U.S. Economic/Financial News
Internet Bank FailureLargest Since 1990s S&L Crisis
Sept. 29 (EIRNS)According to a press release by the U.S. Federal Deposit Insurance Corporation (FDIC) on Sept. 28, NetBank, a pioneer of Internet-based banking with $2.5 billion in "assets," has been taken into receivership by the FDIC. The FDIC emphasizes that "no advance notice is given to the public when a financial institution is closed." The bank's website has been closed to transactions until Sept. 30. This is the largest bank closing in the United States since the savings and loan crisis of the early 1990s, according to the Sept. 29 Financial Times.
The FDIC announced that ING DIRECT (subsidiary of Dutch financial giant ING GROEP) has assumed the insured $1.5 billion in deposit accounts of the failed bank for a 1% premium. ING also bought $724 million of assets. "This is all about confidence in the market," according to smooth-talking Arkadi Kuhlmann, CEO of ING DIRECT, as quoted in the Financial Times. "Since we are the largest direct bank, we were very pleased to assist and help out and hopefully take on these customers who will continue to do business on the internet."
NetBank "had significant problems with respect to loan underwriting, poor documentation, and a high amount of early payment defaults," according to a spokesman for the Office of Thrift Supervision (OTS), which closed the bank on Sept. 28.
This whole operation appears to have been preemptive in nature, to avoid a nasty run on the virtual bank, should depositors have caught wind of its precarious financial conditions. ING stepped in within an hour of the bank closing, in a seamless transition of ownership. The OTS even admitted that the "institution continued to operate in excess of minimum capital standards," but that "high operating expenses combined with continuing losses were jeopardizing the institution's viability." A panic run on a U.S. bank, even one with only virtual doors to barricade, could bring down the whole financial house of cards.
Fed Lowers, Rates Rise
Sept. 28 (EIRNS)The Federal Reserve lowers the Federal Funds interest rate by a half a percent on Sept. 18, and what happens to mortgage rates? They rise. Freddie Mac reported on Sept. 27 that the average rate for 30-year fixed mortgages had risen for the second week in a row, to 6.42%, while the same thing happened to 15-year fixed-rate mortgages, which now average 6.06%.
This is exactly the kind of phenomenon which Lyndon LaRouche was pointing to when he warned, hours before Ben Bernanke's Federal Reserve lowered the Federal Funds rate, that the only thing stupider than raising interest rates, would be to lower them. Monetarist theory does not work at a time like this, LaRouche said. "The only thing that can be done is the firewall. There is only one answer: freeze the worthless paper."
Fannie Mae CEO Says the Housing Slump Will Continue
Sept. 27 (EIRNS)The Los Angeles Times reported today that homebuilder KB Homes reported a 32% drop in third-quarter revenue and warned that unsold inventory will continue to rise, driving prices lower. The Commerce Department said today that sales of new single single-family new homes fell 8.3% in August, to the slowest sales-rate in over seven years, Reuters reported. The median sales price dropped 8.3% to $225,700, the lowest since January 2005; that price represents a drop of 7.5% from a year ago, which Reuters says is the sharpest drop since December 1970. The National Association of Realtors earlier this week reported that there are a total of 4.58 million homes (new and existing) for sale, which represents a ten-month supply of homes at the current pace of sales. Meanwhile, Bloomberg reported that Fannie Mae CEO Daniel Mudd said in an interview, that the housing slump will last beyond 2008.
Food Prices Soar
Sept. 28 (EIRNS)On Sept. 7, in telling U.S. citizens and Congress that "you can't have your bank and your hedge fund, too," Lyndon LaRouche warned that "by the end of September, you won't have the United States, unless something is done about this crisis." The financier interests "are monetizing worthless paper, and using that to create hyperinflation in the market. And this hyperinflation is hungrier and hungrier for more rent and things like that. And those inflationary effects are accelerating the breakdown of the housing sector. So that in about 30 days more of this stuff, you are going to have a blow-out of the U.S. economy, comparable to what happened in Germany, going in the direction of what happened in Germany in the Fall of 1923. We're that close."
Remember the pictures of Germans going to the store with wheelbarrows full of money just to buy a single loaf of bread in October 1923? Well, in the United States, a pound loaf of whole wheat bread cost 24% more than a year ago in August, according to the Bureau of Labor Statistics (BLS). General Mills is shrinking the size of its cereal boxes, but holding unit prices the same; baker Sara Lee upped its prices across the board by 5% in September. Unless Congress builds those firewalls which LaRouche has proposed, this is only the beginning: The price of wheat hit a new record of $9.38 this morning, more than double what it cost last year, while oil hit a record high (over $81 a barrel) on London markets today, and, at over $83 a barrel, is heading back to last week's record of $84 on New York markets.
A gallon of whole milk cost 26% more this August than in August the year before, according to the BLS. Illinois corn and soy prices are 40% and 75% higher than last year, respectively, and Kansas wheat is up 70% or more, today's Wall Street Journal reports. Wholesale prices for chickens in the number-one U.S. poultry-producing state, Georgia, have hit a new record, 15% more than a year ago.
$100 Per Barrel Oil? No Problem, Says Wall Street Journal
Sept. 29 (EIRNS)The Wall Street Journal devoted space on its front page today to contemplating a U.S. economy under $100-per-barrel oil. For years everybody from George Shultz to Joe Stiglitz, and including the Journal, has been shrill about the need to free the nation from the probability of economic devastation caused by over-dependence on foreign oil, susceptible to price volatility. That was one of the big arguments by the neo-cons for "energy independence" and homegrown fuels. At one time, $80 a barrel oil was unthinkable. Now, as oil moves toward $90 per barrel, the Journal says, "hey, it won't be so bad."
The paper is peddling the insane idea that the U.S. can prosper under $100-a-barrel oil (We've done it so far, and we're almost there!) All that is required is that the increase must happen slowly, while inflation is otherwise held in check. And, the oil-producing nations must continue to cheerfully plow their profits back into U.S. investments.
The Journal cites the "Wal-Mart effect" for the miracle they foresee: "For every extra dollar taken from drivers' pockets at the pump in the form of higher prices in recent years, low-cost exporters from China and elsewhere have put roughly $1.50 back in the form of cheaper retail goods." Apparently, in an extreme case of the unseen hand guiding the markets, high oil prices are being converted into cheap goods at better than 100% efficiency.