In this issue:

Treasury, Fed Ready To Act as Economy Continues To Unravel

The Iraq War Could Precipitate Significant Dollar Fall

U.S. Airlines Continue To Face Bankruptcy, Liquidation

American Airlines Averts Bankruptcy, with Concessions

'Big Three' Automakers Extend Zero-Percent Financing, Again

New York Times: 'Sour Mood Pervades Economic Front'

New York Stock Exchange: Seats Go Begging Despite Discount Rates

Wall Street Police Blotter


From Volume 2, Issue Number 14 of Electronic Intelligence Weekly, Published April 7, 2003

U.S. Economic/Financial News

Treasury, Fed Ready To Act as Economy Continues To Unravel

The Treasury and Federal Reserve announced April 1 (no fooling!) that, should the U.S. economy sink further, they are ready to act. In an interview with Reuters, Treasury Undersecretary John Taylor was asked whether there were a plan among Group of 7 countries (U.S., Britain, Canada, Italy, Japan, France, Germany) for coordinated action, in the event of a prolonged Iraqi conflict, or a bad turn in the U.S.- and British-led war. Taylor noted that governments are always preparing for moments "when there is any kind of a shock to the economy." There had been "lots of discussion" among G-7 partners on such matters. "We're always in close contact with each other.... There's lots of calls back and forth for all sorts of reasons, and we would certainly be ready to talk about and discuss any kind of event."

At an event in New Orleans, Fed governor Susan Bies emphasized that the bank is keeping a close eye on the war and its economic impact. "We will monitor it, and if we feel at any point that some action needs to be taken, we'll take action as appropriate," she said. "War is a huge uncertainty."

Richmond Fed president Alfred Broaddus noted: "These are challenging times, and the current economic and financial environment is hardly devoid of risk."

The Iraq War Could Precipitate Significant Dollar Fall

New York Post financial columnist Desmond MacRae writes March 30 in an article entitled, "Anti-U.S. Mood May Hurt Dollar," that central banks currently hold approximately 65% of their cash reserves in U.S. dollars. But were the mood against the U.S.-led war to intensify, then a "war" against the dollar would become "another front" in the Iraqi war.

"In October 2000, Iraq decided to sell its oil for euros, not dollars," MacRae reports. "It cost Saddam Hussein a lot of money then, because you could buy the euro for 82 cents. But the euro's value went up over the last two years: $1.06 now buys 1 euro," he writes.

MacRae raises the possibility that "oil-rich countries, many of which are Arab states, [may] decide to price oil in euros." He foresees five possible consequences flowing from this:

"1. The status of the dollar as the world's reserve currency could weaken.

"2. Big pension funds could convert to euros.

"3. The U.S. stock market could tumble further from present levels.

"4. The cost of the big U.S. trade deficit could surge higher.

"5. U.S. interest rates could go up."

Should some Arab nations, working with European countries, for strategic reasons activate such a switch toward pricing oil in euros, it would trigger a sharp fall in the dollar, leading foreign investors to disinvest from dollar-denominated assets. This would make it impossible for the U.S. to finance its current account deficit, which totalled $503.4 billion in 2002. As Lyndon LaRouche has observed, this would shatter the dollar-based world banking system.

U.S. Airlines Continue To Face Bankruptcy, Liquidation

Three billion dollars in Federal aid, givebacks by American Airlines to avert bankruptcy, plus the kitchen sink, are still not enough to save the U.S. airlines. The U.S. House and Senate Appropriations Committees approved $3-billion-plus Federal aid packages for the airline industry April 1, as part of the Iraq war spending bill. Once a conference committee reconciles the bills, their provisions—reduction in security fees, reduced cost of war-risk insurance, etc.—will buy the airlines only a little time, as the near-bankruptcy filing by American Airlines on March 31 indicates. Meanwhile, the Bush Administration denounced the assistance as too much, with Transportation Secretary Norman Mineta declaring, a "considerable gulf remains between Congress and the Administration regarding the amount and structure of this assistance."

Many Republicans and Democrats of the Democratic Leadership Council stripe objected to even this pittance. "We should let the market shake out," said Rep. Anne Northrup (R-Ky.). Darryl Jenkins, former aviation adviser to the DLC's Al Gore, said " If this [Federal aid] is going to prop up failing airlines, I'm very, very opposed." In an April 2 Wall Street Journal op-ed entitled, "A New Airline Policy: Kill United," Holman W. Jenkins, Jr. writes that American Airlines' last-minute rescue from bankruptcy via union givebacks "only increases the likelihood of Chapter 11 filings by Northwest, Delta, and Continental." Too many airlines are chasing too little traffic. If people don't fly, it doesn't hurt the economy; they just spend their money somewhere else, Jenkins says.

The American Airlines package, if ratified, will lay off an additional 2,500 of its pilots this year—20%, and reduce their wages by 23% starting May 1. United has also announced further pilot layoffs, and Continental Airlines, which just announced 1,200 layoffs in March, now says it needs more.

American Airlines Averts Bankruptcy, with Concessions

American Airlines announced March 31 that it had reached a tentative agreement with its unions on $1.8 billion in annual wage and benefit concessions. Under the deal, pilots will fly more hours for less money, mechanics will give up some paid vacation, and flight attendants will lose some perks. Some health benefits will be cut, several thousand employees will be laid off, but the pensions will remain relatively untouched (though they are being destroyed by other means). The good news is that those who survive the cuts will get profit-sharing and stock options.

Air Canada, that nation's largest carrier, announced April 1 that it would file for bankruptcy protection, having lost US$1.1 billion since its last profitable year in 1999. On March 31, the airline announced cuts in flights to Asia, due to the outbreak of the new pneumonia-like disease SARS, whose epicenter is in Asia, and said its two major unions had accepted major layoffs as part of a restructuring package.

Separately, airline officials said that the Pentagon plans to extend the mobilization of the Civil Reserve Air Fleet an additional 60 days, to move an additional 100,000 troops to the Mideast.

'Big Three' Automakers Extend Zero-Percent Financing, Again

With the U.S. economy stagnant, and a backdrop of war, the "Big Three" U.S. automakers, Ford, General Motors, and Chrysler, reported that March sales of autos and light trucks declined by 3-7.9%. To entice consumers to buy, all three have announced that zero-percent financing deals will continue, and now be extended to five-year loans as well as the three-year loan packages which have been in effect since September 2001.

New York Times: 'Sour Mood Pervades Economic Front'

The U.S. economy has shrunk by 2 million jobs since George W. Bush entered the White House, and "American spirits about the economy are still being battered," the New York Times' lead business story worried April 3, under the headline "Sour Mood Pervades the Economic Front." A manufacturers' survey registered deep pessimism as executives complained of slumping orders and higher prices. Many economists expected new gains in unemployment, coming against the backdrop of 600,000 jobs already having been lost since November 2002.

The Commerce Department reported at the end of March, that factory orders fell 1.5% in February, led by a 1.6% drop in durable goods orders. Adding to economic woes was the decreased demand for commercial aircraft, computers, and chemicals. Commercial aircraft orders, for example, fell 27%. It is noteworthy that the overall fall occurred, despite defense-related orders rising 27% in February.

New York Stock Exchange: Seats Go Begging Despite Discount Rates

All 1,366 seats on the New York Stock Exchange are owned by individuals or brokerages, and usually, the seats are occupied by the owner—person or company—or leased out. But now, some 25-30 or so, are unleased and vacant, an "extraordinary" situation, reported the New York Post's John Crudele April 3. The fee for leasing a seat has dropped from over $330,000 a year, as of a year ago, down to the bargain-rate of $220,000 today, or maybe, best offer. Perhaps eBay is next?

Wall Street Police Blotter

*Citigroup's former head of U.S. stock research, Kevin McCaffrey, is the latest Citigroup official to come under investigation for the bank's prostituting of its stock research to gain investment-banking business. McCaffrey, who is accused by the National Association of Securities Dealers (NASD) of failing to supervise star telecom analyst Jack Grubman, may be banned from the securities business for life.

*The Securities and Exchange Commission and NASD are investigating Morgan Stanley for investing the money of its mutual-fund clients in ways that favored Morgan Stanley's fee income over the income of its clients.

*The SEC is investigating certain stock purchases surrounding the $13-billion acquisition of Wachovia by First Union in 2001. Apparently included are charges by SunTrust Banks, that both First Union and Wachovia were buying First Union stock to boost its price, and thereby boost the value of First Union's bid over SunTrust's failed bid for Wachovia.

*The FBI arrested James Giffen, chairman and principal owner of the Manhattan-based merchant bank Mercator, as he attempted to board a plane bound for Kazakhstan March 30, on charges of violating the Foreign Corrupt Practices Act. Giffen is said to have poured more than $20 million into Swiss bank accounts to bribe senior Kazakh officials brokering a $1-billion deal for Mobil. The payments were made subsequent to Giffen's having received a $41-million payment from Mobil (now ExxonMobil, which was not accused of any improper practices).

*WorldCom has found another $2 billion in phantom profits, bringing the phantom total to $11 billion (so far); WorldCom will once again restate its earnings, this time back to 1999, and plans to write off $79.8 billion in assets. Four WorldCom execs have already copped pleas, and the Feds are trying to build a criminal case against former CEO Bernie Ebbers, who naturally did not know any of this was going on.

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