U. S. Economic News Digest
Manufacturing Employment Falls for 24th Straight Month
In August, the official level of unemployment dropped to 8.142 million workers, compared to 8.345 million in July, a fall of 203,000, while the official U.S. unemployment rate dropped to 5.7%, compared to 5.9% in July, the Bureau of Labor Statistics of the U.S. Department of Labor announced. However, the real unemployment rate and level, as determined by EIR, are actually double the BLS official figures.
A marker for the growing real unemployment is that in August, manufacturing employment declined for the 24th consecutive month two full years. Since August 2000, 1.872 million manufacturing payroll jobs have been eliminated from the U.S. economy. Of these workers, since the end of August 2000, some 1.488 million production manufacturing workers' jobs have been eliminated.
U.S. Banks Plunge Headlong into Derivatives as Economy Nosedives
U.S. commercial banks reported $50.6 trillion in derivatives as of June 30, up from $46.5 trillion on March 31, according to the Federal Deposit Insurance Corp. (FDIC). The record for U.S. bank derivatives was $51.7 trillion in the third quarter of 2001, after which derivatives fell sharply to $45.5 trillion at year-end, for reasons which have not been officially explained but most certainly involve JP Morgan Chase.
The FDIC figures are for commercial banks only, while the Office of the Comptroller of the Currency (OCC) additionally reports the holdings of bank holding companies (BHCs), which also include investment banks owned by BHCs but are separate from the banks. According to the OCC, the top 25 U.S. BHCs had $53.1 trillion in derivatives at mid-year.
Morgan Chase, ever resilient, increased its lead as the world's top derivatives bank-holding company, hitting $26.4 trillion in notional value, a $2.3-trillion increase in three months, according to the OCC. Number two Bank of America joined the double-digit club for the first time with $10.5 trillion, up from $9.95 trillion, while Citigroup came in with a paltry $9.5 trillion, up from $9.2 trillion in the first quarter. Only two other U.S. bank holding companies, Wachovia ($2.2 trillion) and Bank One ($1.1 trillion), broke the trillion-dollar mark.
Wall Street Police Blotter
As the global monetary-financial system collapses, never to recover, wrong-headed popular opinion screams for the Administration to punish greedy corporate executives, when the real culprit is the "shareholder value" system of policies such as deregulation, and privatization, launched more than 20 years ago, heralding the downshift from a producer society to a decadent consumer society. As the electable Lyndon LaRouche, Democratic 2004 Presidential pre-candidate, characterized this mass insanity, in a soon-to-be released EIR Special Report:
"The occurrence of what had been the inevitable collapse of Enron, has triggered a hue and cry against alleged 'bad apples' among prominent executives of corporate basketry. Foolish people now cry: 'Weed out the bad apples, and all will be well once again!' In fact, the badness of those apples, the inherent moral corruption of those apples, is an inevitable product of the system launched by Federal Reserve Chairman Paul Volcker in the fourth quarter of 1979, a system continued by Volcker and Alan Greenspan ever since: the so-called 'shareholder value' system. To clean up that system would require nullifying all of those relevant legislation and Federal court decisions since 1982, which favored the practices of Ivan Boesky, Michael Milken, the Keating Five, and George Soros. The rotten-apple system features the role and influence of the Democratic Leadership Council (DLC), deregulation, 'privatization,' and so on, which went into building such edifices as the financial architecture and corporate practices of Enron, the dot.com bubble, and the Fannie Mae-led mortgage bubble. The problem is not the apples; the source of the rot in those apples is the tree. The rot is the decadence built in, axiomatically, to the consumer society as a species of political-economic system and legal philosophy."
One of the leading developments in this mad rush, was the announcement by Federal prosecutors that they expect to file new charges, and possibly name new defendants, in the investigation of accounting fraud at WorldCom, the bankrupt telecommunications giant. At the arraignment of former chief financial officer Scott Sullivan and accounting executive Buford Yates, Jr., both of whom pleaded innocent to charges they led a scam which, by hiding expenses, inflated earnings by $5 billion from October 2000 through April 2002, Assistant U.S. Attorney David Anders said: "The government is continuing its investigation and we do plan to supersede at some point, to add charges to the same scheme and to potentially add defendants." Reportedly, the government is expected to make plea deals with lower-level employees to bring cases against top executives, including former chief executive Bernard Ebbers.
Both men were named in a seven-count indictment last week accusing them of securities fraud, as well as making false filings with the Securities and Exchange Commission, with possible 65-year prison terms and millions of dollars in fines. Sullivan remains free on $10-million bail, while Yates was released on a $500,000 bond.
Anders said the government was in plea negotiations with former comptroller David Myers, who along with accounting executives Betty Vinson and Troy Normand, was named as unindicted co-conspirator.
Other examples include:
*The House Energy and Commerce Committee will decide by Sept. 10 whether to subpoena Martha Stewart to answer allegations of insider trading on her sale of ImClone Systems stock Dec. 27, or to conclude its investigation by sending a report to the Justice Department, possibly including a recommendation to press charges. The panel has evidence of a five-minute phone call from Stewart to former ImClone Systems CEO Samuel Waksal on Dec. 31, contradicting Waksal's claim that the two did not speak from Dec. 14 to Jan. 5.
*Former Sunbeam CEO "Chainsaw Al" Dunlap agreed to pay a $500,000 fine the largest-ever against an individual in a civil fraud case to settle SEC charges that he masterminded an accounting fraud that inflated the company's profits after he took over in 1996. Dunlap has also been banned from ever serving as an officer or director of a public company again. The Justice Department could still file criminal charges.
*AOL, now under investigation by the Department of Justice and the SEC, booked sales transactions during the 1990s, which the Sept. 3 New York Post described as "revenue voodoo." These barter deals were typical of the entire dot.com and telecom bubbles. An estimated one-third of AOL's marketing revenues, as of summer 1998, were due to initial public offering (IPO)-financed advertising on AOL by money-losing dot.coms, in which AOL was an investor. One recent example is AOL's "back-scratching deal" to invest up to $50 million in Oxygen Media, which agreed to spend $100 million for advertising on AOL.
*Energy pirate Williams Companies, already under investigation by the SEC, is shifting $1 billion of its assets onto the books of a subsidiary, in order to avoid filing for bankruptcy. The Tulsa, Okla.-based energy trader sold a pipeline division to Williams Energy Partners, which is 55% owned by the parent company, and whose board is controlled by the nucleus of Williams' management. Authorities may not let the deal stand. "We do have an investigation going on with Williams and we are looking into its relationships with its subsidiaries," said Oklahoma Securities Commission administrator Irving Faught.
Biggest Plunge in Federal Tax Receipts Since 1946
The U.S. Federal government is experiencing the biggest plunge in tax receipts since World War II tax surcharges were repealed 56 years ago, Congressional Budget Office Director Dan L. Crippen told reporters Aug. 27. "Economists appeared to be at a loss to explain it," the Washington Post observed. "Crippen merely called it 'astounding.' "
Receipts in fiscal 2002, ending Sept. 30, fell for the second year in a row. CBO projects the year-to-year drop at $131 billion, or 6.6%, the steepest percentage drop since 1946.
Consolidated Freightways Files for Chapter 11
Consolidated Freightways, the nation's third-largest trucking company specializing in "less-than-truckload" shipments, filed for Chapter 11 bankruptcy protection Sept. 3. Consolidated operated about 6,600 truck-tractors, 27,000 trailers, and about 290 terminals in the United States. It employed 15,350 workers, most of whom were Teamsters, who were notified of their firings by e-mail at 5:00 a.m. on Sept. 3, and will receive one more paycheck, but no severance pay.
CF had recorded six straight quarters in which it did not have a measurable profit, and it recently failed in its efforts to obtain new financing from the banks to cover its current debts, as well as to obtain sufficient insurance coverage. With these multiple problems operating, what seems to have been the key process that drove CF into bankruptcy, was the declining volume of freight traffic, due to the downturn in physical goods flows in the U.S. economy.
Nearly Half of America's Poor Children Live in the South
A report released last month by the Children's Defense Fund found that 45% of America's poor children live in the Southern states. The findings were presented to the Southern Governors Association, where CDF director Marian Wright Edelman called on the governors to pressure the Congress and the President to adopt pending legislation granting more funds to poverty programs, which no one believes is likely to happen any time soon. Edelman challenged the Southern Governors to do more to eradicate poverty, saying, "A child who can't read ... is sentenced to an economic death." One-third of all America's children live in the South, the report states.
Some of the statistics on child poverty in the South:
*Child poverty, as of 2000, was at 17.4%.
*Although poverty among black children has decreased since 1989, it was still at 29.6% in 2000.
*3.7 million Southern children have no health coverage; this represents 41% of the nation's uninsured children;
*In 2000, 42% of poor children in the South lived with someone who had a full-time, year-round job; this was up from 26% in 1993;
Statistics for the nation as a whole show that 11,746,858 children under 18 lived in poverty in 1999; this is one in six children in the United States.
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