ECONOMICS NEWS DIGEST
Myth of the 'Recovery': Statistics or Snake-Oil?
With each passing day, more is revealed about the wild manipulation, deception, and fraud which went on behind the scenes at the energy pirates and their cell-mates, the new breed of telecommunications companies. These so-called industries turned out to be shams and scams, cooking their books so much they needed barbecue sauce.
As each day's news makes plainer, those who argued against Lyndon LaRouche, and insisted there was a recovery, are now revealed as having been relying on frauds, fakes, and scams. LaRouche was right; the "recovery"-peddlers were very, very wrong.
The level of admitted deceit and fraud (and what has been revealed is as nothing, compared to all that they were doing) is so blatant that only a fool would continue to push deregulation and the New Economy. We expect it from Sen. Phil Gramm (R-Texas) and his wife Dr. Wendy "Miss Enron" Gramm, whose corrupt careers and bank accounts were made from pushing such nonsense, but we had hoped for better from the Democrats, who at least feel some need to keep up the pretense that they care for the little people.
Take the Senator from Connecticut, Joe Lieberman, for example. Despite the abject failure of the "we're Republicans, too" Gore-Lieberman strategy of 2000, clueless Joe is basing his own run for the Presidency on the slogan that the bubble is real.
"Don't let Enron's collapse fool you into thinking that the success of the 1990s was just balance-sheet bloat," Lieberman told the Economic Club of Detroit on May 20. "It was real." - A Decade of Fraud -
Lieberman is correct in saying that it wasn't just balance-sheet bloat in the 1990s: It was also phony trading, fraudulent revenue claims, overstated profits, overvalued assets and a complete breakdown in government regulation that brought us to where we are today.
Take the energy pirates, for example. Most of these companies reported as revenues their gross sales, rather than their net revenues from those sales. Throw in the "round-trip" trading in which these companies would sell a block of energy to another trader, then immediately buy that energy back at the same price, and you have the makings of a real revenue machine. Such shenanigans made Enron No. 5 on the Fortune 500 for 2001.
Where were the regulators? Where was the much-hyped "industry self-regulation"?
The telecommunications companies were running a similar scam by leasing capacity on their networks to each other to artificially inflate revenue.
These tricks, along with hiding debt and losses in off-balance-sheet entities, booking the entire amount of multi-year sales income in the first year, overstating the values of assets held, have led to serious over-statements of corporate profits in recent years. Despite record numbers of corporate profit restatements in the last couple of years, only the tip of the iceberg has been revealed.
Even so, with all the tricks, the reported level of corporate profits is declining in the United States. U.S. corporations reported $767 billion in net profits in 2001, down from $876 billion in 2000. Heaven only knows what it would be, were honest numbers reported. - Political Economic Indicators -
The same level of fakery is present in the so-called economic indicators compiled by the government, such as the GDP and employment figures. The process by which these numbers are calculated goes something like this: The desired number is determined by top officials, who then tell the statisticians to juggle the figures until the desired result is obtained. In other words, they make it up and then fake the statistics to fit. The more the economy collapses, the greater the fakery needed to show "growth."
The level of fraud in corporate financial reports and government economic statistics is so great, that it cannot be hidden from view. Therefore, rather than deny it, the financiers attempt to surround their fraud with a bodyguard of liesnamely, the daily soap opera-style stories about individual rogue companies.
The truth is that the books and statistics are being systematically faked to hide the bankruptcy of the financial system itself, which has been in the final phase of collapse since 1997. This is not an "accounting" problem, to be solved by tweaking a few rules, but a systemic crisis, in which a happy face is being put over an emaciated death-mask. - Self-Delusion -
These fake numbers work in the same way the emperor's new clothes workedpeople believe them because they prefer the comfort of their delusions to the naked truth. It was obvious all along that the dot.com frenzy was a bubble, that energy deregulation was not economically viable, and that the Internet was no substitute for an industrial economy. Yes, the Wall Street analysts and financial experts lied to us, but that doesn't explain why we believed them. The snake-oil salesman are out there plying their trade, because there are suckers who buy their wares, preferring the lure of a quick buck or a quick fix to the hard work of solving the underlying problem.
There is no recovery. The reports are all faked, to hide the depression and feed the delusions. Don't be a sucker; join LaRouche's fight to build a new economic and financial systemone that works.
Adapted from an article by John Hoefle in The New Federalist, May 27.
Explosive Growth in On-Line Energy Trading: Due to Sham Trades?
The Intercontinental Exchange (ICE), a "platform" where companies buy and sell contracts for natural gas, electricity, and coal, said natural-gas trading volume during the first quarter of 2002, increased by more than 25 times, or 2500% (!), over the same quarter last year, to 31 trillion cubic feet of gas, while power trading grew more than sevenfold, or 700%, to 1 billion megawatt hours of electricity.
ICE, which began energy trading in October 2000, is owned by a consortium of trading firms, including Duke and American Electric Power, along with banks such as Deutsche Bank, Goldman Sachs, and Morgan Stanley. Energy giants BP and Royal Dutch/Shell also own stakes. Duke has admitted using bogus dealsmost of them executed on ICEto falsely boost revenue.
This investigation is another ticking time bomb. The Federal Energy Regulatory Commission (FERC) told 150 power companies to discloseby May 31whether they engaged in bogus electricity trading that may have artificially boosted prices during the California energy crisis that has been going on for the last 2 years.
Merrill Lynch Settlement a 'Template' for Other Wall Street Firms
The fraudulent practices of Merrill Lynch in hyping up stock sales with phony analyst reports is so widespread that there was a special emergency White House meeting on May 20 to discuss the problem, a leading financial source told EIR in Europe.
New York State Attorney General Eliot Spitzer slapped Merrill with a $100 million fine, based on the Martin Act, a New York State law on securities fraud, and said that he expects other securities firms to voluntarily seek settlements with his office. If they don't, he will proceed with investigations against individual firms. High on the list, are Salomon Smith Barney, and Morgan Stanley, according to people familiar with the probe. "The problem is endemic to the industry. We believe until these reforms encompass the entire industry, it will not be enough," Spitzer said at a press conference on May 21.
Goldman Sachs has hired Gerald Corrigan, former chief executive of the Federal Reserve Bank of New York, as an ombudsman, to counsel analysts on potential conflicts of interest. Salomon Smith Barney, following Merrill's settlement, will separate analyst pay and evaluation from investment banking, and is establishing a research review committee, CEO Michael Carpenter said in an internal memo.
Nonetheless, SEC Director of Enforcement Stephen Cutler promised that the settlement "is not the finish line."
Siemens To Cut 7,000 Jobs; Deutsche Telecom Continues Slide
Siemens, Germany's largest electronics and engineering firm, announced May 22 that it will cut 7,000 jobs at its business unit, in order to reach "profitability goals." Already last year, Siemens, which now employs 443,000 worldwide, shed 20,000 workers from its mobile phone and telecommunications networks units. The new job cuts will hit Siemens Industrial Solutions, which currently has 30,000 employees. While 2,000 workers will be fired, Siemens will try to sell units which now employ 5,000 workers. Siemens CEO Heinrich von Pierer said he will sell or shut down any business "that doesn't show signs of a turnaround by the end of the business year."
Meanwhile, Deutsche Telecom announced that while revenues were up 15% over last year, to 12.77 billion euros, in the first quarter of 2002, it still recorded a total net loss of 1.8 billion euros, in the same period, compared to a loss of 358 million euros, in the first quarter of last year. Deutsche Telecom is loaded with some 66 billion euros in debt. The news sent Deutsche Telecom's stocks down to 12.41 euros per sharedown from a high of 105 in March 2000.
Sweden's Vattenfall to Cut More Than 4,000 Jobs
Once again, demonstrating the benefits of deregulation: After the mega-merger of four privatized German utilities, Sweden's Vattenfall Europe will cut over 4,000 jobs. The new corporation will include four large, formerly public, regional utilitiesHEW (Hamburg), BEWAG (Berlin), VEAG and Laubag (both operating in Eastern Germany)that were privatized and bought up by Sweden's energy giant Vattenfall. The new company will become the third-largest utility in Germany. Presently, the four units employ 20,000 workers, but the designated CEO of Vattenfall Europe, Klaus Rauscher, ackowledged that they intend to cut more than 4,000 jobs by 2005.
Meanwhile, German Chancellor Gerhard Schröder praised the merger as "good news for employment in the new [East German] states, for reliability of electricity supplies, and for competition in the energy markets." According to dpa May 22, Schröder used the occasion of the Vattenfall congress, to promote a further liberalization of European energy markets, boasting: "We succeeded in opening the German markets for electricity and gas completely."
Lack of Health Insurance Kills Thousands of Americans Each Year
A recent report by Institute of Medicine confirms what many people already knew: Thousands of Americans without health insurance are dying needlessly for lack of medical care. Overall, 18,314 uninsured adults8,219 in the 55-64 age groupin the U.S., die each year because they don't receive proper health care, including preventive services, a timely diagnosis, or appropriate care, according to "Care Without Coverage: Too Little, Too Late," the National Academies' Institute of Medicine report. The estimated death toll includes about 1,400 people with high blood pressure.
The main findings of the report are that the 30 million working-age Americans without health insurance are more likely to:
* receive too little medical care and receive it too late;
* be sicker and die sooner;
* receive poorer care when they are in the hospital, even for acute situations like a motor vehicle crash.
A few examples:
* Uninsured people with colon or breast cancer, face a 50% higher risk of death, due to delayed diagnosis.
* Uninsured trauma victims are 37% more likely to die of their injurieseven when in the hospitalbecause they receive fewer diagnostic and treatment services.
* About 25% of adult diabetics without insurance for a year or more, went without a checkup for two years, boosting their risk of death, blindness and amputations resulting from poor circulation.
Being uninsured also increased the risk of death and disability for chronically sick and mentally ill patients, poor people, and minorities, the study states.
cross ref from EIR In-Depth:
"Roadmap for a Real Enron Investigation" by John Hoefle
"Dollar Free-Trade System Is a Goner" by Marcia Merry Baker
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