In this issue:

Is JP Morgan 'Too Big To Fail'?

U.S. Personal Bankruptcies May Hit 1.6 Billion for 2003

Pension Funds, College Endowments Pour Money into Hedge Funds

Neo-Con Columnist Lauds Terminator's 'Fiscal Responsibility'


From Volume 3, Issue Number 4 of Electronic Intelligence Weekly, Published Jan. 27, 2004

U.S. Economic/Financial News

Is JP Morgan 'Too Big To Fail'?

Is the "off-balance sheet trillionaire" JP Morgan "too big too fail"? This question was raised by Financial Times columnist John Plender Jan. 19, following the announcement of the JP Morgan Chase/Bank One merger. Plender thinks that JP Morgan Chase is indeed "too big too fail." However, this is not good news for Bank One shareholders. Plender quotes from the latest OCC (Office of the Comptroller of the Currency) report on the derivatives exposure of U.S. banks, noting that JP Morgan Chase alone had $34 trillion in derivatives by September 2003. "That is more than half the derivatives in the U.S. banking system, or 28 times the value of Bank One's own derivatives. JPM's credit exposure to derivatives as a percentage of its risk-based capital in the third quarter of 2003 was 783%. There was a time when people would have lost sleep over this and other such numbers." There is a "risk inherent in running derivatives positions on this scale," Plener warns. If something goes wrong, JP Morgan Chase might be "too big too fail," that is, they might receive some form of bailout. But its shareholders, and now those of Bank One as well, would still lose everything.

U.S. Personal Bankruptcies May Hit 1.6 Billion for 2003

U.S. personal bankruptcies are on pace to hit a record of more than 1.6 million for 2003, while credit-card delinquencies reached a record high of 4.09% for the third quarter, according the MSNBC Jan. 18. Confirming what Lyndon LaRouche has repeatedly described as the collapsed state of the U.S. and world economies, the Federal Reserve reported that outstanding consumer debt (excluding mortgages) for the first time rose above $2 trillion in November. That translates into $17,000 per household; per-household credit-card debt is estimated to be $6,200. MSNBC notes that "some economists" are worried about this enormous rise in household debt. When interest rates eventually rise, "millions more consumers will get caught in a debt squeeze, possibly posing a risk to the comemrcial banking system."

Pension Funds, College Endowments Pour Money into Hedge Funds

Pension funds and university endowments are pouring money into risky hedge funds, to increase their yield on investment, according to USA Today Jan. 20. Harvard University's endowment has put 12%—one-eighth—of its assets into hedge funds, while Calpers (California), the nation's largest public pension fund, has allocated $1 billion to hedge funds, and is considering increasing that exposure. Hedge funds are investment funds with very high entrance requirements, that invest in high-risk, high-yield investments, often using a considerable amount of leverage.

In 2003, global hedge-fund assets swelled to an estimated $750 billion, an increase of 25% from 2002 levels, and 88% since 1999, according to Tremont Capital Management.

Neo-Con Columnist Lauds Terminator's 'Fiscal Responsibility'

'The Terminator and Ms. Fixit Get To Work,' is the title of an op-ed written by neo-con columnist George F. Will in the Jan. 18 Washington Post, which just can't say enough about how wonderfully well California's new Governor, and his hatchetwoman Donna Arduin, are doing, bringing "fiscal responsibility" to that profligate state. While giving priority to Herr Gropenfuehrer's aura of power, Will is also impressed with Arduin's proven talents as a slasher of living standards.

"The plan is for the good ship California to float to safety over jagged economic reefs—mostly of its own making—on a tide of testosterone," says the hyperventilating Will. "But the second-most crucial member of the ship's new crew is named Donna. Being director of California's department of finance is not for the fainthearted."

After noting that Arduin found the state budget problems "breathtaking" and "staggering," Will hints that she will soon move to break the power of the state's labor unions: "None of the other states where she has done budget diagnostics matched California's entanglement in union contracts that limit competitive bidding by private-sector providers of services." Arduin has previously sharpened her knives in Lansing, Albany, Tallahassee, working for some of the nation's most vicious budget-cutters: Florida Gov. Jeb Bush, New York Gov. George Pataki, and former Michigan Gov. John Engler.

According to Arduin, the good news for California is the severity of its budget crisis: Change becomes easier, an Arduin aide says, "when you have one foot in the fiscal grave." Will blames California's carried-forward commitments to the general welfare of the population, which are fixed in the budget by state law, rather than outsourcing, globalization, and the collapse of the dollar, not to mention the raping of the state by Enron & Co., for creating an unfavorable climate for investment.

But, not to worry: "Arduin's mastery of budget mechanics, which was known, in the service of Arnold Schwarzenegger's political subtlety, which is surprising, is already producing successes." Subtlety? Wait, there's more: "Here testosterone enters the equation. Six months ago the question was: Could an intergalactically famous Hollywood hero heal California's self-inflicted wounds? Today the question is: Can only such a person do the job? On a Schwarzeneggerean scale, fame—'the fever of renown,' Samuel Johnson called it—might today be a political asset necessary for governing a state this big and broken. Fame can help him strike separate deals with large interest groups, so he will not confront a vast, unified opposition."

Even the unions will be convinced to kneel before his throne: "The California Teachers Association has agreed to only modest cuts in education spending. But Dan Walters of the Sacramento Bee notes that this will help the Governor isolate unions representing non-teaching employees of the schools. Those unions oppose revisions of a law that impedes outsourcing of non-teaching services to private contractors. "

And, using his star power, the Terminator can go directly to the vox populi to accomplish his fascist objectives: "Schwarzenegger's fame can generate public support sufficient to pressure state legislators.... And with the coin of fame, Schwarzenegger can buy public mobilization to enact through referenda those reforms that the Legislature spurns." And this charisma can help Arnie convince Californians to accept deep cuts in care for the elderly, disabled, and sick: "Schwarzenegger proposes to stop paying family members to care for their own relatives."

"What is unfolding," concludes George (Triumph of the) Will, "is a drama worthy of Schwarzenegger's talents, which were wasted on make-believe dramas."

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