U.S. Economic/Financial News

Financial Crisis Hits Cities, Public Institutions

Feb. 15 (EIRNS)—As one of the effects of the collapse of the securitization markets, local governments and public institutions, from hospitals and museums to water treatment authorities, are facing skyrocketing interest costs as they find it nearly impossible to sell bonds and other securities. One corner of the municipal bond market, the $330 billion market for "auction-rate securities," has nearly ground to a halt for lack of buyers, with almost 1,000 auctions failing over the past three days. As examples, the Port Authority of New York and New Jersey has found its costs of debt service quadrupled, and is now paying 20% on its debt, and New York's Metropolitan Museum of Art is paying 15%.

New York Gov. Eliot Spitzer is warning the monoline bond insurers to find substantial amounts of new capital within days, or face the prospect that the state will strip them of their municipal bond businesses and sell them to someone with deeper pockets. Such an action would leave the monolines holding little but collateralized debt obligations (CDOs) and other toxic waste, and hasten their doom. The number three monoline insurer, FGIC, announced today it would split its municipal bond and non-muni businesses.

Secretary Paulson Feels the Pressure Mounting

Feb. 13 (EIRNS)—When Treasury Secretary Hank Paulson announced a 30-day "pause" or "suspension" of home foreclosures by six big mortgage lenders on Feb. 12, Lyndon LaRouche responded that Paulson and company are under increasing pressure from the nationwide mobilization for the Homeowners and Bank Protection Act (HBPA), which would freeze mortgages and stop chartered bank insolvencies.

Here are some of recent developments:

* The number of California homes auctioned off as foreclosures jumped 55% in January compared to December, and were up 454% from January 2007, hitting a total of 19,821 homes auctioned off in that state in that one month, says ForeclosureRadar. A whopping 98% of auction sales went back to the lender after receiving no bids, despite significant discounts offered.

* Eighty-six of the nation's 100 largest metropolitan areas reported increases in 2007 in the number of properties entering some stage of foreclosure, compared to 2006, said RealtyTrac, an online market of foreclosure properties. The total number of foreclosure filings in the top 100 metro areas soared 78% to 1.775 million, according to its Year-End 2007 Metropolitan Foreclosure Market Report. Most metro areas with the highest foreclosure rates fell into two categories: cities with unsustainable housing price appreciation, or cities hit by a more widespread economic downturn.

* Fifteen of the 20 metro areas with the top foreclosure rates were located in four states: California with six, Ohio with four, Florida with three, and Michigan with two.

Countrywide Hits 7.5% Delinquency Rate on U.S. Home Mortgages

Feb. 15 (EIRNS)—Countrywide, the largest U.S. home mortgage company, recently taken over by the Bank of America, announced today that the delinquency rate on its 9 million home mortgages jumped from 4.3% of unpaid balances in January 2007 to 7.5% last month. The foreclosure rate on its 9 million mortgages doubled to 1.5% last month from 0.8% a year earlier.

The National Association of Realtors said Feb. 14 that U.S. home sales fell nearly 21% from October through December, compared with the same period the year before. At the same time, the median price plunged by a record 5.8% to $206,200. Nevada has the biggest drop in sales, with 44%; sales of existing homes fell in 45 states and Washington, D.C., in the last quarter of 2007, and prices dropped in more than half the metro areas the association tracks.

Rich Cosner of Prudential California Realty reported in USA Today that the foreclosures are driving down prices and spurring home sales, because there are so many, that lenders "need to get them sold and will take a much lower price than a normal home seller."

Loudoun County, Virginia Ground Zero: 'The Party's Over'

Feb. 15 (EIRNS)—"The party's over," stated Loudoun County (Va.) Board of Supervisors chairman Scott K. York this week, referring to the impact of falling real estate values on local government revenues. Loudoun County is a Virginia suburb of Washington, one of the fastest-growing counties in the nation, and the site of an enormous speculative bubble in recent years. Lyndon LaRouche has referred to it as "Ground Zero" for the collapse of the real estate bubble.

To offset the current decline, the Loudoun County administrator proposed a 35.6-cent increase in the real estate tax in the fiscal year 2009 budget, adding 13.6% to the average homeowner's property-tax bill. The budget also calls for a $23 million reduction in the already adopted school budget. The local tabloid Leesburg Today carried York's comment as a banner headline.

Supervisor Steven Miller (D-Dulles) said that some of his constituents, particularly those who are on fixed incomes, are worried about being able to afford their increased tax bill. "For them it's not about tightening the belt.... They get certain amount of money and when that money's gone," that's it. And this is in the county that ranks in the top five out of 3,000 counties, for the highest average income in the U.S.A.

New Round of Labor Recycling in Auto Industry

Feb. 15 (EIRNS)—General Motors is offering a new round of employee buyouts, and unlike that in 2006, which was aimed purely at shrinking GM's workforce, this time the plan is focused on "opening up jobs" so that the company can greatly expand hiring workers at a much lower pay scale, which is allowed to do under the four-year contract sold-out by the UAW last fall.

UAW head Ron Gettelfinger expects 15,000 to 20,000 workers to leave GM under the buyout, after which the company would hire 16,000 workers into "noncore jobs" at wages of $14 to $16 an hour, compared to $28 an hour that an assembler makes now. This will "save" GM nearly $100,000 a year per worker, which is nonetheless peanuts compared to the $38.7 billion the company lost last year. If 15,000 workers left in this buyout round, that would be about 20% of the 74,000 UAW-represented workers who remain at GM. The monetary offer is now larger than the first round, and Gettelfinger said, "I'm sure there will be a lot of interest."

Ford also is offering workers a general buyout from Feb. 18 to March 17. The company expects to shed 8,000 workers, out of the 57,900 hourly workers in the Ford operations, and 5,200 in its subsidiary, the Automotive Components Holdings (ACH), founded as a temporary unit to sell of dispose of facilities owned by Ford's spinoff, Visteon Corp. Here, the move consists in leaving room to ACH workers to go back to Ford when all the ACH plants are sold or spun off this year, according to Joseph Hinrichs, Ford vice-president for global manufacturing.