market reform road toward flexibility and modernization, notably Colombia, El Salvador, Guatemala and Peru.
But not all of the politicians in this region believe in free markets. They have turned back the clock. Venezuela’s President Hugo Chávez is the leader of the negative reformers. Following his bad example are Ecuador, Argentina and Bolivia. Chávez came to power in February 1999. He hails Cuba, the largest open-air prison in the Americas, as his model. His revolution’s enemy is the marketplace.
According to the World Bank’s recently released “Doing Business 2008” report, Venezuela is tied with Zimbabwe as this year’s champion in smothering economic freedom. Venezuela sank from 163rd to 172nd out of 178 countries covered. At present high oil prices are masking Venezuela’s economic sins. What happens when oil’s price comes back to earth? Do not expect any surge of entrepreneurship to take up the slack in Caracas.
Oil prices have increased almost 8-fold since Chávez took office and now account for 90% of Venezuela’s exports. Despite that, Venezuela’s economic performance under Chávez has been anemic. Its GDP per capita has grown at an average rate of only 2% per year. Inflation has averaged 34% a year, the highest in Latin America. When Chávez assumed power the bolivar, Venezuela’s currency, was trading at 577 per dollar. In February 2003 the bolivar was pegged to the U.S. dollar at 1,600. The official rate is now 2,150 to the greenback. But on the black market the bolivar is worth 6,000 per dollar.
Ecuador has been the most recent country to be caught up in Chávez’s Bolivarian Revolution. Rafael Correa, a trained economist, was sworn in as Ecuador’s new president on January 15. Like Chávez, he is very popular, and clever like a fox. Since assuming office Correa has completely sidelined the Ecuadoran Congress and pushed through a popular referendum that approved the establishment of a Constituent Assembly to rewrite Ecuador’s constitution. The new constitution will be the 20th since Ecuador gained independence in 1830. Correa’s objective is to amass executive power, as Chávez has in Venezuela, so he can do a better job of stomping out free-market economics.
Correa has already instituted a de facto nationalization of oil production by raising the state’s share of oil companie’q profits from 50% to 99%. One big thing differentiates Ecuador from Venezuela. After a long history of bad money, Ecuador abandoned the sucre in 2000 and replaced it with the U.S. dollar. Since then the average GDP per capita growth rate has been 4.4%, and inflation is estimated at 2.1% for 2007. No wonder dollarization has an 82% approval rating.
To pull off a Bolivarian Revolution in Ecuador, Correa must either dump dollarization or undermine it. Given its popular support, Correa will not attack dollarization directly. Yet he has started to undermine it by proposing a 1% tax on capital flows into and out of the country. This form of exchange control is strictly verboten under orthodox dollarization. It is also a very worrying sign. It indicates that Correa will attempt to impair dollarization, which is the linchpin for the Ecuadoran economy.
When the commodity-driven boom abates, Latin America’s economic sinkholes will take hard hits. The next round of revolutions and constitutions will not be pretty.Link here.
NEW LAW TO BOOST PANAMA’S REAL ESTATE SECTOR
Panama’s real estate sector will benefit as a result of a new law recently passed by the country’s National Assembly giving multinational companies performing certain tasks a significant tax break, according to company specializing in investment property in Panama.
The Knightsbridge Investment Group says that the new rules, known as “Law 41”, are designed to encourage the establishment of multinational companies in Panama, and give exemption to multinationals from the payment of income tax in the Republic of Panama for all services provided to any entity domiciled outside Panama. In addition, the legislstion allows licensed corporations to hire trusted foreign employees to fill management positions in the company, authorizing them to work and reside in Panama, which could spell an influx of international professionals moving to the jurisdiction.
While years of economic and political stability, a healthy tourist industry, and the expansion of the country’s greatest economic asset, the Panama Canal, have underpinned the country’s real estate market, Knightsbridge Investment Group has suggested that Law 41 will give the country’s real estate sector an “unprecedented boost”.
HP and Caterpillar are just two of the first to announce new offices in Panama City, with Proctor and Gamble also rumored to be relocating a significant part of its Latin American business to Panama, Knightsbridge claims.
Residential sales prices have been increasing, particularly in prime locations, but Knightsbridge says that another interesting trend has been those related to Class A office space. Vacancy rates for Class A office space are already down from 30% last year to 3%, i.e., today there is virtually no available Class A space in Panama City. Class A office space lease rates have increased by approximately 20% over the past year, the company stated.
“Average lease rates for Class A are $16-$20 per squre meter per month with total occupancy costs at $22.74 per squre meter per month – below other areas in the region, including Costa Rica, Dominican Republic, Bahamas, Uruguay, Caracas, Bogota, Mexico City, Buenos Aires, Sao Paulo, and Rio de Janeiro – giving ample space for growth and also allowing for multinationals moving to Panama,” announced Alan Morrison, Vice President of Knightsbridge Investment Group, Panama City.
“In addition, current sales prices are favorable, with the average sale price at $2,200 per squre meter. With these prices and Law 41 providing the final impetus for Multinational Corporations to relocate to Panama, the time is right for those looking to make an investment in real estate in Panama,” Morrison concluded.Link here.
REAL ESTATE RAJ
Indian real estate developers are enjoying boom times and want your capital. Here is one way to get it to them.
The Capitalist fervor in India has, not surprisingly, a real estate component. The development business is growing at least 25% a year, says a report by the Federation of Indian Chambers of Commerce & Industry and Ernst & Young. That puts it at a minimum $5 billion worth of projects over the next couple of years. High rents in Mumbai place the city firmly in the top 10 most expensive office markets, along with London, Hong Kong and Tokyo. Big international players are piling in.
If you want in, you will encounter barriers. Foreigners still cannot directly own Indian property. Nor may they own shares of companies listed on Indian exchanges. But they can buy shares of foreign entities that do business in India as partners of Indian developers, or of the Indian realty companies listed on the Alternative Investment Market of the London Stock Exchange. Such AIM-listed companies raised $4 billion in the past two years, with another $5 billion expected this year.
This table lists four such firms, which are developing projects themselves or in partnership with other Indian builders. They are all on the AIM, which is accessible to Americans – at a price. Discounter Charles Schwab, for example, requires a minimum investment order of $5,000 and charges a commission of $100 or 0.5%, whichever is higher.
The disclosure is scant and AIM has a funky reputation. These four, at least, have been vetted by Jones Lang LaSalle Meghraj, a joint venture of well-regarded British and Indian real estate money managers operating out of New Delhi.
Note that they are trading at or below book value, which was calculated using company financial documents with property values derived from recent appraisals. The companies’ portfolios consist of raw land and half-completed and finished projects. The companies are not like U.S. real estate investment trusts, where most of the earnings pass through to investors. They keep the money to cover growth costs. Do not expect a lot of transparency here, however. The financial statements do not show anything comparable to a U.S. earnings or funds-from-operations figure.
Trikona Capital, in business four years, listed its investment unit, Trikona Trinity Capital, on AIM last year after an offering that raised $465 million. Unitech Corporate Parks has the biggest land bank, with 10,000 acres heavily concentrated in the region around India’s capital, New Delhi. Hirco, strong around Mumbai, wins kudos from Jones Lang for its solid management.
Who knows when India will get its real estate crash, but for now Trikona is coining money. According to Numis Securities analyst Colette Ord in London, Trikona’s net asset value (assets minus debt) increased 32% in its first year as a public entity. Trikona, she says, has the largest number of deals and developer-partners of any AIM-listed Indian realty outfit.
Even with the welcome mat laid out, Indian real estate is not for the fainthearted. Trikona’s founders grew up in India and thought they knew how things worked, but they had more than their share of problems at the outset. The country ranks 120th out of 178 for ease of doing business, according to a World Bank analysis. The two did not pull off their first deal for three years. One investment is with a developer who needed 12 years to track down the hundreds of deeds for a property outside Mumbai, where he is building a residential, commercial and office project.Link here.
EURO ADOPTION TO MEAN BIG CHANGES FOR CYPRUS AND MALTA
Residents in popular British expat destinations will have to recalculate everything.
Lloyds TSB Offshore Fund Managers has suggested that the adoption of the euro in 2008 is likely to mean big changes for residents of Cyprus and Malta, and for those who are considering working or retiring there.
The islands, which are popular with British expats, face changes beyond how goods are priced in the shops. Residents and those considering moving there may have to switch their savings into euros, to avoid exchange rate risks from fluctuations between currency of income and currency of expenditure.
Bron Lysiak of Lloyds commented last week, “It is a huge change for everyone in Malta and Cyprus. One now has to think in a completely different currency and it is perhaps the most fundamental economic change that can affect a country. Those who are using investment to derive an income – such as retired people or those thinking of retiring to the islands – must be careful of a possible currency risk if they do not receive their income in euros.”Link here.
SLOVAKIA ON TRACK FOR 2009 EURO ENTRY SAYS DEPUTY FINANCE MINISTER
Slovakia is on track to adopt the euro in 2009 despite a jump in inflation and will seek to dispel any doubts that it can keep a lid on price growth, a deputy finance minister said. Frantisek Palko, secretary of state at the Slovak Finance Ministry, said Prime Minister Robert Fico would visit Brussels in December to convince top EU officials his country would continue to converge quickly with the euro zone.
Of the 12, mostly ex-communist countries that joined the EU in 2004 and 2007, only Slovenia has adopted the euro. Cyprus and Malta will follow suit next year, while other newcomers have to wait because of wide budget deficits or high inflation. The EC’s economic forecasts showed last week that Slovakia should meet the euro entry criteria on inflation and budget deficits in May, when the EU executive will judge whether the country is fit to adopt the single currency.
But EU Monetary Affairs Commissioner Joaquin Almunia said the Commission would assess scrupulously whether Slovakia met the inflation criterion in a sustainable way. Inflation in Slovenia has soared after it adopted the euro this year, making the Commission wary about future euro newcomers’ ability to keep prices under control, officials say. Slovak annual inflation unexpectedly surged to a 10-month high of 3.3% annualized in October from 2.8% the previous month.
The EC last year rejected Lithuania’s bid to join the euro zone because the country missed the inflation criterion by a fraction of a percentage point and the EU executive expected prices there to rebound, as they later did. Slovakia meets other euro entry criteria including a budget deficit below 3% of GDP, a stable exchange rate and sufficiently low long-term interest rates.Link here.
INNOCENTS AT HOME
When foreign firms list in the U.S., how well are American investors protected? Perhaps not very.
Eric Semler, who runs a New York City hedge fund, invests in media and communications companies. One failed deal sticks in his craw, and Semler has gone to federal court in New York City for restitution. He claims that two private equity firms, Texas Pacific Group and Apax Partners, committed securities fraud by driving down the stock price of a Greek company listed on Nasdaq that his fund had a stake in and hiding a potentially higher takeover offer.
The lessons for investors? Just because a foreign company is listed on an American exchange does not mean you are afforded every protection.
“We are not the sort of guys who are looking to pick a fight,” Semler says. “But when someone comes in and steals something from us it is very frustrating.” He claims his fund, TCS Capital Management, was shortchanged $108 million. Texas Pacific Group ($30 billion in investor assets) and Apax in London ($20 billion) decline comment.
The content of their motion to dismiss the suit, however, speaks volumes. It says the buyout was a purely foreign affair to which U.S. securities laws do not apply. If TCS is to prevail under U.S. law, it will have to convince a federal judge there is clear evidence of securities fraud. “If they trade on Nasdaq and cheat U.S. investors, it doesn’t matter where the company is incorporated. U.S. securities law applies,” says lawyer Howard Kaplan, who is representing TCS.
The shootout involves TIM (short for Telecom Italia Mobile) Hellas, formerly Greece’s 3rd-largest wireless phone company. Semler’s hedge fund started investing in it in early 2004 and eventually put up $83 million, or $18.30 a share, for a 5.3% stake. Semler says TIM Hellas was trading at half the average multiple of European wireless firms. Telecom Italia owned 81% of TIM Hellas at the time. Semler figured, a bit naively, that worst-case the Italian parent would buy out the rest of the minority investors at a modest premium. Instead, in April 2005 Texas Pacific and Apax announced a definitive agreement to buy Telecom Italia’s stake for $22 a share (a 3% premium to previous day trading), valuing the company’s stock at $1.9 billion.
While the offer would have handed Semler a small profit, he felt it was a lowball by as much as $10 a share, compared with what cell firms were trading for on the Continent. In August 2005, shortly before minority shareholders were set to get bought out, Semler asked TIM Hellas’s TPG-Apax-controlled board to appoint an independent fairness committee to assess the price.
The board, in a proxy statement filed with the S.E.C., declared the merger price “fair”. After all, it had gotten a fairness opinion from what it described as “independent investment bank” Morgan Stanley – a firm that had earned $40 million from Texas Pacific and Apax the previous two years. The board also informed minority investors that it would not follow the U.S. practice of establishing a special committee to assess the fairness of the deal. “Greek law does not provide appraisal rights in connection with the merger,” it said.
The proxy also noted that an unnamed “potential investor” – later revealed to be Egyptian telecom mogul Naguib Sawiris – had expressed interest in putting in a competing bid that might have resulted in an offer of $26 a share. However, the proxy referred to Sawiris’s bid as “highly conditional,” and TIM Hellas’s owners rejected it.
Another wrinkle: TIM Hellas later told the S.E.C. that TPG and Apax had over the past two years offered Telecom Italia as much as €20 a share (now worth $29) for TIM Hellas but were rebuffed. The buyers say Telecom Italia accepted the lower offers because TIM’s fortunes were declining. Semler is arguing that the missing link is a grab bag of goodies, like handsets, that Telecom Italia is selling to TIM Hellas. Telecom Italia says the services were not material to the buyout price.
Semler was infuriated further when he learned that TPG and Apax bought out Q-Telecom, Greece’s 4th-largest cell carrier, for 14.3 times annualized trailing earnings – 2.8 times the multiple the same syndicate was paying TIM Hellas investors. The new owners quickly merged TIM Hellas with Q-Telecom and revamped management and marketing. Then, in February, they flipped the company to Sawiris for $4.4 billion, making an 80% profit on TIM Hellas in 20 months. Their adviser on the deal? Morgan Stanley. Now both Apax and TPG are considering buying a stake in Sawiris’s firm, the Wall Street Journal reported in October. Sawiris declines comment.Link here.
THE MOST AFFORDABLE PLACES TO LIVE WELL IN THE U.S.
Triple-digit monthly parking fees, $12 movie tickets, clogged intersections and weekly grocery bills that rival some mortgage payments. Welcome to life in the Big Apple. And Los Angeles. And Chicago. Of course, residents in these cities also get access to world-renowned museums, seats at the games of the winningest sports teams, well-kept parks and cutting-edge restaurants.
But, it is possible to enjoy such amenities without the hassles. Step one? Look for more affordable spots that offer a similar or better quality of life, and where the dollar goes far. First among them? Minneapolis, Minnesota. It nabbed the top spot on our list of Most Affordable Places To Live Well. There, homes are relatively affordable, residents enjoy a high quality of life and access to choice arts, leisure and entertainment offerings.
Our rankings incorporate a variety of metrics. First, we looked at housing affordability in the country’s 50 largest metro areas. Next was a cost of living index developed by The Council on Community and Economic Research, which looks at how much residents of each city spend on goods such as energy, clothing and a half-gallon of milk. To determine quality of life, we used a Forbes index based on 2006 Census figures that measures strength of schools, quality of health care, crime and poverty rates. Finally, because we all need something to do, we used data from Sperling’s Best Places that identifies the country’s best arts and leisure destinations.
Last quarter, 61% of the Minneapolis area’s home sold were available to the median household earner, which puts the City of Lakes in 17th place of the 50 cities we measured. Minneapolis ranked just under the median in cost of living. Its quality of life ranking most distinguishes it. Here the city ranked 3rd, and came in 9th in arts and leisure offerings. Indeed, Minneapolis has top-notch cultural institutions, whether they be theaters, music halls or museums. The Twin Cities receive funding from local corporate foundations and from charitable institutions. Minneapolis’s Midwestern neighbors Indianapolis and Cincinnati offer many of the same amenities, and rank second and third, respectively, as places to live well for less.
Cost of living in many cities is undoubtedly high, but when it comes down to it, what matters most is housing affordability. A half-gallon of milk costs about 80 cents more in San Francisco than it does in Tucson, but you would have to eat a whole lot of cereal for that price differential to add up in the same way as the cost of real estate. Only 5.7% of San Francisco homes are available to the median income earner, compared to 33.9% of homes in Tucson, despite Tucson’s far lower median income.
Land use policies and regulations often have more to do with housing prices than demand. Houston, for example, has virtually no zoning or growth regulation policies, and as a result, has some of the most affordable housing in the country. The same can be said of Dallas and Atlanta.
But the cultural aspects of a city cannot be ignored, especially as Americans are beginning to focus more on “the where” of their lives, and then figure things out from there. “Jobs are certainly an attractor, but we are seeing a new kind of trend – especially with young, highly skilled individuals – first moving to places they like, and then finding a job they like from there,” says Robert Puentes, a fellow at the Brookings Institution. “In some places ... the job market is not particularly strong, but it’s attracting a lot of domestic migrants even with relatively high housing prices.”
High housing prices in some places may be set off by job growth, which also reflects positively on quality of life. Part of the reason for the rise of once-secondary cities such as Austin, Texas, and Charlotte, North Carolina, is due to technology bridging the distance divide. Both have recently emerged as cheaper satellites of Silicon Valley and Wall Street. And neither have the screeching subways or pricey parking lots.Link here.
CREDIT CRUNCH HITS U.K. HOUSE MARKET
The impact of the global crunch is being felt by the British housing market. House prices in the country have fallen at their fastest rate in nearly 2 1/2 years, according to data from the Royal Institute of Chartered Surveyors. There was also an increase in the number of new homes being registered as for sale at estate agents.
“Interest rate rises, the recent credit crunch and subsequent tightening of lending conditions have all had an impact upon demand,” said the institute. It added that a shortage of housing supply could help support house prices. The decline was happening in all parts of the country apart from London, where, according to the institute, prices have now stabilized.
Economists are still unsure on whether the slowdown will turn into a crash. And the housing shortage, which has been a headache for the British government, could be its saving grace. The supply shortage is also one reason why economists have been skeptical about the IMF’s warning that Britain and the rest of Europe could face a “significant correction” in their housing markets.Link here.
WARREN WANTS TO BUFFET YOU WITH HIGHER TAXES
Warren Buffett has been getting a load of publicity lately by declaring that the members of The Forbes 400 have lower tax rates than corporate receptionists and other middle-class Americans. In an interview with Tom Brokaw, Buffett said, “The Forbes 400, a bunch of my fellow rich guys, their tax rate overall to the federal government [is] less than that of their receptionist.”
Nice sound bite, but he is deliberately mixing up the income tax with the Social Security portion of the payroll tax. Every worker pays this tax on earnings up to $97,500. Employees pay 6.2%, and employers match that, for a combined rate of 12.4%. This tax disappears on earnings above $97,500. Thus, most of Warren Buffett’s income is not subject to that 12.4% levy. Social Security taxes are supposed to fund Social Security, period.
The income tax is a different animal. That money goes to fund all non-Medicare, non-Social Security federal programs. So we are talking about two issues here – the federal income tax code and financing Social Security.
Buffett says that upper-income earners are not taxed enough. Federal income tax returns show that assertion to be nonsense. About 1/3 of those who file federal income tax returns end up owing no federal income tax at all. In contrast, the top 1% of income earners – who receive 21% of the nation’s reported income – pay 39% of federal income taxes. The top 5% pay 60%, and the top 50% pay 97% of federal income taxes.
Buffett claims his total income tax rate is 17.7%. But most of his income is in capital gains and dividends. Otherwise, he would be hit by the alternative minimum tax of 26% to 28%. Capital gains are not the same as salary income. Surely Warren knows the difference between the two. As for dividends, they are already taxed at the corporate level. That is why the personal rate was cut to 15% in 2003. It is still double taxation, but less egregious than before. Or does Buffett believe that dividends should be fully taxed twice?
If Buffett had focused on the need to reform the tax code, he would be on sound ground. The incomprehensible, corrupting code has been an abomination for decades. A simple flat tax is the answer. I have long proposed a 17% rate that applies after generous exemptions for adults and children. A family of four, for example, would pay no federal income tax on their first $46,000 of income. There would be no taxes on their savings. Everyone would come out ahead under such a system.
As for Social Security, a basic reform would let younger people have personal Social Security accounts. Half the current Social Security taxes – that is, the employees’ contributions – could go into these individual accounts instead of into the hands of Washington politicians for earmarks such as those bridges to nowhere.
Now, that would be a heck of a tax cut for Buffett’s receptionist ... and for just about everyone else. Everyone would accumulate capital from the time they got their first paying job.Link here (scroll down).
Buffett tells senators to keep death tax.
In testimony before the Senate Finance Committee, Billionaire Warren Buffett, who has emerged as an unlikely ally of the Democrats in calling for more taxes on wealth, argued that far from encouraging wealth creation and investment, tax policies which allow the wealthy to keep more of their money are actually eroding the tenets of economic opportunity and social mobility held dear by Americans.
“Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline,” he told the Committee. “A meaningful estate tax is needed to prevent our democracy from becoming a dynastic plutocracy. ... In a country that prides itself on equality of opportunity, it is becoming anything but that as the gap between the super-rich and the middle class is widening.”
He suggested that rather than repealing the estate tax, it should be reformed to have less impact on smaller estates, but tax larger estates more. Under current law, the estate tax will gradually decline until it is fully eliminated in 2010. However, in 2011, the tax returns in full force, allowing an exemption from the estate tax of $1 million per person, and taxing all other estates under a progressive tax rate structure, topping 55%. For this year, individual estates valued at more than $2 million are taxed at a top rate of 45%.
Attempts, mainly by Republicans, to get legislation through Congress repealing the estate tax have repeatedly failed in recent years, and lawmakers on both sides of the aisle now accept that outright repeal is a remote possibility. However, Chuck Grassley of Iowa, a largely agricultural state, is still holding out for full repeal. “I believe that the estate tax, or death tax, is unjust from a philosophical and from a technical viewpoint,” he argued in his hearing statement. “From a philosophical perspective, I have always said that death should not be a taxable event. There is something fundamentally wrong when the government swoops in after a funeral to take a cut of what that person had worked their whole life for, and has already paid taxes on at least once.”Link here.
SOAK THE RICH ... IF ONLY WE KNEW WHO THEY WERE
The definition depends on whose ox is being gored.
While campaigning for President in 1992, Bill Clinton proposed a 10% “millionaire surtax” on taxable incomes above $1 million to help close the deficit. Once in office, however, he pushed through that surtax on taxable income above $250,000, taking the rate up to 39.6%. At the time, a Treasury official gamely explained that most of those with incomes of $250,000 and up were millionaires – in terms of assets.
Clinton “defined down what rich was,” says Leonard Burman, director of the Tax Policy Center. There was a reason for this. You cannot balance a budget on the shoulders of plutocrats. There are not enough of them.
Now Democrats in Congress, on the Presidential campaign trail and in a few statehouses are talking again about raising rates for the rich – or at least letting President Bush’s tax cuts for them expire at the end of 2010. Some of these proposed increases kick in as low as $200,000 per couple – which is $135,000 in 1992 dollars. Is that rich? Lots of folks earning $200,000 and living in Boston or San Francisco think of themselves as upper middle class, not rich. In 2005, 5.8% of married couples filing jointly nationwide reported adjusted gross income (income before subtracting itemized deductions and personal exemptions) of $200,000 or more. But 11% in Connecticut, 10.3% in New Jersey and 9.1% in Massachusetts reported income above that level.
So who is rich? Depends on who is defining the word. As a general rule, a rich person is someone with a higher income than the person being asked. A woman confronted Democratic presidential candidate John Edwards in August. A self-described populist, she told Edwards, who wants to roll back the Bush tax cuts for those making more than $200,000 to help pay for expanded health insurance, that he should target those earning $1 million and up instead. Making $200,000 “in some communities in the East Coast [or] the West Coast” is considered middle class for a family of four, she said. “In Aspen, with $200,000 you’re poor,” she added. “I’m not touching that one,” Edwards joked, before defending the $200,000 cutoff as “about the right place.”
In October Maryland’s Democratic governor proposed closing a looming deficit in part by raising the state’s 4.75% state income tax to 6% on income exceeding $200,000 (per couple). But the liberal Democratic chief of Maryland’s Montgomery County objected. Surprise, surprise. His county happens to be affluent.
It is not just Democrats who are ready to soak the upper middle class. Republicans rammed through Bush’s big marginal tax rate cuts in 2001 with a bit of sleight of hand. While lowering the regular tax rates, they allowed the alternative minimum tax to recapture much of those tax revenues from a lot of upper-middle-class people. The AMT is a shadow tax system originally designed to make sure that fat cats with oil wells paid at least some tax. These days it leaves most of those earning $1 million-plus untouched, while hitting hard those earning $200,000 to $500,000 – particularly those living in highly taxed blue states. (You do not deduct your state and municipal taxes in the AMT universe.) Under current law the AMT will be reaching further and further down the middle-class spectrum.
So it pays to look behind the headlines. A new proposal by Rep. Charles Rangel (D-N.Y.) would repeal the AMT and pay for the lost revenue with a surtax of 4% on adjusted gross income over $200,000 per couple. A blow to the over-$200,000 crowd? Only to some of them. Adding the surtax and repealing the AMT would lower the tax bill of 80% of those earning $200,000 to $500,000 in 2010.
Just to put all this in perspective, note that even while such tax-code craziness and complexity is at an alltime high, marginal rates are at near historic lows. The current 15% top rate on long-term capital gains is the lowest since 1933. The top 35% rate on ordinary income is the lowest since 1925, with the exception of five years following the 1986 federal tax overhaul (the one that zapped a lot of shelters but lowered rates).
Clint Stretch, managing principal of national tax policy at Deloitte Tax, predicts that ordinary income rates are unlikely to go above 40%. As for capital gains, he says, “20% is a good bet and 25% is the outer limit” for the top rate. He is not predicting just when those tax rates will kick in.Link here.
MINNESOTA GOES AFTER LOW-BUCK TAX EVADERS
Minnesota authorities are cracking down on taxpayers who dodge income taxes, even when the amounts of money at stake are small. A case in point is Michael J. Segal, who failed to pay taxes on income of less than $20,000 a year. Segal faces a gross misdemeanor charge – punishable with up to a year in prison and up to a $3,000 fine – for not filing personal income tax returns from 2002 to 2005. The Minnesota Department of Revenue said he earned $66,051 during that 4-year period.
It is unclear how much Segal, 51, owes in back taxes. The amount could range from nothing to $3,500, depending on deductions and exemptions. Apple Valley City Attorney Michael Molenda said Segal is a musician “of some sort” who moved away from his Apple Valley address. It is the first tax evasion case Apple Valley has seen in at least a quarter century.
Revenue Department spokesman Mike Teegardin said the agency takes even modest cases seriously. Some 21,359 tax evaders got notification letters from the Revenue Department during the year ended October 1. They owed an average of $5,200 in taxes and penalties. Few such cases lead to criminal charges and even when they do, penalties tend to be mild.
Tax evader Lauren Bitzan of Eagan got four months in jail and 100 hours of community service for failing to file individual tax returns from 2000 to 2003 or pay $35,394 in corporate sales taxes. At least 20 Minnesotans faced felony tax evasion charges this year, and fewer were charged with gross misdemeanors, Teegardin said.
Attention tends to flow to wealthier tax cheats, such as Robert Beale, a technology executive nabbed by federal marshals in Florida earlier this month. Beale dodged state and federal taxes on an estimated $5.6 million in personal income.Link here.
U.S. SENATORS SEEK TO PROHIBIT PATENTING OF TAX STRATEGIES
Legislation has been introduced into the U.S. Senate to prohibit the U.S. Patent and Trademark Office (USPTO) from granting patents for common tax strategies and tax planning inventions. The legislation was introduced by Senate Finance Committee Chairman Max Baucus (D-Montana) and Ranking Republican Member Chuck Grassley (R-Iowa).
The Senators said that to date, the USPTO has granted 60 tax patents, with 99 pending final decisions. The new measure seeks to protect taxpayers and tax practitioners from incurring fees when they use routine tax strategies. Additionally, the bill addresses fears that some tax patent applications are for tax shelters.
“Tax patents undermine the integrity and fairness of the federal tax system,” said Grassley. “They put taxpayers in the undesirable position of having to choose between paying more than legally required in taxes or paying a royalty to a third-party for use of a tax planning invention that reduces those taxes.”
Tax planning inventions generally include tax plans, strategies, techniques, schemes, processes, or systems that are designed to reduce, minimize, avoid, or defer a taxpayer’s Federal or state tax liability. The U.S. Treasury Department recently expressed concerns about patent protection for tax planning methods, and issued proposed regulations that added patented transactions as a new category of reportable transactions. The proposed measure provides an exception for the use of tax preparation software to assist practitioners and taxpayers prepare tax or information returns.Link here.
SWITZERLAND STANDS FIRM IN TAX FIGHT WITH EU
EU objects to tax escape hatches allowed by cantonal company regulations.
Another round of fruitless discussions forming part of the ongoing battle between the EU and Switzerland over the latter’s corporate tax system took place in Bern. But while the European Commission has the obvious weight advantage over its more nimble neighbor, at present Brussels simply does not have the legal reach to deliver the knock-out blow that would oblige the Swiss to capitulate to its demands.
The dispute, and the focus of the latest discussions, centers on Switzerland’s cantonal tax system. The EC considers certain cantonal company tax arrangements to be incompatible with the 1972 Free Trade Agreement – a notion that the Swiss government firmly rejects. The EC argues these cantonal company tax regulations restrict trade in goods between Switzerland and the EU, and distort competition. However, this is only a part of the debate. At its heart is the Commission’s complaint that the cantonal tax systems encourage EU-based firms to set up holding companies in Switzerland to avoid taxes in EU member states.
On the first point, the Swiss delegation argued that Swiss taxes do not distort bilateral trade, because the types of company concerned in Switzerland have no, or at most subordinate, business operations which are taxed normally. Regarding the second point, the delegation countered that in the case of holding companies, revenues from Swiss sources are taxed in the same way as those from foreign sources. Furthermore, the Swiss emphasized that both domestic and foreign-controlled companies are entitled to take advantage of holding-company privileges.
The EC is basing its legal argument on Switzerland’s alleged breach of state aid rules, which, in the EU, are in place to prevent member states from favoring certain companies and industries with beneficial tax rules and subsidies. The Swiss point out that the country is neither an EU member or part of the Single European Market, nor party to the competition regulations of the EC Treaty, including those on state aid. Moreover, Bern insists that in any case the tax laws in question do not favor certain companies or industries.
The Swiss Federal Department of Finance stated following the meeting that, “Switzerland rejects negotiations with the EU.” The government has, however, indicated its willingness to continue the dialogue “at the technical level.”Link here.
OECD urges Switzerland to reform (lower) dividend taxation.
While Switzerland’s corporate taxes are low in comparison to most of its international competitors, the OECD has recommended that the government reinforce entrepreneurial activity by easing the country’s relatively high burden of dividend taxation.
In its latest economic review of the Swiss economy, the OECD concluded that heavy taxation of dividends generates incentives for tax evasion through the creation of complicated corporate structures, and might distort financing decisions of firms that cannot raise equity on international capital markets. In addition, the tax-induced incentives to retain earnings are further increased by the absence of a capital gains tax, the OECD observed.
While the government intends to lower dividend taxation, it plans to limit tax relief to owners of stakes exceeding 10% to limit revenue losses, which according to the OECD could create incentives for some companies not to raise equity capital from new shareholders, so that existing shareholders keep their shares above the 10% threshold.
“Reductions in the taxation of dividends should not be subject to ownership limits. The added cost of extending reduced dividend taxation to portfolio investments could be funded by introducing a moderate capital gains tax,” the report suggested.
Moreover, the existence of stamp duties on the issuance of equity stock also raises the cost of firm creation and growth without bringing in significant revenue and should be abolished, the OECD argued.Link here.
LUXEMBOURG BLOCKS EU ELECTRONIC COMMERCE SALES TAX SHAKE-UP
Luxembourg blocked EU plans to shake up sales tax on electronic commerce over fears the package would undermine the Grand Duchy’s role as a hub for e-trade, officials said. The failure of EU finance ministers, who were meeting in Brussels, to reach an agreement on the reform could scupper their efforts to reach a deal on the package as intended by the end of the year.
Luxembourg Prime and Finance Minister Jean-Claude Juncker opposes the reform because VAT revenues on e-commerce currently bring in €220 million euros ($321 million) a year to the state coffers, equal to 1% of output. “No finance minister would give up one percent of his gross domestic product to make others happy,” Juncker told his counterparts, according to officials at the meeting.
As with all issues regarding tax harmonization in the EU, member states have to unanimously accept the package, which aims to shift the application of VAT from the country of a service supplier to the country of consumption. Although in most cases service suppliers and consumers are in the same country, the emergence of electronic trade has encouraged Internet and telecoms companies to set up shop in countries with the lowest VAT rates.
Luxembourg, which already blocked the reform in June, and the Portuguese island of Madeira have in particular benefited from the current system. At 15%, Luxembourg has the lowest VAT rate normally allowed in the EU while Madeira enjoys a rate of 13% under a special arrangement. Luxembourg has seen scores of Internet and technology companies flock to the country in recent years and now hosts the European headquarters of Apple’s iTunes and Skype.Link here.
SECOND AMNESTY FOR U.K. OFFSHORE ACCOUNT HOLDERS PREDICTED
Accounting firm PKF has predicted that the UK’s HM Revenue & Customs will offer a second “amnesty” to those who owe tax on bank accounts overseas, and has suggested that this could undermine any incentive for tax evaders to volunteer their liabilities in future.
HMRC is currently receiving the final payments from its first Offshore Disclosure Facility (ODF), which ended earlier this year. Those who volunteered under this scheme had to pay the tax owed, interest and a 10% penalty. The amnesty is expected to net the Treasury between £750 million and £1 billion in unpaid tax, but the final number of registrations remained small compared to the total number of people suspected of holding undeclared money in offshore accounts. Before the amnesty expired, HMRC sent out 200,000 letters warning that penalties would be “much higher than under the disclosure arrangements.”
John Cassidy, Tax Investigations Partner at PKF, observed, “There would be no logic to setting the penalty for a second ODF at the same 10% level and still allowing those who ought to have come forward the first time to use the new facility. ... There is a serious danger that such exercises will stop being taken seriously if they happen every year without change.”
He continued, “What I think is needed is an updated model. The priority must be to incentivize more people to come forward and there are certainly lessons to be learnt from the first exercise. For instance, HMRC asked people to calculate and disclose unpaid tax as far back as 20 years which I believe dissuaded many people from utilizing the facility. They either didn’t have the old records anymore or it was simply such a daunting task that they would rather risk not disclosing.
“Reducing the length of time to be investigated to six years, perhaps counter-balanced by a different penalty structure, would provide a much greater incentive to people, which is the key issue. The more people come forward, the more tax arrears HMRC will collect – it should give more to get more.”Link here.
NEW TAX INCENTIVES GRANTED FOR SMALL COMPANIES IN BARBADOS
Recent amendments to the Barbados Small Business Development Act have provided registered incorporated small businesses with a number of incentives, the government has announced. These incentives include, among others, a reduced rate of corporation tax of 15% (instead of 25%) on the profits of the business; exemption from import duty on raw materials, plant and equipment imported for use in the business; and exemption from withholding tax on dividends and interest earned on investment in an approved small business, or in any fund approved for investment in small businesses.
In addition, there is the exemption from the payment of stamp duty, under the Stamp Duty Act, on all documents related to business where the registration of those documents is required by law, and a deduction of corporation tax of an amount equal to 20% of the actual expenditure incurred in respect of the use of technology, market research and any other activity that is, in the opinion of the Commissioner of Inland Revenue, directly related to the development of the business.Link here.
SINGAPORE APPROVES CORPORATE TAX CUT
Lawmakers in Singapore have approved legislation giving effect to the tax reforms announced in the budget earlier this year, including the 2% cut in corporate income tax and further improvements to the fund regime. The legislation will reduce the corporate tax rate to 18%, and bring about other tax measures to improve the competitiveness of Singapore as a business hub, including a significant increase in the partial tax exemption threshold from S$100,000 to S$300,000 from 2008. This will mean that almost 80% of SMEs will pay tax at effective rates of less than 10%, making Singapore one of the most competitive locations for small business internationally.
Other notable measures in the Income Tax Bill include the elimination of the 80:20 rule that currently requires charities to spend at least 80% of their annual receipts in Singapore within two years to qualify for income tax exemption, and improvements to the tax treatment of real estate investment trusts (REITs).
Singapore’s ongoing improvements to its funds regime appear to be bearing fruit, with more than 100 hedge funds now based in the city-state, managing assets of US$16.5 billion, according to London-based HedgeFund Intelligence, which has pronounced Singapore as the most competitive location for hedge funds in Asia. Hedge fund assets managed in Singapore more than doubled in the first half of 2007.
The tax cuts will, however, be balanced against a number of revenue raising provisions. There will be a 1.5% increase in employer contributions to the Central Provident Fund (CPF), to 14.5%, and an increase in the GST rate from 5% to 7%, both effective July 1, 2007, to provide “critical additional revenues”. A S$4 billion GST Offset Package to help Singaporeans adjust to the GST increase was also announced.Link here.
SHIFT IN BANKRUPTCY LAWS STAGGERS MORTGAGE HOLDERS
Unintended consequences: New rules prompt debtors to pay off credit cards first.
Washington Mutual got what it wanted in 2005 – a revised bankruptcy code that no longer lets people walk away from credit card bills. The largest U.S. savings and loan did not count on a housing recession.
The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the IMF and the World Bank. “Be careful what you wish for,” Westbrook said. “They wanted to make sure that people kept paying their credit cards, and what they are getting is more foreclosures.”
Washington Mutual, Bank of America, JPMorgan Chase, and Citigroup spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a nonpartisan Washington group that tracks political donations. The banks are still paying for that decision. The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for U.S. financial institutions. It also reached to the top echelons of the financial services industry.
Even as losses have mounted, banks have seen their credit card businesses improve. The amount of money owed on U.S. credit cards with payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier. In the same period, the dollar volume of repossessed homes owned by insured banks doubled to $4.2 billion.
People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive of Capital One Financial, the largest independent credit card issuer in the country. Of customers who are at least three months late on their mortgage payments, 70% are current on their credit cards, he said. “What we conclude is that people are saying, ‘Honey, let the house go,’ but keep the cards,” Fairbank said.
The new bankruptcy code makes it harder for debtors to qualify for Chapter 7, the section that erases nonmortgage debt. It shifted people who get paychecks higher than the median income for their area to Chapter 13, giving them up to five years to pay off nonhousing creditors.
The court-ordered payment plans fail to account for subprime loans with adjustable rates that can reset as often as every six months, said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys. 2/3 of such debtors will not be able to complete their payback plans, according to the Center for Responsible Lending. “We have people walking away from homes because they can’t afford them even post-bankruptcy,” said Sommer. “Their mortgage rates are resetting at levels that are completely unaffordable, and there is nothing the bankruptcy process can do for them as it now stands.”
4 million subprime borrowers with limited or tainted credit histories will see their mortgage bills increase by an average 40% in the next 18 months, according to the National Association of Consumer Advocates in Washington. About 1.45 million of those will end up in foreclosure by the end of 2008, said Mark Zandi, chief economist at Moody’s Economy.com, a research firm.
“The law had an unintended consequence of taking away a relief valve that mortgage borrowers used to have,” said Rod Dubitsky, head of asset-backed research for Credit Suisse Holdings USA in New York. “It’s bad for the mortgage borrowers and bad for subprime investors because it means more losses.”Link here.
NEW YORK BANKS ARE ABUSING THE POWER TO SEIZE MONEY
New York banks have a very bad habit – one that they have been getting away with for years – of instantly freezing customers’ accounts when collection agencies come looking for assets to grab. Seizing that money amounts to a financial death sentence for thousands of working people, who instantly lose access to their paycheck, their retirement income and their savings – cash that may be needed for transportation, medicine, rent and other necessities.
That happens whether they have really dug themselves into debt or whether there has just been a terrible mistake. One day, an account may have a few hundred dollars. The next, it can be frozen with a negative balance in the thousands. In many cases, it is not even legal.
When someone gets into debt and loses in court, state law gives the city marshals and other debt collectors a powerful tool called a restraining notice. It amounts to a court order requiring a bank to seize the account of a person with a judgement against them. But a host of other state and federal laws specify that banks are not supposed to just freeze every last penny in an account. Certain kinds of funds are exempt.
Federal safety-net benefits like Social Security, SSI and welfare payments cannot be taken. Neither can 90% of a customer’s salary for the last 60 days. Pension and retirement funds cannot be seized. Child support dollars are protected, too. But there is mounting evidence that most banks are simply ignoring the law and freezing 100% of a customer’s account upon receipt of a restraining notice – even when it should be obvious that certain electronic transfers, like Social Security and payroll deduction, are legally off limits.
According to the Urban Justice Center, which provides legal services to low-income New Yorkers, that is what happened to “DM”, a single mother working full time for $1,600 a month. Identity thieves ran up an $800 debt without her knowledge, leading to a court judgment she never had wind of. In July of 2006, DM’s bank account was restrained – and the burden was on her to prove the debt and seizure were in error.
A judge eventually lifted the account freeze and threw out the bogus judgment, but it took six weeks and help from a lawyer to straighten out the mess. During those six weeks, DM fell behind on her rent, credit cards, phone bills, insurance premiums and other basic expenses. That did lasting damage to her credit, creating a whole separate mess to dig out of.
According to the Neighborhood Economic Development Advocacy Project, a community nonprofit group, a typical New York bank handles more than 500,000 restraining notices a year. That is a 30% jump since 2001. Use of the freezes exploded after 2000, when collection agencies won the right to send out restraining notices by e-mail, allowing creditors to hit every bank in the state with the push of a button – making it all the more important for banks to do their homework before seizing accounts.
If you think your bank has improperly frozen federal benefits, pension money, child support or a recent paycheck, show this article to the customer service people – and invite them to take a peek at Chapter 38, Section 5301 of the United States Code, which specifies which benefits “shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever.”Link here.
GUAYANA’S PRESIDENT ACCUSES U.S. OF BANKING HYPOCRISY
Guayana president President Bharrat Jagdeo accused the U.S. and other large nations of unfairly forcing Caribbean countries to combat money laundering, while failing to enforce similar rules at home. Jagdeo, speaking before the Caribbean Association of Indigenous Banks, urged regional officials to decry the “tremendous double-standards” imposed against Caribbean countries whose offshore banking industries have long been considered money-laundering hotspots because of their banking secrecy laws.
Caribbean countries must not put “undue burdens” on their economies “just to satisfy some notion of probity that even countries that recommend the probity don’t practice themselves,” Jagdeo said. Jagdeo and other regional leaders have long complained that while large-scale money laundering takes place in major economies including the U.S. and U.K., only small nations face scrutiny and the threat of sanctions for the illegal practice.
Daniel Glaser, U.S. deputy assistant treasury secretary for financial crimes, said not only the U.S., but the U.N., the Paris-based FATF, and countries across the world recognize that anti-money laundering measures are key to maintaining global security. “The U.S. doesn’t force anyone to implement” these measures – it’s a matter of international consensus,” Glaser said in a telephone interview.
Caribbean leaders claim that local offshore banking regulations have been tightened since the FATF put five territories – the Cayman Islands, the Bahamas, St. Kitts and Nevis, St. Vincent and the Grenadines and Dominica – on a tax-haven blacklist in 2000. They say offshore banking is a major avenue of income for small nations.Links here and here.
16,000 NAMESAKES CRY FOUL OVER U.S. TERROR WATCH LIST
4-year-old required to have three forms of id to fly.
In the last eight months, more than 16,000 U.S. travelers have complained that the FBI’s “terrorist watch” list has mistakenly delayed their travel plans. In February, the TSA rolled out a new website for such complaints. Of the 16,000 who have cried foul, TSA says, only 3% are actually on the list and want off. The other 97% merely share a name with someone on the list.
The site is called TRIP, short for Traveler Redress Inquiry Program. It lets you request a spot on another list that proves you are not on the first one. But getting yourself onto this “cleared” list is not easy. TSA is having trouble meeting its goal of processing all requests within 30 days. At this point, the average rate is 44 days. According to Christopher White, a TSA spokesman, only 7,400 of the 16,000 requests have been processed since February. Of the rest, 1900 are “pending action”, and 6600 are still being discussed.
A new government report insists that the terrorist list – used to screen travelers at airports, sea ports, and border crossings – has now expanded to 755,000 names. The Terrorist Screening Center, an FBI adjunct that maintains the list, will not say how long it is, but TSA spokesman Christopher White says this number is much too high. “I think it’s less than half that,” he said.
The list is actually two lists. The first names people who are not allowed to fly at all. “These people pose such a threat to aviation that they are not allowed to get on an airplane,” White said. “That applies to any U.S. carrier around the world. Or any carrier flying to a U.S. destination.” The second lists people who must be selected for additional screening before each flight.
USA Today tells the story of a Disney World-loving 6-year-old who shares a name with someone on the “additional screening” list. Little John Anderson has not made it onto the cleared list because his mum finds the TRIP web site confusing. Because of his name, the 6-year-old is not allowed to print out his boarding pass online before arriving at the airport, but according to White, he should not be subjected to additional screening. “Airlines have the power to automatically de-select anyone under 12.”
It is not a power that all airlines exercise. In August, a 7-year-old British boy on holiday in Florida, Javaid Iqbal, was stopped repeatedly at U.S. airports on suspicion of being a terrorist. Javaid shares his name with a Pakistani man deported from the U.S., prompting staff at three airports to question his family about his identity. The family even missed their flight home from the U.S. after officials canceled their tickets in the confusion.
In 2005, a 4-year-old boy and his mother, both American, were stopped from boarding a Continental Airlines plane out of Houston, Texas because he shared a name – Edward Allen – with someone on the no-fly list. Continental later told the Allen family that it was simply following the drill, which meant working its way through a checklist that required three proofs of identity for Edward to fly. As a 4-year-old Edward had only his birth certificate. And that was at home.Link here.
SURGE IN FILE-SHARERS ENCRYPTING BITTORRENT ACTIVITY BLINDSIDES RECORD COMPANIES
The legal crackdown and publicity blitz aimed at people who share music, videos and software online may be having an unintended consequence for the troubled record industry. The number of file-sharers disguising their BitTorrent activity with encryption is skyrocketing. Figures from a large UK ISP show that the portion of BitTorrent traffic encrypted by file-sharers has risen 10-fold in the last 12 months, from 4% to 40%.
Matt Phillips, spokesman for UK record industry trade association the British Phonographic Institute, told The Register, “Our internet investigations team, internet service providers and the police are well aware of encryption technology: It has been around for a long time and is commonplace in other areas of internet crime. ... When encryption is used to cloak torrent traffic it tends to be to hide something, and attracts greater attention for that reason.”
The last year has seen a significant escalation of the movie and music industry campaign against copyright infringement. The RIAA secured its first jury trial against Jammie Thomas, popular tracking site TorrentSpy was ordered to collect user data, and the supposedly private UK-based OiNK network was busted.
The file-sharing public’s response has been revealed by analysis of data from deep packet inspection (DPI) technology. Many ISPs have deployed the kit to help throttle the amount of bandwidth consumed by P2P and other greedy net applications. Some BitTorrent encryption is certainly an effort to avoid such restrictions. While DPI is able to identify and manage encrypted file-sharing packets, it is unable to look inside those packets for copyright infringement.
The trend towards encryption means current efforts by music publishers and government to cut a deal with ISPs to create a monitoring system to boot persistent copyright infringers off the internet, which we revealed last month is likely to be rendered pointless.
The most popular BitTorrent client, uTorrent, can be configured to use RC4 encryption to obscure torrent streams and header information. Although future DPI gear may be able to grab some header detail, the music or movie itself is likely to remain inaccessible. So-called content filtering software from Audible Magic cannot peer inside encrypted packets, either.
The rapid acceleration in encryption is not limited to BitTorrenters. Estimates say torrent traffic accounts for about between 50% and 60% of all file-sharing. Usenet, which the RIAA recently said is a bigger offender than Kazaa-type services, accounts for about another 25%. It is set to see more scrambled files shared over it, too, as providers including Giganews now offer SSL encryption.
Paul Sanders, part of the team of music and ISP veterans behind PlayLouder, the first “Media Service Provider”, which will let subscribers share music freely and legally in exchange for a small premium on the monthly broadband bill, sounded the alarm. “I think this trend is absolutely a warning to those people in the music industry who believe they can win this war,” he said. “There has got to be a commercial settlement. Both sides [ISPs and the record industry] are destroying the value in music.” Sanders believes the much-debated blanket licence and download services that are “better than free” are one the way out of the arms race with determined freeloaders.
Even if BitTorrent encryption can be defeated somehow, there is another P2P protocol on the horizon. It is being specifically designed to dodge monitoring systems.Link here.
SENATORS WANT JUSTICE DEPARTMENT TO SUE PEER-TO-PEER PIRATES
American peer-to-peer users worried about being sued into oblivion by the recording industry may soon have a much bigger concern – facing off against the U.S. Department of Justice. Two senators introduced a bill that would unleash the DoJ on internet pirates. It would authorize the DoJ to file civil lawsuits against people engaged in peer-to-peer copyright infringement – with the proceeds going to the company or person who owns the copyright.
“This legislation is a simple bill that would give the Department of Justice the authority to prosecute copyright violations as civil wrongs,” Sen. Patrick Leahy, the Democratic chairman of the Senate Judiciary Committee, said during a hearing. Sen. John Cornyn, a Republican, is a co-sponsor.
This is not the first time this bill, called the Pirate Act, has surfaced in Washington. Despite criticisms from civil liberties groups and complaints from peer-to-peer companies that it amounted to corporate welfare for copyright holders, the Pirate Act has cleared the Senate three times. The Act enjoys strong support from large copyright holders, such as the Recording Industry Association of America and the Motion Picture Association of America.
The Justice Department has been less than enthusiastic about the measure in the past. One top department official said a few years ago that the idea is “something that people should take with a grain of salt” – and while “the Justice Department is there to enforce the law, there’s something to be said for those who help themselves.”
The Pirate Act’s portion devoted to civil copyright enforcement is identical to the 2004 version. The new version of the Act, in addition to civil enforcement, also:
ENCRYPTED E-MAIL COMPANY HUSHMAIL SPILLS TO FEDS
Privacy risk in newer product revealed. And the company flagship product is not absolutely secure either.
Hushmail, a longtime provider of encrypted web-based email, markets itself by saying that “not even a Hushmail employee with access to our servers can read your encrypted e-mail, since each message is uniquely encoded before it leaves your computer.”
It turns out that statement seems not to apply to individuals targeted by government agencies that are able to convince a Canadian court to serve a court order on the company. A September court document (PDF) from a federal prosecution of alleged steroid dealers reveals the Canadian company turned over 12 CDs worth of e-mails from three Hushmail accounts, following a court order obtained through a mutual assistance treaty between the U.S. and Canada. The charging document alleges that many Chinese wholesale steroid chemical providers, underground laboratories and steroid retailers do business over Hushmail.
The court revelation demonstrates a privacy risk in a relatively-new, simple webmail offering by Hushmail, which the company acknowledges is less secure than its signature product. A subsequent and refreshingly frank e-mail interview with Hushmail’s CTO seems to indicate that government agencies can also order their way into individual accounts on Hushmail’s ultra-secure web-based e-mail service, which relies on a browser-based Java encryption engine. Since its debut in 1999, Hushmail has dominated a unique market niche for highly-secure webmail with its innovative, client-side encryption engine.
Hushmail uses industry-standard cryptographic and encryption protocols (OpenPGP and AES 256) to scramble the contents of messages stored on their servers. They also host the public key needed for other people using encrypted email services to send secure messages to a Hushmail account. The first time a Hushmail user logs on, his browser downloads a Java applet that takes care of the decryption and encryption of messages on his computer, after the user types in the right passphrase. So messages reach Hushmail’s server already encrypted. The Java code also decrypts the message on the recipient’s computer, so an unencrypted copy never crosses the internet or hits Hushmails servers.
In this scenario, if a law enforcement agency demands all the e-mails sent to or from an account, Hushmail can only turn over the scrambled messages since it has no way of reversing the encryption.
However, installing Java and loading and running the Java applet can be annoying. So in 2006, Hushmail began offering a service more akin to traditional web mail. Users connect to the service via a SSL (https://...) connection and Hushmail runs the Encryption Engine on their side. Users then tell the server-side engine what the right passphrase is and all the messages in the account can then be read as they would in any other web-based email account.
The rub of that option is that Hushmail has – even if only for a brief moment – a copy of your passphrase. As they disclose in the technical comparison of the two options, this means that an attacker with access to Hushmail’s servers can get at the passphrase and thus all of the messages. In the case of the alleged steroid dealer, the feds seemed to compel Hushmail to exploit this hole, store the suspects’ secret passphrase or decryption key, decrypt their messages and hand them over.
Hushmail CTO Brian Smith declined to talk about any specific law enforcement requests, but described the general vulnerability in an e-mail interview. He said that in the non-Java configuration, private key and passphrase operations are performed on the server-side. “This requires that users place a higher level of trust in our servers as a trade off for the better usability they get from not having to install Java and load an applet. ... This might clarify things a bit when you are considering what actions we might be required to take under a court order.”
Hushmail’s marketing copy largely glosses over this vulnerability, reassuring users that the non-Java option is secure. But can the feds force Hushmail to modify the Java applet sent to a particular user, which could then capture and sends the user’s passphrase to Hushmail, then to the government? Hushmail’s own threat matrix includes this possibility, saying that if an attacker got into Hushmail’s servers, they could compromise an account – but that “evidence of the attack” (presumably the rogue Java applet) could be found on the user’s computer. But that does not mean a user could easily verify that the applet served up by Hushmail was uncompromised.
Smith concurs and hints that Hushmail’s Java architecture does not technically prohibit the company from being able to turn over unscrambled emails to cops with court orders. “The general point is that it is potentially detectable by the end-user, even though it is not practical to perform this operation every time. This means that in Java mode the level of trust the user must place in us is somewhat reduced, although not eliminated. The extra security given by the Java applet is not particularly relevant, in the practical sense, if an individual account is targeted. (emphasis added)”
Hushmail will not protect law violators being chased by patient law enforcement officials, according to Smith. “[Hushmail] is useful for avoiding general Carnivore-type government surveillance, and protecting your data from hackers, but definitely not suitable for protecting your data if you are engaging in illegal activity that could result in a Canadian court order.”
Smith also says that it only accepts court orders issued by the British Columbia Supreme Court and that non-Canadian cops have to make a formal request to the Canadian government whose Justice Department then applies, with sworn affidavits, for a court order. “We receive many requests for information from law enforcement authorities, including subpoenas, but on being made aware of the requirements, a large percentage of them do not proceed. ... To date, we have not challenged a court order in court, as we have made it clear that the court orders that we would accept must follow our guidelines of requiring only actions that can be limited to the specific user accounts named in the court order. That is to say, any sort of requirement for broad data collection would not be acceptable.”
Having said all this, Hushmail deserves credit for its frank and open replies. Such candor is hard to come by these days, especially since most ISPs will not even tell you how long they hold onto your IP address or if they sell your web-surfing habits to the highest bidders. [Ed: Yet, clearly, a higher level of security is available via perfectly easy to use PGP or GPG.]Link here.
GOOGLE IN BED WITH U.S. INTELLIGENCE
Even while Google presents a public image of vigorously protecting its users’ privacy, it has quietly provided assistance to several U.S. intelligence agencies, such as the CIA and Defense Intelligence Agency, as the U.S. prosecutes its war on terrorism. In addition, Google may be providing assistance to the National Security Agency.
IT contractors and intelligence officials familiar with the arrangement confirmed to HSToday.us that Google had been providing assistance to the intelligence community, but would not say under what authority that assistance had been requested or provided. The intelligence community appears to be interested in data mining Google’s vast store of information on each user who uses Google’s services. Google collects data on each user’s search queries, which web sites users visited after making a query, and, through its Google Analytics service, can also track users on cooperating web sites. It is not clear what level of access to or how much of this information has been made available to intelligence agencies.
“Robert David Steele, intelligence veteran and CEO of OSS.Net, Inc.,” an HSToday.us article reported, “[said] that ‘Google is being actively hypocritical and deceptive in playing up its refusal to help the Department of Justice when all along it has been taking money and direction for elements of the U.S. Intelligence Community, including the Office of Research and Development at the Central Intelligence Agency, In-Q-Tel, and in all probability, both the National Security Agency (NSA) and the Army’s Intelligence and Security Command. ... I have no doubt that Google, in its arrogance, decided it could make a deal with the devil and not get caught.’”
If you are extremely concerned about the possibility that your private browsing information is going to wind up in the hands of U.S. intelligence agencies, you can throw a spanner in the works by blocking cookies from the following domains: google.com, googlesyndication.com, google-analytics.com, and your country-specific Google domain (e.g., google.co.uk). If you actually use Google services, such as Google Mail, then this obviously will prevent you from using those services.
Even with cookies blocked, a limited amount of user tracking is possible, so unless you really are a terrorist, it probably is not worth the trouble.Link here.
NATIONAL LAWYERS GUILD VOTES FOR IMPEACHMENT OF BUSH AND CHENEY
The National Lawyers Guild voted unanimously for the impeachment of George W. Bush and Dick Cheney at its national convention in Washington, D.C. The resolution lists more than a dozen high crimes and misdemeanors of the Bush and Cheney administration and “calls upon the U.S. House of Representatives to immediately initiate impeachment proceedings, to investigate the charges, and if the investigation supports the charges, to vote to impeach George W. Bush and Richard B. Cheney as provided in the Constitution of the United States of America.”
The resolution provides for an NLG Impeachment Committee open to all members that will help organize and coordinate events at the local, state, and national level to build public participation in the campaign to initiate impeachment investigation, impeachment, and removal of Bush and Cheney from office without further delay.
The resolution calls on all other state and national bar associations, state and local government bodies, community organizations, labor unions, and all other citizen associations to adopt similar resolutions and to use all their resources to build the campaign demanding that Congress initiate impeachment investigation, impeach, and remove Bush and Cheney from office.
NLG President Marjorie Cohn said, “The war of aggression, the secret prisons, the use of cruel, inhuman and degrading treatment, the use of evidence obtained by torture, and the surveillance of citizens without warrants, all initiated and carried out under the tenure of Bush and Cheney, are illegal under the U.S. Constitution and international law.”Link here.
HAS NORTH KOREA ANNEXED OKLAHOMA?
An extraordinary incident unfolded in the state of Oklahoma on October 2. Three individuals were arrested, shackled and arraigned. Their crime? Trying to curb the spending excesses of Sooner State politicians. They were accused of violating an arcane and certainly unconstitutional law that imposes restrictions on who can circulate petitions in the state.
Paul Jacob – president of the pro-initiative group Citizens in Charge and a senior fellow at the Sam Adams Alliance, a grassroots political organization – and colleagues Susan Johnson and Rick Carpenter incurred the wrath of Oklahoma’s Soviet-minded political establishment for trying in 2005 to get an initiative on the ballot to limit state spending. The three could get as many as ten years in prison.
Back in 2005, despite organized harassment from unions and other pro-government forces, Jacob and other activists – with the help of a professional petition-signing firm – managed to collect the required number of names to get the antispending item on the ballot. In a tantrum worthy of an Iranian ayatollah the pro-political class Oklahoma Supreme Court ruled the petitions invalid.
Their “reasoning”? Oklahoma has a statute that states petitions can be carried only by Oklahoma residents. What is a resident? According to precedent, residency is determined by an individual’s intention to be a resident. When out-of-staters moved to the state to help local people get signatures for the antispending petitions, the State Supreme Court decided that precedent did not matter and concocted a new interpretation – Petitioners had to make Oklahoma their “permanent home”.
And just to be sure no one ever again tries to restrict free-spending pols, the state’s hoodlumesque attorney general, Drew Edmondson (Democrat), has decided to seek to imprison the petition leaders.
The case stands out as an extreme move to restrict the behavior of political activists. But unless this thuggish behavior is firmly punished, other states and municipalities will quickly follow suit. After all, many local pols and their developer friends have been making ample use of the Supreme Court’s hideous decision two years ago that allows local authorities to seize private property to help politically connected private developers. Jacob has worked with Oklahomans pushing an initiative that would bar this type of eminent domain abuse, as well as a state term limits initiative. Now he is accused of committing a felony.Link here.
THE END (OF THE EMPIRE) IS NEAR – GISELE DUMPS DOLLAR
The U.S. dollar is still officially the world’s reserve currency, but it cannot purchase the services of Brazilian supermodel Gisele Bundchen. Gisele required the $30 million she earned during the first half of this year to be paid in euros.
Gisele is not alone in her forecast of the dollar’s fate. The First Post (UK) reports that Jim Rogers, a former partner of billionaire George Soros, is selling his home and all possessions in order to convert all his wealth into Chinese yuan.
Meanwhile, American economists continue to preach that offshoring is good for the U.S. economy and that Bush’s war spending is keeping the economy going. The practitioners of supply and demand have yet to figure out that the dollar’s supply is sinking the dollar’s price and along with it American power. The macho super patriots who support the Bush regime still have not caught on that U.S. superpower status rests on the dollar being the reserve currency, not on a military unable to occupy Baghdad.
If the dollar were not the world currency, the U.S. would have to earn enough foreign currencies to pay for its 737 oversees bases – an impossibility considering America’s $800 billion trade deficit. When the dollar ceases to be the reserve currency, foreigners will cease to finance the U.S. trade and budget deficits, and the American Empire along with its wars will disappear overnight. Perhaps Bush will be able to get a World Bank loan, or maybe one from the “Chavez bank”, to bring the troops home from Iraq and Afghanistan.
Foreign leaders, observing that offshoring and war are accelerating America’s relative economic decline, no longer treat the U.S. with the deference to which Washington is accustomed. Even America’s British allies regard President Bush as a threat to world peace and the second most dangerous man alive – edged out in polls only by Osama bin Laden, but behind Iran’s demonized president and North Korea’s Kim Jong-il.
There is no possibility of the U.S. remaining the Middle East for a half century. The dollar and U.S. power are already on their last legs, unbeknownst to Democratic leaders who are preparing yet another blank check for Bush’s latest request for $200 billion in supplementary war funding. There is no money with which to fund Bush’s lost war. It will have to be borrowed from China.
The Romans brought on their own demise, but it took them centuries. Bush has finished America in a mere 7 years. Even as Gisele throws off the dollar’s hegemony, Brazil, Venezuela, Ecuador, Bolivia, Argentina, Uruguay, Paraguay, and Columbia are declaring independence of the IMF and World Bank, instruments of U.S. financial hegemony, by creating their own development bank. An empire that has lost its backyard is finished.Link here.
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