Thursday, April 2, 2015

Home prices and inequality: Singapore versus other 'global superstar cities' BY PHANG SOCK YONG

Home prices and inequality: Singapore versus other 'global superstar cities'


The bottom half here own a quarter of gross housing wealth, a more equal distribution than in other cities with higher-than-average house price growth

PUBLISHED ON APR 3, 2015 6:10 AM

Republic's housing kept affordable
The topics "superstar cities", "inequality" and "housing policy" are often discussed separately.
I will focus on the area where they overlap - in particular, how housing policy has been used to mitigate inequality in the context of Singapore, a global superstar city.
The Global City concept originates from the work of sociologist Saskia Sassen, which dates back to the 1980s. In an age of globalisation, division of labour is international in scope and production activities are distributed across the world. A global city is a significant point where the internationally oriented financial and producer services that make the global economy run choose to agglomerate.
In the Economist Intelligence Unit's Global City Competitiveness Index, Singapore is ranked third in global competitiveness after New York and London, and the most globally competitive in Asia. The fourth position is shared by Paris and Hong Kong, and Tokyo is ranked sixth.
Superstar cities
The term "superstar cities" is a more recent concept and is the title of a study of United States cities by urban economists Joseph Gyourko, Christopher Mayer and Todd Sinai. Their paper notes the considerable differences in long- run house price appreciation rates across US metropolitan areas and towns after World War II.
These differences led to an ever-widening gap in housing prices between the most expensive metropolitan areas and the average ones. They define locations that experience persistently higher-than-average house price growth as "superstar cities".
From the housing price appreciation perspective, Tokyo is a global city but is not a superstar city.
Chart 1 shows the housing price trends in the top five global cities, namely, New York, London, Singapore, Paris and Hong Kong. The superstar prize goes to Paris, and Singapore comes in last among the top five global cities.
Besides having higher than average house price growth, global superstar cities also have higher levels of economic inequality. Income inequality has been increasing in most of the developed countries in the past few decades.
Singapore's Gini coefficient for resident households last year after taxes and transfers was 0.412, which is higher that most of the high-income OECD countries. But comparing Singapore's Gini coefficient with country-level Gini coefficients may not be entirely appropriate.
National inequality measures mask considerable variations across cities within the same country. Studies have shown that within the same country, income inequality can be expected to increase with the size of the city.
A larger city size increases productivity as more skilled people are attracted to the location, and higher urban productivity further incentivises migration from rural areas, smaller cities and across borders. The global superstar cities New York and London have income Gini coefficients (after taxes and transfers) in the 0.4 to 0.5 range. Singapore's Gini coefficient is comparable to other cities of similar size and lower than the Gini coefficients of New York, London and Hong Kong (see Chart 2).
Thomas Piketty
Post-2014, it is impossible to discuss economic inequality without referring to Thomas Piketty's book, Capital In The Twenty- First Century, which won numerous awards last year. Piketty highlights rising income inequality as a major problem, focusing on the increasing share enjoyed by the top 1 per cent and top 10 per cent.
My estimates for income shares for the top five global cities show Singapore's income distribution to be less equal than Paris', but more equal than those of London, Hong Kong and New York City (see Chart 3).
Piketty's greater concern, however, is with the distribution of wealth - that capital or wealth ownership is much more concentrated than the distribution of income from work. His data for the US indicates that the top decile own 72 per cent of America's wealth, while the bottom half's claim is just 2 per cent.
In most European countries, the richest 10 per cent own around 60 per cent of national wealth, the poorest 50 per cent invariably own less than 5 per cent. In his view, it is this unequal ownership of capital that is a prime driver of income disparities.
Piketty also includes in his book his view of capital ownership distribution in an "ideal society". To quote Piketty: "To my knowledge, no society has ever existed in which ownership of capital can reasonably be described as 'mildly' inegalitarian, by which I mean a distribution in which the poorest half of society would own a significant share (say one-fifth to one-quarter) of total wealth… Of course, how one might go about establishing such an 'ideal society' - assuming that such low inequality of wealth is indeed a desirable goal - remains to be seen."
Not only is present capital ownership very unequal, but Piketty also expects the inequality to increase over time as the rate of return on capital - generally 4 to 5 per cent - has throughout history been greater than the global growth rate, except during the second half of the 20th century.
This inequality results in redistribution of income towards holders of capital and increasing inequality of wealth. Adding to this force for divergence is the rise of super-salaries of corporate chief executive officers, which, according to Piketty, is determined more by social and political norms rather than economic forces.
To regain control of capitalism without giving up its benefits, he advocates more progressive income taxes with the top marginal tax rate of 80 per cent for incomes above US$500,000 (S$682,000) to US$1 million, and a utopian idea - a global capital tax ranging from 0.1 per cent to 10 per cent on the total wealth to restrain the growing power of inherited wealth.
From Piketty to George
Piketty adopts a very broad definition of capital and does not treat land or real estate assets differently from other forms of capital. As Singaporeans know only too well, land does deserve special treatment, and should be treated as distinct from globally mobile capital for policy purposes - especially in a land-constrained global superstar city.
The ideas of another economist, Henry George, who proposed a quite different utopian idea over a century ago, are more relevant in the context of superstar cities. George's 1879 book, Progress And Poverty, was a bestseller on both sides of the Atlantic in the 1890s. In his time, the rapid development of cities in 19th-century America caused substantial increases in land prices. This had large wealth and income redistribution effects as landowners and land speculators enjoyed huge windfalls. These windfalls, in turn, fuelled expectations for future price increases, resulting in speculative bubbles.
The crash that inevitably followed would wipe out vast amounts of asset values - creating another set of winners and losers which may not necessarily match the first set of winners and losers. Unlike Marx, George held nothing against the capitalists. Instead, his remedy was that any increase in land rents should be shared by society rather than fall into private hands. ("We must make land common property"). To effect this, he advocated a 100 per cent land value tax on the annual value of unimproved land held as private property.
What this meant was that buildings and other improvements (the product of the efforts of capital and labour) would not be included in the tax base. The proposed tax was called the single tax as, in his view, it would be sufficient to support all levels of government, thus permitting all other taxes on labour, capital and production to be abolished.
Prominent fans of George have included personalities as diverse as Leo Tolstoy, Winston Churchill, Sun Yat Sen, Milton Friedman, and Joseph E. Stiglitz. Modern-day Georgists advocate partial land value capture taxes as a less extreme form of George's land tax.
The few jurisdictions that have implemented site value taxation separate the property tax base into an unimproved land value component and improvements, and tax property owners at a higher rate on the unimproved land value. In the urban transport sector, land value capture through a betterment tax is often proposed as a means of funding the cost of expensive transport infrastructure such as urban rail transit.
Singapore's housing wealth redistribution framework can be interpreted as containing elements of George's land value capture tax and Piketty's progressive wealth tax, in addition to other significant and innovative institutions and policies.
1960s: Framework for housing provision
Soon after independence, the Land Acquisition Act was passed in 1966, which gave the state broad powers to acquire land. In 1973, the concept of a statutory date was introduced, which fixed compensation values for land acquired at the statutory date, Nov 30, 1973. State land as a proportion of total land grew from 44 per cent to 76 per cent by 1985 and is currently around 90 per cent. A significant portion of the increase is from land reclamation as about 20 per cent of Singa- pore's land is reclaimed land.
Subsequent amendments to the Act changed the statutory date for purposes of valuation for compensation. In 2007, the use of historical statutory date was removed by Parliament, and compensation has since been pegged to full market value.
The Land Acquisition Act was one of three important pieces of legislation passed in the 1960s when the foundations of Singapore's policies for urban transformation were being laid.
The other two important components of these foundations (created by the respective legislation) were the Housing and Development Board (HDB) in 1960, and the expansion of the role of the Central Provident Fund (CPF) to include housing finance in 1968.
Through a carefully structured housing system which was established by 1968, land resources and domestic savings were channelled into the HDB home ownership sector. The HDB played an important role in resettlement, land use planning as well as the development of new towns with comprehensive public amenities.
As the economy grew, its primary role in the construction of high-rise HDB housing and making home ownership affordable helped to ensure that the benefits of economic growth were widely distributed and shared. By 1990, 87 per cent of the resident population were already housed by the HDB, and the home ownership rate had increased to 88 per cent. The property-owning democracy was not a mere utopian ideal but had, instead, become a reality.
1990s: Growth in value of HDB housing assets
In the 1990s, the focus took on a qualitative shift instead; in particular, it shifted to enabling upgrading to larger and better-quality flats, the deregulation of the HDB resale market, including opening the market to permanent residents, increased housing loans for HDB resale flats, physical upgrading of HDB flats and neighbourhoods, as well as the introduction of CPF housing grants.
These policies contributed, in part, to the rapid increase of HDB flat values in the early half of the 1990s. HDB resale price increases were higher than private housing price increases in the 1990s.
The wealth-share effects of these differential price movements show up clearly in the household sector balance sheets. From zero share of housing wealth in 1965, HDB households' share of gross housing wealth exceeded 50 per cent at the peak of the housing boom, and increased further to 60 per cent during the Asian financial crisis. In the past decade, the share has been about 50-50. Despite the volatility of asset prices and values, by 2005, 85 per cent of the resident population (HDB households) enjoyed a share of about 50 per cent of the gross housing wealth.
From 2005: Housing wealth redistribution
Since 2009, under the Lease Buyback Scheme, elderly home owners residing in three-room (or smaller) HDB flats have been able to monetise their HDB assets for the purpose of retirement financing. Last August, Prime Minister Lee Hsien Loong expanded the scheme to include HDB four-room flats.
Using the same illustration, an HDB four-room flat, bought for about $24,200 in 1980, lived in for 34 years, is now worth $450,000. It can be retained for the next 30 years, and the HDB this year buys back the 35 years of the end lease for $190,000 to help the elderly household finance retirement. This is the provision of a retirement safety net for elderly households based on their ownership of a four-room or smaller flat - at significant interest rate risk and house price depreciation risk for up to 30 years for the HDB.
Why, then, is there the need to "cool" the housing market in recent years? There are at least four reasons.
  • First, I use the George Effect to refer to the "unearned increments" that accrue to property owners and those who were "lucky" based on when they entered and exited the market, as well as to speculators and investors who contribute to market exuberance and bubbles.
  • Second, the persistence of house price appreciation that exceeds wage growth in the longer term could also lead to the entrenchment of what I call the Piketty effect - growing inequalities in incomes and wealth from inheritance flows and a growing rentier class.
  • Third, the house price level is a key economic variable that affects the lives, happiness and wealth of Singapore households. It should not become a variable that is determined by the actions of foreign speculators, global liquidity and the agendas and monetary policies of foreign governments.
  • Fourth, it is now widely accepted that housing bubbles can pose a threat to financial and macroeconomic stability. The numerous housing market cooling measures that have been introduced after the global financial crisis in Singapore as well as in numerous other countries are also known as prudential regulations.
Micro-prudential supervision aims to ensure the resilience of individual financial institutions to shocks and include regulatory standards on bank capital adequacy, leverage ratios and liquidity.
Macro-prudential regulations of the housing sector aim at increasing the resilience of the financial system as a whole and include caps on loan-to-value ratios, total debt service to income ratios, as well as stamp duties to curb speculation by the cash rich.
I would like to include another category of prudential regulation - social-prudential regulations which ensure the resilience of society and the country as a whole. This category of housing regulations includes affordable home ownership policies, as well as the integration of various income groups and races in the same housing estates.
The housing tax regime has been made more progressive, with higher transaction taxes for foreigners and investors, and owners of higher value properties paying higher property tax rates. (Stamp duties, however, can reduce transaction volumes and lead to potential sellers withholding supply. At the appropriate time, it would be good to gradually reduce these and replace them with property tax increases which should aim to have a similar effect on house price appreciation.)
In what can be described as a retreat from the market, new HDB flats are now offered at affordable prices that are "delinked" from market prices. Taxing wealthy property owners and investors at a higher rate and simultaneously subsiding entry into home ownership for lower-income households have created a housing tax and subsidy code that is highly progressive and more complex than the income tax code. At the point of purchase, the range is from 15 per cent additional buyer's stamp duty for foreigners, to price subsidies for HDB two-room flats that can be as high as 50 per cent (based on the difference between resale and new flat prices).
In addition to the price discount for each household purchasing an HDB flat, the effective housing subsidy is further carefully calibrated through a system of differential housing grants (from $0 to $80,000) based on a host of criteria. Housing wealth redistribution has become much more targeted, nuanced and fairer in approach.
Comparison across cities
As a global superstar city as well as a nation state, Singapore has harnessed the entire spectrum of land and housing policies to keep housing prices affordable. Singapore's house price to income ratio of five is the lowest among the global superstar cities, with Hong Kong's ratio at 17 (see Charts 4 and 5).
Singapore's resident home ownership rate of 91 per cent is also an outlier, with Hong Kong, Paris and London relying on social rental housing to meet the housing needs of lower-income households. New York City has a small public-housing sector but relies on rent vouchers as well as rent control regulation of nearly half of its private rental housing stock.
Based on my estimates, the low inequality that has been achieved in the distribution of Singapore's gross housing asset comes close to capital distribution in Piketty's "ideal society". The bottom 50 per cent owns one quarter of the gross housing wealth (see Chart 6).
If the data for overall household wealth distribution were available, the overall wealth distribution would probably approximate the Scandinavian wealth distribution in the 1970s and 1980s.
This aspect of housing achievement has been arrived at through astute political decisions, an effective and non-corrupt government, and the hard work of government agencies such as the HDB and Urban Redevelopment Authority.
In particular, I would like to conclude with a personal tribute to our founding Prime Minister, the late Mr Lee Kuan Yew, for his visionary leadership of Singapore during its first critical decades. We are all deeply saddened by his passing.
The writer is Celia Moh Professor and Professor of Economics, Singapore Management University. This article is a summary of a lecture delivered on March 23 at SMU.
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Even full deal with Iran could fail to stabilise Middle East: Analysts

Even full deal with Iran could fail to stabilise Middle East: Analysts

PUBLISHED ON APR 3, 2015 5:46 AM
An Iranian woman walks in a Teheran street, in Iran, on April 1, 2015. Negotiators hope a nuclear deal will bring Iran back into the diplomatic fold, but experts are divided on whether it will douse the many fires of the Middle East. -- PHOTO: EPA
PARIS (AFP) - Negotiators hope a nuclear deal will bring Iran back into the diplomatic fold, but experts are divided on whether it will douse the many fires of the Middle East.
Iran and six world powers agreed on Thursday on the outline of a potentially historic deal to curtail its nuclear programme in return for the lifting of economic sanctions on the Islamic republic.
Even while struggling under sanctions and in diplomatic isolation, Iran's influence has been on the rise and it is deeply involved across the region.
On top of its long-standing ties to the Syrian regime and Hezbollah militants in Lebanon, it has been leading the fight against the Islamic State group in Iraq and is the chief backer of the surging Huthi rebellion in Yemen.
When negotiations over Iran's nuclear programme began in 2013, there were hopes a deal could pave the way for greater cooperation on these security issues, but some analysts say the moment may have passed.
"Things have changed so much in the last few months, even weeks. The nuclear issue used to be the paramount issue in the region, but the security debate has moved on," said David Hartwell, managing director of Middle East Insider magazine based in London.
Some still hope the agreement will encourage Iran and its Middle Eastern rivals to sit down together.
"Up to now Iran intervenes without being asked in regional issues and that leads to war. An agreement means Iran must start playing a more diplomatic game," said Bernard Hourcade, of the National Centre for Scientific Research in Paris.
Hasni Abidi, director of the Geneva-based Study and Research Centre for the Arab and Mediterranean World, said one possible result of sanctions being dropped is that Iran will become more interventionist using weapons bought with the funds released from unfrozen accounts.
"On the other hand, will the international recognition make it less aggressive, will it make Iran drop its pressure (on its regional rivals)?," Abidi said.
UN Secretary-General Ban Ki-moon said Thursday the nuclear deal "will contribute to peace and stability in the region".
But the last week has seen Iran's chief rival Saudi Arabia set up a 10-country Arab military coalition to check the Iran-backed Huthis in Yemen, launching air strikes across the country.
Many fear the region is on the verge of full-blown war rather than reconciliation, with the leading powers unlikely to cooperate even on areas of common interest.
"There is precious little evidence that the Saudis or anyone else is happy with Iran's involvement in the fight against (the Islamic State group), or willing to cooperate with Iran on anything at all," said Hartwell.
'MISUNDERSTANDINGS AND MISSED OPPORTUNITIES'
Any agreement still faces major obstacles to implementation. The opposition Republicans in Washington, who control Congress and see Iran as a major threat that cannot be trusted, must yet approve the lifting of sanctions.
At the heart of the debate is an attempt to understand Iran's motives and intentions.
Saudi Arabia and Israel - supported by the hawks in Washington - see an aggressive rising power seeking to establish control across large swathes of the Middle East.
Freed from the financial constraints of sanctions, Iran could step up that aggression and trigger a nuclear arms race in the region.
"Whatever comes out of these talks, we will want the same," former Saudi intelligence chief, Prince Turki al-Faisal, told the BBC this month.
Its late king, Abdullah, bluntly warned a US ambassador in 2009: "If they get nuclear weapons, we will get nuclear weapons."
But others see Iran as acting from a position of weakness.
"Iran doesn't sit around plotting how to take over the Middle East, but they do spend a lot of time thinking about how to stop others from doing so," said Flynt Leverett, a Middle East expert at Penn State University in the US.
Encircled by US allies, with a weaker military than smaller neighbours and left out of security partnerships, Teheran has used proxies and interventions to protect its position, said Ali Vaez of the International Crisis Group.
It is possible a nuclear deal could encourage Iran to feel less threatened and more willing to work through diplomatic channels, but matters are rarely so simple in a region where no conflict has ended peacefully in decades.
"Iran's relations with its neighbours are replete with misunderstandings and missed opportunities," said Vaez.
WIN FOR RUSSIA, CHINA
If sanctions are lifted, the big winners may be Russia and China.
They have been involved in the nuclear negotiations, and do not face the sort of domestic opposition that will make it difficult for the United States to fully embrace Iran.
"Beijing and Moscow are taking steps to deepen their already considerable economic and strategic involvement in Iran," said Leverett, adding that both Chinese President Xi Jinping and Russian President Vladimir Putin were due to visit Teheran in the coming weeks.
"This should be a springboard for a 'Nixon to China' moment - a great victory for American diplomacy - but the benefits will all go to China and Russia," he said.
"The Obama administration will have snatched defeat from the jaws of victory."

Oil price falls as Iran nuclear framework reached

Oil price falls as Iran nuclear framework reached

PUBLISHED ON APR 3, 2015 3:21 AM
NEW YORK (AFP) - Crude-oil prices fell Thursday after six world powers and Iran announced they had agreed on a framework to curb Iran's nuclear drive.
The US benchmark, West Texas Intermediate (WTI) for May delivery, shed 95 cents to close at US$49.14 a barrel on the New York Mercantile Exchange.
Brent North Sea crude for delivery in May, the global benchmark futures contract, slumped to US$54.98 in late London trade, a sharp decline of US$2.12 from Wednesday's closing level.
The market has been following the marathon negotiations closely, estimating that an agreement could lift sanctions against Iran, allowing the return of Iranian crude to an oversupplied global market.
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Shortly before the New York market closed, the world powers and Iran said that Teheran has agreed to curtail its nuclear programme in return for the lifting of sanctions that have harmed its economy.
At the beginning of the press conference in Lausanne, Switzerland, the price of WTI, which had been trading lower since the market opened, fell to US$48.11 a barrel before paring its losses.
The countries announced the drafting of a full agreement would begin immediately, with a June 30 deadline for completion.
Sanctions would be lifted upon Iran's fulfillment of the terms of the deal, aimed at preventing Teheran from developing nuclear weapons.
"If Iran cheats, the world will know it," US President Barack Obama said, adding that the deal reached was based not on trust but on "unprecedented verification."
- See more at: http://www.straitstimes.com/news/business/markets/story/oil-price-falls-iran-nuclear-framework-reached-20150403#sthash.ff7TfUbA.dpuf

As rice mountain shrinks, Thailand risks amassing one for rubber

As rice mountain shrinks, Thailand risks amassing one for rubber


[BANGKOK] Eight months after Thailand's military junta started selling rice into an oversupplied global market, the officers are taking a different tack amid a rubber glut.
But this approach by Thailand, the world's biggest exporter of both commodities, may cause as many problems in global markets as the old one, analysts say. That's because while the rubber purchases revived domestic prices that touched a five- year low in October, they're failing to cut a global production surplus that is entering its fifth year, according to data from the International Rubber Study Group.
Demand is slowing in China, the world's top buyer and tire exporter, and natural rubber faces stiffer competition from synthetic material made from crude oil, which costs half what it did a year ago. Rubber prices are down more than 70 per cent from their 2011 peak as trees planted in Asia over the past decade matured and flooded the market.
That hurt farmers and cut costs for users of the raw material, including Goodyear Tire & Rubber Co and Michelin & Cie.


"Thailand's approach is just pushing the problem down the road," Colin Hamilton, head of commodities research at Macquarie in London, said by e-mail on March 20.
"The market needs supply to exit, not be encouraged."
POLITICAL SUPPORT
To some observers, the junta may be supporting rubber farmers to ensure political stability. The growers who backed General Prayuth Chan-Ocha's takeover have successfully lobbied for subsidies as prices slumped, said Ambika Ahuja, a London- based analyst at Eurasia Group, a political-risk adviser.
In addition to buying at above-market prices, the government makes direct payments to growers and helps with borrowing costs. While the junta has ruled out purchasing rice, it also makes payments directly to farmers and subsidizes loans to help millers and growers with storage.
Former Prime Minister Yingluck Shinawatra was overthrown last year and now faces criminal charges related to her administration's rice-buying program, which the finance ministry estimates lost US$16 billion. The junta began selling off record stockpiles, prices have tumbled, and the country is reclaiming its place as the world's biggest exporter.
Yingluck's opponents say the rice programme was part of a pattern of corruption by politicians allied with her brother, Thaksin Shinawatra, who was deposed as prime minister in 2006. Since his ouster, the country has been divided between Shinawatra family loyalists - mostly farmers in the north and northeast - and urban and middle-class opponents. Yingluck denies the corruption charges.
FARMER BACKING
Southern Thailand is home to 70 per cent of domestic rubber output and many local farmers supported protests against Yingluck's regime. About 1.6 million households in the nation of 65 million people own rubber plantations and exports totaled US$6 billion last year, government data show. Some 4.4 million households grow rice, with shipments valued at US$5.4 billion.
"The government has to step in as the market mechanism alone is not enough to help farmers have enough income to offset costs of living," Amnuay Patise, deputy minister for agriculture and cooperatives, said in an interview on March 6, when asked why the junta changed its policy toward direct purchases. "We'll buy when farmers are in trouble." While the government measures don't solve the farmers' problems completely, they're better than doing nothing, said Sangwern Tuadhoy, the president of the Thai Rubber Growers Network, who owns a 40-acre plantation in Rayong province.
"We decided to buy rubber, as an additional step, to increase prices and there's no hidden political agenda," government spokesman Sansern Kaewkamnerd said by phone on April 2.
"We're not aiming to build a voter base because this is an interim government." Curbing Exports Thailand, Indonesia and Malaysia, which account for two- thirds of world production, said in November they would limit exports to tighten supply. The global surplus will narrow to 51,000 tons in 2016 from an estimated 77,000 tons this year, the International Rubber Study Group said in January.
Prices of ribbed smoked sheet grade 3 in Bangkok, the Thai benchmark, averaged 58.59 baht (US$1.80) a kg in March compared with 52.79 baht in October. That was lower than rubber on the Shanghai Futures Exchange, which averaged about 12,802 yuan a ton, or 67 baht a kg.
The junta in Thailand is also encouraging farmers to fell aging trees over an area of 158,000 acres annually, with some land being turned over to palm oil.
That may reduce production by about 100,000 tons a year, according to data from the Office of Agricultural Economics. Output will be 4.3 million tons in 2015, the Association of Natural Rubber Producing Countries estimates.
CRUDE SLUMP
Prices will find little support from China, where the producer group predicts imports will drop 9.9 per cent this year, the first decline since at least 2010. China forecasts economic growth of 7 per cent, the slowest pace since 1990.
The Thai government has bought 130,000 tons since November, Amnuay, the deputy minister, said March 6. Buying probably will resume in May, he said last week. "Small-holders want the government to continue purchases and we're listening to the voice of farmers," he said.
Buying is "artificially distorting the market," Michael Coleman, managing director of RCMA Asset Management Pte, said in Singapore on March 25. "It's keeping the price higher than it otherwise would be. Thailand just created a case study of that with rice in the most dramatic fashion you could imagine."
BLOOMBER
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US Senator Menendez indicted for corruption

US Senator Menendez indicted for corruption


[WASHINGTON] US Senator Robert Menendez was indicted on Wednesday on charges of public corruption, following a two-year federal investigation into his ties to a friend who contributed large sums to his re-election campaign.
Menendez, the top Democrat on the Senate Foreign Relations Committee and lead author of legislation aimed at tightening sanctions against Iran, will temporarily step down from his role on the panel.
"While there is no caucus rule that dictates that I do so, I believe it is in the best interests of the committee, my colleagues, and the Senate, which is why I have chosen to do so," Menendez wrote in a letter to Senate Minority Leader Harry Reid, insisting he would resume his post once the proceedings are concluded.
He faces 14 charges, including conspiracy and eight counts of bribery.


The two-term New Jersey senator faces up to 15 years in prison for each bribery charge. He could appear in court as early as Thursday.
The charges are connected to an alleged bribery scheme in which Menendez accepted gifts from Florida ophthalmologist Salomon Melgen "in exchange for using the power of his Senate office to benefit Melgen's financial and personal interests," Justice Department spokesman Peter Carr said.
Menendez expressed outrage at the charges.
"I'm angry because prosecutors at the Justice Department don't know the difference between friendship and corruption, and have chosen to twist my duties as a senator and my friendship into something that is improper," Menendez told reporters in Newark, New Jersey.
"They are dead wrong," said Menendez, one of the most influential Hispanic American lawmakers. "This is not how my career is going to end." The 61-year-old acknowledges he and Melgen, also 61, have been close friends for decades. But the indictment paints a detailed picture of two men deeply involved in several layers of bribery and conspiracy.
Melgen contributed some US$750,000 towards Menendez's 2012 re-election efforts, the indictment said.
Menendez was gifted more than 20 flights, mostly on Melgen's private jets, between New Jersey, Florida and the Dominican Republic, where the senator - occasionally accompanied by a guest - was put up in Melgen's posh Caribbean resort property.
At Menendez's request, he was also provided a three-night stay at the Park Hyatt Paris-Vendome, valued at US$4,934.10 and paid for by Melgen.
Menendez "never disclosed any of the reportable gifts that he received from Melgen," prosecutors said.
In return, Menendez allegedly pressured US officials in 2009 and 2012 to reverse a federal order that Melgen repay nearly US$9 million in overbilling to the Medicare health care programme for US seniors.
Menendez is also said to have intervened to help win US visas for three of Melgen's girlfriends, and to resolve a dispute at Dominican ports that would favor Melgen and his security scanning business.
AFP

Iran nuclear deal 'historic mistake': Israel govt official

Iran nuclear deal 'historic mistake': Israel govt official

[JERUSALEM] A framework nuclear deal between Iran and world powers will be remembered as a "historic mistake" giving Tehran legitimacy in its bid to get the bomb, Israeli officials said Thursday.
"If an agreement is reached on the basis of this framework, it is a historic mistake which will make the world far more dangerous," said the government officials.
"It is a bad framework which will lead to a bad and dangerous agreement," they said on condition of anonymity in a briefing to journalists.
"The framework gives international legitimacy to Iran's nuclear programme, the only aim of which is to produce a nuclear bomb," said their written comments.
The outline agreement aimed at curbing Iran's nuclear drive was clinched after marathon talks in Switzerland and marks a major breakthrough in a 12-year standoff between Iran and the West, which has long feared Tehran wants to build an atomic bomb.
Israel has warned relentlessly against such a deal and Prime Minister Benjamin Netanyahu said earlier Thursday that an agreement would have to "significantly roll back Iran's nuclear capabilities".
He says that any potential for a nuclear-armed Tehran threatens the Jewish state's very existence.
US President Barack Obama said Thursday he would speak to Mr Netanyahu to reassure him of steadfast US support for Israel's security.
Israeli Intelligence Minister Yuval Steinitz said earlier that all options were open for Israel.
"If we have no choice, we have no choice... the military option is on the table," he said.
The Israeli government officials slammed the emerging deal as "folding to Iranian dictates".
"It will not lead to a nuclear capability for peaceful purposes but to a nuclear capability for war," they said.
"Iran is not being required to stop its aggression in the region, its worldwide terror or its threats to destroy Israel." The "parameters" for the accord between Tehran and six world powers are to be fleshed out into a comprehensive agreement by June 30 in an attempt to end more than a decade of tensions with the Islamic republic.
Failure may set the United States and Israel on a road to military action to thwart Iran's nuclear drive and keep Tehran out in the cold on the international stage.
The so-called P5+1 group - the United States, Britain, China, France and Russia plus Germany - hope that the deal will make it virtually impossible for Iran to make nuclear weapons.
Iran, one of the world's major oil producing countries, has always denied seeking the atomic bomb saying its activities are for energy generation and research.
AFP

Merkel says world has 'never been closer' to deal preventing Iran nuclear bomb

Merkel says world has 'never been closer' to deal preventing Iran nuclear bomb

[BERLIN] German Chancellor Angela Merkel on welcomed a framework deal agreed between Iran and world powers on Thursday, saying the international community had never "been so close to an agreement preventing Iran from having nuclear weapons".
The outline agreement aimed at curbing Iran's nuclear drive was clinched after marathon talks in Switzerland and marks a major breakthrough in a 12-year standoff between Iran and the West, which has long feared Tehran wants to build an atomic bomb.
"We have never been so close to a deal preventing Iran from having nuclear weapons," Dr Merkel said in a statement.
Her spokesman Christiane Wirtz added that Dr Merkel had spoken with US President Barack Obama and that both leaders "hailed the results of the negotiations" with Iran, secured after days of talks in the Swiss town of Lausanne.
The so-called P5+1 group - the United States, Britain, China, France and Russia plus Germany - hope that the deal will make it virtually impossible for Iran to make nuclear weapons under the guise of its civilian programme.
AFP

Except for rich, Americans' incomes fell last year

Except for rich, Americans' incomes fell last year

[WASHINGTON] Most Americans' incomes continued to fall last year, but the richest 20 per cent saw theirs rise, a new Labor Department report showed Thursday.
In fresh data that adds fire to a growing debate over about income inequality, the department said that Americans on average saw income decline for the second straight year in the 12 months to June 2014.
The average pre-tax income fell 0.9 per cent from the same period a year earlier, to US$64,432.
But broken down into quintiles, those in the top 20 per cent of incomes saw their money stream grow by 0.9 per cent to US$166,048 on average.
Every other group lost ground, with the bottom 20 per cent losing the most: their average income dropped 3.5 per cent to US$9,818.
Those losses came despite an economy that was picking up pace and generating well over 200,000 jobs a month last year.
While the majority of incomes fell, consumer spending, which accounts for about two-thirds of US economic activity, rose 1.0 per cent on average.
The largest increase was an 11.3 per cent rise in healthcare spending, which has climbed every year since 1996, to an average of US$3,919.
Housing expenditures rose 2.0 per cent to US$17,377.
The new data added further evidence of the widening disparity between the rich and the rest of Americans, an issue that is stirring growing concerns as the economy strains to recover from the Great Recession caused in part by Wall Street excesses.
Federal Reserve Chair Janet Yellen repeatedly has raised the issue.
On Thursday, at a Fed conference on economic and social mobility in Washington, Yellen emphasized that "roughly 80 per cent of Americans across the ideological spectrum see inequality as a moderately big or very big problem," according to her prepared remarks.
AFP

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