In this issue:

World Hunger: A 'Side Issue'?

Bundesbank Worried About U.S. Dollar Decline

Japan's Takenaka Warns of 'Potential Risks' to Economy

The Wall Street Police Blotter

And, the Telecom Meltdown Continues...

Two More Energy Pirates Walk the Plank

German Tabloid: 'When Will the Bubble Burst?'

RTI Steelworkers To Lose Pensions


From the Vol.1, no.16 issue of Electronic Intelligence Weekly

ECONOMICS NEWS DIGEST

World Hunger: A 'Side Issue'?

Some 800 million people worldwide are chronically malnourished, and every four seconds, a human being dies of hunger. Yet, to the Group of Seven (the U.S., Britain, Canada, Germany, Italy, France, Japan), world hunger appears as almost irrelevant, as became blatantly clear at the United Nations' World Food Summit last week in Rome. Only two developed countries—Italy and Spain—sent their heads of states. The United States, Germany, France, Denmark, Canada, and others sent delegations led by agriculture ministers rather than Presidents or Prime Ministers. Britain did not even send a minister, just some higher-level bureaucrat.

Under these circumstances, it is not surprising that the G-7 set only a "goal" of reducing the number of hungry people by half over the next 13 years! When Diouf appealed to the G-7 to increase their development aid, to grant debt moratoria to the poorest countries, and to open their markets for agricultural imports from the developing sector, the world's richest nations answered with accusations: The FAO under Diouf, they said, was meddling in areas that were the business of the "international financial institutions."

As the summit ended on June 13, Diouf said, "We have a good indication of the political priority that is given to the tragedy of hunger," adding, "the right to food comes before anything else." Walter Veltroni, the mayor of Rome, "said it was absurd that Western leaders found time for G-8 summits but not those aimed at easing global poverty and inequality," according to the Mail & Guardian of Johannesburg June 14.

Only Italian Prime Minister Silvio Berlusconi acknowledged that hunger was a problem as pressing as fighting international terrorism. In fact, Italy and Mozambique signed an agreement in Rome June 11, during the summit, formalizing the cancellation of Mozambique's $500-million debt to Italy.

Bundesbank Worried About U.S. Dollar Decline

A sudden drop in the high capital inflows to the United States could cause a further decline in the dollar, the Germany Bundesbank warned in its June monthly report, released June 17. The German central bank noted: "The United States' high net capital imports—which balance out weak savings and investment, and which feed consumption and growth and, therefore, a correspondingly high current-account deficit—could quickly fall back if foreign creditors and investors judge the U.S.'s future economic prospects less favorably than they have up to now. The U.S. dollar then would continue to decline in value." In view of "recent economic weakness" in the U.S., the Bundesbank sees the U.S. dollar "clearly above a fair exchange-rate level."

Japan's Takenaka Warns of 'Potential Risks' to Economy

"We are extremely aware of the potential risks" posed by financial markets to the economy, stated Japan's Economics Minister Heizo Takenaka at a press conference in Tokyo on June 17. According to a Dow Jones wire, he said that economies are seldom struck by crises where authorities lose control of the situation, but financial markets are susceptible to falling into uncontrollable situations.

In contrast to the "global recovery" nonsense, which Group of Seven finance ministers and central bankers expressed in their joint communiqué from the Halifax weekend, Japan's Finance Minister Masajuro Shiokawa noted on June 16 that "the softening stock market in the United States is a source of concern."

The Wall Street Police Blotter

Reading the business pages of any major U.S. newspaper has become like reading Wall Street's Police Blotter. But this is not merely corporate crime and corruption, it is systemic fraud that was used to create and maintain the bubble. Here is the weekly roundup:

Archer Daniels Midland and Cargil will go to trial over claims they colluded to fix prices on high-fructose corn syrup, a sweetener used in soft drinks, candy, and baked goods, the Seventh U.S. District Court of Appeals ruled June 18. "There is sufficient admissible evidence in support of the hypothesis of a price-fixing conspiracy," the court said. A lawsuit filed in 1995 against the giants of the agriculture cartel, had been dismissed.

Tyco International sued two ex-officials for receiving $55 million in unapproved compensation. The conglomerate accused former legal counsel Mark Belnick of soliciting and accepting $20 million in cash and stock bonuses in 2000 from ex-CEO Dennis Kozlowski, without the approval of the board of directors; and of receiving $14.9 million in no-interest loans under a program meant to cover employee moving expenses—with more than $10 million used to buy a vacation home in Utah. The Federal lawsuit filed in Manhattan also alleges that Belnick falsified records so that his pay and bonuses would not be disclosed to the SEC.

As we reported last week, Kozlowski was indicted June 4, one day after being forced to resign as chairman and CEO of Tyco, for evading New York sales taxes on a set of paintings he bought with $13.1 million of company money, and for then trying to write the purchase off as a business expense. Koslowski now faces up to four years in prison for avoiding $1 million in taxes and falsifying business records, according to Manhattan District Attorney Robert Morgenthau.

In a separate lawsuit, former director Frank Walsh is accused of arranging with Kozlowski an unauthorized $20-million bonus from Tyco in 2001, as a "finder's fee" after the company bought CIT Group (a financial services company), hiding the payment from his fellow directors, and refusing to return it earlier this year. Kozlowski paid Walsh $10 million and donated $10 million to the Community Foundation of New Jersey, controlled by Walsh.

Martha Stewart was cited by Congressional investigators for the "troubling inconsistencies" between her version of the timing of her sale of ImClone shares and that of her stockbroker. The domestic diva has also failed to provide documents requested a week ago by the House Energy and Commerce Committee, which wants to look at her phone records and brokerage documents dealing with the sale of nearly 4,000 shares of ImClone stock on Dec. 27, the day before ImClone announced that the Food and Drug Administration had rejected its bid for approval of the cancer drug Erbitux. Peter Bacanovic, the Merrill Lynch broker who handled the sale, said Stewart agreed in mid-December to sell the stock if the price fell below $60 per share, while Stewart claims the deal was reached in November.

Bristol-Myers Squibb is under pressure to find a merger partner or a buyout, after a Congressional hearing last week raised questions about the drug maker's judgment in becoming a partner of ImClone Systems. The House Energy and Commerce Committee's oversight panel concluded that the company showed no evidence it had obtained a crucial study evaluating ImClone's cancer drug Erbitux, before agreeing in September to pay up to $2 billion for a stake in ImClone and Erbitux.

Enron executives and energy traders—about 100 of them—received more than $300 million in cash payments, and more than $400 million in stock options, before the firm filed for bankruptcy. A majority were in the form of retention bonuses to employees of units whose profitability was faked, according to documents filed on June 17 in bankruptcy court.

Micron Technology and Samsung Electronics have both been subpoenaed by the Justice Department to see whether the two semiconductor-makers manipulated computer chip prices, and sold products at below-market prices to drive out smaller rivals. Regulators have also contacted Infineon Technologies, part of the trio that controls 60% of chip sales, which have collapsed by more than 60%.

Rambus, a memory-chip designer, has been charged by the Federal Trade Commission with tricking chip-makers into adopting technologies for which it held or was seeking patents.

Gloomy Forecasts Continue To Cloud Tech Sector

A number of leading tech firms issued profit warnings, shaking financial markets, as it became clear that there is no recovery in the "New Economy":

Advanced Micro Devices, the number-two chip-maker after Intel, warned that sales would be 25% below forecast, causing a "substantial" operating loss, in the second quarter. Shares fell 17%.

Apple Computer announced sales will be 9% below projections, and profit will be 10% lower than expected, for the third quarter, due to "anemic" demand. Shares fell 15%.

CIENA, a fiber-optics company, warned that third-quarter results would be "down meaningfully."

And, as Triple Witching Day Approached...

Tech-sector earnings reports continued to reflect the reality of the global meltdown:

Oracle, the world's second-largest software company, said its fiscal fourth-quarter net income fell 23% from a year ago, to $655.9 million, as sales fell 16% to $2.77 billion—for the fifth quarter in a row.

IBM shares fell 1.7% after Morgan Stanley lowered its 2002 and 2003 earnings estimates on fears that companies will continue to curb spending on technology hardware.

Peregrine Systems will eliminate 48% of its workforce, or about 1,400 jobs, and close offices "in the next few weeks," as the business-software maker is being investigated by the Securities and Exchange Commission.

And, the Telecom Meltdown Continues...

XO Communications filed for bankruptcy June 17, the second-largest bankruptcy filing ever by a telecom company, as the Reston, Va.-based telephone and Web service provider owes about $4.4 billion to bondholders (led by Carl Icahn) and $1 billion to banks. XO has not yet agreed on a restructuring plan with both its bondholders and its largest investor, Theodore Forstmann, who has already written off $1.5 billion invested in XO, and asked June 6 to be released from a bailout deal, due to the continued and rapid decline of the company's value and its deteriorating financial condition. His buyout firm Forstmann Little and the Mexican phone company Telefonos de Mexico signed a deal expiring Sept. 15, to invest $800 million to pay off creditors and keep the business operating, in exchange for 39% ownership each. XO shares have tumbled to 3 cents after reaching a high of $66 in March 2000.

*Qwest Communications CEO Joseph Nacchio was forced to resign, and co-chairman Philip Anschutz quit, as the phone company is saddled with $26.4 billion in debt, faces an accounting probe by the Securities and Exchange Commission, and attempts to sell its Yellow Pages operation to raise cash. "When the two top guys quit, you can pretty much conclude that things are worse than believed," said a telecom analyst quoted by Bloomberg.

*Adelphia Communications failed to make a $50-million interest payment to its bondholders June 15, another step closer to filing bankruptcy. The nation's sixth-largest cable company, under investigation by the SEC and two Federal grand juries, is in default on more than $7 billion in bank debt and has asked for $1.5 billion in financing for operations after it files for bankruptcy protection.

Two More Energy Pirates Walk the Plank

Two energy-pirate companies announced high-level personnel changes June 19:

AES Corp., the Virginia-based, World Wildlife Fund-connected company which sells or generates electricity in 32 countries, announced that co-founder Dennis Bakke, 55, has resigned. AES lost $313 million in the first quarter, after it wrote down the value of power plants and other assets in South America. Investors and bondholders have been pressing AES to make a change, as the company's market capitalization has dropped from a peak of $27 billion in Feb., 2001, to $2.7 billion as of yesterday.

Dynegy announced the resignation of Chief Financial Officer Rob Doty. This is the second top departure at Dynegy, as former CEO Chuck Watson left the firm in May, amidst falling stock prices and an SEC investigation into the firm's accounting and revelations of false trades. Dynegy's market cap has fallen from $18.9 billion to $3.2 billion.

German Tabloid: 'When Will the Bubble Burst?'

An insightful article in the economic-financial section of the German tabloid Welt am Sonntag June 16 raises alarms that the German real-estate sector is headed for deep trouble, corroborating earlier warnings by EIR on the German economy.

At least 1 million square meters of additional office space are coming on the market, in the next few weeks and months, and the question is, who will purchase this space—and thereby pay the dividends to those who have invested in speculative real-estate funds with high expectations? Sales of office space dropped to only 400,000 square meters, during the first quarter of this year, 50% below Q1 in 2001, and there is already a huge overhang of real estate in Germany.

RTI Steelworkers To Lose Pensions

Extending the pattern of wreckage of workers' retirement benefits, wages, and health insurance as the steel industry is taken apart, the Pension Benefit Guaranty Corporation (PBGC), in a surprise move, has taken over the pensions of nearly 6,200 workers at Republic Technology International, a Fairlawn, Ohio-based steelmaker. The PBGC, a Federal agency set up to continue the pensions of steelworkers when companies go bankrupt, made the move in advance of the outcome in Federal bankruptcy court, where predator KPS Special Situations group is expected to pick up parts of the bankrupt Republic steel operation for a song.

A regional spokesman for the United Steel Workers charged that by acting in advance of the sale, the PBGC has assured that workers won't be eligible for "shutdown pensions" (pensions which are paid to workers pre-retirement, when a company is closed), and that the PBGC is looking to cut its losses at the expense of thousands of workers. A PBGC spokesmen responded by saying that if the agency had waited any longer to take over the RTI pensions, they would have sustained a harder hit, and therefore they acted preemptively.

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