US: 63,000 jobs lost as economy continues downslide

By Patrick Martin
Total US employment fell by 63,000 jobs in February, the second consecutive monthly decline and worst showing in five years, according to a Labor Department report released Monday. The figure demonstrates that the recession in the US economy is worsening and that the corporate onslaught against the jobs and living standards of working people will intensify.
The stock market plunged 147 points, following Thursday’s drop of 215 points, in a decline that has taken the Dow-Jones Industrial Average to well below the 12,000 mark. The New York Stock Exchange closed at 11,893.69, its lowest point in nearly two years, and more than 2,100 points down from the peak last October 11. The total losses on all stocks traded are approaching three trillion dollars in less than five months.
The wave of selling was fueled by the jobs report, although Wall Street frequently celebrates such indicators of job market distress because rising unemployment dampens wage demands and business costs and makes it possible for the Fed to cut interest rates without sparking inflation.
In the current context, however, such concerns are dwarfed by the fear that rising unemployment will trigger a further wave of defaults on mortgages, credit cards and other consumer debt, exacerbating the credit crisis that has unfolded over the past eight months since the crisis in the sub-prime mortgage market erupted. Moreover, inflation is raging, symbolized by the soaring price of oil, over $106 a barrel in trading Friday, and the price of gold, now approaching $1,000 an ounce.
To be blunt, what Wall Street fears now is not a recession—it is already widely accepted that the US economy slipped into recession last fall—but the collapse of major financial institutions and market dislocations which could set the stage for a full-scale worldwide depression, of a kind not seen since the 1930s.
In an effort to stave off the wave of selling triggered by the jobs report, the Federal Reserve announced Friday that it would make $100 billion in new credit available to major banks this month, on top of $160 billion in short-term loans it has extended in occasional auctions since December. The Fed also announced that it will increase the size of the short-term lending in auctions set for March 10 and March 24 from $30 billion to $50 billion apiece.
Fed Chairman Ben Bernanke has already indicated that the central bank will likely cut interest rates again at the next meeting of its Open Market Committee, now set for March 18. The Fed has cut rates by 1.25 percent in the last two months (2.25 percent since October) in an increasingly desperate effort to stimulate the financial markets.
The job report was particularly jolting to financial markets because most economists had predicted a small rise in payrolls, with forecasts estimating the increase at 25,000 jobs. Some 52,000 net jobs were eliminated in manufacturing, as well as 39,000 net jobs in construction, on top of a loss of 25,000 jobs in January.
Despite these numbers, the official jobless rate actually declined slightly, from 4.9 percent to 4.8 percent, because 450,000 unemployed stopped looking for work in February and accordingly were excluded from the count, which is based on the number of people actively seeking jobs.
The Labor Department report also found that January’s net job losses were worse than initially reported, 22,000 compared to 17,000, meaning that 85,000 net jobs have been eliminated since the first of the year. The agency also cut in half its estimate of net job creation in December, from 82,000 to 41,000.
The US economy must generate an increase of 150,000 new jobs each month just to keep pace with population growth, so the figures reported mean that over the past three months job creation fell short of the number of workers seeking employment by nearly half a million jobs.
The top economic adviser to President Bush, Edward Lazear, chairman of the White House Council of Economic Advisers, told the press Friday that the US economy might actually shrink in the first quarter, the first time that any top official has admitted that the US growth rate would fall below zero. “We don’t really know whether it will be negative or not,” he told reporters. “We have definitely downgraded our forecast for this quarter.”
The official government definition of a recession is two consecutive quarters of zero or negative growth, a figure increasingly likely for the first half of 2008. J.P. Morgan’s chief economist, Bruce Kasman, told the Associated Press, “It is appropriate to characterize the US economy as having entered a recession in the first quarter.”
The jobs report was only one of a series of economic reports and market events that have shaken financial markets in the last few days. Particularly significant was the default by two major companies caught in the aftershocks of the mortgage crisis.
Thornburg Mortgage, the second-largest independent mortgage lender in the US, after Countrywide, revealed Wednesday that it was in default on $610 million in loans after failing to meet a margin call from one lender, J. P. Morgan. The company, based in Santa Fe, New Mexico, said it would restate its 2007 financial results and take a charge of $428 million to reflect losses on adjustable-rate mortgages.
CEO Larry Goldstone issued a bitter statement Friday warning that the company might be unable to continue as a going concern, and declaring, “The panic that has gripped the mortgage financing market is irrational and has no basis in investment reality.”
Thornburg specializes in luxury homes and has relatively few sub-prime mortgages. Its margin calls began after the Swiss bank UBS announced a write-down February 14 on the value of $26.6 billion in “Alt-A” mortgages—higher-priced and higher value than sub-prime. Since then, Thornburg’s share price has been driven down from $11.54 to $1.22 Thursday.
On Thursday, Carlyle Capital, a subsidiary of the giant hedge fund Carlyle Group based in the British Channel Islands, said it had failed to meet margin calls from banks on $21.7 billion in mortgage-backed securities. The company was heavily engaged in purchasing mortgage-backed bonds issued by Fannie Mae and Freddie Mac, the two huge government-sponsored institutions that underwrite much of the US home mortgage market. Carlyle Group is expected to provide credit to prevent a default of Carlyle Capital, but the crisis casts a shadow over the most important financial institutions in the US mortgage industry.
A report Thursday by the Federal Reserve showed that household net wealth fell for the first time in five years, dropping $532.9 billion, or 3.6 percent, in the fourth quarter of 2007. The collapse of real estate values accounted for a third of the decline, while the decline in financial assets accounted for nearly half.
The Fed report also found that for the first time since such records began in 1945, American homeowners owed more on their homes than they owned. Average net home equity dropped below 50 percent—a figure that is even more remarkable since one third of US homeowners have either paid off their mortgages or bought without a mortgage, and therefore have 100 percent equity.
Other figures reported include:
* An increase in the proportion of mortgages in foreclosure to 2.04 percent, an all-time high and nearly double the level of 1.19 percent a year ago. The proportion of loans either past due or in foreclosure hit 7.9 percent in the fourth quarter, up from 6.1 percent a year earlier, and the highest since figures were first collected in 1979.
* A published estimate that mortgage losses would cost the banks $400 billion, about 40 percent of the $1 trillion in combined capital of all banks insured by the FDIC. Bank lending would be cut by $900 billion as a result.
* The Federal Reserve “beige book” report on business conditions in the United States, released Wednesday, found weak or no growth in 8 of 12 regions.
* Factory orders for January plunged 2.5 percent, according to the Commerce Department, while orders for durable goods fell more than 50 percent.
* Credit-card borrowing soared 7 percent in January, up from an increase of 2.8 percent in December, as consumers had to resort to charge cards to finance their expenses. Consumer debt overall rose 3.3 percent, nearly double the growth rate of 1.8 percent in December.
The reaction in official Washington to the dismal developments was a combination of imbecilic rhetoric and inadequate action. President Bush made a hastily organized appearance before television cameras to understate the obvious, admitting “It’s clear our economy has slowed,” and adding, “Losing a job is painful and I know Americans are concerned about our economy. So am I.”
Declaring, “our economy will prosper,” Bush touted the economic stimulus package approved by Congress last month at the instigation of the White House, although the size of the package, $168 billion, is less than one third of the decline in net worth of the fourth quarter, and entirely dwarfed by the trillions wiped out in the real estate collapse.
Bush urged taxpayers to buy consumer goods with their $600 or $1,200 rebates when they get them, which will not be until May or June, although surveys already predict that the vast majority will use the money to pay urgent bills.

BMW axes 8,100 jobs to increase profits

By Dietmar Henning

On February 27, German auto manufacturer BMW confirmed its plans to shed 8,100 jobs. Shortly before Christmas, the company had announced the cutting of several thousand jobs but had not given any concrete figures. In December of last year, Der Spiegel magazine raised the figure of 8,000 jobs in danger, but BMW refused to comment further.
Now, BMW personnel executive committee member Ernst Baumann announced that most of the 8,100 redundancies are to take place in Germany in the form of unemployment for 5,000 agency workers and 2,500 members of the permanent staff. An additional 600 employees will lose their jobs at the company’s international locations.
BMW currently employs a total of 108,000 workers, including around 80,000 in Germany. In addition, the company employs 8,000 agency or temporary workers in Germany. According to personnel chief Baumann, 2,500 of these workers have not had their contracts renewed. The remaining 2,500 jobs are to be shed in the course of the year.
The elimination of jobs amongst full-time staff is due to take place through the implementation of part-time work for older workers and redundancy payments. Although BMW is prepared to pay out millions to this end, Baumann assured shareholders that the “synergy effect” would result in a reduction in personnel expenditure amounting to €500 million per year starting from 2009.
The job cuts are part of an extensive savings program aimed at increasing the company’s profits and rewarding shareholders. “We are working to improve our profits in order to achieve the required premiums” was the reason given by Baumann for the job cuts. The current rate of profits—5 percent—is to be increased to between 8 and 10 percent by 2012, while the net yield on assigned capital is to be increased to more than 26 percent.
At present, BMW profit levels are less than its main competitors. Therefore, the company plans to save a total of €6 billion in material and personnel costs by 2012 and increase annual productivity rates by 5 to 10 percent. “This is simply laid down by the competition,” Baumann insisted.
In order to double profits, it is unlikely that the present measures will suffice, and it is likely that the current round of job cuts is just the start.
Record profits
On Wednesday, Baumann announced plans by BMW for further cutbacks in other areas alongside the cuts in personnel expenditure. The company has been affected by the high costs of raw materials and development, and, in order to minimise costs, BMW is increasing its pressure on suppliers. At the start of this year, Herbert Diess, on behalf of the BMW executive, demanded that a number of suppliers agree to a discount of between 15 to 20 percent. In addition, Diess cut payments usually made by the company to suppliers to help with the costs of raw materials.
Baumann also claimed that BMW was forced to save because of the weak dollar. While BMW still produces a majority of its vehicles for domestic consumption, its most important sales market is now the US. A euro worth US$1.50 for any lengthy period of time would constitute a “critical” level for BMW. “Then we need to take further measures with regard to personnel,” Baumann threatened.
Despite increases in the prices of raw material and development costs, as well as the weak dollar, both 2006 and 2007 were record years for BMW, with the company selling more cars than ever before. All three of its brands—BMW, MINI and Rolls-Royce—announced record turnover at the start of the year, and overall turnover increased by 14 percent to €56 billion. In January, chief executive Norbert Reithofer also announced that current profit levels would exceed those of last year (€3.75 billion). The exact profit level for 2007 is still to be given.
In total, BMW delivered 1.5 million vehicles worldwide, 9.2 percent more than the previous year. The biggest single market for BMW was the US, with 336,000 units sold—an increase of 7.1 percent. This was the company’s best result ever in the US, making BMW the most successful European brand on the US market.
German sales of 284,000 new vehicles were somewhat less than previous year (296,000), but BMW still fared better than the general trend—with sales dropping by 4.2 percent compared to an overall new vehicle sales decrease of 9.2 percent.
BMW assumes that increases in the rate of value-added tax were behind this decrease on the German market. The super-rich, however, remain unconcerned about such changes in commodity taxes, and luxury brand Rolls-Royce was able to sell 1,010 vehicles in 2007—increasing sales by 25.5 percent.
The role of the trade unions and factory council
The main auto trade union, IG Metall, and the BMW factory council have supported all of the job-cutting measures implemented by BMW since the 1990s, while at the same time the central works council only recently agreed on new worsened conditions with management for those employees retaining their jobs.
The factory council gave its stamp of approval to shorter breaks and the abolition of premiums and shift payments for the 80,000 workforce in Germany. The remaining workers would also have to make “a contribution,” Baumann declared approvingly. And although profits are continuously increasing, the company profit-sharing scheme would not yield any increase for its employees this year.
It is now clear that the current range of job cuts was a done deal, worked out some time ago between the union, BMW management and the factory council.
When Der Spiegel reported on the planned job cuts three days before Christmas, IG Metall and the BMW factory council barely reacted. Both bodies avoided any criticism and expressly lined up behind BMW board chairman Norbert Reithofer.
“We are not at all concerned” was the comment of Matthias Jena, speaker for IG Metall in Bavaria, just after the Christmas break. The plans for changes in production—particularly in the 7 series—have been known since May 2007. “If production is reorganised, then fewer people are needed. That is completely normal,” Jena said.
The head of the Bavarian IG Metall, Werner Neugebauer, who sits on the supervisory board of BMW, had already been informed by the executive in May 2007 on plans for dismissals. When Der Spiegel printed its report in December, Neugebauer saw no need to interrupt his Christmas holiday or make a statement. After all, the dismissals were a component of the strategy paper the company had submitted in September. This strategy paper had received the unconditional support of IG Metall and the factory council.
By refusing to lift a finger to oppose the dismantling of the jobs of agency workers, the union and factory council are driving a wedge between the company’s 80,000 full-time staff and its 8,000 temporary workers. The cynical message to the full-time staff is clear: “Keep calm, those hardest hit are the temporary workers, and we will do what we can for those permanent staff who lose their jobs.”

Food prices continue to rise worldwide

By Naomi Spencer
Recent developments in grain markets point to prolonged international supply shortages and price spikes, exposing billions of people to hunger and malnutrition.
US commodity exchanges have seen extreme volatility in the past week, with speculation on spring wheat crops driving per-bushel prices to record levels, while high oil prices and severe weather have contributed to rising corn and soybean prices.
Last week, the three US Midwest grain exchanges—the Minneapolis Grain Exchange (MGE), the Kansas City Board of Trade and the Chicago Board of Trade—all raised their daily trading limits to triple the previous ceilings, encouraging rampant speculation and substantially heightening trade activity.
On February 15, trading on the anticipated March wheat crop hit $19.88 a bushel on the MGE, the highest price ever, and 79 percent higher than a year ago. The surge came on the announcement that Japan had purchased 190,000 tons of US wheat shortly after the Egyptian government bought 235,000 tons, and in anticipation of weather-related food disruptions in China.
The US Department of Agriculture (USDA) has warned that the nation’s wheat inventories are dropping dangerously low. In part, this is due to the fevered rate of exports driven by the weakening dollar and relative strengthening of currencies of many importing countries.
By June, the USDA projects that actual stores of wheat will fall by 40 percent, to the lowest level in three decades. Goldman Sachs’ February commodities report put world wheat stocks at the lowest level since 1948.
The world food shortage cannot be understood as a temporary phenomenon or a simple supply and demand dilemma. Rather, a number of complex and interrelated forces are behind the development, all of which underscore the inability of capitalist markets and institutions to rationally plan and provide for human needs.
Following the collapse of the housing market and subsequent crisis in the financial sector, much speculation shifted from those areas into commodities, which are considered to be more stable and, in US trading houses in particular, less vulnerable to the unfolding recession. Agricultural commodities are seen as a “safe bet” for investors; people need to eat, no matter how inflated the price of food.
It is precisely this attitude that makes agricultural markets extremely vulnerable to crises, and increases the hunger threat posed to the world’s population. The prices of crops are negotiated not when they are harvested, but well in advance, in anticipation of future yields, production needs, and so on. Agricultural producers sell so-called “futures contracts” on crops several months before harvest, thereby guaranteeing certain prices. Grain distributors and processors buy these futures contracts, guaranteeing they will not pay more upon harvest.
However, futures contracts cannot guarantee that crops will survive, or that they will meet demand when harvested. Shortages or blights, which can be ruinous to farmers and consumers, are often celebrated by speculators, who buy up futures contracts and turn profits on unmet demand.
Speculation generates volatility, in turn triggering yet more speculation. Since the eruption of the credit crisis, the grain market has assumed an increasingly volatile character, forcing up retail inflation and worsening the effects of economic downturn for the working class population.
Agricultural production is vulnerable to shocks because it is intimately connected to climate trends, declining water tables, and weather-related disasters.
Agriculture is also affected by fluctuations in the energy market. The distribution of grain is directly impacted by transportation costs, tying grain prices to oil prices. This drives prices up especially in countries dependent upon sea-shipped imports.
Further, farming and processing operations are more expensive when oil rises, not only because of fuel costs, but also because the cost of fertilizer, the nitrogen of which is made from natural gas, is bound up with energy market trends. USDA figures show that fertilizer prices have risen enormously in recent years. In the past year, diammonium phosphate, commonly used as a corn fertilizer, rose from under $300 last year to $792 per ton February 15.
Moreover, as fuel prices rise, demand for biofuel also rises. As a result, more corn, soybeans, and other feedstock crops are diverted into biofuel production. This exacerbates shortfalls in the human food system and increases the cost of feeding livestock and poultry, pushing up meat, egg, and dairy consumer prices.
The US government has pressed for the replacement of 15 percent of gasoline consumption with ethanol and other biofuels in the next few years. According to the USDA, this mandate will consume at least a third of the nation’s corn crop. And with an incentive to grow biofuel-destined crops, agricultural operations have less cropland for growing staple food grains. The drive to produce ethanol has contributed to a doubling in the price of corn in two years, and a significant drop in global corn reserves.
In a report released February 18, the European bank UniCredit projected an average $15 per-bushel for wheat in 2009, based on the trends in land allocation for ethanol crops and in increasing demand for meats in Asia. “Rising global population, the production of biofuels and more protein-rich nutrition in emerging markets are triggering a steady increase in demand,” the report said, noting that acreage devoted to wheat has been stagnating for three decades.
None of these problems can find resolution in capitalist market policies or management on a merely national basis.
Several governments, nervous over increasing prospects of social unrest, have reported rising inflation rates on food costs. This week, China announced a record 7.1 percent annual inflation rate for January, saying that severe winter storms had exacerbated the country’s already strained food system, pushing food prices 18 percent higher than one year ago.
Chinese households, many millions profoundly poor, spend about half of their income on food. Faced with riots over cooking oil shortages and high staple food costs last year, the government implemented restrictions on exports and lowered import tariffs in an effort to lesson the crisis.
On February 21, the Indian government made a public announcement of a crackdown on grain hoarding among wheat traders, who regularly withhold stocks until lean months to sell at exorbitant prices. The national government estimates that India’s 2008 wheat crop will be slightly lower than that of 2007, while import prices rise. The country also faces inflation of 4 to 6 percent and widespread under-nutrition.
Corruption is rampant among grain distributors in areas suffering scarcity. South Africa has seen a 200 percent increase in wheat prices in the past year, partly attributable to pervasive price-fixing among the bread and dairy sectors. On February 19, the country’s agriculture ministry called for a campaign against industry collusion, which it said was threatening the country with food insecurity.
Behind these government crackdowns is concern over destabilization and the risk of popular revolt.
The political consequences of rising food prices are not limited to net import countries. In the US, food inflation has averaged 4.9 percent over the past year, with a 0.7 percent increase in January alone. Along with record grain prices have come large jumps in retail meat, eggs, and dairy prices. Milk in January was 26 percent higher than a year ago, according to the latest Labor Department report.

How To Live Rich

When the middle-class millionaire wants to wow her, he buys a diamond. Only the millionaire buys the rarest stone, one no one else will have.
On his travels, the millionaire goes where no one can find him--to an exclusive island resort featuring $185,000 fractional memberships in luxury vacation homes.
And at home, he relaxes not before the plasma TV but in his $150,000 yoga room where he receives massages while gazing at a Japanese-inspired garden outside.
In Pictures: Spending Habits Of The Middle-Class Millionaire
These kinds of expenditures are becoming increasingly common among the fast-growing class of "middle-class millionaires." Sixteen-and-a-half million Americans representing a little over 8% of U.S. households fall into this group, which controls almost two-thirds of the country's wealth. They are baby boomers with a median age of 58 who obviously listened to their mother's advice to get a good education and settle down--because three-quarters earned a bachelor's degree and 82% are married.
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Would we know if we brushed shoulders with a middle-class millionaire in the hallway? Probably not. "They're successful entrepreneurs," says Milton Pedraza, CEO of the Luxury Institute, a New York City-based research firm. "He's more likely to be the guy that owns 10 McDonald's franchises, the doctor with a MRI clinic, the owner of a small ad agency or even a trash removal company."
But even with a million in the bank, these people aren't all that rich. Russ Alan Prince, president of Prince & Associates, a private wealth research firm and author of The Middle Class Millionaire and The Sky's The Limit, says that today, having a million dollars net worth doesn't mean you are really wealthy. He categorizes the middle-class millionaire as those with $1 million to $10 million, the rich with $10 million to $30 million, and the super rich with more than $30 million.
Pricey Perks Still, a million dollars is nothing to laugh at. Though nationwide spending has slowed on fears of a slumping economy, this set is continuing to splurge on pricey home improvements, wine and spirits, cars and clothes.
But the middle-class millionaire is not content to simply upgrade the tiles in his bathroom. He's likely building a professional grade home spa. In researching The Sky's The Limit, Prince spoke with a hedge fund manager who covered an entire wall with plasma screens and surround sound at a cost of $40,000 so he could wind down at the end of a long day by playing "Guitar Hero" and Nintendo (other-otc: NTDOY - news - people ) Wii. Prince also worked with a Wall Street executive who spent over $60,000 to have a boxing ring installed in his Manhattan apartment.
Has luxury spending spiraled out of control? What's too extreme? Weigh in. Add your thoughts in the Reader Comments section below.
Those kinds of buys make super high-tech security systems throughout the home a necessity. When traveling one of Prince's respondents keeps track of his home by BlackBerry, and, if something looks suspicious, he can fill his house with tear gas at the touch of a button. Safe rooms are also becoming popular, says Prince.
Jewelry is the ultimate symbol of wealth, and in this category, the bigger the better. Today's millionaires invest in high end pieces from companies like Zydo or Di MODOLO. This group is looking for custom-made baubles and won't blink at spending $75,000 on a necklace.
Fashion and accessories are another hot opportunity to spend. A good example is the owner of a plumbing company who, since making it big a couple of years back, treats his wife to a $35,000 Rene Lautrec handbag bag twice a year.
While jewelry and handbags may satisfy the ladies, watches seem to scratch the itch for men. Picture this: One of Prince's respondents owns two limousine companies and sells one for $20 million. After years of collecting watches in the $1,000 to $2,000 range, he rewards himself by splashing out on a $200,000 time piece.
Diamond-encrusted, of course.

Where The World's Wealth Is Stored

Liz Moyer with Tatyana Shumsky

Gold trading at near-record highs above $900 an ounce begs the question: Who's got the most?
If you guessed the U.S. government, you're right, sort of. Most people automatically think of the bullion vault at Fort Knox, Ky. The military installation does indeed hold a good stash of the U.S. reserves, about 147 million ounces (out of 261 million total as of December.) Other reserves are socked away in the Philadelphia and Denver mints, the bullion depository at West Point, N.Y., and other places.
But the Federal Reserve Bank of New York holds the prize as the world's biggest known stockpile of gold, some 550,000 glistening bars of the stuff buried deep into the bedrock of lower Manhattan. That's $203.3 billion worth of gold in a single place. Just 2% to 5% of it is owned by the U.S. government, though. The rest is owned by foreign countries.
In Pictures: Where The World's Wealth Is Stored
It's not the only horde in the world. As the prices of commodities continue to skyrocket, the vast stores held by banks, governments and commodities trading houses are increasingly valuable. Two cities, New York and London, are home to more metal than any other.
In Manhattan, the Fed safeguards the gold of the world at no charge to the depositors, who only have to pay $1.75 per gold bar to have the stuff moved around the vault. If, for example, France wants to pay Russia for something in gold, it calls the Fed and has it move bars from its part of the vault to Russia's part for the nominal transaction fee. When currencies were linked to the price of gold, transactions were aplenty, but that's no longer the case these days. Last year there was just one transaction conducted in the vault, a Fed spokesman said, declining, for obvious reasons, to add more detail.
The New York Merchantile Exchange's commodities division trades a variety of metals, including gold, silver, copper and platinum, and keeps a vast storage of physical metal in vaults around New York City to back the futures contracts traded through its venue. At the moment, it has 7.4 million ounces, or $6.8 billion, worth of gold and 134.9 million ounces, or $2.2 billion, of silver in storage.
But London is home to the world's largest stash of silver--and not because the government uses the pound sterling as its currency. JPMorgan (nyse: JPM - news - people ) keeps 155 million ounces of silver for Barclays (nyse: BCS - news - people ) to back its IShares silver electronically traded fund, which debuted in 2006.
It's also the diamond capital of the world. De Beers holds 40% market share in diamonds and pretty much dominates the business, and it keeps "a few weeks" of supply at it's center in London, according to a spokesman.
England may not hold the title for much longer, though. De Beers and the Botswanan government are to unveil an $80 million state-of-the art sorting facility in March. It will be the new world diamond capital.
Other emerging market nations are capitals of sparkle. Unlike other precious metals, platinum is spoken for almost before it leaves the ground (and the mines are mostly in South Africa). Platinum, which trades at about $1,600 an ounce, is in high demand by manufacturers of flat-screen televisions, iPods and other consumer electronics and makers of catalytic converters. In Europe, it is used in diesel fuel. According to industry sources, there are no stockpiles of the white metal on the same scale as gold and silver. Comex, in New York, for example, stores only 5,575 ounces, or $8.9 million, of the metal.
Colombia dominates the emerald market, and Victor Carranza dominates Colombia's emerald business. His territory includes the Muzo region, near Bogata. He is credited with stopping drug cartels from trying to take over the emerald mines during the 1980s, but more recently ran into trouble himself when he was arrested in 1998 and charged with organizing death squads. He was released from prison in 2002.
About 90% of the world's rubies come from Myanmar, the subject of considerable controversy these days. Last year, there were widespread calls for boycotts of the government auctions of raw gems. U.S. First Lady Laura Bush said buying the gems supports the "repressive" government of Myanmar, which last October held a bloody crackdown on protests by monks and students. Once plucked from the ground, most rubies are sent to Chataburi, Thailand, to be cut.
Sapphires come out of the ground in Sri Lanka and Madagascar but like rubies are sent to Thailand, and increasingly, Hong Kong, for cutting.
But one metal, and one place, top all the rest. The Department of Energy's Pantex Plant in Amarillo, Texas, has 6,000 pits of plutonium. You can't buy it, but if you could, you'd pay upward of $10,000 an ounce by some estimates. Total value? As they say in the credit card ads: priceless.

America’s economy risks mother of all meltdowns

By Martin Wolf
“I would tell audiences that we were facing not a bubble but a froth – lots of small, local bubbles that never grew to a scale that could threaten the health of the overall economy.” Alan Greenspan, The Age of Turbulence.

That used to be Mr Greenspan’s view of the US housing bubble. He was wrong, alas. So how bad might this downturn get? To answer this question we should ask a true bear. My favourite one is Nouriel Roubini of New York University’s Stern School of Business, founder of RGE monitor.
Recently, Professor Roubini’s scenarios have been dire enough to make the flesh creep. But his thinking deserves to be taken seriously. He first predicted a US recession in July 2006*. At that time, his view was extremely controversial. It is so no longer. Now he states that there is “a rising probability of a ‘catastrophic’ financial and economic outcome”**. The characteristics of this scenario are, he argues: “A vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe.”
Prof Roubini is even fonder of lists than I am. Here are his 12 – yes, 12 – steps to financial disaster.
Step one is the worst housing recession in US history. House prices will, he says, fall by 20 to 30 per cent from their peak, which would wipe out between $4,000bn and $6,000bn in household wealth. Ten million households will end up with negative equity and so with a huge incentive to put the house keys in the post and depart for greener fields. Many more home-builders will be bankrupted.
Step two would be further losses, beyond the $250bn-$300bn now estimated, for subprime mortgages. About 60 per cent of all mortgage origination between 2005 and 2007 had “reckless or toxic features”, argues Prof Roubini. Goldman Sachs estimates mortgage losses at $400bn. But if home prices fell by more than 20 per cent, losses would be bigger. That would further impair the banks’ ability to offer credit.
Step three would be big losses on unsecured consumer debt: credit cards, auto loans, student loans and so forth. The “credit crunch” would then spread from mortgages to a wide range of consumer credit.
Step four would be the downgrading of the monoline insurers, which do not deserve the AAA rating on which their business depends. A further $150bn writedown of asset-backed securities would then ensue.
Step five would be the meltdown of the commercial property market, while step six would be bankruptcy of a large regional or national bank.
Step seven would be big losses on reckless leveraged buy-outs. Hundreds of billions of dollars of such loans are now stuck on the balance sheets of financial institutions.
Step eight would be a wave of corporate defaults. On average, US companies are in decent shape, but a “fat tail” of companies has low profitability and heavy debt. Such defaults would spread losses in “credit default swaps”, which insure such debt. The losses could be $250bn. Some insurers might go bankrupt.
Step nine would be a meltdown in the “shadow financial system”. Dealing with the distress of hedge funds, special investment vehicles and so forth will be made more difficult by the fact that they have no direct access to lending from central banks.
Step 10 would be a further collapse in stock prices. Failures of hedge funds, margin calls and shorting could lead to cascading falls in prices.
Step 11 would be a drying-up of liquidity in a range of financial markets, including interbank and money markets. Behind this would be a jump in concerns about solvency.
Step 12 would be “a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices”.
These, then, are 12 steps to meltdown. In all, argues Prof Roubini: “Total losses in the financial system will add up to more than $1,000bn and the economic recession will become deeper more protracted and severe.” This, he suggests, is the “nightmare scenario” keeping Ben Bernanke and colleagues at the US Federal Reserve awake. It explains why, having failed to appreciate the dangers for so long, the Fed has lowered rates by 200 basis points this year. This is insurance against a financial meltdown.
Is this kind of scenario at least plausible? It is. Furthermore, we can be confident that it would, if it came to pass, end all stories about “decoupling”. If it lasts six quarters, as Prof Roubini warns, offsetting policy action in the rest of the world would be too little, too late.
Can the Fed head this danger off? In a subsequent piece, Prof Roubini gives eight reasons why it cannot***. (He really loves lists!) These are, in brief: US monetary easing is constrained by risks to the dollar and inflation; aggressive easing deals only with illiquidity, not insolvency; the monoline insurers will lose their credit ratings, with dire consequences; overall losses will be too large for sovereign wealth funds to deal with; public intervention is too small to stabilise housing losses; the Fed cannot address the problems of the shadow financial system; regulators cannot find a good middle way between transparency over losses and regulatory forbearance, both of which are needed; and, finally, the transactions-oriented financial system is itself in deep crisis.
The risks are indeed high and the ability of the authorities to deal with them more limited than most people hope. This is not to suggest that there are no ways out. Unfortunately, they are poisonous ones. In the last resort, governments resolve financial crises. This is an iron law. Rescues can occur via overt government assumption of bad debt, inflation, or both. Japan chose the first, much to the distaste of its ministry of finance. But Japan is a creditor country whose savers have complete confidence in the solvency of their government. The US, however, is a debtor. It must keep the trust of foreigners. Should it fail to do so, the inflationary solution becomes probable. This is quite enough to explain why gold costs $920 an ounce.
The connection between the bursting of the housing bubble and the fragility of the financial system has created huge dangers, for the US and the rest of the world. The US public sector is now coming to the rescue, led by the Fed. In the end, they will succeed. But the journey is likely to be wretchedly uncomfortable.

US: Cities, education funds, transport authorities hit by credit crisis

By Andre Damon

The deepening credit crisis is hitting US cities as well as quasi-governmental state education and transportation authorities, sharply increasing the interest they must pay on their long-term debt and jeopardizing their ability to finance daily operations.
Many such entities borrow money on a long-term basis, but at interest rates that are set at regular, often weekly, credit auctions. Last week the market for these so-called “auction-rate securities” collapsed. Nearly 1,000 auctions failed due to a lack of investors willing to buy the debt.
As a result, the state of Michigan suspended a major student loan program and the Port Authority of New York and New Jersey saw the interest rate it pays jump from 4.3 percent to 20 percent. Weekly interest payments on the Port Authority’s $100 million in auction-rate securities will soar to $389,000 from $83,000.
New York’s Metropolitan Museum of Art is now paying 15 percent on auction securities. Other recent victims of the market collapse include universities such as Georgetown in Washington DC, student loan providers such as the College Loan Corporation, municipalities such as Washington DC, and cultural institutions such as the de Young Museum in San Francisco.
The municipal liquidity crisis compounds broader problems facing US cities and states as the US slides into recession. The bursting of the housing bubble has already begun to sap local tax revenues, and a recession will further reduce taxable income while placing greater demands on state and local social programs.
The failure of the auction-rate securities market is itself part of a more general worsening of the US and global credit crisis. Last week, Moody’s Investor Services downgraded the debt of the third-largest US bond insurance company, Financial Guaranty Insurance Company (FGIC), from AAA to A3, a drop of six levels, with a warning that it could be reduced to the lowest investment grade level of Baa. FGIC thus became the first major bond insurer to be downgraded by all three major ratings firms.
The two largest bond insurers, MBIA and Amebic, have also been threatened with credit downgrades. If a bond insurer is downgraded, then all of the bonds it insures—most of which are held by banks, hedge funds and other financial institutions—must also be downgraded, leading to a new wave of losses by Wall Street firms.
The bond insurance companies insure some $2.4 trillion in debt against the risk of default. These companies originally limited themselves to insuring low-risk municipal debt, but during the latter years of the housing bubble, they increasingly got into the business of covering mortgage-backed securities and other complex debt instruments.
Under pressure from New York State, FGIC announced plans to spin off its operations dealing with municipal bonds into a new firm, which would likely retain a triple-A credit rating. However, this would leave the original firm with its liabilities related to failing mortgage-backed securities while stripping it of its business in more solvent municipal-related debt. As a result, the banks which were insured by FGIC would be forced to write off more bad investments.
Long-term interest rates continue to inch up amid growing inflationary expectations. Consumer prices grew by 4.1 percent in 2007, up from 2.5 percent in 2006. And according to figures released Friday, import prices rose 1.7 percent in January and 13.7 percent compared to January 2006, in the highest monthly increase since the Labor Department began keeping track in 1982.
The rise in long-term interest rates, which are linked to mortgage lending rates, bodes ill for homeowners’ ability to refinance, and the increase in consumer prices is significantly cutting into consumer spending. Both of these developments are likely to contribute to a growth slowdown.
Meanwhile, US consumer confidence has fallen to a 16-year low, according to a recent survey by Reuters and the University of Michigan. The survey indicates that 82 percent of Americans believe that the US is in a recession now. This is the highest reported proportion since 1982, during the worst recession of the post-war period.
“Past declines of this magnitude have always been associated with subsequent recessions,” said Richard Curtin, who directed the survey.
A separate report issued Friday showed that manufacturing activity in the state of New York dropped for the fourth month in a row to the lowest level since 2003. The National Association of Realtors also announced last week that median single-family home prices dropped by 5.8 percent in the fourth quarter of 2007 over the year before, in what may be the steepest fall in home prices since the Great Depression.

Detroit: highest home foreclosure rate in US

By Lawrence Porter

Over the last four decades, Detroit has gone from boasting the highest rate of home ownership in the nation to the highest rate of home foreclosures in the US. Last week, the mortgage research company RealtyTrac Inc. announced that the economically depressed automotive center had the highest foreclosure rate in 2007 of the largest 100 metropolitan areas nationally.
Nearly 5 percent of the households in metro Detroit were in some stage of foreclosure last year, a rate nearly five times the national average and a 68 percent jump over 2006. RealtyTrac reported 72,616 filings of default notices, auction sale notices or bank repossessions on 41,273 properties located in the Wayne County cities of Detroit, Livonia and Dearborn.
Foreclosures have also risen sharply in nearby Oakland and Macomb Counties, which ranked 17th on RealtyTrac’s list with more than 2 percent of the households in some form of foreclosure. This rate is 95 percent higher than it was in 2006, when 30,378 filings took place for 21,607 homes.
Nationally, 86 of the largest metropolitan areas of the country saw increases in foreclosures, according to RealtyTrac Chief Executive Officer James J. Saccacio. These included Stockton, California and Las Vegas, Nevada—number two and three on the list—which experienced sharp growth rates and unsustainable prices over the last few years.
Daren Blomquist of RealtyTrac told the WSWS that the crisis in Detroit was “due to the high unemployment Detroit has experienced compared to other areas.” In addition to high unemployment, continued Blomquist, “there is the loss of higher-wage jobs. People are not able to make their mortgage payments.”
Since 2000, the Detroit metropolitan area, which has seen the loss of more than 150,000 jobs, primarily through the downsizing of the auto and auto parts industry. The same week that Detroit hit number one in home foreclosures, General Motors announced it would offer buyouts and early retirement packages to its entire blue collar workforce of 74,000 employees. Under the recent contracts signed by the United Auto Workers (UAW) union, the auto companies will be able to hire tens of thousands of workers at half the wage.
Michigan has the third highest rate of home foreclosures in the country, with nearly 2 percent of all households at risk for foreclosure. In 2007, 136,205 foreclosure notices were issued on 87,210 homes—or 1.95 percent of all homes in the state—according to RealtyTrac. The number was up 68 percent over 2006 and a staggering 282 percent since 2005.
Michigan has both the highest percentage of subprime loans in the country and the highest unemployment rate at 7.6 percent. While subprime mortgages were initially offered to people with a poor credit history it has been documented that loan sellers often foisted these higher-rate loans on those qualified for prime or near-prime loans. In return, lenders earned higher commissions.
Borrowers were also often lied to about the adjustable rates, which reset at sharply higher rates after two years. Finally, mortgages were written with prepayment penalties that made it far more expensive to get out of a subprime loan through refinancing.
Nationally, personal bankruptcies rose 30% in January. In 2007, 800,000 households filed for Chapter 13 bankruptcy protection, up 40% from the year before, overall. With more than 1 million subprime adjustable-rate mortgages (ARMs) due to reset in 2008, the American Bankruptcy Institute is preparing for tens of thousands of more bankruptcies.
On February 12, Michigan’s Attorney General Michael Cox organized a forum in Detroit on the foreclosure crisis. More than 2,500 residents attended the event, where they were advised to try to renegotiate the terms of their loans with lenders.
The WSWS spoke to several people at the forum, including homeowners who were attempting to save their homes. Kevin Anderson, a retired Detroit Diesel worker who was forced to take a buyout, said he and his wife had an ARM that went from $1,300 a month to $1,778. Their lender informed them the ARM could go as high as $2,778 a month, something they could not afford.
“I told them that if it goes that high they can have it,” protested Anderson. “From $1,300 to nearly $3,000 is just too much.”
Duane Fox, a retired state parole officer said he refinanced on his home twice for a total of $42,000 on the home that was in his family for generations. “Both times all kinds of fees were attached to it,” stated Fox. “Now I owe $80,000.
“These adjustable rates—that’s a crime. It was set up to fail. I think the government should step in. Whose income is going to increase that much year after year? I worked 30 years, and my wages increased 30 percent during the whole time. And most of that happened in the first seven years.”
Aileen Potter, a real estate agent in Roseville, and her partner Gino Spano, a specialist in foreclosures, spoke to the WSWS. Ms. Potter was indignant about the forum called by Cox. “It’s hogwash, they can’t help these people. If they lost their job, how can they make payments? They can’t refinance. Once you lose your job, you lose everything. They are not going to say ‘I understand you lost your job, we are going to let you slide on your payments.’
Spano added, “We personally know five or six people who have lost their jobs. How are you going to make your car or house payment?”
Referring to the state and federal government, Spano said, “Why don’t they freeze these interest rates? I don’t think we have a government strong enough or one that cares. I don’t see how Bush can still be president. He could care less about the financial crisis. He cares about Iraq, and that is it.”

Large Potential Albanian Oil and Gas Discovery Underscores Kosovo's Importance

By Stephen Lendman
On January 10, Swiss-based Manas Petroleum Corporation broke the news. Gustavson Associates LLC's Resource Evaluation identified large prospects of oil and gas reserves in Albania, close to Kosovo. They're in areas called blocks A, B, C, D and E, encompassing about 780,000 acres along the northwest to southeast "trending (geological) fold belt of northwestern Albania."

Assigned estimates of the find (so far unproved) are up to 2.987 billion barrels of oil and 3.014 trillion cubic feet of natural gas. However, because of their depth, oil deposits may be capped with a layer of gas. If so, Gustavson calculates the potential to be 1.4 billion barrels of light oil and up to 15 trillion cubic feet of natural gas. Further, if only gas is present, the discovery may be as much as 28 trillion cubic feet. In any case, if estimates prove out, it's a sizable find.

In its statement, Gustavson reported: "The probability of success for a wildcat well in a structurally complex area such as this is relatively high (because) it is in a structurally favorable area (and) proven hydrocarbon source and analogous production exists only 20 to 30 kilometers away."

Currently, the Balkans region has small proved oil reserves of about 345 million barrels, of which an estimated 198 million barrels are in Albania. Proved natural gas reserves are much larger at around 2.7 trillion cubic feet.

In December 2007, Albania's Council of Ministers allowed DWM Petroleum, AG, a Manas subsidiary, to assist in the exploration, development and production of Albania's oil and gas reserves in conjunction with the government's Agency of Natural Resources.

This development further underscores Kosovo's importance and the cost that's meant for Serbia. Since the 1999 US-led NATO war, it's been all downhill for the nation, the region and its people:

--Kosovo is part of Serbia; at least it was; since
1999 it's been a Washington-NATO occupied colony stripped of its sovereignty in violation of international law;

-- it's been run by three successive US-installed puppet Prime Ministers with known ties to organized crime and drugs trafficking;

-- it's the home of one of America's largest military bases in the world, Camp Bondsteel; the province/country is more a US military base than a legitimate political entity;

-- its part of Washington's regional strategic objective to control and transport Central Asia's vast oil and gas reserves to selected markets, primarily in the West;

-- on February 17 during a special parliamentary session, Kosovo unilaterally declared its independence; the action violates international law; Kosovo is as much part of Serbia as Illinois is one of America's 50 states; to no surprise, Washington and dominant western countries support it; opposed are Serbia, Russia, Spain, Greece, Portugal, Slovakia, Malta, Bulgaria, Romania and Cyprus;

-- might makes right; the issue is a fait accompli; the February 17 declaration ignores EU division pitting one-third of its 27 members in opposition; and

-- unilateral western-supported independence mocks the
1999 UN Security Council Resolution 1244; it only permits Kosovo's self-government as a Serbian province; the resolution recognizes the "sovereignty and territorial integrity of the Federal Republic of Yugoslavia;" only a new UN resolution in compliance with international law can change that legally; nonetheless, it happened anyway on another historic day of infamy when Washington again trashed international law and the rules and norms of civil society.


Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. Also visit his blog site at sjlendman.blogspot.com.

GM offers buyouts to entire US hourly workforce

After $39 billion loss
By Jerry White
General Motors offered buyouts to all of its 74,000 US hourly employees as the automotive giant continues to downsize operations in response to declining US market share and massive financial losses. With the collaboration of the United Auto Workers union, the automaker plans to push out tens of thousands of higher-paid senior workers, replacing most of them with new hires making half the wages and far fewer benefits.
On Tuesday the company announced a staggering $38.7 billion loss for 2007, the largest in the history of the auto industry. The majority of the losses relate to the write-off of tax credits and other accounting charges. Excluding those charges, GM posted a pretax loss of $1.4 billion for the year, compared to a pretax profit of $628 million a year ago.
GM reported a fourth-quarter loss of $722 million due to the US economic slowdown, tighter credit markets and rising fuel prices, which have undermined sales of its highly profitable pickup trucks and SUVs. GMAC Financial Services—in which GM has a 49 percent stake—lost $2.3 billion in 2007 due to the housing and mortgage crisis.
About 40 percent of the company’s revenues and more than half of its vehicle sales in 2007 came from outside the US. GM sales and profits grew in Asia, Latin America and Europe in 2007. However, Europe saw a year-to-year profit decline of $300 million despite a wave of plant closings and other cost-cutting in Belgium, Germany and Sweden. Company officials threatened to push through further “restructuring” in Europe if costs were not brought down.
With 9,369,524 vehicles sold worldwide, GM barely held on to its position as the world’s largest car company in 2007, selling just 3,000 more vehicles than rival Toyota. In 1955, four out of five of the world’s cars were produced in the US, half of them by General Motors. Today, Detroit’s Big Three automakers—GM, Ford and Chrysler—barely produce half the cars and trucks sold in the US alone, with GM selling one quarter, compared to nearly 50 percent in the 1960s.
Company CEO Richard Wagoner said GM planned to save billions and return to profitability through the buyout programs and the new labor agreement it signed last fall with the UAW. The contract slashes wages and benefits for new hires and rids GM, Ford and Chrysler of their obligation to pay health-care benefits for hundreds of thousands of retirees and their spouses.
Under the new buyout offer, GM is offering $45,000 to qualified production workers and $62,500 to skilled tradesman to retire early with pension and health benefits. About 46,000 of GM’s UAW-represented workers have the required 26 years of service to qualify for the offer. The rest of the workers are being offered up to $140,000 to sever all ties to the company and leave with no pension or health care.
The UAW has worked hand in hand with the auto companies to carry out an “orderly downsizing” of the US auto industry and transform the factories into low-wage sweatshops. Over the past two years, the UAW worked with GM to eliminate 35 percent of the workforce.
During the 2007 contract talks, the UAW suppressed rank-and-file opposition to the wage and benefit cuts. In exchange for the historic concessions granted by the UAW, the union bureaucracy was given control of a retiree health-care benefit trust fund—worth more than $50 billion.
UAW President Ron Gettelfinger said Thursday he expects 15,000 to 20,000 GM workers to take the early retirement and buyout packages. Under the new labor agreement, Gettelfinger said, GM was obligated to replace these workers. While this would guarantee that the union bureaucracy suffered no loss of dues income, at least 16,000 workers would be hired under the lower-tier wage and benefit scale, agreed to by the UAW, which reduces hourly wages from $28 to $14. According to the Wall Street Journal, new workers will earn a total of $25.65 an hour in wages and benefits, as opposed to $73 an hour in total compensation for current workers.
Ford, the No. 2 US automaker, is also expected to offer packages to all 54,000 of its hourly workers. It also plans to eliminate laid-off workers whose salaries are guaranteed under the so-called Jobs Bank program, and hire thousands of lower-paid workers under its own agreement with the UAW.
Chrysler LLC is trying to cut up to 21,000 of its 45,000 US manufacturing jobs. The company’s private-equity owner Cerberus Capital Management announced last week they would slash the number of models the number three US automaker produced and would consolidate their dealership network as part of a plan to transform Chrysler into a much smaller, more profitable company.
The destruction of thousands of jobs and the wage cuts are expected to have a devastating impact on living standards, particularly in the Midwestern US states, where the auto industry is centered. At 7.5 percent, Michigan’s unemployment rate is already the highest in the nation. Since 2006, more than 70,000 homes in Detroit have been foreclosed and property values are down nearly 20 percent.
Sean MacAlinden, an analyst with the industry-friendly Center for Automotive Research in Ann Arbor, Michigan, told the Chicago Tribune that Toyota, the leading foreign car manufacturer in the US, will start slashing wages for its new hires and that other foreign carmakers will be close behind. “Away we go. We are going to see a downward spiral in wages,” MacAlinden said.
MacAlinden expects Detroit’s Big Three to slash their workforces by another 59,000 blue-collar workers over the next three years, while hiring 38,000 new workers under the lower-tier wage and benefits package, which disqualifies them from the standard pension and retiree health-care benefits that UAW members previously received

Strange Stimulation

Too Little for Those Who Need It Most
By LEE SUSTAR
THE ECONOMIC stimulus plan passed by Congress shafts the unemployed, the hungry and tax-paying undocumented immigrants.
And it will have only a limited impact in stimulating the economy--because of the Democrats' capitulation to Bush administration demands centered on tax rebates, while the big money goes to the U.S. war machine.
The $152 billion package will provide some relief for working people--a rebate of $600 for individuals and $1,200 for a married couple, with another $300 for each child in the household. Individuals with income of up to $75,000 per year and couples with incomes of $150,000 are eligible. Seniors on Social Security and people with incomes too low to file taxes were also included in the plan.
However, the rebates are a one-shot deal that won't necessarily result in increased spending--those who are employed and worried about the economy are likely to pay off debts or bank most of the money.
What's more, the bill provides $7.5 billion in tax credits for businesses to make more investments--even though businesses aren't likely to invest in anything if a recession is dragging down demand.
Another provision in the deal allows government-chartered mortgage insurers to guarantee loans of up to $729,750 in expensive housing markets--a move that critics say will steer lenders toward higher-income homebuyers rather than the lower-income homeowners struggling to refinance adjustable-rate mortgages.
"Economic stimulus to forestall or shorten a recession is a worthy goal," the New York Times editorial board wrote. "But this is ridiculous.
"Before the bill was passed, Congress' own budget office, and many other economists and analysts, told lawmakers--and the public--that the most effective form of stimulus is increased food stamps and extended unemployment benefits for the long-term unemployed who exhaust their initial 13-weeks of benefits. Neither food stamps nor unemployment compensation are in the bill."
Aid for the unemployed--particularly the long-term jobless--is urgently needed. As the Center on Budget and Policy Priorities noted, "In January 2008, the overall unemployment rate was 4.9 percent, and the percentage of all unemployed workers who had been unemployed for 27 weeks or more was 18.3 percent. At the start of the last recession in March 2001, by contrast, the unemployment rate was 4.3 percent, and the percentage of the unemployed who had been out of work for at least 27 weeks was 11.1 percent."
Aid to the jobless would also help the overall economy. According to a study by economist Mark Zandi, each dollar spent on food stamp benefits creates $1.73 in economic demand, while a dollar of unemployment benefits yields $1.64 in demand.
* * *
IF THE Democrats had made this case to the public, they could have stirred anger at the already unpopular Republicans and shamed them into accepting an extension of food stamps and unemployment benefits. But after losing such proposals by a single vote in the Senate, they capitulated.
"Basically, the Democrats played a potentially strong hand badly," wrote economist Robert Kuttner. "They began with a package too small and too feeble, so when it came time to split the differences with the Republicans, they were vulnerable to the usual salami tactics."
This didn't stop House Speaker Nancy Pelosi from hailing the bill as a "gift to the middle class and those who aspire to it in our country."
That "gift," however, won't go to about 12 million undocumented workers who pay taxes--Democrats bowed to Republican demands to include language specifically barring them from receiving rebates.
The Democratic Congress also surrendered to the Republicans' refusal to aid fiscally strapped states, even though half the states have budget deficits totaling $32 billion. Since states are required by law to balance their budgets, these deficits will lead to layoffs and cuts in social spending, thereby dampening economic growth. If the Feds were to step in to cover the shortfall--as they have in previous recessions--the cuts could be avoided.
Spending on infrastructure would be another effective way to boost the economy. The Economic Policy Institute offers a to-do list that includes $5 billion to fix or replace crumbling bridges, an estimated $100 billion in deferred maintenance in U.S. public schools, and $88.5 billion that the Environmental Protection Agency says is needed to prevent chronic sanitary sewer overflows.
Such spending creates jobs. According to the Federal Highway Administration, $1 billion of construction spending generates between 14,000 to 47,000 jobs, and adds $6 billion to gross domestic product. A national infrastructure program could put many of the 200,000 workers who lost their jobs last year as a result of the housing slump.
The Zandi study estimates that each dollar of government spending on such projects leads to $1.56 in economic demand. By contrast, he found that the type of business tax break included in the stimulus package created just 27 cents in additional demand for each dollar of tax revenue given up.
In general, the stimulus package is paltry in view of the scale of the economic crisis. "[T]his is no ordinary cyclical recession," wrote Kuttner. "Rather, it is a sharp and needless economic contraction, caused by a serious blow to the financial system, which was in turn the result of deregulation...
"Worse, this downturn comes on top of three decades of stagnant or declining real living standards for about two-thirds of Americans, and increasing insecurity of employment, health insurance and retirement, as well as rising costs of housing, education and energy."
Kuttner calls for a "major recovery program" rather than a modest stimulus. But the money is going to the Pentagon instead. Overall military spending is approaching $1 trillion a year, about 6 percent of GDP.
The stimulus plan, by comparison, amounts to approximately 1 percent of GDP. It won't do much to stop the looming mortgage foreclosures, layoffs and budget cuts.
Lee Sustar is a regular contributor to CounterPunch and the Socialist Worker. He can be reached at: lsustar@ameritech.net

King's Dream Foreclosed

The Subprime Crisis and Black America
By CHRISTINA KASICA
Owning a home is the essence of the American dream. It represents economic achievement and security. The dream holds true across races, ethnicities, and genders. But the implementation does not.We know society has historically worked against people of color. Examples include a century of legal slavery and exclusion from participating in wealth-building programs like the 1862 Homestead Act and the 1944 GI Bill. These programs gave millions the assistance and tools needed to improve their economic lives. A strong, flourishing middle class, a hallmark of America's prosperity, arose as a result.Today, in a new millennium, millions at the lower end of the economic spectrum face a new obstacle: the sub-prime mortgage crisis.The crisis occurred because a financial product intended for limited use has been disproportionately marketed to many. The crisis has ruined many economic lives and communities, and cost the financial institutions that underwrote massive numbers of shaky sub-prime loans hundreds of billions. These losses triggered a global economic crisis, the end of which is not in sight. The next chapter could well be about a deep US recession.The resulting human cost is less often mentioned. Yet, the targeting of people of color and poor people as the best candidates to sign up for one of these loans is emerging as an indisputable and reprehensible fact. In the hands of the mortgage lending industry, sub-prime loans became predatory loans--a faulty product that was ruthlessly hawked even though financial institutions were aware of its defects. Even a surface check of the demographics shows that, in city after city, a solid majority of sub-prime loan recipients were people of color.Hungry for new and different product, the financial services industry added features to sub-prime loans--exploding adjustable rates, balloon payments, penalties for early re-payment--that hobbled their recipients financially and made it unlikely that they would be able, after a brief honeymoon period, to repay the loans at all.A deeper look into the crisis reveals that the sub-prime lending debacle has caused the greatest loss of wealth to people of color in modern US history. The estimate is that, so far, blacks have lost between $72-83 billion; Latinos, $75-98 billion.There is also a spillover effect from the wholesale writing of bad loans: communities are torn apart. As one house after another in a neighborhood goes vacant, squatters move in, crime spikes, local stores close. The value of other people's houses in the vicinity, even those who have not taken out sub-prime loans, deteriorates by thousands of dollars. The local tax base erodes, since fewer people are living there and paying taxes. This in turn leads to revenue shortfalls which mean budget cuts in public services, teachers, police and firefighters, repairs to bridges and schools, and other government activities that offer residents quality of life.But the government has remained silent and inactive in the face of the crisis. There are, however, things that can be done.Just as rules have favored one group or another throughout US history, so can rules now help crisis victims regain productive lives, wealth, and homes. Residents and their government, working together, can alleviate the crisis with new rules like regulating the mortgage industry, federal investment in financing homes, lowering the cap on the mortgage deduction, providing incentives for developers to build affordable homes, and dedicating federal estate tax revenues to housing disaster relief.The hundreds of billions in short-term gains reaped by the financial industry didn't even last as long as ice cream in the sun. But cleaning up the mess they made will take the taxpayers and their government a long time.

Christina Kasica works with United for a Fair Economy is a non-profit that spotlights the growing wealth divide. She can be reached at: ckasica@faireconomy.org

Stormier Weather

The economic recovery that's been officially underway since late 2001 is probably over—too bad many Americans never got to experience it.
John Miller

It's not only radical economists and cyberspace Cassandras uttering the "r"-word nowadays. Just what are we to make of it when Harvard economists, The Economist magazine, and Morgan Stanley followed by Goldman Sachs and Merrill Lynch say the economy is headed toward, or already in, a recession?
You can bet the house, whatever its current value, that hard times are on the way—more layoffs, fewer new jobs, lower wages, tighter family budgets, more debt, and higher poverty levels. This year will see rising economic hardship even if the U.S. economy scrapes by without sinking into an official recession, usually defined as two straight quarters of declining output.
How do I know this? Hard times have been the hallmark of the U.S. economy during this decade, even as the economy expanded. We will be in for more of the same, but worse, as the economy slows and the inevitable downturn in the business cycle exacerbates the economic injuries many people have already sustained thanks to long-term shifts in the U.S. economic system.
And Those Were the Good Times
For a while now, there have been plenty of signs that the overall U.S. economy is headed south. Economic growth stalled in the last three months of 2007, adding only 0.6% to output after correcting for inflation. In December, job growth ground to a near halt, and the economy lost 17,000 jobs in January, as construction suffered large job losses. The unemployment rate jumped to 5.0% for the first time in three years, and would be much higher if the labor force participation rate—the fraction of the population either working or actively looking for work—were at the same level as when George Bush took office. On top of that, retail sales tanked in December as worried consumers cut back on holiday spending. Finally, the terminally volatile stock market registered one of its worst Januaries on record, enough to induce a panicked Fed to make an emergency interest-rate cut.
But even leaving these and other recent numbers aside, U.S. economic performance this decade has been nothing to write home about. The economy has now expanded for 74 straight months, from November 2001 to December 2007, far longer than the usual 51-month postwar expansion. But economic growth has been the slowest of any postwar expansion, averaging just 2.8% a year, far below the 4.3% average posted by earlier postwar business cycles of similar length. Worse yet, the economic growth that has occurred has done so little for so many—and so much for so few.
Employment expanded by just 0.9% a year since the recovery began, compared with an average of 2.5% for all recoveries that have lasted at least this long.
After correcting for inflation, weekly wages were just 1.9% higher in October 2007 than at the onset of the last recession in March 2001. The average postwar expansion drove wages up by twice that amount, 3.8%.
Seven million more people were without health insurance in 2006 than when the expansion began in 2001.
Median household income actually fell during this recovery. After correcting for inflation, median household income in 2006 (the latest year for which data are available) was down 2.0% from its 2000 level, and down 8.0% for black families.
The poverty rate was 12.3% in 2006 (again the latest year available), down from 12.6% in 2005, but still a full percentage point above the 11.3% rate at the onset of the last recession.
U.S. inequality reached levels not seen since the 1920s as the average real (inflation-adjusted) income of the richest 1% of households rose 34.8% from 2001 to 2005, while rising just 0.8% for the middle fifth of the population and falling by 3.0% for the poorest fifth.
And corporate profits skyrocketed. Inflation-adjusted corporate profits rose 12.8% a year during the first five years of this recovery, compared to an 8.3% average growth rate in the other postwar recoveries lasting at least as long.
No wonder 7 out of 10 people think the U.S. economy is heading into a recession, according to a recent poll conducted by the Economic Cycle Research Institute, a New York-based independent think tank. For many, the recession that began in March 2001 and ended, officially, that October has in reality continued straight through the decade.
Pop Goes the Housing Bubble
Besides punishing people who work for a living and those who can't even find a job, the 2008 economy will face a financial crisis brought on by the bursting of the housing bubble. How bad will it get? Pretty bad. A decade long stagnation, as Harvard economist Larry Summers suggests, or "the worst housing bust ever," as NYU professor Noureil Roubini suggests, are not out of the question. Here is why.
To begin with, subprime borrowers are not the only ones in trouble. The same types of loans that imposed inordinate risks on subprime borrowers have left many other homeowners vulnerable to foreclosure as well.
Defaults are now engulfing even better-off borrowers saddled with adjustable rate mortgages (ARMs), subprime or not, whose low introductory monthly payments are reset upward as interest rates rise in the economy. About one-quarter (24%) of all home loans are ARMs. Merrill Lynch economists have called ARM mortgages "ticking time bombs" that they suspect will add another $100 billion in losses, on top of an estimated $400 billion in losses on subprime and other mortgages. Lehman Brothers estimates that nearly $156 billion worth of one particular type of ARM (so-called option ARMs) will face payment resets between 2008 and the second quarter of 2012. If home prices fall by 6% or more in both 2008 and 2009, the borrowers in over $90 billion of these loans would owe as much as or more than the market value of their homes. With a growing number of borrowers already owing more than their houses are worth and, so, unable to refinance, foreclosure and delinquency rates have soared. By the third quarter of 2007, the percentage of home owners behind in their mortgage payments on all one- to four-unit residential loans already stood at a 19-year high, according to a Mortgage Bankers Association survey, and the percent of loans in the process of foreclosure was the highest ever.
As of October, home prices in the ten major metropolitan areas that make up the S&P/Case-Shiller home-price index were down a record 6.7% from a year earlier. In Las Vegas, Miami, San Diego, and Phoenix, cities whose housing markets were sizzling just a few years ago, housing prices have fallen even faster, dropping by 10% or more over the same period. Existing home sales were at their lowest rate on record, and down about one-third from their mid-2005 peak.
Not surprisingly, then, the supply of detached single-family homes listed for sale in October 2007 was at its highest (relative to the pace of sales) since 1985, according to the National Association of Realtors. A glut of unsold houses has in turn squashed housing starts, which hit a 16-year low in December.
How much more will housing prices drop and when will they hit bottom? While one real estate economist suggests that "parts of the housing market are scratching bottom right now," others think housing prices won't bottom out until 2009 or even 2010 and forecast prices at that point may be 12% lower than their peak levels. Summers points to one property derivatives market indicating that over the next several years, house prices could fall by as much as 25% from their previous peaks nationwide.
For anyone who doesn't believe that housing prices can fall for a long time, the recent history of the Japanese housing market suggests otherwise. So does the size of the U.S. housing bubble, which drove home prices up further and for longer than any period since 1890, according to Yale economist Robert Shiller's long-term U.S. house price index. Economic journalist Doug Henwood, publisher of the Left Business Observer, calculates that housing prices at their peak were 40% above Schiller's long-term trend line, and notes that a 20% to 25% drop in housing prices would be "in line with past experience."
During the bubble, housing prices rose far more quickly than income; the resulting imbalance is another reason to expect home prices to keep falling. From 2000 to 2006 nationwide housing prices jumped 74%, while median household income rose just 15% (before correcting for inflation). To restore a historically normal ratio of housing prices to incomes, average home prices would have to fall by more than 30% percent from their peak levels, according to Princeton economist Paul Krugman.
Consumers to the Rescue?
The bursting of the housing bubble will likely put more of a dent in consumer spending than the stock market collapse of 2001. The two bubbles are of comparable size. But historically, a $100 rise in housing wealth leads to about a $6 increase in long-run consumption, one and a half times the $4 gain from the same increase in stock wealth. Likewise, the current fall in housing wealth will likely translate into a sharper dropoff in consumer spending than would an equal-size fall in stock wealth.
And household consumption has been especially important in this decade's expansion. It now represents a record 72% of GDP, up from about 67% in the late 1990s. So you can expect a collapse of consumer spending to trigger a deeper recession than the 2001 downturn set off by the dot-com bust and a collapse in business capital spending, which at the time accounted for only 13% of GDP. In November, a report by the forecasting firm Global Insight for the U.S. Conference of Mayors predicted that "the deepening housing crisis will cut economic growth by more than 25 percent in 143 U.S. metropolitan areas by next year."
Meanwhile, as house prices fall and unemployment rises, defaults on consumer loans and credit cards, which put a sizeable dent in even American Express's earnings last year, will spike in 2008. And since consumer debt is chopped up, bundled, and resold much like mortgages are, bad consumer debt will add to the fragility of the financial system as far-flung creditors take further losses.
While more and more business economists now foresee recession in 2008, many remain convinced the U.S. economy will get through the year without lapsing into a recession. Most of the optimists are betting that foreign economies will provide enough stimulus to keep the U.S. economy out of recession. Recent Fed interest-rate cuts have reduced the value of the dollar, which in turn lowers the price of U.S. products to foreign consumers. This should spur U.S. export growth and buoy the economy. Indeed, in a recent note Morgan Stanley economists told their clients that their "meager" growth forecast for 2008 would be negative if not for export growth.
Perhaps the fast-growing emerging economies in the developing world offer some hope. In 2007 emerging economies contributed half of the globe's GDP growth measured at market exchange rates, over three times as much as the United States' did. In addition, emerging markets, which buy more than half of U.S. exports, continue to grow, some at an accelerating pace, even as industrialized economies cool. "This time," The Economist proposed in November, "they could be the rescuers."
"Don't count on it," says economist Stephen Roach, chairman of Morgan Stanley Asia. "American consumers spent close to $9.5 trillion over the last year. Chinese consumers spent around $1 trillion and Indians spent $650 billion. It is almost mathematically impossible for China and India to offset a pullback in American consumption."
False Savior
All eyes are now on the Fed as it tries to prevent the housing slump from dragging down the broader economy by cutting interest rates and pumping liquidity into the system—as it has following other financial crises. The Fed has cut interest rates repeatedly since the middle of last year and two times in January alone, including an extraordinary three-quarters of a percentage point cut to prop up the teetering stock market.
But because the current problem is not liquidity but solvency, the Fed's actions will likely be ineffective this time around. Injecting money into the economy won't solve today's credit problem because banks are reluctant to lend, even to other banks, when they don't know how much of the economy's bad mortgage debt any borrower may be holding. So when the Fed adds liquidity to the system, banks either hoard the money or, like everyone else, buy safe Treasury bills. With few willing buy to other bonds, long-term interest rates, or the yields on those bonds, have not dropped, despite repeated liquidity injections by the Fed. For instance, the interbank lending rate is still well above the rates on much safer government bond yields of similar maturity.
Economist and American Prospect editor Robert Kuttner likens the situation to "[t]he financial system holding a $400,000 mortgage on a $300,000 house. Lower interest rates can't fix that problem nor give people the confidence to lend."
The ability of the Fed to pull the U.S. economy's fat out of this fire is constrained in other ways as well. At the end of last year, higher energy costs and imports made more expensive by the declining value of the dollar pushed up consumer prices. The pick-up in inflation will make the Fed reluctant to cut interest rates further.
So too will the massive U.S. current account deficit. Each year the United States finances the huge gap between its imports and exports by enticing Asian and other foreign investors to buy dollar-denominated assets such as government bonds and corporate stocks and bonds. When the Fed cuts interest rates, that lowers the rate of return on U.S. assets and makes them less attractive to foreign investors—especially as the U.S. economy falters. Should purchases of U.S. securities by foreign investors slow dramatically, then the dollar would crash, stock values would plummet, and a far more severe economic downturn would surely follow.
The "D" Word
With the sharp tightening of credit brought on by the bursting of the housing bubble, and with the Fed's ability to affect the picture highly limited, chilling comparisons between today's rocky economy and the 1920s economy prior to the onset of the Great Depression are now commonplace. No one has beaten that drum louder than Kuttner. "Future historians are likely to look back on the final year of the Bush administration as a moment not unlike 1930, when government dithered while a financial crisis deepened," he warns.
The comparison is an apt one. Reckless private borrowing and gaping inequality defined both periods. What's more, in both periods a borrowing binge pushed up asset prices, first stock prices and then housing prices in the current period, to historically unprecedented levels compared to economic growth and incomes, saddling the economy with unsustainable levels of debt.
At some point that mounting debt will cut the economy down to size, perhaps in a sudden debt deflation similar to the Great Depression, in which the value of most assets, not just housing, sinks below the value of the debt on those assets. More likely the post-stock market crash, post-housing bubble U.S. economy will sink into a lengthy period of economic malaise that looks as dismal as the economic prospects that most working people have already faced over the last decade.
It doesn't have to be that way. But much will have to be done to rescue today's economy from its free-market excesses and to improve the life chances of those who have suffered as a few have enriched themselves. Spending and tax relief targeted at the most hard-pressed, who can be counted on to spend any extra money they get and immediately boost consumption, is not a bad place to start. Other good, quick stimulus measures include expanding unemployment insurance, cutting payroll taxes for families of modest incomes, getting funds to cash-strapped state governments so they can continue to deliver services, and providing mortgage relief for low-income homeowners. But the economic stimulus package the Bush administration and the Democratic leadership of the House recently agreed on does not cover even this modest agenda: it fails to extend unemployment insurance or funnel monies to state governments, and it wastes one-third of its $150 billion price tag on accelerated-depreciation tax breaks for business that have no track record of inducing new investment, especially in a timely way. And whatever the specifics, a $150 billion package is far too small to change to the direction of the $14 trillion U.S. economy.
Massive social investment and fundamental financial reform are needed to put the bubble economy out of business and to create a housing market that serves the needs of most people, not speculators. Back in December, former democratic presidential candidate John Edwards proposed a progressive stimulus package that would also address some of the country's long-term environmental and energy needs. The Edwards plan would build a clean energy infrastructure, provide relief to states, expand unemployment insurance, and help families facing foreclosures. Nobel Prize-winning economist and mainstream rebel Joseph Stiglitz proposes some additional worthy projects: more federal support for state education budgets, tax breaks and spending to lower emissions. While it would take a while to get those programs in place, Stiglitz warns that this downturn is likely to last longer than other recent downturns.
Until those measures and many more are undertaken, the macroeconomy will lurch from bubble to bubble, while most people endure unrelenting economic hardship that intensifies when in an economic downturn but persists even when the economy grows.
John Miller is a professor of economics at Wheaton College and a member of the D&S collective.

Proposed Stimulus Package is Not Enough

By Mark Weisbrot
As the economy shifts into reverse gear and the Congress and President work out the details of a proposed fiscal stimulus, some are asking whether it will be enough to keep the economy out of a recession. The answer is very likely no.The timing, length, and depth of a recession depends on many variables and is therefore difficult to predict. But there are certain things that we already know. First, we are witnessing the bursting of an unprecedented bubble in house prices. Nationally, a loss of wealth of about $8 trillion would be necessary just to bring these prices back to their normal long-term trend. Even conservative estimates of the effect of such a drop imply a decline in consumer spending of $400 billion, or about 3 percent of GDP. Some economists think it would be much more than that, because of the expansion in recent years of consumers borrowing against the (previously rising) value of their homes.We also have the first official GDP growth numbers for the last quarter, which shows the economy at a near standstill with just 0.6 percent annualized growth. Consumer spending, which accounts for about 70 percent of the economy, has been holding up; but this cannot last as the price of homes that people have been borrowing against continues to fall.The size of the proposed stimulus, which is about $150 billion, is just not large enough to compensate for the kind of spending declines that we can expect. Near the peak of the housing bubble in 2005, homeowners were cashing out about $780 billion in home equity at an annual rate. Although not all of this was used for consumption, a lot of it was; this "ATM machine" has now run out of cash.It is worth looking at the total fiscal stimulus provided by the federal government when the last huge asset bubble - in the stock market - burst. The federal budget went from a surplus of 2.4 percent of GDP in 2000, to a deficit of 3.5 percent of GDP in 2003. This is about 6 times the size of the proposed stimulus package, although the federal government will automatically provide at least some more stimulus than the current package, as tax revenues fall and some social spending rises.Based on the experience of the last three recessions, the Center for Economic and Policy Research has estimated that the next recession could increase unemployment by 3.2 to 5.8 million people, and poverty by 4.7 to 10.4 million, with at least 4.2 million also losing health insurance. The range depends on whether it is a mild-to-moderate recession like the last two (2001 and 1990-91) or more severe as in 1980-82.Given the magnitude of the risks and economic pain that our economy is facing, it is imperative to demand measures that will soften the blow - especially for the most vulnerable, including the elderly, unemployed, and poor. The package that passes Congress, despite some positive additions by the Senate, will be especially inadequate in this regard.Out of the Great Depression came the New Deal, which included Social Security, the legal right to organize unions, unemployment compensation and other reforms that transformed the United States into a more just society while setting the stage for the post-World-War II boom. Over the last 30 years, the country has become vastly more unequal and economic performance has also deteriorated with the ascendancy of the right. We are not facing a depression, but the hard times ahead will highlight the need for structural changes such as universal health care and labor law reform. These and other major reforms - including a bigger and "green" fiscal stimulus that would reduce carbon emissions -- should be pushed to the top of the political agenda.

Mark Weisbrot is Co-Director of the Center for Economic and Policy Research, in Washington, D.C. (www.cepr.net).

Global Finance and the Insanity Defense

Bankers Gone Bonkers
By PAM MARTENS
With Wall Street capital disappearing as fast as foreclosures are climbing, one foreign head of state had an epiphany. French President Nicholas Sarkozy advanced the idea recently that the global financial system is "out of its mind."
To develop this theory further, I've reconstructed below some of the mileposts on our journey to this financial loony bin.
Exhibit One: Commit-a-Felony-Get-a-Bonus Contract.
Back in 2002, Mark Belnick, who had previously been one of the legal go-to guys for Wall Street as a rising star at corporate law firm Paul,Weiss, Rifkind, Wharton & Garrison, found himself transplanted as General Counsel at fraud-infested Tyco International. Mr. Belnick inked a retention agreement for himself and it was duly filed without fanfare at the top corporate cop's web site, the Securities and Exchange Commission (SEC). The agreement guaranteed Mr. Belnick a payment of at least $10.6 million should he commit a felony and be fired before October 2003.
Very prescient fellow, Mr. Belnick was indeed charged with a few felonies like grand larceny and securities fraud by the Manhattan District Attorney's office. Mr. Belnick was acquitted of those charges and the SEC let him off the hook for aiding and abetting federal violations of securities laws with a $100,000 penalty payment and a prohibition against serving as an officer or director of a public company for five years. Mr. Belnick agreed to the SEC settlement without admitting or denying the charges. Mr. Belnick did not lose his law license and continues to practice law.
While Mr. Belnick was drafting his "felony bonus" agreement with Tyco, he was also teaching a law course at Cornell on ethics. Today, his agreement is available at the FindLaw.com web site as a "sample business contract," raising the suspicion that we as a society have become desensitized to financial insanity.
Exhibit Two: Supreme Insanity.
On December 7, 2006, Wall Street was elated to learn that the U.S. Supreme Court had agreed to hear its case requesting that a no-law zone be drawn around its financial borders for acts of collusion and commercial bribery, such as those so well documented in the issuance of new stock offerings during the tech/dotcom bubble. Calling the matter an alleged "epic Wall Street conspiracy," the U.S Federal Court of Appeals for the Second Circuit had earlier turned down Wall Street for its requested grant of immunity.
The Wall Street firms and their legions of lawyers appealed to the Supreme Court, arguing that the SEC (which, by the way, has no criminal powers) should have sole authority to regulate it and, therefore, it should be immune from other U.S. laws governing collusion and commercial bribery. (Credit Suisse First Boston Ltd. v. Billings.)
On June 18, 2007, the Supreme Court issued its opinion giving Wall Street everything it wanted, concluding that the SEC was doing a good job. The Court wrote: "...there is here no question of the existence of appropriate regulatory authority, nor is there doubt as to whether the regulators have exercised that authority."
The sweeping ignorance of that statement is breathtaking. Whether it was Wall Street firms price fixing on NASDAQ for decades or the orchestrated rigging of the market for new stock issues in the late 90s or the current institutionalized system of credit fraud, the SEC always has its lens fogged until some college professors or investigative reporters publish a step by step playbook, disseminate it widely, and force the SEC to take action to save face.
Worse yet, when the SEC finally does take action, it imposes fines of millions for stealing billions, making crime one of the most productive profit centers on Wall Street.
This 2007 decision from the Supreme Court comes exactly 20 years and 10 days after the 1987 Supreme Court decision in Shearson/American Express Inc. v. McMahon. Under this ruling, Wall Street has been able to run a private justice system called mandatory arbitration to hear the cases of the investors or employees it defrauds (with the exception of class actions). The instruction manual for this private justice system explains that adherence to the law is not required; arbitration panel members, many on Wall Street's payroll, can just go with their gut.
In other words, the highest court in our land is telling Americans that the reward for serial lawlessness is immunity from the law.
Exhibit Three: Banks' Secret Profit Center: Your Death.
Few Americans are aware that for at least 16 years big business and banks have been secretly taking out millions of life insurance policies on their rank and file workers and naming the corporation the beneficiary of the death benefit without the knowledge of the worker. The individual policies are frequently in the hundreds of thousands of dollars. If the employee leaves the company, no problem; big business is still allowed to collect the death benefit and they track the employee through the Social Security Administration to keep tabs on when they die. These policies are commonly known as "dead peasant" or "janitor" policies because they insure low-wage earners including janitors. Some of the largest corporations in America have been boosting their income statements by including cash buildup in the policies as well as receiving the death benefit tax free.
In 2003, the General Accountability Office (GAO) released a study with the startling findings that companies were taking out multiple policies on the same individual and that 3,209 banks and thrifts had current cash values in these policies totaling $56.3 Billion.
But instead of a congressional revolt against this revolting practice, it remained in place for at least 16 years after Congress first learned about it. Then along comes the worker-friendly sounding Pension Protection Act of 2006 submitted by our Congress and signed by the President. Buried deep within this massive document was the grandfathering of the millions of previously issued policies with a little tinkering at the edges of tax and reporting issues on newly issued policies.
Exhibit Four: They Keep the Money; You Get the Slogan.
Around the time the stock market was in the process of losing $7 trillion of investor wealth in ill-conceived techs, dotcoms and telecoms, aided and abetted by Citigroup and its Wall Street cronies, I was driving on Charles Lindbergh Blvd. in Uniondale, Long Island when a bizarre billboard caught my eye. The giant billboard read:
He who dies with the most toys is still dead.Live Richly.
(Citigroup logo: "Citi" and angelic red halo.)
I had never worked on Madison Avenue but I knew a lot of ad folks and I was pretty sure advertisements typically involved children, pets or other warm and fuzzy things. Citigroup telling me to ponder my own death seemed, well, "out of its mind."
I knew there had to be more behind this campaign. According to Citigroup's web site, the "Live Richly" campaign was meant to communicate "that Citi is an advocate for a healthy approach to money. Citi is an active partner in achieving perspective, balance, and peace of mind in finances and in life for its customers."
The ad agency was Fallon Worldwide and it clearly had Citigroup confused with a social responsibility fund, not the firm that named its trades after its real motives like the "Dr. Evil" trade that disrupted the European bond markets or the "Black Hole" mechanism associated with the bankrupting of Italian dairy giant, Parmalat.
Here's a sampling of the insanity taking place inside Citigroup as they spent millions extolling the public to evolve as better human beings and, more subtly, pay no mind to the $7 trillion of investor wealth that's evaporating behind our curtain of kindness.
Citigroup slogan: People with fat wallets are not necessarily more jolly.
Citigroup reality: Sandy Weill, Citigroup's CEO, earned "$785 million in total compensation over five years: more than any chief executive in America, and by a wide margin." Dan Ackman, Forbes, April 26, 2001.
Citigroup slogan: Holding shares shouldn't be your only form of affection.Citigroup reality: "A recently unearthed 'highly confidential' Citigroup memo openly discussed the 'pressures' keeping research analysts from providing investors with honest research. In the 2002 memo, John Hoffman, then global research chief for Citi's Salomon Smith Barney division, advised Salomon Smith Barney CEO Michael Carpenter of the internal view that 'implementation and enforcement of clearer and more accurate ratings is in conflict with certain paramount goals of our firm'-namely, maximizing underwriting fees." Peter Elkind, Fortune, November 23, 2005
The memo was obtained as a Florida law firm attempted to get restitution for what Salomon Smith Barney clients were increasingly holding: worthless shares.Cumulatively, all of these examples suggest that a strong argument could be made that unfettered greed finds its ultimate expression in systemic corruption which is frequently indistinguishable from insanity.
Please note just how much of this insanity can be placed at the doorstep of self-regulation.
Pam Martens worked on Wall Street for 21 years; she has no securities position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire. She can be reached at pamk741@aol.com