From Volume 6, Issue 41 of EIR Online, Published Oct. 9, 2007

U.S. Economic/Financial News

Second U.S. Bank Failure in One Week

Oct. 5 (EIRNS)—Less than a week after the failure of NetBank, Federal regulators announced the closure of a second bank, Miami Valley Bank of Ohio, with $86.7 million in assets. The bank's uninsured deposits, those in excess of $100,000 per depositor, amount to $14 million. These deposits will only be made good to the extent that the Federal Deposit Insurance Corp. (FDIC) can sell Miami Valley Bank assets to cover them.

Miami Valley was a very small bank specializing in residential mortgage lending, reports Its non-performing assets were about 3% of total assets on Dec. 31, 2006, but rose to about 13% by the end of March 2007. It lost $6 million in the first quarter and another $5 million in the second quarter.

U.S. Financial Sector Has Lost 130,000 So Far This Year

Oct. 5 (EIRNS)—The U.S. financial sector cut 130,000 jobs in the first nine months of 2007, according to a study released today by Challenger, Gray and Christmas. And CNBC forecast yesterday that Merrill Lynch will soon report big third-quarter losses, and cut 15% of the jobs in its fixed-income division. Last week, the number of new claims for unemployment benefits jumped by 16,000, up to 317,000, the biggest rise in four months.

'Death Zone' Report: Housing Crisis Creating More Social Chaos in Baltimore

Oct. 4 (EIRNS)—Home foreclosures in Baltimore, Md. have doubled in the past few months, and reached 1,630 in the second quarter, alone. They are now reaching into places like Belair Edison, where homes are occupied by teachers, police officers, shop owners, and university workers.

In addition to the blight of empty homes, local government spending—which relies in part on a transfer tax, which is collected each time a house is sold—is contracting. The foreclosure epidemic is contributing to the ongoing breakdown of communities, where there is now a rapid increase in crime and drugs, crippling certain neighborhoods, as political activists have reported.

$1 Billion Shortfall in Florida Due to Housing Collapse

Oct. 3 (EIRNS)—The state of Florida is facing a $1 billion budget shortfall due to the collapse of the Greenspan real estate bubble. Cuts in social services, health care, and education, a tuition increase in state universities, and a variety of tax measures are on the table in a special session of the legislature which began today.

Mortgages: 'The Tsunami Hasn't Hit the Shore Yet'

Oct. 5 (EIRNS)—Merrill Lynch announced it will report a quarterly loss, after writing off $5 billion in mortgages, mortgage backed securities (MBS), and collateralized debt obligations (CDO). This compares with a UBS write-off of $3.4 billion, and Citibank of almost $6 billion, announced earlier this week.

Washington Mutual, the largest U.S. savings and loan, wrote off $1.39 billion. With more than 100 mortgage companies closed or sold off this year, Bloomberg quotes Mark Adelson, a mortgage consultant in New York City, saying that the trouble in mortgages has just begun. "The alarm is going off from the detector on the ocean floor, but the tsunami hasn't hit the shore yet."

The LBO market collapse is also rolling ahead: Barclays withdrew its bid for ABN Amro—leaving it to Royal Bank of Scotland and Bank Santander, whose joint bid of 70 billion euros, 93% of it in cash, may be a wee bit trickier to come up with than originally planned.

Finally, KKR claims it will begin selling loans to finance its $32 billion buyout of the Texas energy utility TXU next week, sources told Bloomberg. KKR says it sold $9.4 billion last week to cover a part of their First Data buyout, but still have $3 billion in loans and $9 billion in bonds to sell for that deal.

Merrill Lynch Top Executives Ordered To Walk the Plank

Oct. 4 (EIRNS)—After job cuts in September, and forecasts that the company will have to write down as much as $4 billion in assets, two top figures at Merrill Lynch have walked the plank. Osman Semercis, head of Merrill Lynch's fixed income, currencies, and commodities business, and Dale Lattanzio, head of the U.S. operations division, have left the company just ahead of their announcement of third-quarter results. One insider is quoted by the Daily Telegraph as saying they were "carrying the can for the problems at the investment bank." Indeed they are. According to Goldman Sachs, Merrill could have to write down fixed income assets by as much as $4 billion. Already in mid-September they announced job cuts at their First Franklin subprime mortgage unit.

All rights reserved © 2007 EIRNS