In this issue:

J.P. Morgan Chase: Dead Bank Walking

Fed Governor: 'Restore Fiscal Discipline'

Durable Goods Orders Fall Despite Manufacturing 'Recovery'

New U.S. Employment Is in Low-Wage Jobs

Ken Lay Likely To Be Indicted Before Independence Day

Washington Post Rises to Defense of Wal-Mart

New York Times: 'Is Housing Bubble in Trouble?'

IT Sector Still Busted: Trade Show Cancelled


From Volume 3, Issue Number 26 of Electronic Intelligence Weekly, Published June 29, 2004

U.S. Economic/Financial News

J.P. Morgan Chase: Dead Bank Walking

At the end of 2003, J.P. Morgan Chase & Co. held $37.4 trillion in derivatives on its books, but that figure fell to $31.4 trillion in the first quarter of 2004. That's a decline of $6 trillion in three months. However, there's more to the story. According to the Comptroller of the Currency's latest quarterly derivatives report, J.P. Morgan Chase Bank had $39.6 trillion in derivatives in the first quarter, up from $36.8 trillion at the end of 2003. So, while JPMC & Co., the holding company, reported a $6 trillion decline in its derivatives, its subsidiary, JPMC Bank, reported a $1.8 trillion increase, and reported $8.2 trillion more in derivatives than its parent company. We can't explain how a bank could have $8 trillion more in derivatives than its parent, but you can bet it involves some pretty slick accounting. It probably also involves preparation for the merger between JPMC and Bank One, which will occur on July 1. Recall that in the fourth quarter of 2001, JPMC & Co. merged its two main banks, Chase Manhattan Bank and Morgan Guaranty Trust, and in the process the derivatives holdings of the two banks dropped a combined $7 trillion, while the holding company's derivatives dropped by just $244 billion.

Just to put these numbers in context, the gross world product, or world GDP, is somewhere in the range of $40-$45 trillion, so JPMC Bank's $40 trillion in derivatives bets is roughly equivalent to one year of global economic activity, as officially calculated. The total debt in the U.S., as presented by the Fed, was $34.7 trillion as of the first quarter, the value of all U.S. stocks was a combined $15.8 trillion, and the GDP was $11.5 trillion. The U.S. commercial banking system held $7.8 trillion in assets in the first quarter.

Fed Governor: 'Restore Fiscal Discipline'

Federal Reserve Governor Edward Gramlich, addressing a policy conference of the budget-cutting Concord Coalition think tank June 24, called for "restoring fiscal discipline," as a priority to deal with exploding budget deficits. Gramlich peddled the neo-Schachtian Nazi economic policy promoted now by Lazard Frere's Felix Rohatyn, in opposition to LaRouche's FDR-style policy outlined in his recent paper, "Why 'Fiscal Austerity' is Insane."

"Restoring fiscal discipline," Gramlich declared, "should be one of our nation's most important priorities," stressing that this was the most important point in reducing worsening budget deficits. "Our current debt path is unsustainable," he stated, on a trajectory that won't improve without changes to taxes or spending. "Specifically, it is time to bring the budget deficits under control," he said, adding that this would require political action. He urged reinstating caps on spending that the Congress appropriates each year, and including the costs of future Medicare and Social Security benefits in Congressional budget estimates. He suggested allowing the government to "adapt" Medicare and Social Security benefits to meet future circumstances.

Durable Goods Orders Fall Despite Manufacturing 'Recovery'

Durable goods orders fell 1.6% in May, the second straight monthly drop, during the manufacturing "recovery," according to data released by the Commerce Department June 24. The "unexpected" decline in May on orders for manufactured goods was led by falling transportation-related orders. Combined with a 2.6% drop in April, these were the first back-to-back monthly declines since November-December 2002, exposing the lie of the factory sector's supposed recent "revival" that has been peddled by Cheney-puppet G.W. Bush's Administration. The drop was not limited to autos and parts, but also saw falls in orders for computers and electronic products, machinery and fabricated metals.

Meanwhile, Ford Motor Co. announced it will close its assembly plant in Lorain, Ohio in late 2005, eliminating about 1,200 jobs.

New U.S. Employment Is in Low-Wage Jobs

Benjamin Tal, of CIBC World Markets, writing in that institution's newsletter June 21, reports that "the average wage in sectors that gained jobs over the past three years was 30% lower than the average wage in industries that lost jobs."

The actual situation may be considerably worse. Recall that between July 2000 and February 2004, the U.S. manufacturing workforce contracted from 12.547 million workers to 9.958 million workers, a loss of 2.59 million jobs. Between the end of February and the end of May of this year, the U.S. has gained back a grand total of 168,000 manufacturing jobs. Thus, the U.S. still has endured a shortfall of nearly 2.5 million manufacturing jobs, which are not only vital for the functioning of the economy, but are well-paying. Since January of 2004, more than three-quarters of the "new jobs" created by the Bush Administration are in retail and services.

Ken Lay Likely To Be Indicted Before Independence Day

Federal prosecutors are preparing to bring criminal charges against former Enron chairman Ken Lay, including conspiracy charges for attempting to conceal Enron's failing financial condition from investors in the months preceding its December 2001 collapse.

Lyndon LaRouche noted that this would mean that America could declare its independence from Ken Lay's thievery on July 4, and he urged that Lay be indicted without delay, but perhaps with DeLay.

Washington Post Rises to Defense of Wal-Mart

Under the assault launched against Wal-Mart and its Roman Imperial policy one year ago by Lyndon LaRouche, Wal-Mart's reputation is sagging, and towns and cities have taken a range of actions against the company. The June 24 Washington Post, in an editorial entitled, "Don't Ban the Big Box," attacks the Executive of Montgomery County, Md., Douglas Duncan, who has asked the County Council to toughen zoning rules for stores larger than 120,000 square feet that devote at least 10% of their floor space to groceries. That zoning ordinance would intentionally apply to Wal-Mart. The Post comes to Wal-Mart's defense: "Concern about the effect of big new stores on surrounding communities is legitimate, but local planning decisions should be based on sound, uniform principles, not on arbitrary criteria targetting specific disfavored companies."

New York Times: 'Is Housing Bubble in Trouble?'

In an article entitled, "The Ever More Graspable, and Risky, American Dream," New York Times author Edmund Andrews looks at new shaky practices for home mortgage lending. In a graphic in the article, entitled, "Bubble, Bubble, Is It Trouble?" the author states, "Housing prices have soared in some markets over the last five years, in part because more people with bad credit or little money have been able to get mortgages."

The new lending practices involve mortgage bankers making loans on outrageously unsound terms, so that the home can be sold, and the bank collects a pile of money on a big fat mortgage. These practices feature:

* No-down-payment mortgages. Two decades ago, a home buyer had to make a down payment equivalent to 15-20% of the value of the purchase price of a home; today, a home buyer can make no down payment. For example, Ray and Shahrazad Daneshi bought a $360,000 home in Anaheim, Calif., which is six times their annual income, because a lender allowed them to borrow the entire value of the home, with no down payment.

* No-document loans. In the past, a prospective home buyer had to provide information about his income and assets to the mortgage lending company. Now, if a prospective mortgage borrower can show a "good credit report"—i.e., that he hasn't defaulted on anything recently—he can get a mortgage loan without presenting to the lender any documentation of how much he earns, the size of his assets, etc. The loan is extended purely on the faith that the alleged borrower's credit report is good. The no-document loan is used increasingly by wealthy people, who don't want to report to banks, and thus put on the public record, the size of their income, etc. Many banks are finding out some of the borrowers were not as wealthy as they claimed. This type of loan is great for drug dealers.

Subprime mortgage loans. Households which have bad credit records would not normally qualify for a conventional home mortgage. However, there are bankers/loan sharks who will lend these households the mortgage, sometime charging interest rates that are 5-10% above the normal mortgage lending rate. This is called a subprime loan. These are loans made to households that often don't earn a lot of money; therefore, the very high interest rate makes it much more difficult for the household to pay off the mortgage loan.

The volume of mortgage-backed securities, backed by subprime loans, has jumped from $17 billion in 1995, to $195 billion in 2003. The volume of mortgage-backed securities backed by "unconventional loans"—such as no down payment loans—has leapt from $1 billion in 1995, to $80 billion in 2003.

The increased volume of risky mortgage loans has helped push the median price of an existing home in New York City from $188,000 in 1998, to $353,000 in 2003, an 88% increase. In Orange County, California, one of America's largest counties, the median price of an existing home has soared to $572,000, up 28% from last year alone. This myriad of risky home mortgage paper, that undergirds the price of homes, can't be sustained.

IT Sector Still Busted: Trade Show Cancelled

The sponsors of the Las Vegas-based Comdex computer trade show announced June 23 that this year's event has been cancelled due to lack of interest on the part of major players in the Information Technology industry. The show, which had drawn as many as 200,000 attendees during the boom years of the IT bubble, drew only 40,000 last year. The cancellation suggests that this year's convention exhibition space bookings were even less.

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