From Volume 7, Issue 38 of EIR Online, Published Sept. 9, 2008

U.S. Economic/Financial News

Now the Highway Trust Fund Needs a Bailout

Sept. 7 (EIRNS)—The Highway Trust Fund, which was a focus for public-private-partnership (PPP) treason by the Bush Transportation Department, is instead being exhausted and requires new Federal investment, unless the gasoline tax is raised.

The Trust Fund has been budgeted to generate $52 billion this year; not all of it to be used for highways—20% of this is committed to urban light rail/mass transport. Commitments to state and local governments have been made on this basis. But in September, the Trust Fund will take in only $2.7 billion, according to Transportation Secretary Mary Peters, because of reduced auto and truck transport in the economic collapse.

September reimbursement requirements are $4.4 billion, Peters said. She did not repeat the PPP proposal for letting private financial interests buy into the revenues from the Trust Fund. But, according to news wires, she said the Transportation Department would both reduce, and slow down, the payments to states.

Peters otherwise asked for an $8 billion Congressional allocation (only 1% of the "bazooka" bailout being pumped out through Fannie Mae and Freddie Mac). This has passed the House, but not even been taken up in Senate committee. The Surface Transportation Commission, which just delivered a report on the future of transportation funding, recommended that the 18 cent Federal gas tax be doubled, beginning with an immediate rise to 25 cents/gallon, or 6-8%.

Nearly 102,000 Foreclosures in August

Sept. 8 (EIRNS)—Nearly 102,000 U.S. homeowners lost their properties to foreclosure in August, up nearly 6% from July, and more than 80% from August 2007, according a report released Sept. 8.

So far this year, lenders have repossessed a record 656,545 properties nationwide—or 8.6 of every 1,000 households in the United States. They are expected to repossess more than one million nationwide by year's end.

Year-to-date, 1.45 million homeowners (19.6 of every 1,000 households) faced pre-foreclosure actions by lenders, almost double the number a year ago.

The data are based on the number of formal notices filed against a property during the foreclosure process. That can include notice of default, notice of foreclosure auction, and/or notice of REO (lender-owned real estate that occurs after a foreclosed property fails to sell at auction and reverts back to the lender).

Three states—Arizona, California, and Florida—account for more than half of the pre-foreclosure as well as REOs.

The Mortgage Bankers Association in its National Delinquency Survey last week reported 6.4% of all mortgage loans were delinquent in the second quarter, not including those in the foreclosure process. A total of 2.7% of loans were somewhere in the foreclosure process.

The Southwest reported by far the most foreclosed property filings year-to-date, 348,019 or 12.7 filings per 1,000 households. The Southeast leads the nation in pre-foreclosures filed year-to-date with 477,177, or 27.5 filings per 1,000 households.

Eighth U.S. Bank To Fail in Two Months Gets Bailed

Sept. 7 (EIRNS)—"Despite the challenges the financial industry is currently facing, the banking system continues to be fundamentally safe and sound." That line was from George Burns. But not, as you might be guessing, that George Burns, not "Say good night, Gracie" George Burns.

This Burns is the Commissioner of the Nevada Financial Institutions Division (FID). He dropped the line after the FID shut down Silver State Bank on Sept. 5. The Federal Deposit Insurance Corporation has been appointed receiver of the bank, the 11th in the U.S. to fail this year. The FDIC said Silver State Bank's insured deposits will be assumed by Nevada State Bank of Las Vegas. Its branches will reopen Sept. 8 as offices of Nevada State Bank in Nevada, and National Bank of Arizona in Arizona. It had $2 billion in assets and $1.7 billion in deposits as of June 30. Silver State Bank had operated 13 branches in Nevada and four in Arizona, as well as loan offices in Nevada, Utah, Colorado, Washington, Oregon, California, and Florida.

Andrew K. McCain, a son of Republican Presidential nominee John McCain, sat on the boards of Silver State Bank and of its parent, Silver State Bancorp, beginning in February, but resigned in July after five months, citing "personal reasons," corporate filings with the Securities and Exchange Commission show. Andrew McCain also was a member of the bank's audit committee, responsible for oversight of the company's accounting.

The younger McCain is the chief financial officer of Hensley & Co., the beer distributorship of which John's wife, Cindy McCain, is chairwoman. Andy is the Arizona senator's adopted son from his first marriage.

Tax Evasion Investigation Points Towards Hedge Funds

Sept. 11 (EIRNS)—Merely days after Henry Paulson acted unconstitutionally to bail out his speculator friends as provided by the Dodd-Frank bill (HR 3221), the Senate Subcommittee on Investigations released a 77-page report which exposes a $100 billion a year tax evasion scheme devised by such named brokerage firms and banks as Morgan Stanley, Lehman Brothers, Deutsche Bank, Merrill Lynch, UBS and Citigroup in conjunction with major U.S. based hedge funds such as Moore Capital, Highbridge and Maverick Capital, to name just a few. As the Subcommittee reports, through programs with names like "dividend enhancement" and "dividend uplift," these banks and brokerage firms are using complex equity swaps, fake loans and sham stock sales, sometimes through entities in the Cayman Islands, to disguise dividend payments to clients.

Although the report focuses on how these U.S. financial institutions have helped "foreign" clients dodge dividend payments, the subcommittee chairman, Carl Levin (D-Mich.), points out that if you take a closer look, some of those foreign investors begin to look a lot less foreign. They are hedge funds organized offshore, often by Americans. "When the Subcommittee began contacting them, all of their key personnel turned out to be here in the United States. The so called 'offshore' hedge funds' main offices were here; their investment professionals and technical people live here. Most of these offshore hedge funds claim to be located in the Cayman Islands. The Cayman Islands, in fact, have 10,000 hedge funds, more than any other country in the world. But the Cayman hedge funds we examined did not operate in any meaningful sense from the Caymans....

"Hedge funds run by Americans and invested in the U.S. stock market often create a shell of a presence in tax havens, presumably in part to avoid paying U.S. taxes. Then, when confronted by the one U.S. tax imposed on foreign investors receiving U.S. stock dividends, they turn to financial gymnastics to escape paying that tax as well...."

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