U.S. Economic/Financial News
Foreign Investment in the U.S. Rose by $630 Billion in 2002
The Commerce Department reported March 14, that during 2002, foreign investors invested in the United States to the tune of$630 billion. This included foreign-investor purchases of $53.2 billion worth of U.S. Treasury securities; $55.8 billion worth of U.S. stocks; and $284.6 billion worth of non-U.S.-Treasury securitiesprincipally corporate bonds, and agency bonds (mostly bonds issued by Fannie Mae and Freddie Mac).
But as foreign investors accelerate their pull-out from the dollar, that will fall, not by small increments, but likely by 40-50%. This will not only destroy the financing of the current account deficit, but shatter the over-leveraged, cancerous financial system.
Are Financiers Planning a Bailout Under Cover of War?
Incoming Bank of Japan governor Toshihiko Fukui is quoted in the March 19 Wall Street Journal as telling Japan's Parliament that the Bank of Japan "must get into war mode," adding, "If war breaks out, we must prevent an excessive shock to the market." Both the Brits and the U.S. have already announced emergency plans to prevent financial disruptions in the event of war, raising the question of whether some sort of major financial bailout or restructuring is planned, using the war as a convenient pretext.
Already-Bankrupt U.S. Airlines Now To Become War Casualty
Airline analysts predict that a prolonged war would cause the bankruptcy of virtually every U.S. airline, dovetailing with the findings of the Air Transport Association's report of mid-March.
*Credit Suisse First Boston analyst James Higgins predicts that American Airlines would likely go bankrupt in three months (others give it less); Continental in four months; American West in seven; Delta in 13; Northwest in 20; and Alaska in 23. United and U.S. Airways are already in bankruptcy.
*More international flights are being cancelled; Lufthansa cancelled all flights to Tel Aviv, Amman, Beirut, Kuwait, and Saudi Arabia March 20-21; Singapore is suspending 65 weekly flights, including to Chicago and Las Vegas, as well as some European capitals.
*Textron, the world's largest manufacturer of business jets (small jets which were supposed to save the industry after 9/11), will cut 1,200 jobs in its Cessna unit, due to cancelled orders.
*The Iraq war allows all airlines to invoke the "force majeure" clause in labor contracts, which allows them to impose layoffs and work-rule changes, due to "circumstances beyond their control."
*Airbus, the French jet manufacturer, announced that it filed legal action against the teetering American Airlines, alleging that the crash of Flight 587 in Queens, New York on Nov. 12, 2001, was entirely the pilot's fault, resulting from his rapid back-and-forth movements of the rudder when the plane encountered wake turbulence.
*General Dynamics, the third-largest private jet builder, plans to lay off 1,000 workers by next year, at least.
*Boeing, the world's biggest aircraft maker, will increase outsourcing of work on components and sub-assemblies, cutting 400 jobs by the end of 2004, and warned of further job losses.
United Airlines Admits: 'Liquidation Is Distinct Possibility'
In a bankruptcy reorganization plan filed on March 17, United Airlines said it could go out of business if its labor unions do not agree to proposed wage and benefit cuts, amid soaring fuel costs. United seeks court permission to nullify the unions' labor contracts in order to slash $2.56 billion in wages and benefits, as well as to change work rules. Proving Lyndon LaRouche's contention that cost-cutting measures are, in fact, hastening the airlines' demise, United announced a first-quarter loss of $877 million.
Meanwhile, U.S. Airways is trying to terminate pilots' pension plans, handing them over to the Federal government's Pension Benefit Guaranty Corporation, which would cut benefits by 50% as part of a bankruptcy reorganization. U.S. Airways' move to dump pension plans could set a dangerous precedent for other companies.
U.S. Treasury Prepares for Financial Emergency
The U.S. Treasury Department is preparing for a financial emergency, using the pretext of possible terrorist attacks. "Measures to protect the financial markets," as part of the so-called anti-terrorism Operation "Liberty Shield," were announced on March 17 by the Treasury. According to the Department's fact sheet, "Treasury and the other Federal financial regulators have taken steps to protect the government's critical financial functions." These steps include establishing emergency communications systems and procedures; as well as arranging for additional physical protection of financial institutions, using either Federal personnel or National Guard troops.
Wall Street Police Blotter
*The Securities and Exchange Commission accused HealthSouth Corporation, and its CEO Richard Scrushy, of accounting fraud, Bloomberg reported March 19. HealthSouth, the biggest U.S. operator of rehabilitation hospitals, was charged with a $1.4-billion accounting fraud in a lawsuit filed by the SEC; also charged was CEO Scrushy, who insisted on overstating income in order to please Wall Street. Scrushy "knew or was reckless in not knowing" that the company's financial statements were wrong when he signed them, the agency said. This is the first case brought under the new law requiring CEOs to certify the accuracy of their company's statements.
*In a consent decree filed March 19, the Securities and Exchange Commission accused consumer-finance firm Household International of making false and misleading statements about its policies. Household, which is being acquired by HSBC (née Hong Shang), and which issues credit cards and makes home-equity and car loans, reached a $484-million settlement last year with all 50 states and the District of Columbia, over accusations of duping its borrowers with hidden and unnecessary costs, and has been sued by ACORN over its predatory lending practices. Household also restated its earnings last August, reducing net income by $386 million over a nine-year period.
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