In this issue:

House Subcommittee Passes 'Kill Amtrak' Bill

Consumer Study: Electricity Dereg 'All Pain, No Gain'

Energy Companies Withheld Power in California Blackouts

Census Bureau Reports Dramatic Increase in U.S. Poverty for 2001

Jobless Claims Up Again

White House Spokesman Flunks Economics

WALL STREET POLICE BLOTTER

Global Telecom Meltdown Continues


From the Vol.1 No.30 issue of Electronic Intelligence Weekly, Published September 30, 2002

U.S. ECONOMIC/FINANCIAL NEWS

House Subcommittee Passes 'Kill Amtrak' Bill

While 2004 Democratic Presidential pre-candidate Lyndon LaRouche's "November Emergency Program" spells out fully what's required to revive U.S. rail infrastructure, the House Appropriations Transport subcommittee Sept. 26 approved a "Kill Amtrak" bill for 2003. The bill committed only $762 million for FY2003, much less than even the Senate offer of $1.2 billion, and nowhere near what is required to run a railroad.

Amtrak doesn't deserve to get more, said subcommittee chairman Harold Rogers (R-Ky), because it would be "rewarding mis-management." (Last year Amtrak received some $826 million, including a $100-million emergency loan this past summer.) The underfunding of Amtrak continues the axiomatic lunacy behind the 1997 Amtrak Reform Act, which mandated sure-death for Amtrak by underfunding, radically increased indebtedness, and then privatization of the Northeast Corridor. Typical of the "trains cost too much" lunacy is Rep. Anne Northrup (R-KYy): "The Federal government has to fork over $212 every time a person rides from Louisville to Chicago." So Amtrak's Kentucky Cardinal train should be cut.

As a gesture to prevent the threatened shutdown of six long-distance routes (five of which connect to Chicago), the Committee today approved a flat $150 million— three-fourths of what Amtrak says it needs to keep the six routes running. (The new Amtrak bill will go to the full House only after approval by the Appropriations Committee, where many funding measures are currently stalled, as Congressmen wrangle over how to pass a "continuing resolution" on the budget, which expires Sept. 30.)

Consumer Study: Electricity Dereg 'All Pain, No Gain'

In a report released Sept. 18 (which received no media attention), the Consumer Federation of America (CFA), charged that more electricity deregulation will raise consumer prices by tens of billions of dollars. The study, titled, "All Pain, No Gain," also points out that while Congress is trying to repeal the 1935 Public Utility Holding Company Act (PUHCA), if the Act had actually been enforced, the recent Enron and other "market" abuses could never have happened, saving consumers tens of billions of dollars in fraud. The study observes that "When you are headed in the wrong direction, going faster does not help."

The CFA report stresses that it is not only in the well-publicized case of California that deregulation has raised prices. For example, in the Midwest in 1998, prices soared by half-a-billion dollars in one week. Since the California debacle, Wisconsin, Colorado, and Florida have done market analyses, concluding that price increases would result from deregulation.

Ken Silverstein of Scientech reports that Energy Secretary Spencer Abraham's Electricity Advisory Board insists falling prices have saved consumers $1.3 billion, but it is not clear if that includes money "saved" when people had blackouts instead of electricity.

Energy Companies Withheld Power in California Blackouts

After more than a year and a half of study, the California Public Utilities Commission released its report Sept. 17, which concludes that the blackouts suffered by the state in 2000 and 2001 were caused by companies withholding available power. Between November 2000 and May 2001, five companies— Duke, Dynegy, Reliant, Mirant, and AES-Williams— withheld 37-46% of their available generating capacity, the report found, which power could have avoided most, if not all, of the blackouts. The reason, the report states, was to create a shortage crisis to drive prices up as high as possible.

While the charges were contested by the companies— which continue to claim that twice as many megawatts of capacity were idle in February 2001 as in February 1999, due to the need for repairs— the report cites many specific cases which disprove this. In one, a power plant owner refused to offer power to the state Independent System Operator, haggling over the price. But when grid operators insisted the power was needed to avoid blackouts, the company called back and said the plant was unavailable due to air quality restrictions.

Other investigations into the California energy crisis continue. The Federal Energy Regulatory Commission announced on Aug. 13 a formal investigation into misconduct by Avista Corp., El Paso Electric, and three Enron affiliates, for manipulation of short-term electric and natural gas prices. The probe is in coordination with the Department of Justice and Securities and Exchange Commission.

Census Bureau Reports Dramatic Increase in U.S.. Poverty for 2001

The U.S. Census Bureau's latest report Sept. 24, shows that, for 2001, nearly 34 million Americans were living below the absurdly low, official poverty level of $18,000 for a family of four. Twenty years ago, EIR determined that it took at least $40,000 a year to support a family of four; today that figure would be twice that. Not surprisingly, as poverty rose, from 11.3% in 2000 to 11.7% last year, household income went down— except among the very wealthiest Americans. The Census Bureau reports that median household income declined by 2.2% in real terms, from its 2000 level, to $42,228 in 2001.

The decline in income affected all but the richest households and all regions except the Northeast.

"This report signals a significant reversal of what had been a very positive trend in terms of income and poverty," said Jared Bernstein, senior economist at the union-backed Economic Policy Institute in Washington.

The survey found that income inequality has also widened. Only those in the highest income brackets— $100,000 or more of cash income— gained, while the greatest percentage losses were suffered among the poorest households. For the first time, the highest-earning 20% of households earned more than half of the nation's income before taxes. The top 5%, with incomes above $150,000, earned 22.4% of the national income, up from 22.1% in 2000.

"The share of national income going to the bottom fifth of households is at the lowest ever, while the proportion going to the top fifth is the highest ever," said Robert Greenstein, executive director of the Center on Budget and Policy Priorities.

Jobless Claims Up Again

Unemployment claims, according to the U.S. Labor Department Sept. 19, were at 424,000 in the week ending Sept. 13; the Department revised the previous week's figure to 426,000, raising the four-week running average of such new claims to a high 418,500. Continuing claims for unemployment, for the week ended Sept. 7, rose from 3.54 million to 3.61 million, and the four-week moving average rose by 29,500, to 3.56 million.

White House Spokesman Flunks Economics

An unidentified reporter asked spokesman Ari Fleischer a pertinent question at the White House briefing Sept. 20:

Q: "The national security document says that the lessons of history are clear in the point that market economies, and not command-and-control economies, are the path to prosperity and peace. How do you square that statement with recent political and economic events in Latin America?"

Fleischer: "I'm not sure I follow your premise. Are you saying that it's inconsistent?"

Q: "The growth of Latin America during the '90s was less than it was in the '60s and '70s. And there's now a wave sweeping across Latin America, that's both political and economic in nature, that seems to represent a repudiation of this statement."

Fleischer stumbled, asserting that "Latin America and Central America are real success stories in many cases," naming El Salvador and Peru as proof. The reporter came back:

Q: "Then why are the economies stagnant?"

Fleischer: "Well, I think economies can always be stagnant. In capitalist countries, and in free and democratic countries, there's growth and there's recession and there's retraction...."

Fleischer may want be forced to offer his own "retraction"— of his foregoing remarks— before too long.

WALL STREET POLICE BLOTTER

*WorldCom's former controller, David Myers, pleaded guilty Sept. 26 to charges he participated with former chief financial officer, Scott Sullivan, in hiding more than $7 billion in expenses, thereby inflating earnings to meet Wall Street targets when, in fact, the company was losing money. The fraud drove the telecom company into the biggest bankruptcy in U.S. history. Myers entered guilty pleas in Manhattan Federal court to charges of securities fraud, conspiracy, and filing a false document with the U.S. Securities and Exchange Commission. Prosecutors are expected to use Myers to help build a case against Sullivan (who has been indicted on fraud charges and is expected to face trial) and other former officials, including former chairman Bernard Ebbers. Myers faces up to five years in prison on both the conspiracy and securities fraud counts, and 10 years for lying to the SEC.

*Adelphia Communications founder John Rigas, his sons, and two other former executives were indicted Sept. 23 on Federal charges of defrauding the cable-television operator of more than $2.5 billion, and stealing hundreds of millions of dollars. A trial date has been set for Oct. 2. The 24-count indictment, filed in Manhattan Federal Court, charges the men with conspiracy, securities fraud, wire fraud, and bank fraud, alleging that Rigas and sons Timothy (former chief financial officer) and Michael (former vice president for operations), hid $2.3 billion in debt, spent company funds on personal amenities, and used more than $250 million to meet margin calls on their private stock holdings. Prosecutors are seeking to seize from the Rigases more than $2.5 billion of assets, representing proceeds of the alleged fraud and corporate looting.

"The scheme charged in the indictment is one of the most elaborate and extensive corporate frauds in United States history," U.S. Attorney James Comey said in a statement.

The charges expand on a criminal complaint filed in July, adding new charges stemming from allegedly false statements made in filings to the U.S. Securities and Exchange Commission.

Also indicted were James Brown, Adelphia's former vice president for finance, and Michael Mulcahey, former director of internal reporting.

*Xerox is facing a criminal investigation opened Sept. 23 by the U.S. Attorney's office in Bridgeport, Conn. The probe delves into Xerox's accounting practices from 1997 to 2001, a follow-on to a probe by the Securities and Exchange Commission that led the copier-maker to pay a record $10-million civil fine in April, and restate $6.4 billion in revenue for the five-year period, to settle claims that it booked revenue from sales-type leases immediately rather than over the lifetime of the contract, inflating profit by $1.5 billion. The Federal Bureau of Investigation is evaluating whether to file criminal charges, the Wall Street Journal reported.

*Qwest Communications, its accounting (formerly audited by Arthur Andersen) under investigation by the Department of Justice, plans to restate up to $1.48 billion in revenue from mid-2000 and all of 2001, erasing $950 million in sales that were actually bogus trades of optical-fiber network capacity with other carriers, and up to $531 million in cash sales of optical capacity that were booked prematurely, as in Xerox's case.

Global Telecom Meltdown Continues

*SBC Communications will cut an additional 11,000 jobs, most by the end of the year, on top of 10,000 jobs already cut this year. The second-largest U.S. phone carrier will also slash capital spending for next year by 20%-33%. SBC lost about 3 million customers in the first eight months of this year, causing revenue to plummet by more than $1 billion in the first half of 2002.

*MobilCom is eliminating more than one-third of its workforce, or 1,850 jobs, and freezing its work on the roll-out of its Universal Mobile Telecommunications System network. Three sites will be shut down.

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