From Volume 7, Issue 23 of EIR Online, Published June 3, 2008

U.S. Economic/Financial News

Greenspan: Financial Crises 'Of Necessity, Are Unanticipated'

May 27 (EIRNS)—For those with a healthy sense of irony, reading the financial press these days can be quite amusing, what with all the whining going on. The May 27 Wall Street Journal, for example, has the first of a three-part series on the final days of Bear Stearns, which relates how a "senior trader" demanded an explanation from the bank's president as to how the bank could have collapsed. We hate to be rude, but a senior trader in a bank with a checkered history of selling worthless crap to its clients, should have more of a clue. It's sort of like the guy who starts forest fires demanding to know how his house burned down. Maybe what Bear Stearns really died of, is stupidity.

Then there's the King of the Bubble himself, Sir Alan Greenspan, who, as reported by the May 27 Financial Times, believes that although "there is a greater than 50 percent probability of a recession ... that probability has receded a little and I think the probability of a severe recession has come down markedly." Greenspan said it was "too soon to tell" if the worst of the financial crisis were over. If that weren't enough, Sir Alan warned that the central banks should not try to suppress bubbles lest they suppress innovation and growth, adding that "micro-meddling" merely undermines the financial system, since financial crises "of necessity are unanticipated."

Denial and stupidity often run together, and perhaps if Sir Alan were to pull his head out of his data long enough to take a good look at the state of the nation, he could see that we plunged from recession into depression a good while back, and our nation is going to Hell in a handbasket.

Home Prices Collapse Continues; LaRouche's HBPA Needed Now

May 27 (EIRNS)—Prices for homes sold in the month of March showed the national collapse of real estate values still accelerating. The Case-Shiller "20 city" index for prices of homes sold in March showed a drop of 14.4% compared to last year, with the top "10 city" index falling by 15.3%. Since the Case-Shiller Index peaked in July 2006, average home prices have dropped 17% for the 20 metro areas, and 19% for the biggest 10 metros. And the rate of loss of home "value," as of March, was over 2% per month. Housing economist Robert Shiller now forecasts that the bottom will be at least 30% down, likely more.

Suppose, then, that Congress were going to vote to use government-sponsored agencies Fannie Mae and Freddie Mac to insure the buying hundreds of thousands of failed 2006-08 mortgages from banks and lenders, at 85-90% of their peak value? That would be a giant bailout of those banks, would it not?—putting a convenient floor under their ongoing, worsening losses in mortgages and mortgage securities. And as those losses then continued faster and faster over the next year, the government would be absorbing them for the banks, by insuring new "85%" mortgages which will soon be in default.

That is exactly what Congress is about to do! The Barney Frank (House)-Chris Dodd (Senate) bill, largely drafted by the Financial Services Forum and Wall Street banks, is that giant bailout, and is supposedly ready to pass both houses of Congress. Its purpose is to block Lyndon LaRouche's proposed Homeowners and Bank Protection Act (HBPA), which would freeze mortgages and foreclosures for as long as it takes for home prices to drop all the way, while reorganizing the banking system.

The Case-Shiller report says that the price collapse in first quarter 2008 was "the highest in the series' 20-year history." During the worst of the 1990-91 housing collapse, the rate was a mere -2.8% annually—roughly the monthly drop now!

No surprise then that Wall Street's "Conference Board" reported a "greater than expected" collapse in their index of consumer confidence, led by the combination of collapsing home values, and rising fuel and food costs.

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