In this issue:

Mega-banks Pose 'Systemic Risk,' Warns Fed Official

U.S. Trade Deficit Soars Again in April

Treasury Secretary Continues Economic Snow Job

Greenspan: Unemployment Benefits Cause Unemployment

California Files Lawsuit vs. Enron for 'Massive Fraud'

Enron Stole More Than $1 Billion from Western State Customers

States Eliminate Critical Functions as June 30 Looms

Millions Under 65 Without Health Insurance


From Volume 3, Issue Number 25 of Electronic Intelligence Weekly, Published June 22, 2004

U.S. Economic/Financial News

Mega-banks Pose 'Systemic Risk,' Warns Fed Official

The recent step-up in creation of $1 trillion mega-banks in the U.S., heightens concerns about risks to the entire financial system, and to the real economy, a senior official at the San Francisco Federal Reserve Bank asserted, in a highly unusual warning. "[T]he ever-growing scale of bank mergers raises challenging policy questions, including banking concentration at the national level and systemic risk concerns," cautioned Simon Kwan, the head of financial research at the San Francisco Fed. Policymakers must address these concerns while safeguarding the nation's financial system, Kwan wrote in an "Economic Letter" on Banking Consolidation, dated June 18.

Until this year, Citigroup was the only $1 trillion-asset banking organization in the U.S. Now, there are two more: Bank of America, which merged with FleetBoston; and J.P. Morgan Chase, which is about to complete a merger with Bank One Corp.

Bank mega-mergers, Kwan said, raise anti-trust concerns, as well as worries about diminished local market competition.

More importantly, "The creation of mega-banks also heightens concerns about systemic risk," he warned. "When banking activities are concentrated in a few very large banking companies, shocks to these individual companies could have repercussions to the financial system and the real economy."

"The increased potential of systemic risk created by mega-banks," continued Kwan, "also intensifies concerns about these banks being considered 'too-big-to-fail' (TBTF)," or likely to be bailed out by the Federal government in the event of a crisis. "Mega-mergers create more such potentially systemically important banks," he said, "and put a higher premium on credible policies for the orderly resolution of troubled large banking organizations."

EIR has previously reported that in the United States, the share of all banking assets held by the top 10 commercial banks has risen from about 30% in 1995, to about 45% today. That is, the failure of just the top 10 commercial banks would bring down half of the assets in the commercial banking system.

In parallel, this consolidation process of the banking system has concentrated derivatives holdings, so that the top 10 U.S. commercial banks hold almost 90% of all derivatives held by the commercial banking system.

U.S. Trade Deficit Soars Again in April

The U.S. trade deficit on goods and services climbed to a record $48.33 billion in April, the U.S. Department of Commerce reported June 14. This is $1.8 billion greater than the March level. Not a month has gone by in 2004, in which the U.S. trade deficit has failed to hit a new record.

At the same time, the U.S. merchandise trade deficit—goods, but not services—jumped to an unprecedented $53.18 billion in April.

- Table 1 -

U.S. Physical Goods Trade Deficit ($ Billions) Jan.-April

2002
147.75
2003
184.12
2004
203.94

Table 1 shows that for 2002, for the January through April period, the physical goods trade deficit was $147.75 billion, whereas for the comparable period for 2004, the physical goods trade deficit reached $203.94 billion, nearly 40% higher. This is an insane upward spiral.

U.S. physical goods imports in April were nearly identical to the level that they stood at in March. Therefore, the widening of the U.S. physical goods trade deficit in April is attributable to the exports side: in April, U.S. physical goods exports were $65.76 billion, down from the $67.30 billion which they stood at in March. The U.S. dollar has declined relative to its value last year, and according to the "authoritative" academic economics "theory", U.S. exports, being cheaper to foreigners, should have risen in April; instead they fell.

To finance the trade deficit, the U.S. economy, which is based on the Imperial Rome model, requires foreigners to accept dollars as IOUs for the goods they ship to the United States, and then that foreigners invest those dollars back into the United States. John Williamson, an economist at the Institute for International Economics said, "It's possible that there will be a gradual, orderly adjustment" in which the dollar and the trade deficit subside. "But the longer it goes on, the greater the risk that the contrary will happen—that the dollar will suddenly fall, because nobody's willing to lend [Americans money] any more, and other countries won't be expanding their demand at that time." The likely result of such a process, Williamson said, would be a "world recession."

The spread of the news of the record size of the U.S. April trade deficit caused the dollar to tumble $1.207 to the euro, with one currency trader predicting that the dollar would fall to $1.25/1 euro.

Treasury Secretary Continues Economic Snow Job

U.S. Treasury Secretary John Snow spoke to reporters in San Francisco June 17, ahead of a closed-door breakfast meeting, sponsored by the investment firm Charles Schwab, to reassure these influentials that rising U.S. interest rates are not enough to derail a "robust" U.S. economic "recovery," Reuters reported June 17.

To underline the point, Snow pointed to some rising mortgage rates and other borrowing, which he explained away: "A rise in interest rates is not an inhibitor of the recovery; it's part and parcel of the recovery and what you'd expect to see."

However, in factoring-in the situation in Iraq, Snow said attention to the conflict has "crowded out the good news on the economy," but that should all change after the transfer of authority June 30. Asked about oil prices, Snow mimicked Fed chairman Alan Greenspan, saying, "I don't expect oil prices to produce a big negative for the recovery we're in.... What [would be] troublesome is a significant spike that stays.... It appears that maybe some of the geopolitical risks or uncertainties are being looked at more benignly by the markets, because we do see this fairly significant and quick reversal of the energy price picture." Snow's remarks concluded with a nudge to China to revise its monetary peg.

Greenspan: Unemployment Benefits Cause Unemployment

Sen. Paul Sarbanes (D-Md), voicing "great concern" about jobs loss, confronted Federal Reserve Board chairman Alan Greenspan on the continuing plight of the 1.8 million long-term unemployed workers, during hearings of the Senate Banking Committee June 15. The numbers of long-term unemployed have "not substantially improved over these last several months," during the purported economic recovery, and now constitute 22% of all jobless. That percentage has remained elevated above 20% for the past 20 months—a record for a "recovery," said Sarbanes. These workers have lost their jobs, but the economy is "not creating jobs and they're not getting back to work"—even as they exhaust their state jobless benefits (which expire after 26 weeks).

After touting the growth in invisible jobs, Greenspan, who was testifying on his renomination as Fed chairman, dismissed all this with his usual doublespeak, insisting unemployment insurance causes unemployment! A "fairly generous, unemployment insurance program will tend to create unemployment," he proclaimed. Were the Senate to approve a Federal extension of unemployment benefits, which he said was "presumably appropriate," he recommended a "short-term" one only, agreeing with 13 weeks.

Immediately after, Greenspan said he would "strongly disagree" with the assertion of Sen. Jim Bunning (R-Ky), "This economy is the worst economy since the Great Depression,"

California Files Lawsuit vs. Enron for 'Massive Fraud'

California Attorney General Bill Lockyear filed a lawsuit June 17 to recover potentially hundreds of millions of dollars "for the massive, unlawful market manipulation and fraud it committed during the California Energy Crisis of 2000-01, the Sacramento Business Journal reported June 17.

Filed in Alameda County Superior Court, the complaint alleges that Enron's manipulation violated the state's Unfair Competition Law and commodities fraud statute. The lawsuit seeks restitution, damages, and disgorgement of unjust profits. Additionally, the complaint asks the court to award civil penalties of $25,000 for each commodities fraud violation, and $2,500 for each violation of the Unfair Competition Law. The complaint does not specify the total relief sought, but Lockyear said the damages, restitution, disgorgement, and civil penalties could well total in the hundreds of millions of dollars.

The named defendants include: Enron Corp., Enron Energy Services, Inc., Enron Energy Services Operations Ind, Enron Energy Services LLC, Enron North America Corp, and Enron Power Marketing.

Lockyear said: "Enron was the architect of a rip-off scheme that bled billions of dollars from our state's economy. The suit goes through all the phone fronts and games created to maximize the looting."

This article does not mention the crucial role of the LaRouche movement in mounting the campaign against these looters.

Enron Stole More Than $1 Billion from Western State Customers

Enron records show how the company ripped off Western state customers for no less than $1.1 billion in 2000-2001, when it manipulated the energy market practically every day during the deregulation-induced "electricity crisis," according to audiotapes and financial documents. The records were released by the Snohomish Public Utility District, the same utility that uncovered profanity-laced audiotapes of Enron traders gloating about gouging "those poor grandmothers" in California. Enron's market-rigging, even during blackouts, inflated electricity bills and bankrupted California.

Sen. Maria Cantwell (D-Calif), speaking at a June 14 press conference, demanded the Federal Energy Regulatory Commission open a new investigation and take effective action against Enron. "Unfortunately, FERC has fallen down on the job by conducting an inadequate investigation of Enron's market manipulation," she charged. "You have to ask yourself, what has FERC been doing with all this evidence of illegal activity? Certainly not protecting 'Grandma Millie.'"

The latest documents show Enron manipulated the energy market on 473 of 537 days—88% of the time—from January 2000 to June 2001, the utility said. As a result, Enron illegally pocketed at least $1.1 billion in profits.

In one scam, Enron made $222,678 in a three-hour period by shipping power from California to Oregon, masking the original source of the power, then sold it back to California at the highly inflated rate of $750 per megawatt-hour. The records show Enron used at least five other schemes, dubbed "sidewinder," "ping pong," "donkey punch," "spread play," and "Russian roulette."

In one new audiotape, an Enron employee brags, "If the line's not congested then I just look to congest it.... If you can congest it, that's a money-maker no matter what."

The documents also show that Enron kept five separate sets of accounting records.

States Eliminate Critical Functions as June 30 Looms

Blacked out by the national media's electioneering mind-control, are the state-by-state horror stories of cuts in essential services. One example, is Georgia. There, hundreds of nursing home residents may have their Medicaid benefits cut off on July 1. The Georgia Department of Community Health, under orders from Gov. Sonny Perdue to make cuts, is eliminating a program called Nursing Home Medically Needy Medicaid. The program helped people whose income exceeds $1,692 a month, but who are unable to afford the $3,500 to $4,000 a month needed for a typical nursing home. Hundreds now have nowhere to go. The state is readying the termination letters now.

These kinds of fiscal austerity cuts, come on top of a fast-eroding base of physical infrastructure to deliver medical care. Nationally, the average number of public hospital beds per 1,000 persons is dropping. In the state of Pennsylvania, for example, the ratio dropped by 23%, from 1995 to 2001.

Millions Under 65 Without Health Insurance

One-third of the U.S. population under the age of 65—almost 82 million people—lacked health insurance sometime in the last two years. Most were uninsured for more than nine months, according to the health-care advocacy group, Families USA. The Census Bureau gives the number of those uninsured as those without insurance for the entire year. But, when the number of uninsured are counted over a longer time-span, or, even for less than a year, the figures are much higher.

Everyone, including much of the middle-class (even families with $75,000 incomes) are affected. Forty-three percent of African-Americans and 60% of Hispanics were uninsured, while all minorities are disproportionately affected. The state of Texas had the highest uninsured levels in the country—about 8.5 million or 43.4% of the non-elderly population. Rates among other states: New Mexico has 42.4% uninsured; California, 37.1%; Nevada, 36.7%; Louisiana, 36.2%; Arizona, 35.7%; Mississippi, 35.1%, and Oklahoma, 35%.

The crisis is worse, given that employers are passing on more of the fast-rising costs of health care to employees, many of whom can't afford them. At the same time, states are cutting safety-net programs.

Pensions in Older Households Disappearing; Income Declining

The results of analysis of 18 years of Federal Reserve data, on households headed by "older" Americans (ages 47-64), was surveyed in the New York Times June 13. In 1983, over 65% of this grouping had someone earning a pension, but today, it's less than 50%, and dropping. An "elite minority" in the upper 20% income bracket, have fat retirement plans. But most others are finding pensions less and less common, especially when workers are forced to switch jobs, and lose pension plans altogether. The net worth of "older" households is also dropping in lower income brackets. The Times reported, "Mr. Wolff [an New York University researcher] found that the average net worth of an older household grew 44 percent, adjusted for inflation, from 1983 to 2001, to $673,000. But much of that growth was in the accounts of the richest households, which pushed the averages up. When Mr. Wolff looked at the net worth of the median older household—the one at the midpoint of the economic ladder, a better indicator of what is typical—the picture changed. That figure declined by 2.2 percent, or $4,000, during the period, to $199,900."

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