From Volume 6, Issue 20 of EIR Online, Published May 15, 2007

U.S. Economic/Financial News

Schwarzenegger To Kill High Speed Rail, Promote PPP Swindle

May 8 (EIRNS)—California Gov. Arnold Schwarzenegger, yet again, has proposed to kill the plan to lighten up California's highways by building a high-speed rail (HSR) corridor from San Diego to San Francisco. Wielding his budget axe, the Governator has called for slashing funds for the California High-Speed Rail Authority (Ca-HSR) which has coordinated the decade-long planning for a 700-mile HSR corridor. Arnie also seeks to indefinitely postpone the $9.95 billion rail bond initiative for public funding from the November 2008 ballot.

Schwarzenegger did this just as a delegation of California legislators was returning from a visit to France, where they witnessed the TGV's V150 record-breaking test speed of 357 mph in early April. The Associated Press quotes state Sen. Dean Florez saying that the governor "wants to quietly kill this—and not to go out and tell the people that high-speed rail isn't in the future."

In fact, Arnie lied, in an op-ed appearing in the May 7 Fresno Bee, that he wants high-speed rail, but he wants it the way former Lazard banker Felix Rohatyn wants such infrastructure built in the U.S.: "By using a public-private partnership approach," Arnie tells us. So despite Ca-HSR's readiness to proceed to begin engineering and rights-of-way acquisition and financial planning, he pulled the plug on the funding.

Home Price Declines Now at Depression-Era Levels

May 8 (EIRNS)—U.S. home price declines this year are going to be steeper than earlier forecast, according to a report by the National Association of Realtors. As posted on, the NAR reported that the 2007 median price for an existing home likely will drop 1%, to $219,800, from what it was a year before. The median price for new homes is also projected to fall slightly, which would be the first decline since 1991. Sales of previously owned homes—85% of the market—will "probably" total 6.29 million this year, they said, less than the 6.34 million they had previously reported. Their new projection is that new home sales will now fall to 864,000, below the previous month's forecast of 904,000.

According to an NAR spokesman, the U.S. median price for a previously owned home has not declined since the real estate trade group began keeping records in 1968, despite regional declines. The last time the national median declined probably was during the Great Depression of the 1930s.

$1 Trillion in Real Estates Losses Are 'Tip of the Iceberg'

May 7 (EIRNS)—Realty fund manager Kenneth Heebner has estimated to Bloomberg that losses in U.S. real estate bubble collapse "will approach $1 trillion—that dwarfs anything that has ever happened"—in a home price drop of up to 20%, market by market, during 2007. Heebner says hedge funds, not investment banks or brokerages, will take the bulk of those losses over a period of time, and this will create a massive pensions crisis because pension funds are the big-volume sucker-money pouring into hedge funds. Henry Liu in Asia Times just published essentially the same estimate.

Lyndon LaRouche has said that the true extent of losses is being hidden, such that no estimate being made, however high, can be considered an exaggeration.

Such figures are backed up by the fact that New Century Financial's loans and mortgage-backed securities are starting to sell off at 30 cents on the dollar; $170 million worth were bought by Ellington Management Group hedge fund for $51 million. The total mortgage-backed securities market has been estimated at $1.5 trillion.

Mortgage Lending Plummets

May 7 (EIRNS)—Total U.S. mortgage originations in first quarter 2007 were $490 billion, down 14% from the fourth quarter of 2006, and about 20% from first quarter of 2006, the Federal Reserve reported today. Subprime mortgage originations have fallen about 30% from 2007, and the Mortgage Bankers Association projects them at about $350 billion in 2007.

Within this large drop, the portion of all mortgages for purchase (as against refinancing) rose to about 55-45%, compared to 50-50 last year. This means that, despite all the government and Federal Reserve appeals for refinancing of unpayable mortgages at fixed rates, refinancing has still fallen, because home-price appreciation has reversed.

Lugar Proposes Destruction of the American Farmer

May 10 (EIRNS)—Sen. Richard Lugar (R-Ind.) and certain House Democrats called for a new Farm Law, the "Food and Risk Management for the 21st Century Act (FARM 21), which would drop subsidies for corn, wheat, rice, cotton, and soybeans, to "get in line" with more globalized trade. The initiative was announced this morning by Lugar, joined by Reps. Ron Kind (D-Wisc.), Jeff Flake (R-Ariz.), Joseph Crowley (D-N.Y.), and Dave Reichert (R-Wash.), at a Capitol Hill press conference. The draft bill will be introduced in a few days. Lugar's press release described the bill as one to "end the current market and trade distorting farm subsidy system and replace it with a new system of risk management accounts and insurance tools managed by farmers." In effect, agriculture by hedge fund methods.

In addition, Lugar is pushing the idiotic "carbon farming." He has signed up his own Indiana farm on the Chicago Climate Exchange, to sell annual carbon emissions allowances he proffers by using no-till methods, to enhance retention of CO2 in the soil. Lugar crassly promoted his FARM 21 bill, by saying that "savings" from paying out farm subsidies, would free up multi-billions of dollars for other purposes, including $3 billion for renewable energy, and $6 billion for nutrition programs for the needy.

Buffett Denounces Derivatives as 'Financial WMDs'

May 6 (EIRNS)—In an address to 27,000 people attending the annual shareholders meeting of his Berkshire Hathaway, Inc. holding company, in Omaha May 5, billionaire Warren Buffett went out of his way to warn that the "fool's game" of derivative and hedge-fund speculation was going to end in disaster, and called derivatives the financial equivalent of "weapons of mass destruction," according to the Wall Street Journal today.

Lyndon LaRouche noted that Buffett is just covering his butt, and trying to come out as the hero of the collapse.

"The introduction of derivatives has totally made any regulation of margin requirements a joke," said Buffett, as quoted in the Journal, referring to the U.S. government's rules limiting the amount of borrowed money an investor can apply to each trade. "I believe we may not know where exactly the danger begins and at what point it becomes a super danger. We don't know when it will end precisely, but ... at some point some very unpleasant things will happen in markets." Buffett added, "There is an electronic herd of people around the world managing an amazing amount of money. I think it's a fool's game."

Is That Toyota Forecasting an Auto Sales Collapse?

May 10 (EIRNS)—Toyota officials told Associated Press that the company expects its 2007 auto sales in North America to be no better than "flat"—equal to its 2006 sales. It seems Toyota's analysts foresee a deep general plunge in U.S. auto sales for the rest of this year, because while total U.S. sales by all makers have been down by nearly 4% already in the first four months of 2007, Toyota's have risen by nearly 8% in those four months. It will take a real collapse in overall sales for the remainder of 2007 to bring Toyota's sales down to zero growth for the year—and this is what Toyota apparently expects.

Luxury Homes Won't Sell; Next Stop, Ebay?

May 9 (EIRNS)—Weak sales and cancellations drove homebuilder Lennar Corp. to try an Internet auction of 14 new luxury homes in Indio, California, east of Palm Springs. The experiment proved a flop. Not one of 692 bids for 14 new luxury homes met the original minimum price that Lennar was seeking, according to today's Wall Street Journal.

Online auctions for homes have been on the rise nationwide, the Journal reports, but they are commonly held by desperate homeowners or banks unloading foreclosed properties, not for prime properties. Have they tried Ebay?

Inland Empire: Your Neighborhood is Next!

May 12 (EIRNS)—In the Inland Empire, an area east of the Los Angeles basin—ground zero for mortgage foreclosures—vultures are plentiful at the foreclosure auctions, looking to turn a profit from the misery of others. But, according to Reuters May 11, there's not much meat left on the bones, since most houses on the auction block already have a debt attached, which is more than the house is worth. According to Realty Trac, which tracks foreclosures for investors, one in 68 houses in the Inland Empire is in default or foreclosure, a rate surpassed only by Detroit and Las Vegas. Foreclosure rates quadrupled in the region from February 2006 to February 2007, while they increased by a mere (record-breaking) 12% nationwide, according to First American LoanPerformance, a research firm.

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