From Volume 6, Issue 39 of EIR Online, Published Sept. 25, 2007

U.S. Economic/Financial News

Dollar Falls, as Gold Soars

Sept. 22 (EIRNS)—The New York Board of Trade's dollar index, comparing the U.S. currency against six primary peers, including the yen and the euro, touched 78.398, the lowest since September 1992, while the Fed's major trade-weighted dollar index dropped to 74.78 yesterday, the weakest since its inception in 1971. The dollar fell against 15 of the 16 most traded currencies, only gaining against the yen. The dollar fell a full 5% against the Australian dollar. Because of the "loonies" at the Fed, the Canadian dollar (also known as the "loonie," after the bird), reached parity with the dollar for the first time since the commodity boom of the 1970s.

The Daily Telegraph's Ambrose Evans-Pritchard writes that the price of gold can be expected to continue rising, as the Fed's rate cut creates fears of inflation. The gold price hit a 27-year high this week, at $737 an ounce. Evans-Pritchard writes, "Analysts say there is now 'clear blue sky' until reaching the all-time record of $850 in December 1980, when speculators drove it upwards in a parabolic rally at the end of the great inflation crisis." He quotes Greg Wilkins, CEO of Barrick Gold, saying, "I think it's a perfect storm, to be quite honest with you. What we have is inflation plus lower interest rates, and that's not something that we've seen before. I think that's going to be very bearish for the dollar."

Wilbur Ross Moves in for the Bailout Money

Sept. 22 (EIRNS)—Wilbur Ross, the private equity fund shark known for buying steel companies on the cheap, consolidating them at the cost of thousands of jobs, and then selling them for super profits, is now looking hungrily at the mortgage business, just as Federal Reserve-organized bailout funds are starting to pour in. According to today's New York Times, W.L. Ross & Co. is looking to buy the service unit of American Home Mortgage, which collects homeowners' mortgage payments, for $435 million.

American Home Mortgage is in bankruptcy because, like a few dozen other mortgage companies, it lost the support of the banks that financed its loans. Ross admitted that there is risk in moving into the mortgage business at this time, but "we are private equity investors so we have a very long-term business horizon."

Fairy-Tale Accounting Behind Lehman Losses

Sept. 19 (EIRNS)—Lehman Brothers' posting Sept. 18 of lower-than-expected losses was based in part on new fairy-tale bookkeeping regulations, which allowed the securities firm to book as profits the write-off in value of some of its debt, the Financial Times reports today.

The world's major securities firms are actually technically bankrupt, as a result of a massive John Law-style bubble in financial assets, of which the mortgage bubble is only the tip of the iceberg. But any expectations that the firms might try to make use of the downturn to write off significant chunks of their bad debt, were dashed by the two reports released so far. As admitting the truth would lead to market chaos, the policy appears to be to lie—and bring on the chaos anyway.

Today, Morgan Stanley, which was less exposed to the immediate crash in mortgages, reported larger losses in their presumably still-whitewashed earnings report. Morgan Stanley, the second-largest securities firm in the world, reported a 17% decline in third-quarter net income, which included over $1 billion in losses from hedge funds and write-offs of bad debt, according to MarketWatch.

With their fancy footwork, Lehman Brothers managed to overcome a 47% drop in revenue from fixed-income capital markets. Lehman claimed a net hit of $700 million from bad investments in the third quarter. The actual loss was much larger, but was offset by hedging and other factors, Lehman claimed. The firm's loss was reduced by "several hundred million dollars" by being allowed to treat a write off on the value of Lehman's own debt as a "profit."

Bear Stearns Third-Quarter Profits Down 61% From a Year Ago

Sept. 20 (EIRNS)—Investment bank Bear Stearns reported today that its third-quarter income had dropped 61% from the same period last year, its biggest profit decline since 1998. Revenue from sales and trading dropped by 88%. Bear Stearns closed two hedge funds because of mortgage-related losses, which the firm said caused $200 million of losses and expenses in the quarter. Bloomberg quoted an S&P analyst who is recommending "sell" on Bear shares, and who says Bear Stearns has the most exposure to fixed income and the least to international markets, noting their reliance on the mortgage market. A Citigroup analyst also quoted by Bloomberg notes that Bear may have to fund $8.8 billion of loan commitments to leveraged buyouts at a loss, because investors are reluctant to buy the debt.

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