From Volume 5, Issue Number 8 of EIR Online, Published Published Feb. 21, 2006

U.S. Economic/Financial News

Wall Street Journal: Let Them Eat Hedge Funds!

The Wall Street Journal has weighed in on behalf of the vulture hedge funds against any government effort to rebuild Louisiana or aid victims of the hurricane. The Journal's lead editorial Feb. 13 denounces the government recovery program for Katrina reconstruction—not because of the reports now emerging showing the failure of the effort, but because the Journal's editors want to let the hedge funds run it! They criticize a plan calling for a Louisiana Recovery Corporation, a $30-billion plan proposed by Rep. Richard Baker, a Republican from Baton Rouge, for the Federal government to buy 200,000 destroyed properties, pay the owners 60% of pre-Katrina value, then reconstruct and sell the properties. The Journal complains that this would "deter private investors from going in and buying up properties, and thus creating a market floor." I.e., let the suckers fix New Orleans.

Labor Recycling Scheme Afoot at Delphi

A cruel scheme to turn Delphi plants into low-wage shops is being negotiated among General Motors, Delphi, and the United Auto Workers union (UAW). The plan was leaked to the Detroit Free Press Feb. 13 by a local union president who heard it from Richard Shoemaker, the UAW's vice president for Delphi, at a Washington, D.C. conference. The scheme is this: 45,000 GM hourly workers (out of 110,000) become eligible for retirement by 2010. If GM buys a large portion of them out with a $100,000 bonus for early retirement, some of the 23,000 UAW-organized production workers at Delphi can rotate back to GM. Delphi would then hire replacements and become entirely a $10-12/hour employer.

At the same time, the big auto parts manufacturer Dura Automotive Systems announced it will close half of its plants in North America by next year, losing or relocating overseas 2,000 jobs. In all, the company plans to close or sell off as many as ten plants worldwide. It's trying to sell off its German plants (Lage, Lippstadt, and Rotenburg). But it will expand production in Mexico and in Eastern Europe. Official Larry Denton complained of doubled steel costs since 2001; essentially trading wages for steel.

Meanwhile, union sources tell EIR that the UAW is sanctioning plans for a mass march on GM headquarters in Lansing, Mich. in the spring. Mobilization meetings are starting to be announced. The sources also report that some UAW reps are using Lyndon LaRouche's auto retooling proposal in their "Marshall Plan" meetings with Congress, and sparking good discussions with it.

Court Okays Multimillion-Dollar Payoff for Delphi Execs

U.S. Bankruptcy Judge Robert Drain ruled Feb. 11 that the $38 million in special bonuses to the Delphi executives who destroyed the company is "an appropriate form of compensation," while the hourly workforce loses wages, health care, and pensions, according to the Detroit Free Press.

Meanwhile, at Visteon, the other major auto parts company, executives are enjoying the same huge increases in bonuses, pay raises, and incentive pay, despite the fact that the company continues to lose money, and has called on the unions to slash their wages and benefits. Bonuses could reach $20.3 million to the CEO, $16.2 million to the vice chairman, and $12.5 million to the CFO.

Housing Bubble Losing Air

House prices rose more slowly in the fourth quarter, compared to the previous quarter, even as the number of metropolitan areas with double-digit price gains hit a record, Reuters reported Feb. 15. The National Association of Realtors said the national median home price for an existing single-family house rose 13.6%, compared to a rise of 14.7% in the third quarter. Six metro areas—in the Midwest, hit by the auto industry shutdown—reported price declines on existing homes.

In another indication that the boom is over, applications for loans to purchase homes dropped 7.9% last week to their lowest level in over two years, the Mortgage Bankers Association said.

Wall Street Fears 'Financial Debacle' from Derivatives

The Feb. 16 reported, "Fourteen of Wall Street's biggest banks told Federal regulators today they met a January goal of reducing unconfirmed trades in the $12.4 trillion credit derivatives market, easing concern that sloppy bookkeeping may set off a financial debacle." While sloppy bookkeeping may be a concern, the real issue frightening the banks is the great instability of the highly leveraged credit derivatives market itself. The volume of credit derivatives has doubled in the past five years. The 14 Wall Street banks met Feb. 16 at the offices of the New York Federal Reserve Bank.

BearingPoint Report: 'Credit Derivatives in Crisis'

The consulting firm BearingPoint issued a report titled "Credit Derivatives in Crisis," PR Newswire reported Feb. 15. A manager with BearingPoint, Robert Benedetto, warned, "[T]he overstressed credit derivatives market infrastructure has created the potential for a financial disaster if an event triggers a significant strain, such as a major U.S. company filing for bankruptcy."

Hedge Funds Under Scrutiny

Hedge funds are under scrutiny from regulators for using borrowed shares to influence takeover votes and reap gains. The funds borrowed an unusually large amount of shares in Hong Kong-listed Henderson Investment just days before a proposed takeover was surprisingly blocked by shareholders, triggering sharp falls in the stock, the Financial Times reported Feb. 15. At least some of the votes against the proposal could have come from shares borrowed by hedge funds, which stood to profit by "shorting" the stock.

U.S. regulators are considering whether the practice violates market rules; while Hong Kong's Securities and Futures Commission has said it was looking into the issue of borrowed shares—previously unknown in Asia.

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