U.S. Economic/Financial News

California's Bond Ratings Fall Further; Will Arnie Tattoo the Poor?

July 7 (EIRNS)—Fitch's rating service downgraded California's long-term bond rating to BBB—the lowest of any state government. This vote of "no confidence" in both Gov. Arnie Schwarzenegger's and the legislature's ability to achieve a balanced budget, places the state's rating at near-junk-bond status, and will add significant costs to long-term borrowing for public works projects (should there be any).

Schwarzenegger continues to show signs of his Nazi upbringing (his father joined the Nazi Party and served Hitler as a policeman in Austria), demanding the fingerprinting of both patients and caregivers in the state's In-Home Supportive Services program, allegedly to counter fraud. This program provides care to more than 460,000 elderly poor, disabled, and blind Californians. (One observer sarcastically commented that it might be preferable to tattoo them, as the Nazis tattooed identification numbers on prisoners in the concentration camps.) Schwarzenegger argues that this will prevent $380 million in fraud, and is part of more than $2 billion in savings he claims could come from tightening eligibility for such programs, along with cutting services.

There is a growing recognition that he is going too far in his attacks on society's most vulnerable members. Today, there will be a rally of both health-care recipients and providers at the Capitol, under the slogan, "People's Day of Reckoning: The State Budget Is Killing Me!" The sponsors of the event note that Arnie's cuts-only budget will cause unnecessary human suffering. In a related development, Assembly Speaker Karen Bass (D-Los Angeles) boycotted yesterday's meeting with the Governor, saying that his demands are unrelated to closing the deficit. Sources say that Bass has become increasingly angry at his latest demands, which include plans to reduce pensions for new public employees, and hiring nonunion labor for schools.

CIT Group: Is Bankruptcy Around the Corner?

July 11 (EIRNS)—The Wall Street Journal reports today that CIT Group Inc., a lender to almost a million small businesses, has hired the law firm of Skadden, Arps to help it prepare for a bankruptcy filing. CIT is reported to have had $68 billion in liabilities as of March 31 and has historically relied on the bond and short-term-debt markets for funds to lend, but has been largely unable to tap those markets since mid-2007. CIT received $2.3 billion of TARP bailout money last December, and has applied with the FDIC to participate in a program that will allow it to sell bonds at low interest rates, despite its current junk bond rating, but the FDIC has yet to respond to its application.

Machinists Chief Buffenbarger Backs FDR Jobs Program

July 7 (EIRNS)—The president of the International Association of Machinists (IAM), R. Thomas Buffenbarger, issued an open letter to President Obama today, calling on the Administration to recognize the failure of its policies and return to the proven policies of Franklin Roosevelt and Harry Hopkins, to put millions of people to work immediately and rebuild American manufacturing capacity.

Buffenbarger quotes Department of Labor figures that 30.2 million Americans are unemployed or underemployed, and that all sectors of employment are collapsing. "It holds both peril and opportunity," he writes, "for the political party that first recognizes this isn't your father's recession—or your grandfather's depression, for that matter." He adds: "To those [like Fed chairman Ben Bernanke] who see green shoots, I urge them to look closer. They may notice how the soil seems to be drying out and cracking across the entire corn field. No one should expect the crop to be knee high by the Fourth of July—this year or next."

He calls for a second stimulus package, noting that the first was a failure. However, he adds that it must first be acknowledged that, "For much of the last decade, our banks and investment firms printed commercial paper, stamped it 'Made in America,' and lived off the commissions and interest generated by those now toxic assets. We cannot go down that path again....

"I would recommend that we employ a Works Progress Administration approach. Harry Hopkins proved that the Roosevelt Administration could put 3.4 million Americans to work in one year—1935—in thousands of projects that had a lasting impact on our national life.... President Roosevelt's basic strategy can be re-engineered for the modern manufacturing sector. Today's unemployed can be put to work renovating factories and installing new equipment" as well as public works projects.

Buffenbarger also calls for a 10% investment-tax credit for new equipment, so that "businesses could retool their factories."

He concludes: "I urge you to make JOBS Now! the highest priority of your Administration. And I pledge to you an unprecedented level of political activity by the Machinists Union in support of such an initiative."