From Volume 38, Issue 2 of EIR Online, Published Jan. 14, 2011

U.S. Economic/Financial News

Just When You Thought Obama's Bank Bailout Was Over...

Jan. 4 (EIRNS)—Bank of America, one of Wall Street's biggest bailed-out zombie megabanks, on Dec. 29, settled all claims on $127 billion of largely fraudulent mortgages which it had sold to Uncle Sam, for less than $1.3 billion, or about a penny on the dollar. Bank of America's check went to the bailed-out, government-owned Freddie Mac Corporation. With that $1.3 billion, Bank of America supposedly made good on $127 billion of mortgages sold by the notoriously fraudulent Countrywide lender which Bank of America had acquired in 2008. The possible claims which Bank of America got away with settling in this way, for a miniscule fee amounting to far less than a city sales tax, were not even limited to $127 billion. $127 billion is only the current, paid-down amount of the mortgages in question.

This at a time when Pimco, Black Rock, and even the New York Fed are suing Bank of America over $47 billion of phony Countrywide mortgages they bought, as is MBIA Insurance in another lawsuit. And they certainly didn't go to court for any mere one percent!

What this means is that the unlimited bailout of government-owned Fannie Mae and Freddie Mac, which Congress bought into after TARP supposedly ended, is being used by Obama to continue multibillion-dollar backdoor bailouts of bankrupt Wall Street banks. And just so, earlier that same week, on Dec. 27, Ally Financial, formerly known as GMAC, announced that its mortgage unit would be allowed to pay Fannie Mae $461.5 million to eliminate its liability for mortgage loans with unpaid principal of $84 billion: a slap on the wrist of about five and one-half percent, compared to one percent for Bank of America.

Even much larger, tens of trillions versus the mere tens of billions going out through Fannie and Freddie, are the continuing bailouts by the Federal Reserve, which is lending at zero-percent interest rates against junk collateral, primarily to foreign banks. This flood of bailout cash is about to provoke a hyperinflationary blowout like that of Weimar Germany in 1923, unless the policy is reversed suddenly by reintroduction of Franklin Roosevelt's 1933 Glass-Steagall Act to re-separate legitimate commercial banking from speculative casino games.

'How Long? Very Long,' Time To Wait for Obama To Create Jobs

Jan. 7 (EIRNS)—Jobless Americans continued to give up and drop out of the labor force en masse in December, as Obama's Bush-like economic policies again failed to create employment. The loss of discouraged Americans from the labor force was 434,000 in December, and reached 1.45 million during all of 2010, Obama's year of insane claims of "jobs recovery." In December, this mass exodus of discouraged workers was the sole reason for the sharp "headline" drop of the official unemployment rate from 9.8% to 9.4%. The overall U.S. labor force consequently shrank in December by 260,000, and labor force participation again fell by 0.1% to 64.3%.

The Bureau of Labor Statistic (BLS) report for December claimed 103,000 net growth in employment, again below the level needed to employ the normal rate of growth of the labor force, which is about 140,000 per month. Wall Street "economists'" expectations had been euphorically ranging from 170-300,000, before the sobering actual report appeared.

Employment at various levels of government dropped by 10,000 in December, the sixth straight month of declines, reflecting the devastation of state and municipal budgets and their layoffs of vital public employees. The other notable decline was the loss of 16,000 construction jobs, of which 12,700 losses were of "heavy civil construction engineering" positions, which would be in the center of planning and executing major infrastructure projects like those of the North American Power and Water Alliance (NAWAPA). Construction employment is down to 5.6 million people nationally, a 27% decline from 7.7 million employment in August 2006, according to Ken Simonson, chief economist of General Contractors' Association, who called for major infrastructure investment as the only way back. Construction lost 93,000 jobs in 2010, under the tender care of Obama's stimulus act and "recovery."

Visiting the Thompson Creek Window Company in Maryland, the clueless Obama characterized the employment report as follows: "The economy added more than 100,000 jobs last month and the unemployment rate fell sharply.... The trend is clear. We saw 12 straight months of private sector job growth. The economy added 1.3 million jobs last year, and each quarter was stronger than the previous quarter, which means that the pace of hiring is beginning to pick up. We're also seeing more optimistic economic forecasts for the year ahead, in part due to the package of tax cuts I signed last month."

Wall Street Preparing $4 Billion of Commercial MBS's—Largest Since Blow Out of 2008

Jan. 5 (EIRNS)—The Obama/Bernanke Fed free-money policy is rapidly re-building the bubbles that blew out in the 2007-8 crash. Bloomberg reports that Deutsche Bank, UBS, and JP Morgan Chase are preparing to issue $4 billion in commercial real estate mortgage-backed securities—the largest such sale since the 2008 blowout of the home-based MBS bubble. Coming at a time when the commercial real estate market is blowing apart, this new derivative scam is aimed at holding it together for a few more weeks, and making a bundle of cash for Wall Street in the process. Bloomberg even notes that "Sales of commercial mortgage-backed securities are a boon for property owners that have struggled to refinance maturing loans amid a dearth of new lending. About $61.3 billion in property loans packaged into bonds comes due in 2011, according to JPMorgan."

Deutsche Bank and UBS are teaming up to issue as much as $2.5 billion in commercial mortgage-backed securities linked to loans on office buildings, shopping malls and hotels, while JPMorgan plans to sell $1.5 billion in similar debt. Bloomberg gloats that "Wall Street banks are building a pipeline of property loans to package into bonds as investors seek higher yields while the Federal Reserve holds its benchmark interest rate near zero. Sales of securities backed by mortgages on commercial property may quadruple to $45 billion in 2011, according to JPMorgan."

They add that Morgan Stanley, Bank of America, Goldman Sachs, Royal Bank of Scotland, and Wells Fargo are all planning to get in on the new scam.

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