U.S. Economic/Financial News
Financial InsanityBank of Canada Praises Hedge Funds
The same week that the British Financial Services Authority issued its 103-page "discussion" document about the blowout risk of over-leveraged hedge-fund borrowings, bettings, and takeovers, a Nov. 10 conference in Toronto became the occasion for testimonials on the joys of hedge funds. David Longworth, deputy governor of the Bank of Canada, said they promote market liquidity. "It's useful to note that the largely positive influence of hedge funds stems from their sophistication, their size, the diversity of their objectives and strategies, and the instruments they use." Canada has at least a $30 billion hedge-fund pool, with a series of well-publicized scandals and losses. A parliamentary committee is investigating hedge funds.
Hertz To Go Public With $1 Billion IPO
Hertz Rent-a-Car will go public this month, in a rip-off IPO of $1 billion, according to schemes of the equity fund firms involved, ranking as one of the richest heists this year. In summer 2005, Clayton Dubillier & Rice Inc., Carlyle Group, and Merrill Lynch Global Private Equity bought up Hertz Global Holdings Corp. from Ford Motors, for a low-ball price. Then, within only eight months, in July, Hertz filed for a $1 billion initial public offering (IPO) of stock sale this fall. Out of this new debt, the equity funds expect to cream off a special dividend of $427 million to its private equity shareholders. The underwriters of the public auction, set for the week of Nov. 13, include Lehman Bros.now home to Felix-the-Fixer Rohatynand Goldman Sachs. The Justice Department is conducting an informal inquiry into the Hertz equity fund raiders, according to the Wall Street Journal. In recent weeks, DOJ letters have gone out to the three Hertz equity fund scavengers, and to Kohlberg Kravis Roberts, and Silver Lake Partners.
Fraud of Pre-Election Employment Reports Exposed
A New York-based analyst of Federal economic statistics told EIR Nov. 6 that the U.S. Bureau of Labor Statistics (BLS), over the past ten months, has been repeatedly altering the "seasonal adjustment factors" (SAF) it uses on the payroll jobs survey, enabling it to "publish just about any apparent result desired" in the monthly jobs and unemployment-rate report. "The political needs of the administration are great," the analyst said. "Republicans have had both the motive and the opportunity to manipulate the reports in their favor."
The obvious giveaway to the fraud, is the evident consideration that over a full year, from any month to the same month one year later, the growth or decline in jobs before seasonal adjustments, and after them, should be approximately the same. And historically, they always have been. But no longer. In 2006, the BLS, by constantly changing the SAFs, has added some 16% to the figures for new jobs over the year October 2005-October 2006about 300,000 "extra jobs"and has loaded more than half of these faked jobs into the final three jobs reports before the election. (It has also added additional fakery via the corporate death/birth or "virtual jobs" adjustment factor. In the October report, 73,000 of the 92,000 reported new payroll jobs were "virtual"i.e., assumed, not countedwhereas in October 2005, only 57,000 out of 163,000 jobs were "virtual.")
If the same SAFs had been used in recent months as one year ago, the job growth figures would have been 106,000 in August; 126,000 in September; and 60,000 in October; instead, they've been published as 231,000 for August; 148,000 for September; and 92,000 for October. This is 170,000 "extra" jobs in three months, created at will by SAF manipulation, not to mention the virtual jobs. "It's not against the law," he noted. "After the election, expect a dramatic swing back in the other direction, so the Fed doesn't have to raise interest rates." He noted these jobs reports are completely at odds with many other economic indications at the same time, all pointing straight down.
Pozen Says Forget Pensions Under New Law
Robert Pozen, last year's celebrity of President Bush's infamous Commission To Strengthen Social Security, and current chair of MFS Investment Management, now forecasts that defined-benefit pension plans are finishedthe new pension law, as well as new accounting regulations mandated by the Financial Accounting Standards Board, will finish them off. In 25 years, Pozen says, the average retiree will be able to receive only 25% of his or her retirement income from Social Security and pensions combined. Most will need "work in retirement," as well as private savings and 401(k)s, to live. Pozen spoke Nov. 6 at a financial event in Florida.
S.F. Fed Chief Notes 'Rising Inequality' Under Globalization
San Francisco Federal Reserve Bank president Janet Yellen told an audience at the University of California at Irvine Nov. 6, that more and more Americans are dissatisfied with the direction of the economy and are worried about the future for their children. Over the last 30 years, wage increases of 30% or more have all gone to the upper 10% of the population, and most of that was concentrated in the top 1%. In contrast, at the 50th percentile, real wages have increased by only 5 or 10%. Yellen calls this economic inequality and attributes the major cause to the increasing globalization of the industrial and labor markets. Besides wage decreases, there is the related instability of jobs, and the loss of health and pension benefits spreading to more highly educated people. "There are signs that rising inequality is intensifying resistance to globalization, impairing social cohesion, and could, ultimately, undermine American democracy.... Inequality has risen to the point that it seems to me worthwhile for the U.S. to seriously consider taking the risk of making our economy more rewarding for more of the people."
Yellen, though she blames globalization for these ills, does not side with a shift in policy toward protectionism or fair trade, and certainly not toward anything approaching the reorganization of the global financial-monetary system.