In this issue:

'Consumer Confidence' Down as Midwest Manufactures Plunge

Americans Without Health Insurance Now 43.6 Million

Gov't Insurance Programs Expected To Shrink as Bankrupt States Cut Back

Wal-Mart Slashes Employee Health Benefits; Retirees Get Zilch

Senate Prepares Huge Tax Windfall for Overseas Companies

New Round of State, Local Budget Crises Show Depth of Depression

States Starve Inmates to Meet Bottom Line

Federal Home Loan Bank Dumps $1 Billion in Risky Securities

American Electric Power Sued for Market Manipulation

WALL STREET POLICE BLOTTER


From Volume 2, Issue Number 40 of Electronic Intelligence Weekly, Published Oct. 7, 2003

U.S. Economic/Financial News

'Consumer Confidence' Down as Midwest Manufactures Plunge

The pace of manufacturing activity in the U.S. Midwest slowed sharply in September, while "consumer confidence" plunged. The Institute for Supply Management said Sept. 30 that its monthly index for the Chicago area fell to 51.2 in September, from 58.9 in August, based on surveys of purchasing managers. The index "fell off a cliff," said an economist at Deutsche Bank Securities. For example, the employment component dropped to 45.3 from 51.2, indicating more lay-offs.

Meanwhile, the Conference Board (a private group) said its consumer confidence index fell to 76.8, from 81.7 the previous month, due to worries about jobs. The report's "jobs hard to get" component jumped to 35.3—the highest level since December 1993.

Americans Without Health Insurance Now 43.6 Million

The number of uninsured people shot up last year by 2.4 million, the Census Bureau reported Sept. 30, raising the total to 43.6 million uninsured, or about 15.2% of all Americans. The continued erosion of jobs and employer-sponsored health coverage were seen as the main causes for the latest increase. The number of people with employer insurance declined by 1.3 million last year, from 62.6% in 2001 to 61.3% in 2002.

The number of full-time workers without health insurance rose by nearly 900,000 last year to 19.9 million, or about 17% of full-time workers. About 24% of part-time workers are without insurance, as are 26% of the unemployed. Also lacking insurance: about 32.4% of Hispanics and 33.4% of foreign born individuals. The U.S. Chamber of Commerce says the number of people earning over $50,000 who are without coverage is also growing.

Gov't Insurance Programs Expected To Shrink as Bankrupt States Cut Back

While more than one-fourth of the U.S. populaion is covered by Federal-state health programs for the poor and disabled, this percentage is likely to shrink, as bankrupt states cut back Medicaid and State Children's Health Insurance program (SCHIP). People covered by Medicaid, the Federal-state health program for the indigent and disabled, and SCHIP, rose to 25.7% last year, from 25.3% a year earlier. For instance, Texas, which has the highest number of uninsured residents—24.7%—cut back Medicaid and SCHIP this year. So, expect the number of uninsured to explode next year.

Wal-Mart Slashes Employee Health Benefits; Retirees Get Zilch

Wal-Mart, the world's biggest retailer, has refused to pay for flu shots, eye exams, child vaccinations, and other treatments, and demands $1,000 deductibles—triple the norm, the Wall Street Journal reported Sept. 30. As the nation's biggest employer, with 1.16 million on its payroll, it could set a trend for other struggling employers. The company has raised premiums 50% in the last two years. new hourly employees wait six months before they are allowed to sign up for benefits, and Wal-Mart won't pay for treatment of pre-existing conditions for the first year of coverage.

Senate Prepares Huge Tax Windfall for Overseas Companies

The U.S. Senate is preparing a huge windfall for companies that have deferred paying taxes on foreign profits, so they can reduce their massive debt loads, or pump up Wall Street. The Senate Finance Committee approved a controversial bill that would allow U.S. companies to bring back, at a sharply reduced tax rate, profits that were sheltered overseas—to be repatriated at 5.25% tax, instead of the current 35%, if the money is invested in the U.S. rather than overseas. Beneficiaries of the measure, who could reap from $135-300 billion, include pharmaceutical giants such as Merck and Eli Lilly, plus IT firms such as Hewlett-Packard.

Bill Archer, the former chairman of the House Ways and Means Committee, and now a lobbyist for the coalition backing the measure, is pushing the tax "holiday." DLC'er Sen. John Breaux (D-La), who is fighting it as an incentive for companies to leave the U.S., unsuccessfully presented an amendment to require companies to reinvest the profits in equipment.

Although peddled as a way to increase investment and create jobs, Hewlett said much of its $14.5 billion windfall would be used to pay down its debt.

The bill is expected to pass, and President Bush has said he will not veto it.

New Round of State, Local Budget Crises Show Depth of Depression

The Sept. 30 close of the Federal fiscal year—with a soaring rate of national budget defici. Many state- and local-level situations as well are in a spiral of revenue collapse, program cuts, and blame-game political chaos. Alabama, Connecticut, and other locations have been in emergency session; Iowa is arguing over whether to call one, etc. Some recent reports from local press, and first-hand accounts from state legislators.

SOUTH

ALABAMA. The last week of September, after a referendum to increase taxes (by restructuring the state's tax system) was overwhelmingly defeated, final approval was given to impose massive budget cuts on Oct. 1, meaning hundreds of layoffs. Most state agencies will have their budgets cut 18%. One example, from the Sept. 29 Mobile Register: Local volunteer fire departments will have half the funding from the state, that they received in recent years. Last year (2002-2003) $2,483,878 from the state's General Fund was earmarked for rural and community fire protection. This year, it will be, $1,241,939.

MIDWEST

IOWA. The state has a $63.9 million hole in its Y2003 budget, which technically ended on June 30, but the books aren't closed until Dec. 31. The state had passed a "balanced" budget plan, but then, state revenues came in way below all expectations. There is intense political wrangling, with Gov. Tom Vilsack (D) saying on Sept. 25 he can transfer $50 million from a still-existent rainy day reserve, and then call a special legislative session to make cuts. Republicans say no. No resolution is in sight under the prevailing attitudes (Sioux City Journal, Sept. 26).

INDIANA. State officials are currently scrambling to find any kind of help for households where a developmentally disabled person is being cared for by someone 60 years of age or older—a category which includes at least 10,000 households, because the state's service program for these disabled people was ordered to return $15 million last year to the state's general fund, as part of the attempt to deal with the budget deficit (WISH TV, Sept. 29).

EAST

MARYLAND. The state now faces an $800-million gap in its budget in the fiscal year that begins next July, despite extreme cuts—including 1,000 jobs, with another 715 in the works by Dec. 1, made to obviate this, so a new round of government program cuts is being haggled over politically for the mid-year.

VIRGINIA. On Sept. 26, Gov. Mark Warner (D) promised Wall Street analysts that the state will commit to double its emergency reserve fund by July, to satisfy "markets" that the no effects of Hurricane Isabel or prospects of declining revenue, will hurt the state's bond ratings (Virginian Pilot, Sept. 27).

WEST

CALIFORNIA. On the eve of the Recall vote, the state finds itself in a legal bind over plans to finance its depleted employee pension funds and the $38 billion budget deficit. A state judge has ruled that a $2 billion bond issuance for the pensions, approved as part of the emergency budget package, is illegal because the voters weren't asked to approve it. And, a right-wing outfit, Pacific Legal Foundation (Richard Mellon Scaife et al.) has filed suit against plans to issue $10.7 billion in revenue bonds to reduce the budget deficit, also charging that the voters weren't consulted. The moves appear timed to focus attention on the problems the beleaguered Gov. Gray Davis has in managing the state's finances, thus hoping to fuel the Recall vote (San Francisco Chronicle, Sept. 25).

Earlier this year, the state legislature and Gov. Davis cut $11 billion from the budget and agreed to a multi-billion dollar borrowing program—a doomed scenario in its own right.

States Starve Inmates to Meet Bottom Line

So desperate are the governments of several states, that they are trimming amounts and reducing (still further!) quality and quantity of food served to prison inmates, a measure that has provoked inmate protests in the past, and is drawing complaints from families of inmates, the New York Times reported Sept. 30. Among the states cutting food portions are Arizona, Iowa, Minnesota, North Carolina, Texas, and Virginia. "If inmates want to act out violently about their food, we have another place to put them," said Ray Allen, a Republican state representative from Texas. In Virginia, the prison system in January is now serving only two meals a day on Saturdays, Sundays, and holidays. Parents of some young inmates have expressed concern that the portions served are not sufficient for their sons to maintain muscle mass or bodyweight, and that the money saved through failure to provide an adequate diet, will only result in additional health-care expenses later.

Federal Home Loan Bank Dumps $1 Billion in Risky Securities

The Federal Home Loan Bank of New York dumped nearly $1 billion in asset-backed securities due to credit risk, reflecting the financial crisis among borrowers and lenders in the real estate markets, the Wall Street Journal said Sept. 30. The bank announced that it chose to sell $944 million of securities backed by home and business loans—even though the sale resulted in a $6.6 million loss—because the bonds "no longer met the credit standards of the bank, due to recent deterioration in the credit quality of the servicer." Servicers, which collect payments on loans, often also originate the loans (such as mortgages) that are bundled into asset-backed securities.

The twelve regional Federal Home Loan Banks borrow money from Wall Street to lend to commercial banks, thrifts, and credit unions, who in turn, make loans to home buyers.

American Electric Power Sued for Market Manipulation

The Commodity Futures Trading Commission filed a lawsuit against American Electric Power, one of North America's largest utility holding companies, accusing it of manipulating energy prices. AEP, cashing in on the deregulation boondoggle, reaped $63.6 million by falsely reporting as much as 78% of natural gas trades during November 2000-October 2002, the Federal agency said. The lawsuit seeks up to $355 million in penalties. "The bottom line is false reporting, and manipulation was an addiction for this company," said CFTC enforcement chief Gregory Mocek.

The commission has collected $96 million in civil penalties from once-mighty energy pirates such as Dynegy, El Paso, Williams, and Duke Energy.

WALL STREET POLICE BLOTTER

Two major trials are now underway:

* Former Tyco chief Dennis Kozlowski has been charged with looting Tyco and its shareholders of $600 million to fund his lavish lifestyle.. .

* Credit Suisse First Boston investment banker Frank Quattrone, the Silicon Valley hotshot, has been charged with obstruction of justice and witness tampering arising out of an investigation into CSFB's allocation of shares in IPOs during the Internet boom.

* The IPO investigations have also claimed J.P. Morgan Chase, which, the SEC said has agreed to pay $25 million to settle an investigation of its own IPO chicanery.

* New York State Attorney General Eliot Spitzer's probe of hedge funds' illicit dealings with mutual funds has claimed some new heads. Prudential Securities, now a unit of Wachovia Bank, has ousted 12 brokers, including the head of its Boston office. On Sept. 30, Alliance Capital Management suspended two executives over the Spitzer probe. Alliance, a unit of French insurance giant AXA, is familiar both for its role at Enron (a board seat), and its vice-chairman Roger Hertog.

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