From Volume 6, Issue 50 of EIR Online, Published Dec. 11, 2007

U.S. Economic/Financial News

U.S. Mortgage Delinquencies Flourish

Dec. 6 (EIRNS)—The Mortgage Bankers Association (MBA) released shocking figures today on the mortgage meltdown, which will worsen the dollar collapse and the banking crisis.

Hitting a 20-year high, 5.59% of all U.S. mortgages, prime and subprime, were more than 30 days delinquent at the end of the third quarter (in September), and foreclosures hit an all-time high for the second consecutive quarter.

The top 15 U.S. homebuilders have lost about $35 billion in market value this year, and the inventory of unsold houses has risen to almost an 11-month supply, the highest in 22 years.

Twenty percent of all subprime adjustable-rate mortgage (ARM) had late payments in the quarter, and an additional 10% were already in foreclosure, the MBA reported. Among prime, fixed-rate mortgage borrowers, 3.12% were at least 30 days delinquent, up from 2.73% in the second quarter.

Treasury Told To Pump Billions Into 'Super-Conduit' Scam

Dec. 5 (EIRNS)—Chip Mason, the CEO of Legg Mason, one of the world's largest money-management firms, told the Financial Times that the U.S. Treasury should invest $20 billion into Treasury Secretary Hank Paulson's Master Liquidity Enhancement Conduit (MLEC), or "super-conduit" scheme. The task of the MLEC would be to attempt to bail out the roughly $320 billion-in-assets Structured Investment Vehicles (SIVs), which were set up by the banks, and are now collapsing. The SIVs borrow cheap, short-term funds, and invest the monies into longer-term instruments that pay a higher rate of return. In imitation of the criminal Enron's practices, the banks hold the SIV vehicles "off-balance sheet."

EIR has warned that MLEC, which Paulson originally conceived as requiring $75-80 billion, to be provided entirely by the banks themselves, would not rely only on that money, but would ultimately request funds from the U.S. government, as part of a hyperinflationary bailout. Now, after three months during which the MLEC scheme has been dead-on-arrival, Mason has called for the U.S. Treasury to invest $20 billion into this insane scheme.

Mason, whose company manages more than $1 trillion in funds, told the Financial Times that the credit market crisis is the worst he has seen in 47 years. "It is a very unusual situation. I have not seen anything like this, where nothing is traded."

Out of the Frying Pan Into the Fire: One State's Saga in the Financial Collapse

Dec. 4 (EIRNS)—Just as Florida was resolving the issues that would allow it to reopen the frozen state investment pool of municipal funds, it was revealed that the entire state's finances are infected with the same virus, and could thereby suffer the same fate.

The state's Local Government Investment Pool has been frozen since Nov. 29, after it suffered a run on its funds, that cut the $27 billion pool almost in half to $14 billion. The run was triggered by the revelation that the pool had invested in Axon Finance, an SIV which Standard & Poors downgraded from "C" to "D" (below investment grade) rating last week, because of its exposure to the subprime mortgage market. Today, after a meeting of the supervisory State Board of Administration and a 16-member advisory panel representing the municipalities, it was decided to split the fund in two, to isolate the "toxic" segment, and thereby set the stage for its reopening. In this way, local governments could have access to funds, needed for payroll for teachers, police, and administrative services.

The plan was the brainchild of BlackRock, Inc., which had been hired as consultants by the state, after it instituted the freeze on the pool. BlackRock's solution, isolating more than $1.5 billion, over 10% of its remaining assets, has supposedly left a "clean" fund in which municipal leaders can once again have confidence. Just as this panic run on the bank was being resolved, it was announced that the Florida Retirement System, the state's pension fund, administered by the same State Board as the pool, has $1 billion (out of $138 billion) of its assets invested in the same Axon Financial, as well as other funds which were downgraded. In addition, Citizens Property Insurance Corp., which was set up by the state for hurricane relief about five years ago, has its feet in the same quicksand, and, according to Bloomberg News, so does the state's treasury, although they stopped buying SIV-tainted debt last month.

An article in today's Orlando Sentinel says that the great debate is no longer "whether" the downturn will affect the broader economy, but "how severe and long-lasting" it will be. "We are looking at a 50 to 60 percent work-force reduction for home builders," Steve O'Dowd, president of a local homebuilding company, told them. "That is moving through the whole supply chain that feeds the industry. That could have a massive affect on the economy."

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