U.S. Economic/Financial News
New Home Prices in Biggest Dive Ever
Nov. 30 (EIRNS)The U.S. Department of Commerce reported yesterday that the median price of a new single-family home is $217,800, 13% lower than one year ago. This was the biggest drop recorded since 1963, when the Department began to compute these prices. The second biggest was 8.5% in 1970. New home sales in October were up 1.7% from September, to a seasonally adjusted 728,000 homes per annum, which is 23.5% lower than a year earlier. New homes account for about 15% of all home sales.
Many Borrowers Were Duped Into Taking Subprime Loans
Nov. 27 (EIRNS)Sen. Charles Schumer (D-N.Y.) issued a report on Nov. 15, estimating that 50,000 subprime mortgage borrowers in New York may have actually been eligible for prime mortgages, "meaning that they may have been duped by brokers and lenders into taking less affordable loans."
The estimate of 50,000 is based on "recent estimates" by industry experts that one-third of all subprime borrowers may have been eligible for traditional mortgage options, "thereby avoiding the excessively high subprime interest rates, as well as the hassles of refinancing when the loan becomes unaffordable." It has been reported to earlier Congressional hearings, by lawyers familiar with the practice, that mortgage brokers being paid by homeowners to find them mortgages, in many cases were also being paid a fee by mortgage lenders, typically $2,000 for each additional percentage point of interest they could add to the mortgage loan. "Subprime" was the convenient way to designate "high-interest."
There are over 160,000 subprime mortgages in New York, with an estimated outstanding debt of $26 billion.
Collapse of Financial Bubble Leads to Layoffs
Dec. 1 (EIRNS)As the financial bubble has inflated over the last decade, creating trillions in "funny money" world wide, inevitably, those servicing this bubble in the financial institutions have come to make up a large portion of the U.S. workforce. In recent months, with the popping of that bubble and the resulting credit squeeze, many of these employees are being laid offand not just in the mortgage sector. As the trillions go up in smoke, the jobs which managed the now-worthless paper are going up in smoke as well, which will lead to more home loan defaults, more homelessness, more people with no medical insurance, and a greater burden on already overburdened local governments. Here is a roundup of recent layoff activity in the financial sector:
* Citigroup, one of the largest investment banks, is considering laying off a total of 45,000 workers this year, as it attempts to shore up damage from recent losses from subprime loans and securitized investment vehicles (SIVs). This includes the 17,000 workers it let go earlier this year. The layoffs would involve 18% of Citigroup's employees.
* Bank of America cut 3,000 jobs after its investment banking unit's profit fell by 93% in the third quarter. That is 11.5% of the bank's workforce.
Bear Stearns has increased its projected layoffs for the year from 900 to 1,50017% of its employees.
* Other companies announcing recent layoffs, according to Forbes.com, include UBS, planning 1,500 layoffs; Morgan Stanley with 600; Lehman Brothers with 2,450; and Merrill Lynch, considering letting go of 15% of its fixed-income section.
* According to Challenger Gray & Christmas, an outplacement firm, 42,404 financial jobs have been cut in New York City alone this year. The record was 51,854 in 2001, a record-breaking year for financial layoffs. Total national financial sector layoffs have climbed to 102,758 so far this year.
Florida Fund-Freeze Squeezes Schools
Dec. 1 (EIRNS)On Nov. 29, Florida's State Board of Administration halted withdrawals from the Florida Local Government Investment Pool, after spooked school districts and other investors began pulling billions of dollars from the fund. The spark for the stampede was rumors of downgraded investments which, on Nov. 9, caused Leon County to withdraw $60 million in one day, according to tallahassee.com. In the next 20 days, the withdrawals grew to $13 billion, shrinking the $27 billion fund to $14 billion by the end of the month.
While the freeze on withdrawals has halted the meltdown of the fund, it has created its own problems. The investment pool was used to a large degree as a short-term liquid investment tool for operational funds of school districts and local governments. The freeze has forced those who left their money in the fund to scramble for loans for payroll and other operating expenses, a double whammy for those who refused to cave into the fear-driven stampede.
Apparently, the Florida fund run has led to jitters in other funds throughout the nation, and there was a mini-run on a Montana fund called the Short Term Investment Pool this week, according to the Dec. 1 Wall Street Journal. One-tenth of its $2.5 billion in investments were withdrawn in a week. And this is likely not the end of it, as many funds, seeking higher yields in recent years, have taken on increasingly risky investments, such as the troubled SIVs.
Cowardice in Congress Is Killing American Cities
Nov. 29 (EIRNS)U.S. cities are finding it impossible to raise funds through municipal bond offerings. The once virtually guaranteed, safe, tax-free investment into muni-bonds, assuring cities that they could raise funds for schools and development projects at a low interest rate, are now in deep trouble because of the credit crunch brought on by the subprime mortgage fiasco. The monolinesinsurance firms like MBIA and Ambac which insure bondsare facing collapse, having nowhere near the capital base to cover the collapsing mortgage-backed bonds they insured.
Miami, Chicago, and Washington, D.C. have all been forced to pull bond offerings off the market, since their insurers are no longer trusted, driving up the interest rates they must pay.
Lyndon LaRouche, briefed on this crisis in the cities, placed the blame squarely on Congress, for refusing to solve the problem by protecting homeowners and banks through his proposed Homeowners and Bank Protection Act (HBPA). While the Congress complains, entire communities and cities are collapsing.