U.S. Economic/Financial News
Mortgage Blowout: Hit WorstHomeowners, or Homebuilders?
April 26, 2007 (EIRNS)More signs of the "financial disintegration" spreading outward from the U.S. mortgage bubble blowout, appeared in multiple economic reports today.
In the most serious development, Moody's Credit Rating Service put out a warning that the biggest homebuilding companies in America are in imminent danger of being "foreclosed" by their banks and other lenders. Pulte Homes, Ryland Group, and Beazer Homes all reported big first-quarter losses, as the housing blowout hit their revenues hard and forced them to write off the value of land on which they planned to build houses. These builders, said Moody's, along with Centex Corp. and Toll Brothers, Inc., are now in violation of their bond covenants with banks, because their operating revenue is not exceeding their interest costs by the covenanted amount, and some of them have negative cash flow for the past year. Their loans could be called at any time, and, "The next year or so, for them, is going to be pretty grim," according to Moody's analyst Joseph Snyder.
The national inventory of new homes for sale was over eight months in February, the highest in 16 years; and the builders have been unable to cut them even with aggressive discounting.
Meanwhile, American homeowners had to cut down their home-equity credit outstanding during the first quarter, after eight years of continuous increases, according to a report by MoodysEconomy.com.
And a third report, by Fannie Mae, found that among the record number of foreclosures going on nationwideat a pace in the first quarter to hit nearly 2 million for the yearthe fastest-rising cause, is sheer household indebtedness, making mortgage payments out of reach. This cause, for about 20% of all delinquencies leading to foreclosure, is now second only to loss of jobs, the cause of about 35% of such delinquencies.
This crushing household indebtedness is likely to show up in a steep drop in April auto sales.
U.S. Manufacturing Base Gone, Congress Is Told
WASHINGTON, April 24 (EIRNS)"China is investing in their future," asserted Rep. James Oberstar (D-Minn.), as he contrasted U.S. and Chinese steel output. "The country with the highest output of steel" in 1979 was the U.S., with 129 million tons of raw steel output. In 2006, "China's raw steel output was 450 million tons. Oberstar's comments, made at an oversight hearing April 24 on the topic of the Bush Administration's subversion of "Buy America" laws as applied to transportation projects. While this was the topic of the hearing before the House Transportation Committee's Subcommittee on Highways and Transit, the real underlying subject discussed was America's decimated manufacturing base. Oberstar said China "is investing $1 trillion" in infrastructure, and he insisted it's time the U.S. do likewise.
Rep. Grace Napolitano (D-Calif.) agreed: "We don't have the infrastructure we once had." Back in the 1980s, "we were losing manufacturing jobs. We used to build rail cars," for example. "In the 1930s, when we had a recession, we built bridges and dams, etc. Why not use transport projects" to rebuild the U.S. economy today? she asked the witnesses, as she requested their ideas on how to rebuild. John Catoe, general manager of the Washington, D.C. Metropolitan Area Transit Authority, agreed. He explained the U.S. no longer manufactures rail cars, and has only one domestic company still making heavy-duty buses. He then told her, "If you are calling for a public works program for transportation projects, I'm willing to lead it."
Pathetically, not one member of Congress mentioned the shutdown of the nation's auto industry, or called for a reversal of these closures by retooling the industry to manufacture the components for transport projects, as Lyndon LaRouche has called on Congress to do.