From Volume 7, Issue 25 of EIR Online, Published June 17, 2008

U.S. Economic/Financial News

Lehman Brothers: The Next Bear Stearns?

June 9 (EIRNS)—Lehman Brothers Holdings, Inc., a leading candidate to become the Bear Stearns of the Quarter, has "pre-announced" its second-quarter loss of $2.8 billion, several times greater than what it was acknowledging only days before. Lehman wants the world to believe that all is well because it says it is selling stock to raise $6 billion to shore up its operation. William F. Tanona, an analyst at Goldman Sachs, said the loss, Lehman's first since 1994, is "far worse than anyone had anticipated."

Home Equity Loan Defaults Hitting Regional Banks

June 9 (EIRNS)—Defaults on home equity loans in the United States have tripled in the past six months. In recent decades, home equity loans have become a prime source of liquidity for strapped homeowners. In exchange for cash, at interest rates usually lower than credit cards, homeowners gamble that they will be able to meet the payments or lose their homes.

The London Financial Times plays up, on page 1 today, that the increased default rate (now 1.54%), is creating problems particularly for regional U.S. banks. Banks such as Huntington Bancshares, National City, and SunTrust have as much as 20% of their outstanding loans in home equity loans. Home equity loans and second mortgages increased 43% from end of 2004 to end of 2007, compared to 29% for all loans.

The Federal Deposit Insurance Corp. (FDIC) says that total outstanding home equity loans amount to $625 billion.

Home Foreclosures Soar; LaRouche's HBPA Needed Now!

June 13 (EIRNS)—RealtyTrac's latest home foreclosure report shows that the accelerating loss in American home "value" is causing a mass loss of homes. Not only is it brutally clear that Treasury Secretary Hank Paulson's HOPE Now Alliance scheme has been swept away by the foreclosure tsunami; it is the U.S. Congress's refusal to enact a freeze on mortgages and foreclosures—a key part of Lyndon LaRouche's proposed Homeowners and Bank Protection Act (HBPA)—which has turned the mortgage collapse into a self-feeding spiral of economic destruction.

Nearly 74,000 homes were repossessed in May, meaning that since last October, homes are being lost to banks at a rate of 700,000/year. Banks lending and servicing mortgages are holding more than 750,000 repossessed homes (1.5% of all homes which have, or had, mortgages outstanding). The pace of foreclosure actions by lenders and servicers is far higher, 3 million/year; so the repossession rate will keep rising.

Repossessed homes have come to dominate the home sales markets in the far West, upper Midwest, and parts of the Southeast, where the mortgage meltdown is worst. A study released June 12 by two Lehman Brothers economists (they should know!) estimates that 30% of all home sales in the United States in 2008 will be of foreclosed homes—and this alone will add -6% to the plunge in home prices, which has already reached -15% from the September 2006 peak.

The accelerating plunge in prices, reaching about 2%/month by the end of the first quarter, is in turn the main driver of more and more foreclosures, as households are trapped in homes worth increasingly less than the mortgage debt they owe on them, and have to get out.

"This is what you got when your Congressman did not support the HBPA," Lyndon LaRouche commented. "Barney Frank, take notice."

London Threatens 'Balls Clause' To Protect Oil Speculation

June 14 (EIRNS)—Today's Financial Times runs one of a number of shrewd commentaries by which the City of London's intelligence arms show that they are observing very intently, what the U.S. Congress might be doing against the London futures markets, where the price of oil is being speculated up to the sky.

Defend U.S. sovereignty and the U.S. economy from the oil-price wrecking ball? Congress is not going so far as that, the Financial Times reassures its readers—at least not yet. The newspaper analyzes quite accurately what the bill introduced yesterday by Sen. Dick Durbin (D-Ill.) would and wouldn't do. Though called the "Close the London Loophole Act," it would not, the daily reassures speculator banks and hedge funds, actually close the London Loophole at all.

Why not? Well, we in the City of London have the Balls Clause, says the Financial Times, enacted in 2006 on demand of the U.K. Treasury. (Not a word on what this powerful Clause is, nor on why it is so named.) These Senators know we have it, and they drafted their legislation to defer to it. Thus it's an election-year ploy! The United States will never extend its sovereignty to protect itself from speculation going on in London and all its offshore markets. We have the Balls Clause. They don't. End of analysis.

More potent than British Balls Clauses would be a U.S. Congress that seized on Lyndon LaRouche's policy, proposed to them since 2000, to trade oil in government-to-government long-term contracts with oil-producing nations. That would cut off the London-run spot market and futures markets, and thus cut the Clauses right off the London oil speculators.

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