Monday, November 26, 2007

Signs of the Economic Apocalypse, 11-26-03

From Signs of the Times (

Gold closed at 824.70 dollars an ounce Friday, up 4.8% from $787.00 at the close of the previous week. The dollar closed at 0.6740 euros Friday, down 1.2% from 0.6821 at the close of the previous Friday. That put the euro at 1.4838 dollars compared to 1.4662 the Friday before. Gold in euros would be 554.23, up 3.3% from 536.76 for the week. Oil closed at 98.18 dollars a barrel Friday, up 4.6% from 93.84 at the close of the week before. Oil in euros would be 66.17 euros a barrel, up 3.4% from 64.00 for the week. The gold/oil ratio closed at 8.40, up 0.1% from 8.39 at the end of the week before. In U.S. stocks, the Dow closed at 12,980.88, down 1.5% from 13,176.79 for the week. The NASDAQ closed at 2,596.60 Friday, down 1.6% from 2,637.24 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.00%, down 15 basis points from 4.15 for the week.

Gold and oil rose again and the dollar fell last week continuing trends that were interrupted last week in a classic short-lived “correction.” Right now with real estate and the dollar no one really knows where the bottom is, and with gold and oil, no one knows where the top is. One analyst even predicted a 90% drop in the value of the dollar:

Forecast: U.S. dollar could plunge 90 pct

Nov. 19, 2007

RHINEBECK, N.Y., Nov. 19 (UPI) -- A financial crisis will likely send the U.S. dollar into a free fall of as much as 90 percent and gold soaring to $2,000 an ounce, a trends researcher said.

"We are going to see economic times the likes of which no living person has seen," Trends Research Institute Director Gerald Celente said, forecasting a "Panic of 2008."

"The bigger they are, the harder they'll fall," he said in an interview with New York's Hudson Valley Business Journal.

Celente -- who forecast the subprime mortgage financial crisis and the dollar's decline a year ago and gold's current rise in May -- told the newspaper the subprime mortgage meltdown was just the first "small, high-risk segment of the market" to collapse.

Derivative dealers, hedge funds, buyout firms and other market players will also unravel, he said.

Massive corporate losses, such as those recently posted by Citigroup Inc. and General Motors Corp., will also be fairly common "for some time to come," he said.

He said he would not "be surprised if giants tumble to their deaths," Celente said.

The Panic of 2008 will lead to a lower U.S. standard of living, he said.

A result will be a drop in holiday spending a year from now, followed by a permanent end of the "retail holiday frenzy" that has driven the U.S. economy since the 1940s, he said.

The reason that pessimistic analysts are now being featured in mainstream articles is that there truly is little reason for economic optimism. There are many sectors that could easily worsen and worsen sharply. The U.S. housing market, for example, has only begun to unravel:

Mortgage Failures Could Create Nightmare

Joe Bel Bruno

November 24, 2007

NEW YORK (AP) -- When Domenico Colombo saw that his monthly mortgage payment was about to balloon by 30 percent, he had a clear picture of how bad it could get.

His payment was scheduled to surge by an extra $1,500 in December. With his daughter headed to college next fall and tuition to be paid, he feared ending up like so many neighbors in Ft. Lauderdale, Fla., who defaulted on their mortgages and whose homes are now in foreclosure and sporting "For Sale" signs.

Colombo did manage to renegotiate a new fixed interest rate loan with his bank, and now believes he'll be OK -- but the future is less certain for the rest of us.

In the months ahead, millions of other adjustable-rate mortgages like Colombo's will reset, giving them a higher interest rate as required by the loan agreements and leaving many homeowners unable to make their payments. Soaring mortgage default rates this year already have shaken major financial institutions and the fallout from more of them, some experts say, could spread from those already battered banks into the general economy.

The worst-case scenario is anyone's guess, but some believe it could become very bad.

"We haven't faced a downturn like this since the Depression," said Bill Gross, chief investment officer of PIMCO, the world's biggest bond fund.
He's not suggesting anything like those terrible times -- but, as an expert on the global credit crisis, he speaks with authority.

"Its effect on consumption, its effect on future lending attitudes, could bring us close to the zero line in terms of economic growth," he said. "It does keep me up at night."

Some 2 million homeowners hold $600 billion of subprime adjustable-rate mortgage loans, known as ARMs, that are due to reset at higher amounts during the next eight months. Subprime loans are those made to people with poor credit. Not all these mortgages are in trouble, but homeowners who default or fall behind on payments could cause an economic shock of a type never seen before.

Some of the nation's leading economic minds lay out a scenario that is frightening. Not only would the next wave of the mortgage crisis force people out of their homes, it might also spiral throughout the economy.

The already severe housing slump would be exacerbated by even more empty homes on the market, causing prices to plunge by up to 40 percent in once-hot real estate spots such as California, Nevada and Florida. Builders like Chicago's Neumann Homes, which filed for bankruptcy protection this month, could go under. The top 10 global banks, which repackage loans into exotic securities such as collateralized debt obligations, or CDOs, could suffer far greater write-offs than the $75 billion already taken this year.

Massive job losses would curtail consumer spending that makes up two-thirds of the economy. The Labor Department estimates almost 100,000 financial services jobs related to credit and lending in the U.S. have already been lost, from local bank loan officers to traders dealing in mortgage-backed securities. Thousands of Americans who work in the housing industry could find themselves on the dole. And there's no telling how that would affect car dealers, retailers and others dependent on consumer paychecks.

Based on historical models, zero growth in the U.S. gross domestic product would take the current unemployment rate to 6.4 percent. That would wipe out about 3 million jobs from the economy, according to the Washington-based Economic Policy Institute.

By comparison, in the last big downturn between 2001-03 some 2 million jobs were lost, according to the Labor Department. The dot-com bust early this decade decimated the technology sector, while the Sept. 11, 2001, terror attacks hurt the transportation and allied industries. Economists said the country was officially in recession from March to November of 2001, but the aftermath stretched to 2003.
There is increasing evidence that another downturn has begun.

Borrowers who took out loans in the first six months of this year are already falling behind on their payments faster than those who took out loans in 2006, according to a report from Arlington, Va.-based investment bank Friedman, Billings Ramsey. That's making it even harder for would-be buyers to get new mortgages -- a frightening prospect for home builders with projects going begging on the market, and for homeowners desperate to unload property to avoid defaulting on their loans.

Meanwhile, the number of U.S. homes in foreclosure is expected to keep soaring after more than doubling during the third quarter from a year earlier, to 446,726 homes nationwide, according to Irvine, Calif.-based RealtyTrac Inc. That's one foreclosure filing for every 196 households in the nation, a 34 percent jump from just three months earlier.

Such data suggests more Americans could lose their homes than ever before, and those in peril are people who never thought they'd welsh on a mortgage payment. They come from a broad swath -- teachers, pharmacists, and civil servants who were lured by enticing mortgage terms.

Some homebuyers gambled on interest-only loans. The mortgages, which allowed buyers to pay just interest at a low rate for two years, were too good to pass up. But with that initial term now expiring, many homeowners find they can't make the payments. The hopes that went along with those mortgages -- that they'd be able to refinance because the equity in their homes would appreciate -- have been dashed as home prices skidded across the country.

"It's been said a lot of people have been using their homes as ATM machines," said Thomas Lawler, a former official at mortgage lender Fannie Mae who is now a private housing and finance consultant. "The risk has a lot of tentacles."

This example illustrates the distress many homeowners are in or will find themselves in: A subprime adjustable-rate mortgage on a $400,000 home could have payments of about $2,200 a month, with borrowers paying 6.5 percent, interest only. When the teaser period expires, that payment becomes $4,000, with the homeowner paying 12 percent and now having to come up with principal as well as interest.

Minneapolis resident Chad Raskovich found himself in a such a situation. He hoped -- it turned out, in vain -- to gain more equity in his home and that a strong record of payments would enable him to secure a better loan later on.

"It's not just me, it's a lot of people I know. The housing market in the Twin Cities has dramatically changed for the worse in the years since I purchased my home. Now we're just looking for a solution," he said.

Colombo, who lives in the planned community of Weston just outside Ft. Lauderdale, said the reset on his home would have "destroyed' his financial situation. He went to Mortgage Repair Center, one of hundreds of debt counselors trying to bail out desperate homeowners, to work with his lender.

"But many people in my neighborhood didn't get help, and some have literally just walked away from their homes," said Colombo. "There are over 133,000 homes on the market in Broward-Miami-Dade counties, and some of them were actually abandoned. People in this situation don't like to talk about it, and end up getting hurt because they don't."

Many Americans are unaware that a borrower defaulting on a loan can have an impact on everyone else's well-being and that of the nation. After all, the amount of mortgages due to reset is just a fraction of the United States' $14 trillion economy.

But the series of plunges that Wall Street has suffered in past months prove that no one is immune when mortgages turn sour.

Today's financial system is interconnected: Mortgages are sold to investment firms, which then slice them up and package them as securities based on risk. Then hedge and pension funds buy up such investments.

When home prices kept rising, these were lucrative assets to own. But the ongoing collapse in housing prices has set off a chain reaction: Lenders are tightening their standards, borrowers are having a harder time refinancing loans and the securities that underpin them are in jeopardy.

This has resulted in more than $500 billion of potentially worthless paper on the balance sheets of the biggest global banks -- losses that could spill into the huge pension and mutual funds that also invest in these securities and that the average worker or investor expects to depend on.

There's more pain left for Wall Street: "We're nowhere close to the end of the collapse," said Mark Patterson, chairman and co-founder of MatlinPatterson Global Advisors, a hedge fund that specializes in distressed funds.

"I just assumed banks could stomach these kind of losses," said Wendy Talbot, an advertising executive when asked about the subprime crisis outside of a Charles Schwab branch in New York. "I guess you don't really pay attention to things until your forced to. ... You put out of your mind the worst things that can happen."

The subprime wreckage could dwarf the nation's last big banking crisis -- the failure of more than 1,000 savings and loans in the 1980s. The biggest difference is that problems with S&Ls were largely contained, and the government was able to rescue them through a $125 billion bailout.

But this situation is far more widespread, which some experts say makes it more difficult to rein in.

"What really makes this a doomsday scenario is where would you even start with a bailout?" housing consultant Lawler asked.

Sen. Charles Schumer, D-N.Y., a key member of Senate finance and banking committees, said borrowers are the ones who need relief. The playbook to bail out the economy would not be applied to the banks and mortgage originators, but money could be funneled through non-profit organizations to homeowners that need help, he said in an interview with The Associated Press.

"There is a worst-case scenario because housing is the linchpin of our economy, and more foreclosures make prices go down, that creates more foreclosures, and creates a vicious cycle," Schumer said. "You add that to the other weakness in the economy -- on one end is the home sector and the other is the financial sector -- and it could create a real problem."

He also believes Federal Reserve Chairman Ben Bernanke should do more to help the economy. Bernanke said in recent comments he has no direct plans to bail out the mortgage industry, but to instead offer relief through cheap interest rates and further liquidity injections into the banking system.

There's also been talk of letting government-backed lenders like Fannie Mae and Freddie Mac buy mortgages of as much as $1 million from lenders, pay the government a fee for guaranteeing them and then turn them into securities to be sold to investors. This would extend the government's support, and its exposure, to the mortgage market to help alleviate stress.

Either way, the impact of a fresh round of subprime losses remains of paramount concern to economists -- especially since there's little certainty about how it would ripple through the U.S. economy.

"We all know that more hits from these subprime loans are coming, but are having a devil of a time figuring out how it will happen or how to stop it," said Lawler, who was once chief economist for Fannie Mae.

"We've never been in this situation before."

How many times do we have to read that “we’ve never been in this situation before,” or “we are going to see economic times the likes of which no living person has seen,” before we get the picture?

Another phrase we have heard often recently is that we are seeing the worst housing numbers for 17 years. They are referring to the financial and housing crisis of 1990. Back then, U.S. banks were dangerously close to failure. What bailed the banking system out from under a lot of bad real commercial estate loans was the Gulf War of Bush I.

George H.W. Bush, while throroughly evil, was far more shrewd than his idiot son. Bush gave Saddam Hussein the green light to invade Kuwait, then turned around and called him Hitler. Bush then produced faked intelligence indicating that Iraq had massed forces on the Saudi border. This scared the daylights out of the Saudi rulers, who then, along with Japan and all other major industrial powers, bankrolled the war. Here is the important point: for the first time in their history, the oil-rich Saudi rulers had to BORROW billions of dollars to finance the war against Saddam Hussein. They never had to borrow money before. Of course, they borrowed it from U.S. banks. These banks were now able to show those loans as assets – and what better quality loans can you have then ones given to the Saudis? This prevented a collapse of the banking system. Not only that, but the United States actually made a PROFIT on the first Iraq War.

Contrast this with the second Iraq War. The United States has bankrupted itself running a losing war costing trillions. The U.S. government, being essentially bankrupt, has few resources to bail out its financial institutions, and even less to help its citizens weather the storm.

It may be that we are entering the end of a much larger cycle than mere business cycle. Could we be nearing the end of four centuries of capitalism? It is worth thinking large at this point in history. Ran Prieur does just that:

One of the repeating themes of this website is that top-down control is self-defeating, and top-down control with positive feedback is aggressively self-defeating. The elephant in the parlor, the giant control/feedback mechanism that no one sees, is the concept of "owning" something that you don't use. When someone owns something that they don't use, their attention is focused not on how to use it better, but on how to own more. If you've ever taken out a loan, the bank owned the money that you were using, and you were required to use it in such a way that the bank's realm of ownership increased. You probably live in a place that a bank or landlord owns, and you have to pay mortgage or rent, through which the owner gets richer and is able to own more. Interest and mortgage and rent are simply social customs that say, "Those who have less must give to those who have more, so that power can be concentrated and control can increase" until the whole thing becomes unstable and collapses.

The latest collapse phase has begun. The takers are now so rich, and the givers so poor, that the givers can no longer afford to pay the monthly tribute that our culture requires you to pay to merely occupy space. This appears in the physical world as more and more homeless people and abandoned houses. We have homeless people and abandoned houses because our culture is psychotic. In five or ten years, the situation will become so absurd and desperate that our individual habits of docility and submission will break down, and ordinary people will have a strange and radical thought that was completely obvious to all their ancestors from the first land animal until the first fence: the only person who "owns" a piece of land is the person who is actually occupying it. And since we all occupy land, we are all owners, and therefore we can factor out the whole concept of "owning," and just say, "we live on this land."

Right now this movement is still on the fringe. Here's a site, Homes not Jails, that advocates for squatting and "adverse possession," which is the last legal shred of the traditional custom that land belongs to whoever is able to respectfully live there.

Another way of looking at this is to ask the question, how many people can be evicted from their homes in foreclosure? Is there a ceiling, a certain percentage above which the system collapses, above which the exploited no longer give their consent to their exploitation? Will the system pull back before it reaches that point? Can it?

Labels: , ,

Monday, November 19, 2007

Signs of the Economic Apocalypse, 11-19-07

From Signs of the Times:

Gold closed at 787.00 dollars an ounce Friday, down 6.1% from $834.70 at the close of the previous week. The dollar closed at 0.6821 euros Friday, up 0.1% from 0.6814 at the close of the previous Friday. That put the euro at 1.4662 dollars compared to 1.4676 the Friday before. Gold in euros would be 536.76 euros an ounce, down 6.0% from 568.71 for the week. Oil closed at 93.84 dollar a barrel Friday, down 2.6% from $96.32 at the close of the week before. Oil in euros would be 64.00 euros a barrel, down 2.5% from 65.63 for the week. The gold/oil ratio closed at 8.39 Friday, down 3.3% from 8.67 at the end of the week before. In U.S. stocks, the Dow closed at 13,176.79 Friday, up 1.0% from 13,042.74 for the week. The NASDAQ closed at 2,637.24 Friday, up 0.4% from 2,627.94 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.15% Friday, down six basis points from 4.21 for the week.

Gold fell sharply last week, pulling back in a correction after many weeks of steady increase. Oil eased off a bit, too, and the dollar stopped dropping. All in all a welcome respite from some frightening trends. But, most likely only a respite. The bad fundamentals haven’t changed.

George Ure published a letter from his attorney that sums up the fundamentals pretty well:

My more "back of the envelope" math from last week about the extent of the "problem"

Amount of basic paper supporting the derivatives game $9 trillion dollars

Approximate amount of large firm write downs to date from the sub-prime fall out; $25 Billion Dollars


1) Generally only the better paper was held "in house" so the quality of the paper held by so far unreporting third parties is worse

2) Amount of paper retained in house would be 5% or less of the paper generated (probably more like 2.5% but that would make the final numbers even worse so I will stick at 5% for these assumptions)

3) Amount of writedowns still to come from the large firms ... approximately equal to that which have already been reported (ie: large firms that have not yet reported and the ones that have will be increasing the amounts of their writedowns as time moves forward)

25 billion (5% of the paper generated) x 20 (the total amount of paper generated) = $500 billion dollars losses so far x 2 (write-offs at the big firms will eventually be twice what they have taken so far) = 1 Trillion dollars in losses by all holders.

Oh ... and this does NOT add in any losses on consumer debt paper, leverage buy out paper, etc.. If the economy tanks big time those items may add in several hundred more billion in losses thus raising the ultimate loss amount to the 1.3 to 1.5 trillion level +-

Of course this is a "back of the envelope" look at the problem but I think I can for sure say that we are probably looking at $1 trillion dollars +- of paper destruction as this unwinding works it's way through the system.

One thing to keep in mind: While the overall paper "debt" load supporting the derivatives game stands at about 9 trillion dollars much of that is US Government securities, the basic amount of which which will NOT be written down at all since that is solid paper (though the Dollar itself may drop precipitously) ... so this write down will ALL come out of the public side of the debt, which will actually make the write down amounts VERY HIGH as a percentage of public debt out there which supports the derivatives markets…

Instead of a potential death by one cut, such as the system was looking at with LTCM a few years back, this time around the potential may be death by a thousand cuts as smaller risk assumer after risk assumer bites the dust as the underlying securities supporting the derivatives pyramid fall into insolvency and liquidation situations.

I assume the FED will provide enough liquidity during this collapse to keep the system from locking up, but such a liquidity injection will have to be so massive that it will probably further fuel the fires causing the Dollar collapse and could easily stoke massive internal inflation within the US.

Just a country attorney who is sitting out here scratching my head and amazed that others are actually amazed at what is happening. Stripped down to its basics this is actually a very simple and easily foreseeable problem.

So the bottom line is that “the system,” the one that works for the interests of those who contol inconceivable amounts of wealth, will be prevented from locking up by collapsing the dollar and destroying the standard of living of nearly everyone. And at this point, who could blame the Fed, since not flooding the system with money would cause massive deflation which would also destroy the standard of living of nearly everyone. This is the end result of neoliberal financial deregulation, or “innovation” as the neolibs call it.

Given that, why would anyone want to adopt this system? The only ones who would are the few who would stand to gain unimaginable wealth. The rest would ultimately have their lives ruined. It is hard for Americans who have lived through all this to sit back and watch France begin to go down this path. The stage was set for a showdown last week between Sarkozy and the transit workers, but, as happened so often in the United States, the strikers were betrayed by the union leaders.

France: Sarkozy seeks confrontation with the working class

Peter Schwarz

14 November, 2007

France faces a confrontation between its right-wing president, Nicolas Sarkozy, and the working class which could develop into one of the bitterest social clashes in recent French history.

On Tuesday evening employees of the national railway company (SNCF) stopped work. Seven of the eight trade unions represented in the SNCF have called an unlimited strike, the course of which is to be decided on by the unions on a daily basis. On Wednesday the staff of the Paris Metro, as well as gas and electricity workers, are to join the strikers.

A week from Wednesday, November 21, will see a day of action by public service workers to defend wages, and on November 29 employees of the French judicial system plan to demonstrate against a planned judicial “reform.” French students have already been protesting in recent days against a “reform” of the universities, and several universities have been taken over by protesting students.

At the heart of the various disputes are the special pensions paid to state-employed workers. The so-called “régimes spéciaux” have their roots in the 19th century and allow state employees engaged in particularly arduous occupations to retire at either 50 or 55. Those with 37.5 years seniority are entitled to a full pension (i.e., 75 percent of the wage level at the time of retirement).

Such régimes spéciaux exist for a variety of professions in France, although the most significant groups of workers affected are the railway workers and employees of the gas and electricity companies. In the case of French Railways, a workforce of 164,000 is complemented by a total of 300,000 pensioners.

Gas and electricity companies have a total workforce of 145,000 and an equal number of retired workers. The Metro employs 45,000 workers and has an equivalent number of retirees.

The deficit arising from the special pension schemes is drawn from the national budget and it is reckoned that the state contribution this year to the pension scheme of just the SNCF will total 2.7 billion euros.

For the French ruling elite, the abolition of such régimes spéciaux is a crucial step in cutting back all forms of social welfare—even more for political than for economic reasons.

The railway, gas and electricity workers traditionally are among the most militant layers of the French working class. When former president Jacques Chirac and his prime minister at the time, Alain Juppé, sought to eliminate the régimes spéciaux in 1995 they were met with a strike wave that paralyzed France for a period of weeks.

Juppé was obliged to make a partial retreat and Chirac never again dared to challenge the special pensions. Even when the social minister at the time (now the prime minister), François Fillon, implemented an unpopular pension reform in 2003, he made an exception for the régimes spéciaux.

Sarkozy now wants to bite the bullet. In a clear allusion to the back-down by Chirac and Juppé, he declared last Friday, “I will not do what others have done before.” He called the abolition of the special pensions to be a test case for the “rupture” he had promised in the election campaign, thereby investing his entire personal prestige in carrying through such a policy.

It is highly unusual for a French president to intervene so publicly and directly into a dispute relating to domestic affairs or industrial relations. This is usually the task of the prime minister. Traditionally, this gives the president room to replace the government should the planned confrontation not go as planned.

This is not the path chosen by Sarkozy. “It’s either you or me,” is his message to railway workers, and he has left little room for compromise or retreat.

“Victory or the premature end of Sarkozyism. It is in these terms and with a high level of risk for himself that the president has defined the framework of the first major social conflict he confronts,” wrote Liberation.

During a visit to Germany on Monday, Sarkozy stressed his determination to remain firm. He praised the “great reforms” carried out in Germany as a model for France, and added that now was the time to be “cold blooded.”

“We were elected to change France,” he said, “and we are carrying out these reforms, because they have to be made.”

One of the closest advisors to the president, Henri Guaino, was even more explicit. “If we are incapable of carrying out this reform then we might as well just give up, because we will be unable to carry out any sort of reform,” he said.

One-and-a-half years ago, Sarkozy demonstrated a degree of flexibility following mass demonstrations against the “first job contract” (CPE), but now he is utterly unyielding. At that time, he had his eye on the post of president and, according to Le Monde, the issue “was to get rid of his image as an uncompromising advocate of law-and-order and win support from the left... Today the calculation is completely different. Even the smallest deviation from such a symbolic project as the régimes spéciaux would seriously weaken his ability to reform the country.”

The conservative Le Figaro newspaper noted that in France, a president wins his “true legitimacy” only by confrontation on the streets. The newspaper added: “And through victory on the streets wins (or loses) his ability to push ahead further with his reforms and put into practice the rupture he announced more than a year ago.”

Le Figaro continued, “If Nicolas Sarkozy is victorious in his first attempt, when everybody forecast a dead end, the way is free to challenge many of the outdated relics of the French social model.”

Thus, there is much more at stake in the dispute over the régimes spéciaux than the pensions of railway workers.

Sarkozy is able to base his offensive against the working class on two factors: the bankruptcy of the Socialist Party and the treacherous role of the trade unions. His election victory in May was primarily due to the fact that the Socialist Party had completely discredited itself with its right-wing policies. Since the election, the party has drifted even further to the right and is rent by internal divisions.

Six months after taking over as president, and in the absence of any serious opposition from within the political establishment or from the unions, Sarkozy has been able to maintain a certain degree of popularity. According to a recent poll by Libération, 59 percent of those polled supported his stand against the régimes spéciaux.

Libération also pointed out, however, that the tide is shifting against Sarkozy. More than half of those polled declared he had failed in the spheres of employment and budgetary policy. With regard to purchasing power, 79 percent expressed criticism of the president—a clear consequence of rising inflation, which has created problems for an increasing share of the population. In total, just 54 percent expressed a positive opinion about the president—his lowest rating since the election. In September, the figure had stood at 66 percent.

The trade union leaders are aware of the fact that the dispute over the régimes spéciaux constitutes a struggle against Sarkozy and his government. This is something they wish to avoid at all costs, and all of their comments have stressed this point. They bitterly deplore the way in which the government has worked to exacerbate the conflict for political purposes, and they plead for an opportunity to sit down around the negotiating table.

In an interview with Libération, the leader of the Communist Party-dominated CGT (General Confederation of Labor) railway union, Didier Le Reste, declared that he “regretted this instrumentalisation for political purposes.” There were “possibilities for resolving this conflict situation at a leadership level,” he said, but it was necessary “to put an end to all the secretiveness and bilateral meetings” and “call a national round table.”

The general secretary of the Force Ouvrière union federation, Jean Claude Mailly, stressed to Le Monde that his organization did not want any “a priori connection with the strike by state employees” on November 21, nor with the protests by students. “We are not an anti- Sarkozy movement with a political character,” he stated. In addition, he said, there were clear differences between régimes spéciaux applying to Metro and electricity workers—meaning every company had to carry out separate negotiations.

The leader of the Socialist Party-influenced CFDT (French Democratic Confederation of Labour), François Chérèque, went even further and threatened: “If it comes down to a combination of movements against the régimes spéciaux involving state employees and who knows what, we reserve the right to withdraw [from the strike movement].”

The trade union leaderships are gripped by panic at the prospect that the dispute over Sarkozy’s “reforms” could broaden into a mass movement which could challenge the authority of the government and the president. This would inevitably lead to a political crisis and rock the entire political system upon which the power of the ruling elite is based.

But, in fact, there is no other way for workers to conduct the struggle. Sarkozy has long since transformed it into a question of power.

It is already clear that the trade unions, with the backing tacitly or openly of the Socialist Party and Communist Party, will do everything in their power to sabotage the movement as it grows in strength.

And, just as predicted, later in the week the union leadership began to betray the strikers:

French union leaders seek to strangle rail strike

Peter Schwarz and Antoine Lerougetel

16 November 2007

A number of commentaries in the French press on Thursday make clear that the General Confederation of Labour (CGT) is preparing a betrayal of historic proportions.

On Tuesday, on the eve of strikes by rail workers and gas and electrical employees in defence of the régimes spéciaux—special pensions for certain public sector employees—CGT leader Bernard Thibault asked for a discussion with French Employment Minister Xavier Betrand in order to smooth the way for negotiations.

Since the outbreak of the strikes, which have shut down much of the country’s transport system, the government of President Nicolas Sarkozy has responded to Thibault’s initiative and offered the unions one month of negotiations at either an industry or factory level. The government has said that should there be no agreement after one month, it will unilaterally impose its pension “reform,” i.e., major cuts in pension benefits.

Thibault’s initiative is being treated by the press as a bid to effect a speedy end to the strike movement, which threatens to develop into the biggest social conflict in more than a decade. It is also being hailed as the herald of a “new social culture,” in which militant strikes will be a thing of the past and the unions will cooperate “responsibly” with companies and the government.

The newspaper Libération points out that Thibault’s initiative is unprecedented. It writes, “Never before has a general secretary of the CGT personally called the employment minister of a right-wing government, as did Bernard Thibault on Tuesday, to propose a meeting... and the beginning of negotiations while, as an indication of good will, making an important concession.”

According to Libération, the leadership of the CGT “made a strategic choice with its opening to the government, i.e., the rejection of an ‘all or nothing attitude.’”

The newspaper makes clear that Thibault’s initiative has helped the government out of a fix. Libération writes that the team led by Sarkozy feared “that the crisis could go on for some time and the strike over the régimes spéciaux could coincide with the action planned by state administrators next Tuesday.”

It continues: “Sarkozy’s power has lost credibility with regard to economic questions. All recent polls demonstrate that the French do not expect his government to bring about any improvement in their living conditions. It was therefore necessary to prevent the current conflicts from expanding into other branches and a situation where all those dissatisfied layers of every variety took to the streets...”

Similar comments have appeared in other newspapers.

The editor-in-chief of the Nouvel Observateur, Jean Marcel Bouguereau, declared: “With his proposal to the government on Tuesday evening, the boss of the CGT has broken a taboo in a manner without precedent just a few hours before a major strike.”

If one reads the editorials of the pro-government Le Figaro, one can almost hear the sound of champagne corks popping in the salons of the rich and powerful. The conservative newspaper is already celebrating the “victory” of Sarkozy and calls it “an important stage in the development in our ‘social model’ and a crucial date in the history of social relations in our country—a diminution of the trade union strike culture, of the power to systematically say no and resort to the barricades.” The situation provides proof, the newspaper continued, “that with will and method, one can reform France.”

When it refers to “reform,” this mouthpiece of big business means the dismantling of social security benefits and employees’ rights and the removal of all obstacles to the unrestrained attainment of wealth by a small minority. According to a recently published social analysis, the richest ten percent of Frenchmen earn “only” 3.15 times as much as the poorest ten percent. That is less than ten years ago, when the factor was 3.35. In other countries, such as Germany and the US, the gulf between the earnings of the rich and poor is much greater.

The findings of this study seem to be belied by conditions in France, where the sharp disparities in wealth are very evident. Nevertheless, such a state of affairs is intolerable for the ruling elite. They feel handicapped in their quest for ever greater wealth by the demands made by workers, and now detect a chance to finally turn things around. This mood is shared by Sarkozy, who recently increased his own presidential salary by 172 percent and is friendly with some of the richest men in the country.

Figaro represents the views of such layers when it writes: “The French have changed. One sees the awakening of a genuine sense of responsibility instead of the simple repetition of outdated slogans—the French social model, the right to a pension, the unrestricted right to strike, free health care for all, an unchallengeable right to work. They know that one cannot evade a reality which our neighbours have already embraced.”

All of the press commentaries are united in regarding the main problem for Thibault and Sarkozy to be the determined resistance of union members and strikers, who reject the capitulation being prepared by the CGT.

The CGT “must still convince its troops to follow its lead,” Libération writes. “This is not clear in advance under conditions where a political culture prevailed for many decades over union realism.”

Le Figaro declares: “To accept the negotiations proposed by the government at a factory level, without at the same time losing control of its own troops, is the challenge confronting the union leaders, and in particular Bernard Thibault and the railway workers [officials]…”
Sarkozy, representing the interests of the wealthy who would like to become super-wealthy, shrewdly decided to begin the “reform” process by going after the social benefits that are the hardest to justify, special arrangements with particular occupations for early retirement. This makes sense for Sarkozy because these are not benefits available to all. He can then divide and conquer. And, “reasonable” union leaders may decide that these special benefits are not the best ones to make a last stand on. But once the “reform” process gathers steam, it becomes harder and harder to stop, so the French would be well-advised to take a firm stand earlier rather than later.

As someone from the United States who commented on this article in the Signs of the Times Forum wrote:

There are several things I like about France, however there are two that I truly ADMIRE about the French.

1) The General Strike.

2) The 4 to 7 weeks VACATION + holidays a year.

The General strike is the only equalizing instrument of power that the working classes have in this global elite nightmare paradigm. I pray/meditate the French do not allow Sar-Cold-zy to rape them. I so wish we could call a general nationwide strike here in the USA, where we could shut down the entire country for 2-3 days to regain what power the working class has lost in the past 70 years. Then, the PTB will finally be challenged. It has been far too easy for these reptiles.

The U.S.A. has been so thoroughly sucked dry of reason that people here believe that 4 - 7 weeks VACATION + holidays is BAD! I am not joking. Americans who have lived overseas though and have returned really UNDERSTAND how completely insane the labor situation is, and can SEE the government propaganda concerning work, work, work - the American Way – work, work, work for no vacation - work for no living wage - work for a 30 minute lunch or no lunch - work overtime - work for no insurance - work and just be grateful you have job!!! Now Work!

Since the 80’s, vacation time hasn't increased as one might suspect in the "richest" country in the world, but rather decreased to the all time low of NO vacation to 5 days a year + some holidays. 5 DAMN days a year and you can almost guarantee 3 of those days it's going to rain! And here is the most unbelievable of all, many Americans aren’t using all the vacation days they do have because they fear losing money and/or their job!?!

I am here to write in big bold letters that, 4 - 7 WEEKS VACATION A YEAR ISSSSSS GOOD!!! YES, IT IS CIVILIZED - IT IS ETHICAL - IT IS HUMAN. The Europeans have gotten this right. I am not a Euro-phille, I am simply stating TRUTH.

For those who have never visited the USA and have wondered why so many people are clueless about so many things that really matter....well, part of the reason why is that - generally speaking - we HAVE NO TIME TO THINK because we are working - working - working for reptiles. We haven't any time to reflect on a subject/topic/issue domestically or internationally or to read in-depth magazines or books.

If every HUMAN being in the working class in the USA had 4 - 7 weeks vacation a year + holidays, to travel at LEISURE in their own country and abroad, and so had enough RELAX time to read, think, dialogue, and ponder the actions of both their local community and national leaders, IMO the USA would be a more civilized country and not the Frankenstein nation it has become.

I am with the French and the German workers completely. To me though, France is the frontline, however this fight I feel is bigger than the country of France alone since this latest elizard-ist attack is really an attack on the whole of humanity, and its last citadel of CIVILIZED labor law. Imo, it will take ALL of the grit, determination, and persistence of the French to persevere.

Sar-Cold-zy has laid down the gauntlet, now let the French people pick it up and smack him in the face with it! Otherwise… the French could end up with the American Labor Scam: a descending octave, and as history demonstrates, when American reality becomes YOUR reality, there’s really no way back.

IMO, France you REALLY don’t wanna go there.

Labels: , , ,

Monday, November 12, 2007

Signs of the Economic Apocalypse, 11-12-07


Gold closed at 834.70 dollars an ounce Friday, up 3.2% from $808.50 at the close of the previous week. The dollar closed at 0.6814 euros Friday, down 1.2% from 0.6894 at the close of the previous Friday. That put the euro at 1.4676 dollars compared to 1.4504 the Friday before. Gold in euros would be 568.71 euros an ounce, up 2.0% from 557.43 for the week. Oil closed at 96.32 dollars a barrel, up 0.4% from $95.93 at the close of the week before. Oil in euros would be 65.63 euros a barrel, down 0.8% from 66.14 for the week. The gold/oil ratio closed at 8.67 Friday, up 2.8% from 8.43 at the end of the week before. In U.S. stocks, the Dow closed at 13,042.74 Friday, down 4.2% from 13,595.10 for the week. The NASDAQ closed at 2,627.94 Friday, down 6.9% from 2,810.38 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.21% Friday, down ten basis points from 4.21 for the week.

The dollar continued to fall last week, and losses accelerated in the stock market last week. In the United States the Dow fell 4% and the NASDAQ nearly 7%. Gold gained another 3% in dollars and 2% in euros. The only bright spot was oil, which gained only four tenths of a percent in dollars and lost nearly eight tenths of a percent in euros.

The U.S. Federal Reserve Board seems to have lost control of the situation.The Fed’s usual remedy, pumping money into the system, is making the disease worse. The reason is that the Fed creates money by lending it to banks who lend it to everyone else. The problem is that everyone except speculators are all borrowed out, so the speculators have more cheap money to speculate with unproductively via hedge funds. That has kept stock prices from collapsing but has done nothing to fix the underpinnings of the crisis. According to Mike Whitney,
The charade cannot go on forever. And it won't. Rate cuts do not address the underlying problem which is bad investments. The debts must be accounted for and written off. Nothing else will do. That doesn't mean that Bernanke will suddenly decide to stop savaging the dollar or flushing hundreds of billions of dollars down the investment bank toilet. He probably will. But, eventually, the blow-ups in the housing market will destabilize the financial system and send the banks and over-leveraged hedge funds sprawling. Bernanke's low interest "giveaway" will amount to nothing.

The deregulation of the financial industry during the past 25 years caused this mess. And it was completely foreseeable. But the people who pushed it through knew they could make unimaginable amounts of money on the boom caused by lack of regulation and, it they are smart or connected enough, get out while they are ahead leaving the rest of us to pick up the tab. Pam Martens uses the example of Citigroup to illustrate the problem:

The Toxic Giant and It's Own Black Hole
Wall Street Metes Out Street Justice to Citigroup

By Pam Martens

November 6, 2007

After years of receiving slaps on the wrists by regulators for helping insolvent companies hide the true state of their finances from investors, Citigroup's day of reckoning has arrived in the form of "street" justice.

Wall Street colleagues are publicly challenging the adequacy of Citigroup's capital, its accounting practices, and its own black hole-Cayman Islands debt structures. Some of the oldest Wall Street firms are also refusing to pony up billions for a grand scheme endorsed by the U.S. Treasury, ostensibly to unfreeze debt markets. Wall Street firms see it as a bail out of Citigroup and just one more free ride from the Feds.

Citigroup has been repeatedly charged in investor lawsuits with creating off balance sheet structures to hide the debt of large U.S. firms such as Enron. In each case, it has been allowed to pay millions to regulatory bodies and billions to private plaintiffs to settle the charges without an admission of guilt and avoid a public trial. These trials, however, might have provided critical transparency and an early warning to the public and its colleagues on Wall Street.

But next year, Citigroup will face trials in both Italy and the U.S. in two separate actions for creating off balance sheet structures that plaintiffs contend were significant contributors to the bankruptcy of the giant Italian milk company, Parmalat. Citigroup named one of these structures Buconero, Italian for "black hole." Another structure Citigroup set up for Parmalat sold commercial paper, backed by fake invoices, to U.S. money market funds. Citigroup contends it was "the victim" in all matters related to Parmalat.

The U.S. trial, set for May of 2008 in a New Jersey State Court, is not being brought by a U.S. prosecutor, but an Italian trustee for Parmalat, Enrico Bondi.
Dave Serchuk, a reporter for Securities Week at the time, reported in its February 2, 2004 issue that Citigroup had bundled essentially worthless Parmalat debt and sold it in the form of asset backed commercial paper to what U.S. investors thought were among the safest and most liquid investments: money market funds. Unfortunately, the incendiary Parmalat/Citigroup money market story failed to get picked up by mainstream media.

Now, once again, one of the most troubling aspects of the current Citigroup debacle that has gone unreported is the extent to which these opaque and convoluted debt instruments managed by Citigroup, called CDOs (collateralized debt obligations), got dumped into Cayman Islands SIVs, transmuted into AAA-rated commercial paper, landed in the so-called safe money market funds in the U.S., including an astonishing amount at Citigroup's competitor, Merrill Lynch.

According to Standard & Poor's Structured Finance research reports, Citigroup is managing the following Structured Investment Vehicles (SIVs), incorporated in the Cayman Islands and not consolidated on Citigroup's balance sheet: Centauri Corp., Beta Finance Corp., Sedna Finance Corp., Five Finance Corp., and Dorada Corp. (1) In addition, according to press reports, Citigroup created two more SIVs as recently as November 2006: Zela Finance Corp. and Vetra Finance Corp. (2) These SIVs contain approximately $80 Billion in what is increasingly being viewed as toxic debt.

Knowing the history of Citigroup and knowing the safety and liquidity requirements for money market funds, how did one of the oldest and most sophisticated firms on the street, Merrill Lynch, end up with a boatload of this SIV paper in its various money markets? The most troubling of its money market exposure as of its July 31, 2007 filing with the SEC is its Citigroup managed SIV commercial paper positions in what one would think would be the safest of all its money market funds, the Merrill Lynch Retirement Reserves Money Fund. Merrill's SEC filing shows $52.9 Million in Beta Finance, $53 Million in Five Finance, $10 Million in Sedna Finance, and $10.7 Million in Zela Finance. (3)

In a research report written by Meredith Whitney for CIBC World Markets on October 31, 2007, there is a key clue to why Citigroup has finally lost the confidence of the street: "While Citigroup has stated that it will not consolidate the assets of these 7 SIVs, it will continue to provide liquidity. As such, Citigroup's assets would increase as it extends short term funding to SIVs. With a bigger asset base, or denominator, Citigroup's capital ratios would decline. While not specifically disclosed, we know that part of the 6% sequential increase in Citigroup's 3Q07 total assets was from the addition of commercial paper issued to SIVs." (Translation: it can't find a new sucker to roll over its maturing SIV commercial paper; it has become the sucker of last resort along with its balance sheet.)

Citigroup's ignoble beginning foreshadowed its sorry state today. It is the Frankenbank created back in 1998 out of the body parts of Travelers Insurance, Salomon investment bank, Smith Barney brokerage, and retail banking giant Citibank, with the brain of Wall Street titan, Sandy Weill, implanted firmly to run a confidence game of unprecedented proportions. (Mr. Weill retired from the firm a few years ago after it made him a billionaire.)

Citigroup's creation required the repeal of depression-era investor protection legislation (Glass-Steagall Act) put in place to prevent stock brokerages and investment banks that are prone to high risk, speculation and collapse from merging with commercial banks that hold deposits earmarked for safety by a frequently gullible public.

I recently found in my files from that time a letter addressed to me from one Robert Frierson, Associate Secretary of the Board of Governors of the Federal Reserve System. The letter is dated September 23, 1998. It is one of those quixotic examples of the relics of "we the people" government struggling for air in the "we the corporations" era.

The letter is formal and polite and on watermarked paper with a faint outline of our Nation's capital silhouetted underneath its ominous text. The letter advises me that Frankenbank is going to move forward but my testimony had been considered.

The letter was a followup to the public testimony I gave against the merger on Friday, June 28, 1996 at the Federal Reserve Bank of New York. Galen Sherwin, then President of the National Organization for Women in New York City (now a civil rights lawyer for the New York Civil Liberties Union) and I, then a naively optimistic civil rights litigant against one of Weill's firms, had planned to simply protest outside the building during the testimony by Sandy Weill sycophants. Instead, we were pleasantly surprised to be courteously ushered inside, giant protest signs and all, and afforded a slot to speak on one of the panels. (Both the Federal Reserve's typed transcript of the testimony and my hastily hand scribbled remarks are permanently archived on the web site of this peculiar institution.) (4)

Here is an excerpt of what I had to say nine years and 90 Citigroup market manipulations ago:

"It is amazing how soon we forget. It was just 60 years ago that 4,835 of America's banks went broke and closed their doors, leaving shareholders and depositors destitute. The underlying reason that this happened was the lack of moral courage by our regulators and elected representatives to just say no to powerful money interests. Instead of just saying no, Washington handed the banks the equivalent of an ATM card to the Fed's discount window to speculate in stocks ... We also want to remember that the political dynamics that created the backdrop for the banking meltdown in the '30s grew from a corrupt, cozy culture between Wall Street and Washington ... We can hardly look to the safekeepers of the public trust when they are falling over themselves to reap campaign windfalls from Wall Street. Washington and regulators are quick to criticize moral hazard when it is on foreign shores. Let's look at the moral hazard incubating at Travelers and Smith Barney. In 1996, when the SEC and the Justice Department found that Smith Barney was one of 24 firms fleecing their own customers through six or more years of price fixing, no one went to jail. Within the last two years, when a special prosecutor found that Smith Barney had bribed the former U.S. agricultural secretary, again, no one went to jail. The firm is currently under investigation by various municipalities for the fraudulent markup of treasury securities, and that, in fact, is enough to hold up this merger, since a criminal charge against a primary dealer of treasury securities would lend its taint to one of America's major money center banks ... ."

Ms. Sherwin testified regarding the private justice system at Weill's Salomon Smith Barney that barred employees from accessing the nation's courts as a condition of employment. That system was successfully transplanted to the merged behemoth Citigroup and helps to explain how transparency vanished at what Ms. Sherwin predicted to the Fed in 1998 would "grow into a bloated corporate tyrant."

In the end, all Ms. Sherwin and I had for our efforts was a letterhead souvenir from the Fed and a web site archive reminding us we tried.

We were trumped by a stream of sycophants, nonprofits receiving money from the subject under scrutiny.

Here's a representative example of what the Fed considered against our testimony. Note that this doctor admits he has "no special credentials in business economic matters" and then proceeds to urge the most dangerous financial merger in the history of the world because he likes Sandy Weill, whose name, by the way, is engraved on the building he enters each day to receive a pay check."My name is Alberto Gotto. I am the provost for Federal Affairs at Cornell University and the dean of the Joan and Sanford I. Weill Medical College in New York City. Here as the dean of the medical college in New York City, practicing physician and medical educator, I have no special credentials in business economic matters, but I do want to speak about an area in which I do have special and particular knowledge, and that concerns the excellent corporate citizenship of the Travelers Group and its Chairman and CEO Sanford I. Weill." (5)

The Bush administration would like to spin the current Wall Street crisis as the product of millions of hapless poor people with bad credit ("subprime") defaulting on their mortgages. Thus, it's been dubbed "the subprime mess" in headlines spanning the globe. That poor people were tricked into unconscionable mortgages predestined for foreclosure by a Citigroup subsidiary, CitiFinancial, and other predatory lenders, is but a symptom of the real disease and crisis. (6)

The Citigroup debacle rises from the same ideology creating endless reports on failures of Federal agencies to perform their oversight roles in protecting the American people with the taxes we give them to do just that. Viewed collectively, one can only conclude that the Bush administration has reengineered these taxpayer supported agencies to stand down on corporate malfeasance with a mantra of corporate profits before people and the flimsy overt pretext that free markets will handily function in the place of regulators with subpoena power.

After millions of lead paint infested toys slipped by the Consumer Product Safety Commission, dangerous drugs were rubberstamped by the Food and Drug Administration (FDA), (only to be recalled after hundreds of thousands of injuries, including death), FEMA, the Department of Defense and Attorney General's office discredited for political cronyism, along comes the Citigroup hubris as the poster child crying out for timely enforcement of rules and regulations.

Citigroup's 10k filing with the SEC states that as a bank holding company it is subject to examination by the Board of Governors of the Federal Reserve. Having failed to heed the warnings nine years ago, perhaps the Fed will listen now and hold that long overdue examination.

Pam Martens worked on Wall Street for 21 years; she has no securities position, long or short, in any company mentioned in this article. She writes on public interest issues from New Hampshire.

(1) Standard & Poor's on Citigroup's SIVs
(2) Citigroup creates two more SIVs in November 2006
(3) Merrill Lynch's holdings of Citigroup SIVs as of 7/31/2007 in one money market.
(4) Pam Martens' and Galen Sherwin's testimony to the Federal Reserve Board against the merger creating Citigroup. See Panel 25.
(5) Alberto Gotto's testimony to the Federal Reserve. See Panel 20.
(6) Anita Hill reports in this Boston Globe article how CitiFinancial preyed on the uneducated and minorities.
See additional Congressional testimony here

There was some dark irony last week, with the news that the new personal bankruptcy law in the United States that prohibits individuals from getting out from under credit card debt has caused more problems for banks than the old system by driving foreclosures:
Bankruptcy Law Backfires as Foreclosures Offset Gains

Kathleen M. Howley

Nov. 8 (Bloomberg) -- Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills.

The largest U.S. savings and loan didn't count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.

“Be careful what you wish for,'' Westbrook said. “They wanted to make sure that people kept paying their credit cards, and what they're getting is more foreclosures.”

Washington Mutual, Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a non-partisan Washington group that tracks political donations.

The banks are still paying for that decision. The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for U.S. financial institutions. It also reached to the top echelons of the financial services industry.

Prince Exits

Citigroup Chief Executive Officer Charles O. “Chuck” Prince III stepped down this week after the country's biggest bank by assets said it may have $11 billion of writedowns on top of more than $6 billion in the third quarter. Stan O'Neal was ousted as CEO of Merrill Lynch & Co., the world's largest brokerage, after an $8.4 billion writedown. Both firms are based in New York.

Morgan Stanley, the second-biggest securities firm, said in a statement today that subprime losses will cut fourth-quarter earnings by $2.5 billion. The New York-based bank said it lost $3.7 billion in the two months through Oct. 31 as prices for securities linked with home loans to risky borrowers sank further than traders expected.

Even as losses have mounted, banks have seen their credit card businesses improve. The amount of money owed on U.S. credit cards with payments more than 30 days late fell to $7.04 billion in the second quarter from $8.37 billion two years earlier, according to data compiled by Federal Deposit Insurance Corp.

In the same period, the dollar volume of repossessed homes owned by insured banks doubled to $4.2 billion, the federal agency said. New foreclosures rose to a record in the second quarter, led by defaults in subprime adjustable-rate mortgages, according to the Mortgage Bankers Association in Washington.

‘Let the House Go’

People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive officer of Capital One Financial Corp., the largest independent U.S. credit card issuer. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said.

“What we conclude is that people are saying, ‘Honey, let the house go,”‘ but keep the cards, Fairbank said Nov. 5 at a conference in New York sponsored by Lehman Brothers Holdings Inc.

The new bankruptcy code makes it harder for debtors to qualify for Chapter 7, the section that erases non-mortgage debt. It shifted people who get paychecks higher than the median income for their area to Chapter 13, giving them up to five years to pay off non-housing creditors.

No Help Left

The court-ordered payment plans fail to account for subprime loans with adjustable rates that can reset as often as every six months, said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys. Two-thirds of debtors won’t be able to complete their payback plans, according to the Center for Responsible Lending.

“We have people walking away from homes because they can’t afford them even post bankruptcy,” said Sommer, a Philadelphia- based bankruptcy attorney. “Their mortgage rates are resetting at levels that are completely unaffordable, and there’s nothing the bankruptcy process can do for them as it now stands.”

Four million subprime borrowers with limited or tainted credit histories will see their mortgage bills increase by an average 40 percent in the next 18 months, according to the National Association of Consumer Advocates in Washington. About 1.45 million of those will end up in foreclosure by the end of 2008, said Mark Zandi, chief economist at Moody’s, a research firm and unit of Moody’s Corp. in New York.

Lenders began the process of seizing properties on 0.65 percent of U.S. mortgages in the second quarter, a record in a quarterly Mortgage Bankers study that goes back 35 years. The percentage of subprime borrowers making late payments increased to 14.82, a five-year high, from 13.77.

Bankruptcies Increase

Personal bankruptcies rose 48 percent to 391,105 in the first half of 2007 from a year earlier and Chapter 13 filings accounted for more than one-third of those, according to the American Bankruptcy Institute. In the first half of 2005, they were just 24 percent of the total.

Bad mortgages slashed Washington Mutual’s profit by 72 percent in the third quarter from a year earlier, the Seattle-based thrift said Oct. 17. Income from credit card interest rose 8.8 percent to $689 million in the period, helping to offset a loss the bank warned on Oct. 5 would be 75 percent.

Washington Mutual shares tumbled the most in 20 years yesterday after New York Attorney General Andrew Cuomo said the thrift had pressured real estate appraisers to assign inflated values to properties. Its dividend yield fell to 11 percent and the company traded at 0.74 price-to-book value.

Citigroup’s third-quarter earnings fell 57 percent on mortgage losses. Bank of America stopped so-called warehouse lending to mortgage brokers after its profit declined 32 percent in the same period.

‘Unintended Consequence’

JPMorgan reported profit growth of 2.3 percent in the quarter, the smallest in more than two years, after reducing the value of leveraged loans and collateralized debt obligations, investment packages of mortgages, by $1.64 billion.

Washington Mutual spokeswoman Libby Hutchinson in Seattle, JPMorgan spokesman Thomas Kelly in New York and Bank of America spokesman Terry Francisco in Charlotte, North Carolina, declined to comment on the bankruptcy law.

“The law had an unintended consequence of taking away a relief valve that mortgage borrowers used to have,” said Rod Dubitsky, head of asset-backed research for Credit Suisse Holdings USA Inc. in New York. “It’s bad for the mortgage borrowers and bad for subprime investors because it means more losses.”

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was the biggest overhaul to the code in more than a quarter of a century. The old law, the Bankruptcy Reform Act of 1978 that was signed by President Jimmy Carter, had loosened requirements for debt forgiveness.

Lobbying Effort

Financial companies began a coordinated lobbying campaign for bankruptcy reform in 1998 when the American Financial Services Association, a trade group representing credit card companies, joined the American Bankers Association to form the National Consumer Bankruptcy Coalition.

Campaign contributions from the coalition and its members totaled more than $8.2 million during the 2004 election that gave Bush his second term in office. Two-thirds of the donations were given to Republicans who supported the bankruptcy changes, according to the Center for Responsive Politics.

The group, later renamed the Coalition for Responsible Bankruptcy Laws, has since disbanded. Its members included Washington Mutual, JPMorgan, Bank of America, Citigroup, MasterCard Inc., and Morgan Stanley.

Ford Motor Co., General Motors and DaimlerChrysler also were members. They won provisions in the new code that changed the way car loans are treated in bankruptcy.

Reform the Reform

Congress may soon take action to “reform the bankruptcy reform,” Zandi said. The House Judiciary Committee is working on legislation to let bankruptcy judges restructure home loans by lowering interest rates and reducing mortgage balances to reflect current market value.

Banks including Washington Mutual, Citigroup and Wells Fargo & Co. sent a letter to the committee opposing the change, saying such restructurings should be done privately.

Countrywide Financial Corp., the largest U.S. lender, said last month that it will modify $16 billion worth of adjustable-rate mortgages. Washington Mutual said in April that it will spend $2 billion giving discounted rates to help customers with subprime loans refinance at better terms.

So far, most lenders have been reluctant to change loan agreements. About 1 percent of mortgages that reset in January, April and July were modified, according to a Sept. 21 Moody’s Investors Service report that surveyed 16 subprime lenders that account for 80 percent of the market.

Congress probably will approve at least a limited measure to permit loan modifications, said Westbrook, the University of Texas law professor.

“They are going to have to figure out some way to address the problem,” Westbrook said. “I don’t think our economy or our consciences can handle the number of foreclosures we’ll see if they do nothing.”

Not surprisingly the gloom is spreading and not even the mainstream media can pretend that the economy is healthy. The following pathetic attempt is the best they can do:

Foreign Cash Could Boost Housing Market

Stephen Bernard

Foreign Cash Could Provide Much Needed Relief for U.S. Housing Market Thanks to Weak Dollar

NEW YORK (AP) -- The weakening dollar has caused many problems for consumers, but it may also be providing the fuel for one unintended -- and very welcome -- benefit: a rally in the struggling housing market driven by foreign investors.

For an individual or developer trying to sell a home, interested buyers are just as likely to already have a place in London or Paris as they are to be first-timers new to the market.

"European investment is likely to pick up," said Mark Vitner, chief economist for Charlotte, N.C.-based Wachovia Corp. "Now is the time to come over and take advantage."

The theory goes that foreign investors step in and replace first-time home buyers who have been squeezed out of the housing market during the recent downturn. These new investors in turn allow current homeowners to sell and trade up to larger homes.

That will help restart owners moving up the housing ladder, a process that had been key to economic growth in recent years.

Some mortgage brokers are already seeing a boost in inquiries about buying property from overseas. Dan Green, a certified mortgage planning specialist and author of, said the number of inquiries he's received from outside the U.S. is probably five to 10 times larger than it was a year ago.

A boost in the number of homebuyers would provide needed relief for the beleaguered housing market.

Home sale prices fell every month in 2007 through August, according to the S&P/Case-Shiller index. Existing home sales have declined for eight straight months through September, according to the National Association of Realtors.

As the housing market has plummeted, the dollar has also sunk to record lows compared to other currencies, such as the euro, meaning more spendable cash in the U.S.

"The dollar is on sale," said Susan Wachter, a professor of real estate at the Wharton School at the University of Pennsylvania.

Today, a foreign buyer would need only 34,100 euros to make a $50,000 down payment on a house. At the beginning of the year, the same buyer would have needed 37,920 euros to make the same down payment.

The influx of foreign investors can help set a floor for the real estate market, Green said.

Because lending guidelines have been so restricted in recent months due to rising delinquencies and defaults, it is more difficult for U.S. customers to get a home loan. First-time homebuyers are especially being squeezed right now, Green said, and that is where the foreigners can provide support.

For investors from countries like Ireland, the exchange rate is providing a boost in spending power, said Phillip Hegarty, the sales director for Castleroc Estates, a Dublin, Ireland-based firm that works with Irish investors to buy residential and commercial real estate in the United States.

"It's an enticing investment," Hegarty said.

Hegarty said there is plenty of demand for investment in locations like Chicago and New York, and often that demand exceeds supply.

But New York and Chicago are not the only locations likely to provide popular options for foreign investors. Places like Florida and California are likely to see a surge in foreign investment.

"In a market with great turmoil, (the weak dollar) is one factor supporting some key markets," Wachter said of the weakening dollar.

Wachter said markets like Miami and San Francisco, which are under pressure from the U.S. slowdown, are increasingly being supported by foreign investors.

To think that investors and speculators from other countries could actually prop up a housing market of a population of three hundred million is absurd. It might help a bit in a few wealthy enclaves, but anything more is absurd. Housing is driven ultimately by people who need to live in it. Those are the people to whom speculators end up selling. Notice that the article takes an unlikely hypothetical and treats it as if it is happening and as if it is way more widespread than it could ever be.

The bottom line is the crash we have been expecting for several years is happening NOW. Ran Prieur puts it this way,

November 8. Two fun questions on yesterday’s big post. First, Kat writes:
“You keep saying how close the crash is, and I just wanted to know how much time you think I’d have left to buy some land.”

First, the crash is not close -- we are in the crash. This is what the crash looks like -- not roving gangs storming your house to steal canned food, but trains breaking down and roofs leaking and unemployed people moving in with family and employed people cynically going through the motions. Ten thousand little breakdowns, and adjustments to breakdowns, will slowly build up until you find yourself eating dandelions and sorting out your pre-1982 pennies to sell the copper. But there will not be one day when everything is different.

Second, you have all the time in the world to get land -- but you might not be buying it. Maybe you’ll buy 200 gallons of high fructose corn syrup while it’s still subsidized to keep poor people sick, and ferment and distill it into 120 proof alcohol, and trade seven kegs for five acres of clearcut. Or you’ll get a job in the "fell off a truck" economy to save money to buy a farm at a foreclosure auction, or you’ll know someone who already has land and needs helpers, or you’ll squat an abandoned house with a quarter acre lawn, turn it into gardens, and when the owning bank notices you and threatens to call in Blackwater, you’ll slip out in the night and do the same thing somewhere else. There’s no hurry -- the land is not going anywhere.

Labels: , , ,

Monday, November 05, 2007

Signs of the Economic Apocalypse, 11-5-07

From Signs of the Times:

Gold closed at 808.50 dollars an ounce Friday, up 2.7% from $787.50 at the close of the previous week. The dollar closed at 0.6894 euros Friday, down 0.8% from 0.6948 at the close of the previous Friday. That put the euro at 1.4504 dollars compared to 1.4393 the Friday before. Gold in euros would be 557.43 euros an ounce, up 1.9% from 547.14 for the week. Oil closed at 95.93 dollars a barrel Friday, up 4.4% from $91.86 at the close of the week before. Oil in euros would be 66.14 euros a barrel, up 3.6% from 63.82 for the week. Thje gold/oil ratio closed at 8.43 Friday, down 1.7% from 8.57at the end of the week before. In U.S. stocks, the Dow Jones Industrial Average closed at 13,595.10 Friday, down 1.6% from 13,806.70 for the week. The NASDAQ closed at 2,810.38 Friday, up 0.2% from 2,804.19 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.31%, down nine basis poinst from 4.40 for the week.

Oil and gold continued their shocking rise last week. Oil has gone up 30% against the dollar since September 1 and gold has gone up 19%. During that same period the dollar has fallen 6.5% against the euro, so gold and oil are going up against both currencies. Oil is going up in absolute terms, measured against gold. Things seem to be reaching a crisis point.

Paul Craig Roberts summed it up this way:
…The "Cakewalk War" in Iraq was supposed to be over in a few weeks and to pay for itself out of Iraqi oil revenues. The war is now five years old and has cost American taxpayers, and those left dependent on government programs by decades of a welfare state, $1 trillion in out-of-pocket and already incurred future costs.

As large and troublesome as this cost is, it pales in comparison to the damage the war has done to the value of the dollar and its role as reserve currency. Since 2001, the Euro has risen 60 percent against the dollar.

This means much more to Americans than the higher cost of a European vacation and status symbol German cars. The US dollar is losing its reserve currency role when the Euro, the currency of a nonexistent country--Europe--becomes so much more desirable than the dollar that it rises 60 percent in value.

The Euro is a monetary unit that has run far ahead of the political entity whose currency it is. Europe still consists of separate sovereign states, and many of them are unhappy with the Euro. Yet, since 2001 people throughout the world have been shifting from dollars to Euros.

It is not normal for people to flee from the reserve currency. It only happens when people believe it cannot continue to fill that role.

The US dollar is under double assault. One assault is from the offshoring of American jobs, which turns US GDP into foreign GDP and worsens the US trade deficit. It is not possible to achieve a trade balance when the production of goods and services for the US market is being moved offshore by US corporations.

The other assault is from the US budget deficit. Americans have become so hard pressed that their savings rate is negligible. The US government has to rely on foreigners to lend it money for its annual expenditures. Washington's two biggest bankers are China and Japan, the countries with the largest trade surpluses with the US.

The transformation of the Iraq "cakewalk" into an interminable war has run up a one trillion dollar price tag, and an even larger war with Iran is looming. US generals and neoconservative ideologues predict a decade or multi-decade long war in the Middle East. Washington's bankers are waking up to the reality that they will not be repaid.

The only reason the dollar has not already lost its reserve currency role is that the only alternative is the currency of a non-existent political entity. Yet, even the Euro, a virtual currency, may have taken the dollar's role by the end of 2008.

Full of hegemonic hubris, the US government does not understand that US power and hegemony have always depended, not on missiles and military force, but on the financial power conveyed by the dollar's role as reserve currency.

The reserve currency is world money, good in any country to pay any bill. The reserve currency country is not a debtor in the usual sense. As the reserve currency can be used to settle international accounts, the reserve currency country can borrow at will until lenders lose confidence in the currency.

There is abundant evidence that the loss of confidence in the dollar is underway. When it is complete, the US will no longer be a superpower.

The decline in American power and influence could be dramatic. Part of America's power results from European countries going along with Washington. However, the sharp rise in the Euro's value has hurt European exports, squeezing profit margins, wages, and encouraging offshore production. Fights over monetary policy between European capitals could doom both the EU and the Euro, leaving the world with no reserve currency and America with embittered former allies.

By going to war for hegemony, the Bush Regime has brought about American decline. While the neocons have spent two administrations trying to deracinate Islam, real threats to America's power have been neglected. Offshoring, which turns US GDP into imports and larger trade deficits, together with war debts, has eroded the dollar's status as reserve currency, undermining the foundation of American power.

The collapse of a hegemonic empire and its reserve currency is much bigger than a “business cycle” recession. All we can say a this point is things will soon be much different than they have been for the last two decades. We can look at where people live, for example. Alan Farago points to the central role played by suburban sprawl in the era that is coming to an end. The sprawl was driven by massive infusion of cheap credit gained from the export of productivity away from the United States that Roberts referred to. The sprawl had more than economic consequences, it also propelled a political, psychological and spiritual crisis:
The Housing Crash, Suburban Sprawl and the Crisis of the American Middle Class

Alan Farago

November 3 / 4, 2007

Congress and the White House, state governments, local legislatures and lobbyists are vested to the hilt in denial: that the downgrade by Moody's of at least $50 billion in collateralized debt from AAA to junk is a verdict on an economic model-suburban sprawl-that is torpedoing America's middle class.

At the heart of sprawl is securitization: that is to say, the packaging of mortgages by Wall Street indifferent to locale so long as the shape, size, and purpose of its components is more or less the same.

The catalogue of horrors is not exclusive to the middle class, of course. In places like Miami, the housing bubble had the collateral effect of diverting attention from the needs of the poor. While local legislatures did the bidding of the growth machine, the county housing agency was looted to a fare-thee-well.

But it is suburbia is where the financial avalanche in debt markets started-in states like Florida where a sophisticated economic elite, tied to the interests of production homebuilders, primed the pump of the growth machine.

Today, the stock market remains near historic highs but it is increasingly irrelevant to the middle class. The Wall Street press is filled with hope for another interest rate cut by the Federal Reserve. There is James Cramer (who even appeared on NBC Nightly News! as a reporter from the trenches) hyperventilating over the Fed "doing something", but when it can turn its TV set off long enough to pay attention, the middle class is like a boxer looking at its face in the mirror for the first time.

Round after round of promises: low inflation, steady job growth, health care, bridges, highways, the promise of public education, social security, the environment: what stares back at the middle class is an almost unrecognizable result.

The phenomenon was noted in the Sunday New York Times Magazine, "End Times for Evangelicals?" The report explored the profound change as Christian conservatives abandon the Republican party.

Some evangelical leaders are apparently concerned how closely tied the religious right has become to corporate America.

Another aspect, scarcely noted by the Times, is how the religious right organized in megachurches located in suburbia and rose exactly in proportion to the false prosperity of a housing bubble.

The constituents of suburban sprawl need constant spiritual renourishment even as discomfort spreads of its strip mall culture. The megachurches are a welcome relief for wage-earners pinned by long commutes from home to work and especially for latch-key children otherwise languishing in homes without mom or dad.

The bursting housing bubble is fragmenting the religious right. It's not a matter of evangelical convictions faltering. It's a matter of home economics ruining families as lines of credit and home equity make fools of believers. It's not just about church on Sunday. It's about the middle class coming to a boil over manifest inflation despite government assurances, good news papering over rampant fraud, it's about vanishing home equity, and it's about the middle class realizing that it has been left behind by arks of privilege.

It's in this context to consider two pieces of news: first, that Stanley O'Neal-the CEO of Merrill Lynch-has been held accountable for the worst loss in Mother Merrill's history, some $8.4 billion and yet will retire, according to press reports, with a payday that could reach $200 million.

The second piece of news is from the New York Times (Saturday, October 27, 2007), "As Housing in Florida Plummets, the Top Tier of the Market Just Dips."
"Despite a record number of foreclosures and a raft of public auctions of unwanted houses, the upper tier of the real estate market in Florida remains relatively immune to the spreading disaster As in other once-booming regions, in Florida the housing market seems to be not one market, but two. The lower end is littered with vacant houses and unfinished developments, and homeowners are struggling to meet their monthly payments as rates adjust upward. The luxury end has its unsold new condos and mansions lingering on the market, too, but as in New York, where the demand in pricey Manhattan is still strong, sales have fallen less. And Miami and other parts of Florida are continuing to attract interest among the wealthy."

At the same time, the stratification of housing markets in places like Manhattan or tony vacation retreats in Florida appear to the middle class to be supported by the kinds of financial fraud that turned dreams of wealth into bankruptcy on Main Street and turned AAA rated paper to junk on Wall Street.

But it does not pass unnoticed by Main Street that Wall Street can walk away from its failures with hundreds of millions, all taken down as fees and commissions and salaries in the creation of financial derivatives-or how speculators and bankers and developers in places like suburban Miami have squirreled away profits from developments at the edge of the Everglades foisted off as a public good-or, how the deal worked out by Wall Street banks whose off-book transactions shielded nearly $100 billion in losses will result in a further rain of commissions-as much as $1 billion worth according to recent financial reports.

These are the arks of privilege insulating the highest strata of society from the disintegration of the US dollar.

Today, homeowners in the millions-middle class Americans-are absorbed with the anxiety of foreclosure, of a home that can't be sold except at a loss, or, of personal debt tied to vanished gains of an unrealized asset. But there is more.

How much more remains to be seen. The total damage to financial institutions, measured in the hundreds of billions, may be absorbed by the wealth of nations, but the damage is so large, so global, no wonder most middle class Americans have no idea what hit them.

Here is what hit the middle class: wealth drained from the US economy by the forces of globalization-owned as equity now in low-cost labor or oil-producing nations-returned to the United States in the form of US government debt but also ownership of mortgage backed securities and other higher yielding financial derivatives. That they should be less than eager for a repeat performance should surprise no one.

And American voters think the biggest problem is tax dollars financing both sides of the "war on terror"? No. There's more.

If securitization defines suburban sprawl as a matter of scale (ie. more Targets, more Lowes, more McDonalds: can you really fit a hundred million people into Florida?), scale itself makes accountability vanish.

As accountability vanishes, uncertainty rises exponentially. There is a domestic analogue to the uncertainty plaguing world credit markets: for the American middle class, as accountability vanished in the financial sphere, so did the ideals of a civil society and representative democracy.

The middle class was promised the "ownership society", and while it was passively satiated by "American Idol" and "Dancing with the Stars" promising that anything is possible, its pockets were picked.

The middle class was robbed by liar loans and mortgage fraud, from toxic consumer debt to the wholesale conversion of local government to the purposes of the growth machine.

The biggest risk-one that the mainstream press and Wall Street, both, should take into account-is that the coming recession will trigger a backlash against the bankers and financiers whose engineering related to housing markets and mortgages did not, in fact, diversify risk (as securitization of mortgages was advertised to do,) but concentrated risk by raising the unquantifiable to exalted status.

America's political and economic elites have been perfectly happy with the arrangement, but in 2008, watch the "values voters". This time, the middle class, evangelical or not, will be pegged to the value of the dollar more than the morals so many candidates for political office wear on their lapel like laquered pins of the American flag.

The psychological costs of all this can be seen in the results of a survey done by the American Psychological Association.
One-third of Americans live with “extreme stress”

Naomi Spencer
29 October 2007

One in three adults in the US regularly contend with extremely high levels of stress, resulting in problems with their health, relationships, and work, according to a new national survey. Economic troubles are the driving force of stress for ordinary Americans, who reported money, workload, and housing expenses among their most stressful concerns.

The survey, Stress in America 2007, released October 24 by the American Psychological Association, was conducted online last month by polling agency Harris Interactive. It was based on a sample of 1,848 adults. Responses indicated that nearly half of all Americans are living with more stress than in the past few years.

It is no surprise that the rising cost of living, stagnating wages, and poor job market figure heavily into the worries of working families. Three-quarters of respondents reported money and work as the leading causes of stress, a significant jump from 2006, when 59 percent cited those factors.

Because the survey was undertaken on the Internet, media outlets have cautioned that the findings do not carry the same scientific weight as other research. However, if anything, the survey results probably underestimate the stress borne by lower income workers, who are less likely to use the internet.

Nearly half of all respondents reported that stress negatively impacted both their personal and professional lives, leading to difficulties in managing work and family responsibilities. More than half said stress led to fighting, and many attributed stress to the ostracism of family members, family separation, and divorce.

Interpreting the findings, Dr. Bankole Johnson, chair of the Department of Psychiatry and Neurobehavioral Sciences at the University of Virginia, told ABC News that the economy was alienating to individuals, leading to mass uncertainty. “A lot of people are faced with a sense of an uncertain situation, and for most people that’s a big stressor,” he said.

The political climate has also contributed to stress. Johnson remarked, “There is the constant stress of the war on terrorism...I would say that in the last ten years, there is more stress in general in the world. There is more uncertainty and a feeling that the world is somehow less safe than it ever has been.”

This stress has been deliberately grafted onto American life over the past seven years, as the government and media have subjected the population to a constant barrage of color-coded terror alerts and fear-mongering. To the extent possible, the political establishment has promoted fear in order to justify militarism abroad and the attack on democratic rights at home.

Immense social inequality assumes a definite place among the burdens shouldered by ordinary Americans. For example, the APA report notes in passing that 40 percent of respondents said they do not use all their allotted vacation time annually. Among employed respondents, the leading sources of stress reported were low pay (44 percent), heavy workload (40 percent), and long hours (39 percent).

A September report from the International Labor Organization found that Americans are the world’s most productive workers, largely because of the sheer number of hours worked. As one company after another in every economic sector carries out layoffs, workers are required to take on greater workloads and increase their output. Meanwhile, these wages have declined relative to inflation, and the cost of basic needs such as gasoline, food, and home energy contributes to the stress of working families.

Across industries, a third of workers reported experiencing extreme levels of stress during the month prior to being surveyed. Workers in the education and health services industries reported higher stress levels, with four in ten reporting “extreme stress.” These workers were among those who most frequently citied work as a cause of stress. Half of education and health workers reported low salaries, high workloads, and unrealistic job expectations.

The APA reported that adults with less than $50,000 in annual household income were more likely than those with higher incomes to report both physical (80 percent versus 74 percent) and psychological (77 percent versus 68 percent) symptoms of stress. Physical symptoms included fatigue, headaches, tightness in the chest, faintness and dizziness, upset stomach and other digestive problems. Common psychological symptoms included anger, anxiety, and “feeling as though you could cry.” On average, the survey found that Americans lost 21 hours of sleep per month due to stress, with half of respondents reporting insomnia at night during the last month.

Lower income adults managed their stress poorly, according to the APA, relying more heavily on smoking and drinking, skipping meals and missing sleep. Poor management of stress contributes to serious health problems such as obesity and heart disease. Chronic stress, which results in an elevated heart rate over long periods, is strongly associated with increased risk of heart attack.

The APA noted, “While 69 percent recognize that a mental health professional could aid in stress management, only 7 percent have sought professional support to help manage their stress during the past year.”

The ongoing collapse of the housing market presents a particular strain for individuals. More than half of the APA’s respondents cited rent or mortgage costs as sources of “extreme stress.” Dr. Beverly Thorn, president of the APA health psychology division, told ABC News that the respondents cited housing costs even when they were not necessarily prompted to specify the source of their stress.

On the West Coast, where median housing prices and foreclosure rates are among the highest in the country, 61 percent of respondents reported housing costs as a significant stressor.

According to statistics from housing sector tracker DataQuick Information Systems, mortgage companies sent over 72,500 pre-foreclosure default notices to California borrowers in the third quarter, substantially surpassing the previous record of 61,500 set in 1996. DataQuick also reported last week that California home sales for September were the slowest since the company began keeping records in 1988.

The decline of the housing market has very real consequences for the economy at large and the living conditions of working class households. As interest rates reset on millions of adjustable rate mortgages, borrowers in default are confronted with a market saturated with devalued houses. Unable to sell for what is due on the mortgage, homebuyers are pressed into foreclosure.

A number of new reports project more than a million foreclosures in the next year, wiping out an estimated $71 billion in housing wealth. Another $32 billion is expected to be lost indirectly as a result of neighborhood home devaluation in areas where foreclosures occur.
Recent books by Martha Stout (The Paranoia Switch, see also this review) and Naomi Klein (The Shock Doctrine: The Rise of Disaster Capitalism, see also this video) show that the stress and the fear is no accidental by-product of a fast paced economy nor merely a justification for wars but something much more sinister.

Labels: , , ,