From Volume 6, Issue 38 of EIR Online, Published Sept. 18, 2007

U.S. Economic/Financial News

Record U.S. Heating-Oil Prices Reported

Sept. 13 (EIRNS)—The record run-up of the U.S. heating-oil price highlights the impact of hyperinflation on everyday essentials. On Sept. 12, October heating-oil futures hit the highest price ever on the New York Mercantile Exchange, soaring to $2.2224 a gallon, closing up 1.7% for the day at $2.2190, which is the historic record on the NYMEX since November 1978, when heating-oil futures were first launched there. At the same time, crude oil hit an all-time NYMEX record price, at $80.18 a barrel, then settled down on Sept. 13 to $79.75 at mid-morning.

Though objective particulars are offered as explanations for such rising prices, including the fact of "shallow" U.S. heating-oil stocks for Fall, and the prospect of maintenance downtime at refineries, the hyperinflation is in fact consistent with the lack of government intervention to deal with the breakdown of the financial system at large, and the many intensifying patterns associated with that, including speculation in fuels, agro-commodities, and gold, and the drop in the dollar. Meantime, base metals prices are staying relatively level, as industrial and construction demand falls, and certain computer-driven speculation has been knocked out with the demise of the hedge funds. Wheat prices rose above $9 a bushel—more than double that of a year ago, on the Chicago Board of Trade in overnight trading Sept. 12 (for December delivery).

On Sept. 12, the U.S. Department of Agriculture released its monthly "World Agriculture Supply and Demand Estimates," which reported that world wheat stocks are heading toward a 26-year low. The grain scarcity comes from decades of "global sourcing" for food, driving down infrastructure and agriculture stability, capped off by today's mania of diverting farm capacity to biofuels, not food. New announcements of food price hikes are coming out daily. U.S. mega-baker Sara Lee, and Jimmy Dean meat company said on Sept. 11 that they will continue to raise retail prices.

California Home Foreclosures Soar in August

Sept. 15 (EIRNS)—According to the August report by, a company tracking the foreclosure crisis in California, the county with the highest per-capita foreclosure rates for the month was Riverside County, where there was one foreclosure sale for every 1,514 persons. Over the month of August there were 9,477 properties sold at auction, with loan value of $3.86 billion, a 10.4% increase of the previous month. Of those, 95% went back to the lender. found that non-owner-occupied properties accounted for over 44% of the auctioned properties, with a value of $1.71 billion. These represent the growing numbers of speculators bailing out of their overpriced mortgages.

According to Sean O'Toole, CEO of, "Many blame subprime lending for our current real estate crisis, but rampant speculation, even by those with great credit, played a leading role. The subprime market took the first hit.... Now that nearly half of foreclosures represent non-owner occupied properties, it is clear that speculators are walking away too." Over 90% of all foreclosure sales in California were for homes purchased or refinanced in 2005 and 2006.

Big Banks Are Desperate To Unload LBO Debt

Sept. 14 (EIRNS)—The big banks are searching for ways to unload more than $350 billion of leveraged buyout (LBO) debt they have incurred in financing private equity deals. Unable to find buyers, the banks have begun parcelling it out in small doses, at small discounts to its nominal value.

According to the Wall Street Journal, the banks holding debt from KKR's $22 billion takeover of Britain's Alliance Boots have sold some $1.5 billion of the debt for 95 cents on the dollar of face value, and banks sold $1 billion of debt from Allison Transmission for 96 cents on the dollar.

The banks have pulled a similar maneuver by offering to sell $5 billion of the $24 billion in debt they are holding on KKR's takeover of First Data. The bank leading the financing group, Credit Suisse, not only offered the debt at 96 cents on the dollar, but also offered to lend the buyers some of the money to buy the debt! The Credit Suisse group also includes Citigroup, Deutsche Bank, HSBC, Lehman Brothers, Goldman Sachs, and Merrill Lynch.

These discounts bode ill for the sale of the rest of the LBO debt, which include the debts from the two biggest LBOs in private equity history: the $32 billion LBO of Texas electric utility TXU; and the $33 billion LBO of Canadian phone company BCE, both of which deals the banks agreed to before the bottom fell out of the market.

Possible Auto Strike vs. Big Three Health-Care Scheme

Sept. 14 (EIRNS)—The "Big Three" U.S. automakers fighting off bankruptcy threats are offering far less than expected to the United Auto Workers (UAW) to take over its members' health-care plans, raising the possibility of a national auto strike. The deadline for a contract settlement between the UAW and General Motors was extended today, to allow negotiations to continue. The automakers are now reportedly trying to use the contract talks to shed more than 30% of their total wage/retirement/health-care costs per worker.

Local strike preparations were only ordered by the national union on Sept. 13, according to union local sources cited by the Sept. 14 Detroit News, after "the talks took a turn for the worse" on the night of Sept. 12. The head of a Lansing, Mich. local representing GM workers said, "Apparently, from last night until this morning [Sept. 13], everything's changed." GM, after being designated the lead company for negotiations, has also been designated the "strike target" by the UAW—a phrase traditionally used by the union at the negotiations deadline, but one which President Ron Gettelfinger had said, in recent years, he would not use.

The critical problems relate directly to the debt desperation of the Big Three, especially Ford, and the unexpected difficulties of Chrysler's buyout by private equity fund Cerberus, because of the collapse of the leveraged-takeover junk bond market. When the UAW agreed in principle to take its members' and retirees' health plans off the companies' hands for a lump sum—a huge potential benefit cut—the companies responded by demanding an even bigger cut. Against $114 billion in long-term health-care liabilities for their employees, GM, Ford, and Cerberus/Chrysler had been thought to be offering a one-time "dowry" payment of only about $71 billion, with the UAW asking $80 billion. Now, the companies are offering only $63 billion, not much more than half of the health-care liabilities which the UAW would be assuming for them. In addition, they are refusing to "trade off" this big UAW concession, by dropping other demands for average union wage cuts and jobs cuts.

The union is getting "friendly advice" not only from the "analysts" and financial press, but also from the Lazard Frères bank which it has hired as consultants, that it must take the health plan deal because one or more of the "Big Three"—particularly, Ford—are likely to go bankrupt in the current financial crisis and leave health care unfunded entirely.

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