From Volume 4, Issue Number 34 of EIR Online, Published Aug. 23, 2005

U.S. Economic/Financial News

Wall Street Firms Probed for Hedge-Fund Shenanigans

The National Association of Securities Dealers is investigation Wall Street firms for the sale of hedge-fund products to retail investors, the Wall Street Journal reported Aug. 18. In a letter sent out in June to large brokerage firms such as Citigroup, Merrill Lynch, and UBS, the NASD is asking for details on sales of hedge-fund products to retail investors who may be blind to the real risks of this kind of investment. The NASD has been fairly aggressive over the years with respect to the way member firms sell hedge funds. In the past, the traditional level of investment into a hedge fund was a minimum of $100,000, but with brokerages selling hedge funds across their client base, now the minimum investment could be $10,000, and it is this smaller investor that the NASD is most concerned about.

Record Number New Cayman Island Hedge Funds

Despite an overall slowdown in the inflow of capital to hedge funds, the Cayman Islands saw a 13% increase in number of new hedge funds at the end of the first six months of this year, up from the record-setting second half of 2004, according to Business Wire Aug. 17. More than 80% of world's hedge funds are registered with Cayman Islands Monetary Authority, which reported that during the first half of 2005 the total number of registered funds grew from 5,932 to 6,527. [344ajt001]

Buyers Use Exotic Means To Purchase Homes

During the past 18 months, the median price of a home nationwide has jumped to $225,000, an increase of 20%, Casey Research reported Aug. 17. Since many people cannot afford to buy these homes using traditional financing methods, they are increasingly resorting to risky methods:

* During first four months in 2005, "investors" (i.e., speculators) accounted for 9.9% of new home mortgages, and another 7.2% of new home mortgages went for second homes, for a total of 17.1 %. The comparable rates for these two items in 2001, were 6.2% and 2.2%, respectively.

* During 2004, in California, an astounding 60% of homes were purchased with either "interest-only" or "negative amortization" mortgages.

* During the first half of 2005, nationwide, 48% of home-buyers used piggy-back mortgages (up sharply from 19% in 2001), in which the home purchaser takes out not one, but two mortgages.

Median Home Prices Rise 13.6%

The median price of homes rose in 149 U.S. metropolitan areas, according to the National Association of Realtors. "Sixty-seven of the 149 metropolitan areas surveyed by the NAR posted double-digit increases in median home prices from the second quarter of 2004 to the second quarter of 2005," USA Today said Aug. 16. The median price for a home in a city in the U.S. this year was $208,500, up 13.6% from last year. The Phoenix area, whose homes posted the largest gain, increased by 47%.

10 Million Live on Social Security Alone

Of the 48 million people who receive Social Security benefits, 22%, or 10.6 million, live only on their monthly check, according to the Social Security Administration. The average annual Social Security benefit is $11,460. Sixty-seven percent of those older than 65 get more than half of their income from Social Security; 80% of African-Americans, 76% of Hispanics, and 75% of unmarried women older than 65, get more than half of their income from Social Security.

So. Carolina Plan To Cut Medicaid Withdrawn Under Fire

Proponents of South Carolina's plan to radically cut back Medicaid, hailed as a national model, had to retreat in the face of overwhelming opposition, according to Aug. 18. State Health and Human Services Director Robbie Kerr told 30 members of the state legislature, that the state will submit a reworked plan to the Federal government in the face of determined opposition to the current proposal which would put the state's 850,000 Medicaid recipients on a capped "personal account" system. While Kerr did not provide details of the revised proposal, he did make it clear that provisions which would cut benefits to children—which have been a lightning rod for criticism—would be eliminated. Kerr continued to insist that he will press for reform of the state's Medicaid system, and is aiming at approval before the end of the year.

DOE: Northeast Blackout Caused by Deregulation

In a report to be released by the Department of Energy on Aug. 24, three experts on electric power systems conclude that it was the deregulation of the electric-power industry that caused the Aug. 14, 2003 blackout, leaving 50 million people in the Northeast in the dark. This is the first place, outside of LaRouche-affiliated publications, that this has been asserted.

The authors criticize the previous reports of the U.S./Canadian Task Force that investigated the blackout for dealing with the symptoms while ignoring the disease. The core issue, was an "almost fundamentalist reliance on markets to solve even the most scientifically complex problems." Emphasis on markets shifted the focus from reliability to short-term profits of companies like Enron, they say.

In another point often cited by LaRouche, the engineers note that "technical qualifications" don't count for much for "those holding management positions" in the industry or among government policy-makers today. Since the root cause—deregulation—hasn't been addressed, they conclude, the risk of a massive blackout is no lower today than it was two years ago. The new energy bill makes the situation worse. (The day after the bill repealed the Public Utility Holding Company Act, the General Accountability Office released a report saying it should be more strictly enforced!).

New Report: Public Hospitals an Endangered Species

The ongoing takedown of our nation's fragile health-care infrastructure was highlighted in a new report released by the State University of New York Downstate Medical Center. Closing of public hospitals in large metropolitan areas, which continue to care for the uninsured and more seriously ill patients, the report warned, has disproportionately hit the lower 80% of family-income brackets.

"Public hospitals may become an endangered species," warned Dennis Andrulis, Ph.D., lead study author. "Not only are public hospitals disappearing from inner cities across the country; they are disappearing from the suburbs as well."

Among the study's key findings:

* A staggering 27% of public hospitals were closed in major suburbs between 1996-2002, and 16% in major cities.

* Urban public hospitals provided less inpatient and emergency care in 2002 than in 1996.

* High poverty suburbs represented 44% of the total suburban population, but accounted for only 20% of total admissions, inpatient days, and outpatient and emergency visits in 2002. These suburbs exist disproportionately in California, Texas, and other areas in the South.

All rights reserved © 2005 EIRNS