From Volume 38, Issue 26 of EIR Online, Published July 1, 2011

U.S. Economic/Financial News

JP Morgan Chase Pays Paltry Fine for Stealing Billions

June 21 (EIRNS)—The SEC announced today that JPMorgan Chase will pay $153.6 million to settle charges that it sold CDO derivatives to investors while they and related hedge funds were betting that the same derivatives would fail. Even Forbes magazine called it a "Slap on the Wrist."

Goldman Sachs was given a slightly harder slap on the wrist last year—$550 million—for the same scam. In both cases, without Glass-Steagall and criminal prosecutions, these fines will continue as nothing but a minor nuisance—the cost of doing business on Wall Street. Multiple state criminal prosecutions against these institutions are now in the works, precisely because Obama has prevented any Federal prosecutions beyond these "cover-up" civil actions.

BLS on Impact of a Major Quake on the San Andreas Fault

June 23 (EIRNS)—The June issue of the Regional Report of the U.S. Bureau of Labor Statistics features a report on the economic effect of a major, 7.8-magnitude earthquake on the San Andreas fault in Southern California.

According to the report, issued June 21, a 7.8-magnitude quake on the San Andreas fault could affect 430,000 businesses and 4.5 million workers. The study, modeling a 7.8-magnitude temblor, mapped the region into areas of vulnerability, and denoted areas predicted to experience either "very strong" or "destructive" shaking.

The southern section of the fault has not ruptured for more than 300 years, although evidence indicates that a large earthquake has occurred on the fault every 150 years, on average, according to the report. The fault runs through the heavily populated counties of Los Angeles, Riverside, and San Bernardino.

Such an earthquake would have a huge impact on a seven-county region that generates $206.5 billion in annual wages, the report said. More than half of the employment and earnings exposure in the destructive-shaking zone would fall in Los Angeles County alone.

A 7.8-magnitude earthquake—considerably larger than the 1994 6.7 quake that rocked Northridge—would "put our [area's] jobs and economy at risk," Bureau of Labor Statistics Regional Commissioner Richard Holden said.

Money Market Fund Blow-Out Threatens

June 22 (EIRNS)—It was the imminent collapse of U.S.-based money-market funds which triggered total Wall Street and Federal Reserve panic in September 2008, and the Federal Reserve and SEC are again, now, worrying about and closely monitoring those fund for signs of collapse. The danger has woken up the House Financial Services Committee for a June 24 hearing on the situation of these funds.

The immediately urgent reason is exposure of the $2.7 trillion in money-market funds' to the banks of Europe, whose commercial paper and bonds they have bought to the tune of $1 trillion. This bank debt is all deteriorating on market indexes as the euro debt crisis blows up; but the money-market funds are not required to mark it down, and are setting themselves up for a "subprime" repeat of 2007-08. Fed chairman Ben Bernanke, while making reassuring noises about banks at his press conference today, said that "Money-market mutual funds have very substantial exposure to the European core country banks. So there is some concern.... The effects of Greek default in the United States would be quite significant."

In terms of derivatives markets reacting to European sovereign and/or bank defaults, the banks themselves, in the form of the International Swaps and Derivatives Dealers Association (IASD), estimate the net loss exposure at $40 billion in Irish sovereign and bank debt; $60 billion in Greek debt; $150 billion in Spanish debt. This is considerably greater than the derivatives losses in the September 2008 Lehman Brothers bankruptcy.

All rights reserved © 2011 EIRNS