U.S. Economic/Financial News
Economic Collapse Hysteria Hits the Front Pages
Jan. 12 (EIRNS)The state of emergency that Lyndon LaRouche forecast would hit the U.S. economy as of Jan. 3 has arrived. The bad economic news that emerged yesterday, which just piles onto that of the previous several days, is the leading news item everywhere. The Washington Post, in a front-page story headlined "Fears About Economy Worsen," reports, "New indications emerged yesterday that the spiraling subprime mortgage crisis is spreading from home loans to credit cards, potentially engulfing a far broader segment of Americans." A feature of the Post's coverage is that we're not even close to passing through this crisis. Joe Brusuelas, chief economist of the economic research firm IdeaGlobal, is quoted, "We haven't even scratched the surface of what the losses [in the banking sector] will be. I don't think we're anywhere near the end. Rather, we're still at the beginning of this."
The Wall Street Journal's coverage is of the same tone, but focused on plunging consumer spending rather than the paper losses in the markets. The Journal notes reports of weaker-than-hoped-for sales in retail, a fall in earnings of credit card issuer Capital One, and AT&T cutting off telephone and Internet customers for non-payment, as indicators of where consumer spending is heading. Consumers no longer have the ability to tap into their home equity as a source of spending. "They don't have any reserves to fall back on," the Journal quotes one economist saying.
And they haven't seen anything, yet.
Half a Million Jobs Axed in Residential Construction
Jan. 9 (EIRNS)The residential construction/real estate sector fired nearly half a million workers in 2007, as a result of the blowout of the real estate bubble. This is a prelude to the debacle that will unfold in 2008, when 1 million more workers will likely be fired. According to the massaged, understated figures of the U.S. Department of Labor, between December 2006 and December 2007, some 69,400 workers lost jobs in residential construction; another 125,200 workers lost jobs in residential specialty trades, such as plumbing, electrical work, and driveway construction. Thus, the total loss of physical residential construction jobs reached 196,400.
During the same period, 103,200 workers lost their jobs in the combined sectors of real estate credit and mortgage loan brokers.
However, based on field reports from LaRouche PAC and the LaRouche Youth Movement, at a minimum, 100,000 undocumented Hispanic workers, who work off the books building homes, have been fired from construction jobs, but do not show up in Department of Labor Statistics.
Thus, between December 2006 and December 2007, at least 467,000 U.S. workers were fired in residential construction. With the ongoing financial-economic collapse gaining gale force, 2008 would be a much bigger catastrophe.
States Subpoena Banks, Call Lending Disclosures 'Useless'
Jan. 12 (EIRNS)In what looks to be a coordinated action, New York's and Connecticut's State Attorneys General are investigating Wall Street banks for targetting the poor for "reverse red-lining" in issuing mortgages. New York Attorney General Andrew Cuomo said banks did not disclose "high-risk" mortgages, called "exceptions," in reporting to credit agencies and investors. The New York Times reports that in the multi-trillion-dollar market, banks pooled the "exceptions" with other mortgages into securities and sold them to investors. These loans account for as much as 80% of their mortgage lending.
Connecticut Attorney General Richard Blumenthal said the public disclosures in the filings by the banks, were "useless." He said, "a company that knows in effect that the disclosure is deceptive or misleading can't be shielded from accountability." Blumenthal has issued over 30 subpoenas in his investigation. Under Connecticut law, only civil charges can be brought. New York's Cuomo can bring both criminal as well as civil charges, which could be filed within weeks. Last Summer, Cuomo had begun the investigation by issuing subpoenas to Wall Street banks, including Lehman Brothers and Deutsche Bank.
Countrywide's Stocks Plummeting
Jan. 9 (EIRNS)Countrywide Financial Corp., the actually bankrupt mortgage lender kept afloat by grabbing $50 billion from the Federal Home Loan Bank system in December, saw its stock fall 15% today, as foreclosures and late payments on mortgages were the highest on record. On Jan. 8 the stock tumbled 28%, the biggest drop since Black Monday in October 1987. Washington Mutual, Inc., the biggest U.S. savings and loan, lost 13%; while IndyMac Bancorp, Inc., the second-largest independent mortgage firm, fell 10.9%. Bank of America, which poured $2 billion into Countrywide in August, would face a loss of more than $1.3 billion, if it sold its stake in Countrywide's stock at the current price.
Foreclosures doubled to 1.44% of unpaid principal in December, to the highest level since the company began tracking data in 2002; while delinquencies jumped to 7.2% of unpaid principal balance, from 4.6% a year ago. December loan fundings fell 45% from a year earlier, to $23.55 billion. Ratings company Egan Jones said Countrywide is in dire need of "an infusion of at least $4 billion within the next couple of weeks."