Airbus A380 - the complete guide and review

For Stephen Bleach, being a part of the inaugural A380 flight on Thursday was revolutionary... but not for all the right reasons

I’ve always been pretty middle of the road, politically speaking. But whenever Gordon Brown deigns to call the next election, I’m voting Socialist Worker’s Party. Eight hours on a plane has turned me into a Marxist.

Not just any plane. I’ve just stepped off the first commercial flight of the A380 superjumbo, the largest passenger aircraft ever built. Yes, it’s impressive: taller than five double-decker buses, wider than a football pitch, 37 times the length of Peter Crouch in his socks, that sort of thing. And yes, it’s an amazing piece of engineering, a staggering technical achievement: but it’s also the best advert for Bolshevism since the tsar said, “Stuff that Lenin chap, let’s build another palace.”

Never has the gap between the haves and the have-nots of the air been more evident. At the front of the plane (business is on the top level, the “super-first” Suites at the front of main deck, economy at the back on both levels), the elite have unparalleled luxury and space. Further back, the proletariat have to... well, let’s not get ahead of ourselves. I’ve just spent eight hours in the cheap seats: here’s a blow-by-blow account.

Takeoff: it just shouldn’t. It doesn’t seem credible that something this size should get into the air at all. Our takeoff weight today was 468 tonnes, which is the equivalent of 12 very surprised sperm whales. And when it finally comes, 50 minutes after we started boarding today’s 455 passengers (they’ll need to speed that up a touch), takeoff is a revelation.

Where other planes crank up the engines to a mighty howl and go for a death-or-glory charge to get airborne, the A380 feels more like an inter-city train leaving a station: silent, gentle, almost imperceptible. There’s a moment of anxiety when the lack of any roar, or bumping, makes you think something is terribly wrong. Then finally, after 40 seconds of smooth, quiet acceleration, this unlikely behemoth leaves the ground with a whisper and drifts quietly into the skies as if it were the most natural thing in the world. After a moment’s collective sigh, everyone breaks into applause. Taking to the air with the A380 does, genuinely, feel like a miracle.

One hour in: as well as kind, civilised folk who’ve bid in a charity auction to be on the first A380 flight, the plane is full of rude, selfish, jostling journalists like me, and the moment the seat-belt sign is turned off, it’s the cue for all of us to leap to our feet and interview mercilessly anyone within notebook distance. We do tend to make a bit of noise, but I didn’t realise we’d actually drown out the engines. That’s how quiet this plane is. In the momentary lulls between hacks barking questions, you can hear the gentle conversations of real people four rows back.

Two hours in: journalistic frenzy over, time for lunch. It’s terrific, produced by a couple of celebrity chefs I’ve never heard of, but will look out for in future. Sam Leong’s fillet of bass with fungi is the best economy-class food I’ve ever had on an airline.

Three hours in: distractions done with, there’s time to take in the surroundings. And when I do, a question occurs. If this is really the most luxurious plane ever built, why am I still shoehorned into a 32in seat?

Here, I have a confession to make. Last week, when the press were first allowed to see the inside of this plane at the Airbus factory, I – along with every journalist there – got a bit overexcited about the double beds in first and the huge business-class seats; all newer, bigger and swisher than anything we’d seen before. As a result, we didn’t spend too much time in the ominously familiar-looking economy area. A sin of omission, for which the hour of judgment has just come. Or rather hours: I’ve got five more to go.

Some passengers say the economy area is much lighter and airier than we’re used to. I don’t see it – though the large windows do provide a better view. The seat is pretty comfortable... for cattle class. My knees don’t touch the seat in front, and it’s an inch or so wider than a standard 747 equivalent. But it’s still not the ideal place to spend eight hours or more of your life, especially when you know that the real high rollers are just a few feet away, in the Suites. Time to see how the other half live...

Four hours in: the airline people are standing close guard on the curtain that separates economy from first, but for an instant they take their eyes off it, and bingo: an advance party of journalists plunges through the gap.

It’s another world. Hushed, spacious, all the seats are in cabins a little like those you’d find on a cruise ship, although the partitions only reach to about eye level. The champagne flows incessantly, and there are normally unobtainable bottles of Château Cos d’Estournel 1982 being poured. In a few of the 12 elite suites, the inhabitants have had their flat beds made up, and sprawl languorously under Givenchy duvets in front of their 23in TVs. Nobody sleeps, though. Having paid up to £25,000 at auction for a ticket, they want to savour every minute.

Upstairs, the improvement in business class, with its colossal 34in-wide seats, is arguably even greater. With just four abreast as opposed to economy’s 10, it feels both communal and spacious. The lucky ones try hard not to look smug. I try hard not to be jealous. We all fail. Five hours in: back in the cheap seats, I ruminate on what might have been. When we were shown the first A380 back in 2003, we were promised the following: boutiques, self-service restaurants, duty-free shops, children’s play areas, casinos, pubs, libraries, gyms (with treadmills to prevent DVT), showers, 18-hole golf courses. (Okay, I made the last one up, but it was going that way.) So why am I sitting here, unexercised, unshowered and unshopped, with the nearest pub in the outback five miles down? Why do we only have a slightly better version of what every long-haul holidaymaker knows and loathes – rank upon rank of sardine-tin seats, with no room to circulate or socialise? Only one conclusion: they were having us on.

Aviation enthusiasts make up the bulk of the clientele today, and they’re determined to enjoy themselves, so I’m in a disgruntled minority (see below). And, to be fair to Singapore Airlines, they never made any of those extravagant claims anyway. But right now I don’t want to be fair. This feels like a missed opportunity.

Six hours in: the real test of a long-haul seat is: Can you sleep in it? I try for 40 winks. Not a chance. The buzz all around means it’s not a fair trial, but I suspect that even on a calmer flight, it wouldn’t be easy. One bonus point: that dried-out, sinusy feeling is noticeably absent. Higher pressurisation is apparently the reason. Seven hours in: time to test the much-vaunted entertainment system. In a stab at egalitarianism, everybody gets the same stuff (economy has a smaller screen, but it’s still a healthy 10+ inches). It’s cracking: 100 on-demand films, 150 TV programmes, 700 CDs. New films, too. There are USB ports and laptop power to every seat. No internet access, though it might come.

Eight hours in: we’re preparing to land, so I’ll sum up. If you’re planning a trip down under when the plane starts flying from London next spring, should you choose an A380? Yes. It’s fabulous in first and business, a touch more comfy than we’re used to at the back. Revolutionary? No – not for the huddled masses, anyway. Vive la révolution. Business class

Business class

Andy Odgers, 39, and Hazel Watt, 43, bagged seats together in business class. Here they are sitting in just one of them. “It’s fantastic, far better than any business class I’ve seen in a 747,” said Andy, “right down to the picture quality on the big TV screen.” The couple, from Richmond in Surrey, paid US$14,200 (£6,922) for the trip, but reckoned it was worth it. “My parents are in Sydney,” said Andy, “and they don’t know anything about us being on this flight. We’re just going to walk into their hotel and surprise them. They’ll be so jealous.” “It’s better than a lot of first-class seats,” said Hazel. “You could argue it’s a bit hot, but it’s the best flight I’ve ever had.”

First class

Julian Hayward, 38, paid top dollar for two seats on the inaugural A380 flight – literally: the one-way trip in the first-class Singapore Suites for himself and a friend set Julian back US$100,380 (£48,936). The entrepreneur invited The Sunday Times in for a cosy chat in his bijou suite. Was it worth it? “Absolutely – all the money goes to charity, so it’s ending up in the right place. And this flight really is a piece of history, the first outing for the biggest plane ever built.” Would he do it again? “Perhaps not for quite so much money! But yes, the standard is something you won’t find elsewhere. I’m very impressed by their wine list. Would you care for a glass?”

Economy class

Richard Killip, 45, bought three tickets for the economy cabin of the A380, and brought along his daughters, Sophie, 12, and Ellie, 10. All three – who hail from Liverpool, but now live in Singapore – loved the flight. “The most impressive thing was the takeoff,” said Richard. “It was so quiet, it was almost spooky.” “I’ve already shown off a little to my schoolfriends,” admits Sophie. “They’re all dead jealous that I’m on the first flight!” Who else will fly the A380?

- PLENTY MORE airlines are queuing up to get the biggest passenger plane on earth. But will they go where you want to fly? When will they start? And – crucially – what will the experience be like on board? Anxious to keep a commercial advantage, most are being cagey with the details. But here’s what we know so far...

QANTAS

Start date: August 2008

Routes: “The US and the UK,” says the airline – which is expected to mean Sydney to London (via Singapore or Hong Kong), plus direct flights from Australia to Los Angeles.

What’s on board?Suites in first class, though not as enclosed as Singapore’s cabins, and no double beds as yet. Lounge with sofas in business. Four self-service bars in economy, and seats by Recaro (which makes seats for Aston Martin). Plus internet access for all.

EMIRATES

Start date:August 2008

Routes:Dubai-London looks certain. Dubai to New York, Australia and India also likely.

What’s on board?Top secret, but there are clues. The airline is installing first-class suites with doors on its fleet of 777s, with styling based on the Orient-Express train, and is expected to go even more luxurious with its A380s – president Tim Clark said: “You ain’t seen nothing yet.” But on flights to India, Emirates will cram in 644 passengers.

AIR FRANCE

Start date:spring 2009

Routes:Paris to New York and Japan.

What’s on board?Questions bring nothing more than a Gallic shrug.

LUFTHANSA

Start date:summer 2009

Routes:20 being considered, from Frankfurt to Asia and North America.

What’s on board?A complete redesign for all three areas, but no details as yet.

BRITISH AIRWAYS

Start date:2012

Routes:Los Angeles, Singapore, Hong Kong and Johannesburg are likely to be first. New York “would be considered if customer demand were strong enough”.

What’s on board?BA only ordered the planes a month ago, so they haven’t decided yet. Don’t expect many gimmicks, though – for that, look to...

VIRGIN ATLANTIC

Start date:2013

Routes:Los Angeles, Dubai.

What’s on board?More double beds for sure, plus a casino – chairman Richard Branson says: “There’ll be two ways to get lucky on our A380s.”

Showers and gyms have been mentioned too.

Four Problem Traders; Four Trading Strengths

A while back I posted on the topic of trader strengths, and readers offered worthwhile perspectives on some of the factors that distinguish successful from unsuccessful traders. After much consideration, I decided to approach the topic a bit differently: by outlining four kinds of problem traders I frequently encounter and by identifying the strengths that help people deal with these problems.

Problem Trader #1: The Frustrated Trader - The frustrated trader deals with frequent angry reactions during trading. Sometimes the anger may be vented outward; other times it is turned inward. For example, many rigidly perfectionistic traders are also frustrated traders, because they cannot live up to their impossible standards and thus artificially create failure experiences for themselves. Frustrated traders are often impulsive traders and will make trades to either compensate for prior losing trades or to make up for missed opportunities. Frustrated traders will often ignore position-sizing rules and undergo occasional blowup losses as a result. It's easy to identify the frustrated trader by their physical cues: yelling, cursing, complaining, and gesturing when they should be focused on the screen. The key strength that combats frustration: self-acceptance and being supportive of oneself. Key techniques for combating frustration: setting reasonable goals; using biofeedback for building self-control and calm focus; and mentally rehearsing trading plans/rules to make them more automatic during the trading day.

Problem Trader #2: The Anxious Trader - The anxious trader is consumed with fears of loss, missing out on objective opportunity either by not taking signals or by sizing positions too conservatively. In a sense, the anxious trader is more concerned about not losing than about winning. This risk aversion can lead to analysis paralysis, as the trader waits for the perfect setup that never quite materializes. Sometimes the anxious trader is one who has been traumatized by prior losses. It's too painful to relive memories of those losses, and so the anxious trader exits positions too quickly and is too reluctant to get into positions. A very common feature is cutting profits rapidly out of fear of losing those. Signs of the anxious trader include muscle tension, worry, relief over getting out of positions (or away from the screen), and inability to trade reasonable size. The key strength that combats anxiety is confidence and an ability to accept loss as a natural part of trading. The techniques most helpful in combating anxiety include cognitive methods for replacing worry talk with constructive problem solving; behavioral techniques to calm oneself and reprogram stress responses; setting process rather than outcome goals; and regaining confidence by trading successfully in simulation mode and gradually building one's size.

Problem Trader #3: The Overconfident Trader - Overconfident traders approach trading like a casino--and they're not the house! The overconfident trader typically overtrades, which means trading size too large for their account and trading more often than opportunity dictates. Very often the overconfident trader is attracted to action in markets, rather than consistent profits and sound discipline. As a result, the overconfident trader can be identified by winning periods punctuated by unusually large and damaging losses. Sometimes the overconfident trader is also a desperate trader, hoping to strike it rich. A common feature of overconfident traders is their lack of preparation: they think that anyone can make it with simple methods and a gut feel. The problem is that they never spend enough time reviewing markets and intensively watching screens to develop that feel. The key strength that combats overconfidence is humility, a respect for markets and risk, and conscientiousness in crafting and following trading rules. Techniques that combat overconfidence include mental rehearsal and self-hypnosis to instill trading rules and support rule-governance; mechanical position sizing to avoid risk of ruin; and cognitive techniques to intercept and challenge grandiose thoughts following winning periods.

Problem Trader #4: The Defeated Trader - Defeated traders are ones who, in trader parlance, have "lost their mojo". Their thought patterns are negative and this blinds them to opportunity. Very often they will be filled with shame, remorse, and guilt over past losses and very often they enter new trades expecting the worst. As a result, they don't often enter new trades and will miss out on opportunities that are genuinely present. They often stop working at their trading, as anything trading-related is associated with emotional pain. Defeatism thus becomes a self-fulfilling prophecy. It's easy to recognize defeated traders, not only by their depressed mood, low energy, and lack of enthusiasm, but also by their "yes, but" rejection at helping efforts. Very often the defeated trader will focus on losses and mistakes and gloss over progress that's been made: they see the trading cup as half empty, rather than half full. The key strength that combats defeatism is emotional resilience and the ability to use losses as learning experiences. Techniques that combat defeatism include cognitive methods for reprocessing negative thought patterns; structuring of the learning process to emphasize strengths and solutions rather than mistakes; and a focus on attainable goals and the creation of success experiences.

Most of us can identify elements of these four traders in ourselves. If I had to choose, I'd say that I am most like the Anxious Trader. I am quick to step away from markets when my setups aren't there--sometimes too quick! Many of the traders I work with fit into the Frustrated Trader category: they're aggressive, achievement-oriented, and hard on themselves.

Knowing your patterns does not, in itself, enable you to change them, but it's a necessary step. Indeed, I find that, regardless of the patterns, the first step of progress a trader makes is interrupting old patterns that aren't working and trying something different. The ability to stand outside oneself as an observer of patterns is a core self-coaching skill.

SAP: SAP Should Follow Oracle’s Lead

There has been plenty of hot air expelled this week over whether SAP’s (SAP - Annual Report) acquisition of Business Objects (BOBJ) is a sign that it is adopting Oracle’s (ORCL - Annual Report) big acquisition strategy or whether it is a simply a larger part of SAP’s existing strategy of using small “tuck-in” acquisitions. I’ll leave others to bloviate on those issues.

I am less interested in whether SAP is following Oracle’s strategy than whether they ought to be. And I think the answer to that question is a resounding “yes.”

For one thing, corporate IT buyers’ main concerns tend to be reducing costs and reducing complexity. Much better to have Oracle and SAP tie together the applications from a number of vendors (by directly integrating them) than to devote in-house IT staff to doing it. Research 2.0 criticizes the Business Objects acquisition for this reason, saying “SAP now faces many of the same incompatible architectural challenges faced by Oracle with its many acquisitions.” I think their customers would rather have SAP deal with the incompatibilities than to have to do it themselves. Since when is making life easier for customers a bad thing?

More importantly, however, there are just too darn many application software manufacturers out there. While consolidation in some industries occurs because the weaker businesses fail, software balance sheets are generally too strong to for this to happen. The only way to fix the problem of too many customers chasing a relatively fixed amount of dollars is for an industry leader to soak up the excess capital by leveraging its own balance sheet to acquire other companies - for cash, not shares. Oracle has been pursuing that fix.

Software companies tend to generate significant cash flow, and Oracle has been able to use this cash flow to fund the acquisitions while both maintaining a healthy balance sheet and avoiding dilution to existing shareholders. As an example, consider its first large acquisition – that of PeopleSoft in January 2005 for $11.1 billion in cash. Prior to the acquisition Oracle held more than $9.5 billion in cash and marketable securities on its balance sheet, and had virtually no debt. The company used this cash and a $7 billion bridge loan to complete the acquisition, and by the end of its fiscal year in May, 2005 it had reduced the loan value to $2.6 billion while still maintaining nearly $5 billion in cash and marketable securities and actually reducing its share count.

By May, 2006 the company had made another $4 billion worth of acquisitions (net of the cash held by the acquired companies) and increased its cash and marketable securities to $7.5 billion while restructuring its debt load to $5.7 billion in long-term debt. Even though the debt was $3 billion more than the prior year, most of that was offset by the increase in cash – meaning that the $4 billion in acquisitions was made possible almost entirely through cash flow from operations.

Speaking of cash flow, in the year ended May 2007 Oracle generated $5.5 billion of it from operating activities, and spent only $320 million of it on capital expenditures. That turns out to be a free cash flow yield of 4.5% from the existing businesses. Most of that continues to be invested in new acquisitions for new growth opportunities. The free cash flow has increased 55% since FY2005.

Meanwhile, SAP is generated approximately $2.0 billion in free cash flow last year, giving it a 3.0% free cash flow yield. Its acquisition avoidance has left the free cash flow essentially unchanged over the last three years (though arguably the change in the Euro/dollar exchange rate is providing growth.)

A higher yield and growing free cash flow compared with a lower, flat one is not much of a choice in my book.

If any doubt remains over which strategy is working better, one need only turn to a price chart. Since Oracle closed the PeopleSoft acquisition in January 2005, its shares are up 70% (mostly driven by rising cash flow), compared to just more than 30% for SAP over the same time. To me, it seems like that is exactly the type of “challenge” SAP would want to adopt.

Top 10 Most Fuel Efficient Cars

Here's the top 10 most fuel efficient cars, according to the 2008 Environmental Protection Agency and Department of Energy's fuel economy guidebook, published this Saturday. Prius tops the charts.

2008 Model Year Overall Fuel Economy Leaders

Class Model City/Highway MPG

10. Honda Fit (manual) 28/34
9. Toyota Corolla (manual) 28/37
8. Ford Escape Hybrid 4WD 29/27, Mercury Mariner Hybrid 4WD ", Mazda Tribute Hybrid 4WD "
7. Toyota Yaris (automatic) 29/35
6. Toyota Yaris (manual) 29/36
5. Toyota Camry Hybrid 33/34
4. Ford Escape Hybrid FWD 34/30, MazdaTribute Hybrid 2WD ", Mercury Mariner Hybrid FWD "
3. Nissan Altima Hybrid 35/33
2. Honda Civic Hybrid 40/45
1. Toyota Prius (hybrid-electric) 48/45

If you want to save on gas, hybrids are the way to go.

Lowest Fuel Economy by Vehicle Class for 2008 Model Year

Class Model City/Highway MPG

Two Seater Lamborghini Murcielago (manual) 8/13
Minicompact Car Aston Martin DB9 Coupe, Volante (manual) 10/16
Subcompact Car Bentley Continental GTC 10/17
Compact Car Bentley Azure 9/15
Midsize Car Ferrari 612 Scaglietti (auto) 9/16
Large Car Bentley Arnage RL 9/15
Small Station Wagon Audi S4 Avant (manual) 13/20
Midsize Station Wagon Mercedes-Benz E63 AMG Wagon 12/18
Sport Utility Vehicle* Mercedes-Benz G55 AMG 11/13
Minivan* Toyota Sienna 4WD 16/21
Pickup Truck* Rousch Performance Stage3 F150 11/15
Van (Passenger and
Cargo)*
Passenger Chevrolet G1500/2500 EXPRESS 2WD 12/16
" Chevrolet H1500 EXPRESS AWD "
" GMC G1500/2500 SAVANA 2WD "
" GMC H1500 SAVANA VAN AWD "
Cargo Chevrolet G15/25 VAN CONV 2WD "
" Chevrolet H1500 VAN CONV AWD "
" GMC G15/25 SAVANA 2WD CONV "
" GMC H1500 SAVANA AWD CONV "

*Trucks over 8500 pounds gross vehicle weight rating are currently exempt from federal fuel economy requirements

Highest Fuel Economy Models by Vehicle Class for 2008 Model Year

Class Model City/Highway MPG

Two Seater Audi TT Roadster (2 liter engine,auto) 22/29
Minicompact Car Mini Cooper Convertible (manual) 23/32
Subcompact Car Toyota Yaris (manual) 29/36
Compact Car Honda Civic Hybrid 40/45
Midsize Car Toyota Prius (hybrid) 48/45
Large Car Honda Accord 4Dr Sedan (manual) 22/31
Small Station Wagon Honda Fit (manual) 28/34
Midsize Station Wagon Passat Wagon (manual) 21/29
Sport Utility Vehicle Ford Escape Hybrid FWD 34/30
Mazda Tribute Hybrid 2WD "
Mercury Mariner Hybrid FWD "
Minivan Dodge Caravan 2WD 17/24
Chrysler Town & Country 2WD "
Pickup Truck Ford Ranger Pickup 2WD (manual) 21/26
Mazda B2300 2WD (manual) "
Van (Cargo&Passenger)Chevrolet G1500/2500 Van 2WD 15/20
(4.3 liter engine)
GMC G1500/2500 Savana 2WD Cargo "
(4.3 liter engine)

Lowest Overall Fuel Economy Models* for 2008 Model Year

Rank Manufacturer/Model City/Highway MPG

1. Lamborghini Murcielago (automatic) 8/13
2. Bugati Veyron 8/14
3. Lamborghini Murcielago (manual) 9/14
4. Bently Azure/Arnage RL 9/15
5. Ferrari 612 Scaglietti (automatic) 9/16
6. Lamborghini Gallardo Spyder (manual) 10/15
Ferrari Ferrari 612 Scaglietti (manual) "
Bentley Arnage (auttomatic) "
7. Lamborghini Gallardo Spyder 10/16
Aston Martin DB9 Coupe "
Aston Martin DB9 Volante "
Mercedes-Benz Maybach 57 "
Mercedes-Benz Maybach 57S "
Mercedes-Benz Maybach 62 "
Mercedes-Benz Maybach 62S "
8. Lamborghini Gallardo Coupe (manual) 10/17
Bentley Continental GT (automatic) "
Bentley Continental GTC (automatic) "
Bentley Continental Flying Spur (automatic) "
9. Mercedes-Benz G55 AMG 11/13
10. Jeep Grand Cherokee 4WD 11/14
Mercedes-Benz Ml63 AMG "

US Foreclosures Nearly Double

Foreclosure filings across the U.S. nearly doubled last month compared with September 2006, as financially strapped homeowners already behind on mortgage payments defaulted on their loans or came closer to losing their homes to foreclosure, a real estate information company said Thursday.

A total of 223,538 foreclosure filings were reported in September, up from 112,210 in the same month a year ago, according to Irvine-based RealtyTrac Inc.

The number of filings in September was down 8 percent from August's 243,947, the firm said.

Despite the sequential decline, the September figure represents the second-highest total for filings in a single month since the company began tracking monthly filings two years ago.

"August was an extraordinarily high month for foreclosure activity, so some falloff was almost predictable," said Rick Sharga, RealtyTrac's vice president for marketing.

The filings include default notices, auction sale notices and bank repossessions. Some properties might have received more than one notice if the owners have multiple mortgages.

Typically, borrowers must be 60 to 90 days past due on their mortgage payments before their lender will consider them in default, the first stage of the foreclosure process. If a homeowner can't find a way to get current on payments, the home is then often put up for auction, and if it doesn't sell, it eventually goes back to the bank.

In all, 39 states saw a decline in foreclosure filings, the firm said.

Sharga noted that there was a spike in the number of bank repossessions in August that did not occur in September.

It's likely that the sequential decline in foreclosure activity between August and September was just a blip, not a bellwether of lessening foreclosure filings.

"We don't see September as the beginning of the end in this cycle of foreclosures," Sharga said.

The foreclosure rate for the nation in September was one foreclosure filing for every 557 households, the firm said.

The U.S. housing market has seen sales decline and home prices fall or remain flat, making it harder for homeowners who can't afford to make mortgage payments to sell their homes or seek refinancing.

Many of those troubled homeowners were among those who took on adjustable-rate mortgages that are now adjusting to a higher interest rate, translating into payments they cannot afford to make.

The rising delinquencies and foreclosures this year have led the mortgage industry to tighten lending standards, further narrowing options for homeowners struggling to pay their mortgage.

Nevada, Florida and California had the highest foreclosure rates in the country last month, the firm said.

Nevada reported one foreclosure filing for every 185 households, earning the state the highest foreclosure rate in the nation for the ninth month in a row. The state had 5,504 filings in September, down 11.1 percent from August and more than triple from September 2006.

Florida had one foreclosure filing for every 248 households. The state reported 33,354 foreclosure filings in September, down just less than 2 percent from August, but more than three times greater than September 2006's total.

California's foreclosure rate was one filing for every 253 households. The state reported the most foreclosure filings of any single state with 51,259, down 11 percent from August but a fourfold increase from September of last year.

Rounding out the states with the top 10 foreclosure rates last month were Michigan, Arizona, Georgia, Ohio, Colorado, Texas and Indiana.

Income inequality worst since 1920s, according to IRS data

Half of US senators are millionaires

The superrich are gobbling up an ever larger piece of the economic pie, and the poor are seeing their share of earnings shrink: new IRS data shows the top 1 percent of Americans are claiming a larger share of national income than at any time since before the Great Depression.

The top percentile of wealthy Americans earned 21.2 percent of all income in 2005, up from 19 percent in 2004, according to new Internal Revenue Service data published in the Wall Street Journal Friday.

Americans in the bottom 50 percent of wage earners saw their share of income shrink to 12.8 percent in 2005, down from 13.4 percent.

"Scholars attribute rising inequality to several factors," the Journal reports, "including technological change that favors those with more skills, and globalization and advances in communications that enlarge the rewards available to 'superstar' performers whether in business, sports or entertainment."

The data could cause problems to President Bush and Republican presidential candidates, who have played up low unemployment and a strong economy since 2003, crediting Bush's tax cuts for contributing to both. In an interview with the Journal, Bush downplayed the significance of the income gap, saying more education is the answer to narrowing it.

"First of all, our society has had income inequality for a long time. Secondly, skills gaps yield income gaps," Bush told the Journal. "And what needs to be done about the inequality of income is to make sure people have got good education, starting with young kids. That's why No Child Left Behind is such an important component of making sure that America is competitive in the 21st century."

The Journal notes that many Americans fear the economy is entering a recession, and the IRS data show income for the median earner fell 2 percent between 2000 and 2005 to $30,881. Earnings for the top 1 percent grew to $364,657 -- a 3 percent uptick.

Scholarly research suggests that top earners did not have such a large share of total income since the 1920s, the Journal reported.

The Journal reports that a recent stock boom likely contributed to higher earnings among those in the top income bracket, with hedge fund managers and Wall Street attorneys seeing their incomes skyrocket in recent years.

Another prominent pool or wealthy Americans gathers regularly on Capitol Hill to write the nation's laws. The Center for Responsive Politics, which tracks campaign spending and politicians' wealth, says more than a third of Congress members are millionaires, with at least half the Senate falling into the millionaires club.

Forbes reported that last year's incoming class of new Senators did "little to shake the Senate's image as a millionaires club," with half of the newly elected members having seven- eight- or nine-figure personal fortunes.

Freshman Sen. Bob Corker (R-TN) is worth between $64 million and $236 million, and newly elected Sen. Claire McCaskill's (D-MO) fortune is between $13 million and $29 million. R

Roll Call estimates Sen. John Kerry (D-MA) is the chamber's richest member with an estimated net worth of $750 million; another Democrat, Wisconsin Sen. Herb Kohl, is among the chamber's richest with between $220 million and $234 million in personal assets.

SBUX: Is Starbucks doomed or an excellent opportunity to invest?

So, after 50 years of selling hot mud, McDonald’s (MCD - Annual Report) continues to awaken to the notion that its customers might enjoy coffee that tastes good. According to Crain’s Chicago Business, “McDonald’s Corp. plans to sell lattes, cappuccinos and other specialty drinks in all of its 14,000 U.S. restaurants next year. McDonald’s predicts the new drinks will add more than $1 billion a year to sales.”

Not surprisingly, the anti-Starbuck’s (SBUX) crowd has latched on to this announcement as proof the company is doomed. 24/7 Wall St. even called it a “coup de grace,” which is defined as a “death blow intended to end the suffering of a wounded creature.” Although Starbuck’s the stock is certainly suffering, down about a third from the high reached earlier this year, it is hard to argue the company is wounded, or in need of a merciful end to its suffering.

It’s time for the doubters to face some facts. First, McDonald’s is not planning to match Starbuck’s “product for product.” In a Bloomberg article published just last month, McDonald’s President Ralph Alvarez said McDonald’s has no plans to offer the breadth of Starbuck’s beverages such as raspberry latte with soy milk and half the caffeine. Instead, they intend to compete for the plain-Jane cappuccino, offering it at about a 25% discount to the equivalent Starbuck’s model.

Secondly, Starbuck’s doesn’t need to concede the future market growth to others. For one thing, McDonald’s is already selling the cappuccinos in two thirds of its stores, according to the Bloomberg article. That potential market share loss has already been baked in, and it doesn’t seem to be hurting too badly. Starbuck’s same store sales growth is running at 4%, below its historical norm but above that of most retailers. If anything, the fact that most of McDonald’s rollout will be complete next year could ease the pressure on comp sales.

If further convincing is necessary, just look at the expected sales numbers. McDonald’s wants specialty drinks in 14,000 stores to add $1 billion to sales. In 2006 Starbucks had an average store count of approximately 6,500 and produced $6.5 billion in sales from them. In other words, they are still selling 14 times as much coffee per store as McDonald’s. The further incursion from the remaining one-third of McDonald’s expansion, even under the generous assumption that 100% of those sales would have otherwise gone to Starbuck’s, amounts to about 4% of Starbuck’s trailing twelve month company-owned retail sales – about one year’s worth of same store sales growth at worst.

Meanwhile, over the last 12 months Starbucks has generated $1.2 billion in cash flow from operating activities, and used just $1 billion to expand those operations by 15%. Assuming that two thirds of the capital expenditures went to open new stores and the rest was routine maintenance, the free cash flow from their existing store base is approximately $700 million per year, for a 3.5% free cash flow yield on the $20 billion enterprise value. It isn’t what I would call cheap, but it is much less like a wounded animal than a healthy tiger pouring its energy into a continued pounce by opening still more stores. At its current expansion rate, in two years the free cash flow yield would exceed that offered by treasuries, and Starbuck’s would still be only halfway through its expansion plans.

I would consider the stock cheap if it went down another 15% to $22.50, or if it just stayed at about the current price for another year. Since neither of those outcomes is certain, Starbuck’s fans will have to pick their own entry point. In the meantime, my favored strategy of writing put options may be worth considering. The April 2008 $27.50 puts are selling for about $2.30 right now. By writing those options you could earn an 8.5% 6-month return if the stock goes up, or buy the stock for an effective price of about $24.25 (which by April would probably meet my “cheap” criteria) if it goes down.

I think it is great that McDonald’s is offering its customers good coffee, and think the two companies can coexist much in the same way that McDonald’s has coexisted with, for example, hamburgers sold at ballparks. The two companies have very different customers and serve different purposes for them throughout the day. As for “coups de grace,” I don’t expect either company will need one any time soon.

Disclosure: Author is long Starbucks (SBUX) at time of publication. - by stockmarketbeat

An interesting list of fastest growing companies:

Rank	Company	EPS growth*	Revenue growth*	Total return*
1	NutriSystem	433%	225%	244%
2	Hansen Natural	145%	80%	139%
3	Arena Resources	140%	165%	100%
4	Intuitive Surgical	123%	62%	94%
5	Titanium Metals	151%	48%	140%
6	Apple	149%	48%	96%
7	RTI International Metals	225%	43%	68%
8	Dynamic Materials	127%	45%	173%
9	Southern Copper	83%	67%	83%
10	Global Industries	159%	48%	67%
11	Frontier Oil	291%	33%	105%
12	Allegheny Technologies	250%	36%	81%
13	Ceradyne	105%	85%	46%
14	VASCO Data Security International	75%	54%	120%
15	Perficient	59%	77%	73%
16	Holly	89%	42%	101%
17	SEACOR Holdings	198%	59%	29%
18	Pioneer Drilling	262%	58%	25%
19	Freeport-McMoRan Copper & Gold	127%	51%	44%
20	Kansas City Southern	178%	52%	34%
21	Ladish	198%	28%	70%
22	Grey Wolf	248%	51%	25%
23	Allscripts Healthcare Solutions	138%	38%	48%
24	XTO Energy	83%	60%	42%
25	Grant Prideco	300%	33%	43%
26	Hornbeck Offshore Services	157%	38%	44%
27	Dawson Geophysical	97%	54%	41%
28	National Oilwell Varco	69%	61%	49%
29	Helmerich & Payne	202%	37%	40%
30	Dril-Quip	116%	32%	69%
31	Knot	155%	26%	72%
32	First Acceptance	105%	277%	13%
33	CB Richard Ellis Group	88%	33%	79%
34	Gulfmark Offshore	306%	28%	48%
35	Helix Energy Solutions Group	96%	53%	38%
36	Valero Energy	87%	37%	60%
37	General Cable	76%	32%	107%
38	Hologic	74%	39%	68%
39	Lufkin Industries	98%	33%	61%
40	American Science & Engineering	169%	35%	40%
41	Joy Global	141%	27%	65%
42	Range Resources	66%	50%	57%
43	Palomar Medical Technologies	119%	51%	27%
44	Patterson-UTI Energy	136%	52%	17%
45	Unit	91%	58%	26%
46	Netflix	180%	49%	-19%
47	Gardner Denver	59%	57%	45%
48	Akamai Technologies	123%	39%	39%
49	Psychiatric Solutions	76%	50%	43%
50	F5 Networks	69%	51%	45%
51	Rowan Cos.	532%	36%	20%
52	RPC	106%	30%	55%
53	Atwood Oceanics	155%	27%	49%
54	Superior Energy Services	87%	32%	58%
55	W-H Energy Services	100%	33%	47%
56	First Marblehead	83%	79%	13%
57	TETRA Technologies	75%	40%	47%
58	Cognizant Technology Solutions	55%	56%	43%
59	Cleveland-Cliffs	72%	31%	78%
60	ImClone Systems	87%	65%	-26%
61	ValueClick	47%	81%	35%
62	Allis-Chalmers Energy	54%	118%	33%
63	Nucor	118%	27%	50%
64	Chesapeake Energy	58%	65%	34%
65	Celgene	33%	48%	59%
66	Tesoro	82%	29%	61%
67	Precision Castparts	73%	31%	65%
68	Miller Industries	145%	30%	37%
69	Oneok	34%	72%	37%
70	Reliance Steel & Aluminum	75%	40%	42%
71	Southwestern Energy	37%	35%	84%
72	Lam Research	132%	37%	24%
73	Penn National Gaming	81%	28%	54%
74	Jones Lang Lasalle	73%	28%	61%
75	Radiant Systems	115%	28%	41%
76	Steel Dynamics	66%	38%	45%
77	Oil States International	71%	42%	39%
78	Layne Christensen	76%	38%	35%
79	Pinnacle Financial Partners	46%	81%	17%
80	Concur Technologies	165%	27%	29%
81	Avatar Hldgs.	82%	45%	23%
82	inVentiv Health	57%	51%	33%
83	Noble Energy	58%	47%	35%
84	A.M. Castle	74%	28%	50%
85	Encore Wire	84%	43%	17%
86	Commercial Metals	63%	27%	62%
87	American Capital Strategies	31%	62%	25%
88	Team	35%	48%	41%
89	WMS Industries	109%	35%	13%
90	First Advantage	43%	74%	7%
91	Deckers Outdoor	47%	32%	51%
92	OYO Geospace	56%	29%	58%
93	Pantry	101%	29%	28%
94	Cameron International	70%	30%	43%
95	Jackson Hewitt Tax Services	61%	50%	18%
96	Dress Barn	100%	28%	34%
97	World Fuel Services	32%	57%	24%
98	Regal Beloit	55%	44%	30%
99	Swift Energy	64%	43%	25%
100	Berry Petroleum	46%	40%	38%

The Worst Recession in 25 years?

On September 18 the Fed cut its target for the fed funds rate by 50 basis points (0.5 percentage points), from 5.25% to 4.75%. The move surprised many analysts who had been expecting a more modest cut of 25 basis points.

For those versed in the Austrian theory of the business cycle, as developed by Ludwig von Mises and elaborated by Friedrich Hayek, the aggressive Fed "stimulus" is ominous indeed. Not only will it pave the way for much higher price inflation than Americans have seen in decades, but it will also exacerbate what could be the worst recession in twenty-five years.

How the Fed "Sets" Interest Rates

Before discussing the history of interest rate manipulation by the Fed, a primer will be useful. When people say the Fed did such-and-such to "interest rates," they are specifically referring to the Fed's target for the federal funds rate. The Federal Reserve itself is neither a borrower nor a lender in this market; the fed funds rate is the interest rate that banks charge each other for overnight loans of reserves. Recall that in our fractional reserve banking system, the Fed mandates that banks keep a certain amount of reserves (either cash in the vault or deposits with the Fed itself) in order to "back up" their total outstanding deposits. At any given time, some banks have more reserves than they need, while others have less. The banks with excess reserves can thus loan them to those with deficient reserves, and the (annualized) interest rate is the fed funds rate.

Now a further complication: the Fed itself does lend reserves to banks, but it does this at the so-called "discount window," and the relevant interest rate is the discount rate. In recent years the Fed has traditionally maintained a margin between the fed funds target and the discount rate, in order to encourage banks to borrow from each other, rather than coming hat in hand to the (more expensive) Fed. Some readers may recall in mid-August that the Fed slashed the discount rate (not the fed funds rate) and encouraged banks to borrow from it in an effort to restore liquidity and calm to the credit markets.

It is clear enough how the Federal Reserve can set the discount rate: since the Fed is the one loaning these reserves, it can insist on any rate it wants. (Of course, if the rate were too high it might not get any takers.) But how does the Fed influence the federal funds rate, if it doesn't directly participate in this market? Is the target enforced the way, say, the government in some areas controls apartment rents or minimum wages?

The process is much more complicated. Very briefly: the Fed can control the quantity of reserves held by banks, and thus indirectly can control the price the banks charge each other for lending out reserves. If the Fed thinks banks are charging each other too much for reserves — in other words, if the actual fed funds rate is higher than the target — then the Fed will engage in an "open market operation," buying assets such as US Treasury bonds from banks. The Fed pays for these purchases by adding numbers to the accounts the selling banks have with the Fed.

This is the precise point of entry for the new money that the Fed creates out of thin air. To repeat: When the Fed buys (say) $1 million in bonds from Bank XYZ, Bank XYZ surrenders ownership of the bonds but sees that its deposits of reserves at the Fed go up by $1 million. But the Fed didn't transfer this money from some other account. No, it simply increased the electronic entry representing Bank XYZ's total reserves on deposit. There is no offsetting debit anywhere in the banking system. Bank XYZ now has $1 million more in reserves, while no other bank has less. Bank XYZ is now free to go out and loan more reserves to other banks, or to make loans to its own customers. (In fact, due to the fractional-reserve system, the bank could make up to $10 million in new loans to customers.) The money supply has increased, putting upward pressure on prices measured in dollars.

But back to our original theme, the injection of reserves obviously increases their supply and thus (other things equal) pushes down the rate Bank XYZ will charge other banks who might want to borrow reserves from it. The open market operation has thus achieved the Fed's goal of pushing the actual fed funds rate down to the desired target. Of course, going the opposite way, if the actual fed funds rate were too low, the Fed would sell assets to the banks, thereby destroying some of the total reserves in the system.

Austrian Business Cycle Theory

According to Ludwig von Mises and his followers, the boom-bust cycle is not inherent in the free market, but is rather caused by the government's interference in the credit markets, specifically its manipulation of interest rates. The government causes the boom period when it injects new credit into the system (pushing down rates), and then the unsustainable, non-economic investment projects put into motion necessitate a bust at some future date. (Here is a reading plan for this topic.)

The following chart illustrates the Misesian explanation. Note the chart does not include the recent September cut.

Real Yr/Yr GDP Growth (blue, right) vs. Real Effective Fed Funds Rate (red, left)

Generally speaking, the chart indicates an inverse relationship between the two series. This accords with the commonsense view that cutting interest rates provides a stimulus while hiking them is contractionary. However, what the Austrian approach provides is the understanding of the real forces behind the boom-bust cycle. In other words, most financial commentators think that today's interest rates affect today's economic growth, end of story. But if a previous boom period has led to massive malinvestments, there must be a bust period to liquidate the various projects (for which there is an inadequate capital structure to complete).

To put it another way, many commentators seem to believe that if the Fed held interest rates low indefinitely, then we'd never have high unemployment, just rampant price inflation. And yet, the recent experience shows that this is dead wrong. The Fed didn't cause the recent problems by "responsibly" hiking interest rates. No, rates had been steady at 5.25% for some time, and then the housing bubble burst and the mortgage market faltered, thus "forcing" the Fed to take action.

Looking back at the chart above, we can see why the worst may be yet to come. In (price) inflation-adjusted terms, the early-2000s levels of the actual fed funds rate is the lowest since the Carter years. And many readers may recall the severe recessions of 1980 and 1982 that followed that period.

Conclusion

In the Austrian view, the boom-bust cycle is caused by the Fed's maintenance of artificially low interest rates, which causes businesses to expand, hire workers, buy other resources, and so forth, even though these projects are not justified by the true supply of savings in the economy. The greater the "stimulus" the worse the malinvestments.

From 2001–2004, the Fed kept (real) rates at the lowest they've been since the late 1970s. One of the consequences that has already manifested itself is the housing bubble. But a more severe liquidation seems unavoidable. The recent Fed cut may postpone the day of reckoning, but it will only make the adjustment that much harsher.

The Con That Turned the World Against America

The world’s financial system came precariously close to seizing up these past couple months.

In fact, as far as some big banks and financial institutions were concerned, for a moment in time, the system was in a full-blown cardiac arrest. Liquidity, the flow of money—the lifeblood of today’s economic structure—came uncomfortably close to clotting up.

Defibrillators sizzling and money flowing, central banks around the world acted in concert to jump-start financial markets, slashing lending rates and injecting a half trillion in dollar steroids into the economic pulmonary system.

But contrary to what the big media outlets may have reported, it is actually inconsequential whether or not central bankers succeeded in temporarily stabilizing markets.

Irrevocable damage to America’s economic system has taken place.

And because the world’s largest economies are so closely intertwined, the effects will not be limited to the United States. Confidence in the world’s financial system—a system based on the dollar as the reserve currency—is failing, not because of a liquidity crunch, a popping housing bubble, or the myriad of other commonly spouted economic causes, but because of broken faith. The result will be a new world financial order—one without America at the head.

Here is what happened and why you need to know about it.

The world’s economic system is built on trust. Money is no longer backed with tangible assets. The only thing giving that Jackson in your wallet purchasing power is the perception that it will be able to buy a similar batch of goods tomorrow as it can today. But here is the catch. There is no standard that determines what a dollar is worth—ultimately it’s all relative. Its value could disappear overnight.

The same is true for every currency, whether yen, ruble or peso. Each is backed by confidence—confidence that the government will act responsibly, confidence that the government will honestly pay its debts (not just print more money), and confidence that the currency will remain a store of wealth.

When that confidence is broken, faith-based economic systems go into meltdown. Investors and international banks flee, currency values plummet, inflation runs rampant and economies are destroyed.

In August, when fallout from America’s popping housing bubble began to hit the market, trust in America cracked—and with it, so too did confidence in the global economic system.

Hamid Varzi, writing for the International Herald Tribune, summarized world opinion this way: “The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion” (August 17).

He continued: “The ongoing subprime mortgage crisis … presages far deeper problems in a U.S. economy that is beginning to resemble a giant smoke-and-mirrors Ponzi scheme. And this has not been lost on the rest of the world.”

Trust in America is quickly disappearing. Why? Because America single-handedly brought the international financial system virtually to its knees by foisting off fraud-ridden subprime debt on an unsuspecting world, which resulted in the ensuing credit crunch.

America will not escape unscathed. You can’t cheat the very people you rely upon to lend you money without a backlash.

Here is how American greed ripped off the rest of the world.

In 2000, America faced a recession. But rather than letting the economy rebalance, the Federal Reserve decided to slash interest rates to artificially stimulate the economy—even though it knew that doing so would probably create even bigger problems later.

Consequently, mortgage rates in America plummeted and, suddenly, millions more Americans could buy homes. House prices skyrocketed: tripling and quadrupling in many areas. The bubble fed on itself as prospective homeowners, often acting more like speculators, rushed to buy homes as quickly as possible to capitalize on further price appreciation.

As home values rose, fewer people could afford traditional loans. To keep their profits growing, banks and lenders began offering easy-to-get subprime mortgages—mortgages to borrowers normally considered too risky due to credit history, income status and other factors.

Oftentimes these loans were adjustable-rate, or had initial teaser rates that would ratchet up later. Often the loans were given without any applicant background checks at all. As long as a borrower could write his own name and yearly income (regardless of whether or not it was true), he could get a loan.

And everyone was happy. Record house prices fueled a building boom and jobs were created. Borrowers were glad because they got huge loans and could purchase homes that were rising in value. Real-estate agents were pleased because the bigger the house sold, the bigger their profit. Lenders and loan brokers were cheerful too because they each got their cut of the action.

But there was just one problem: The whole boom was based on artificially low interest rates. What would happen when interest rates rose, homes stopped appreciating and borrowers had more difficulty making payments?

American banks, understanding the risk involved in holding so many chancy (and possibly largely overvalued) subprime mortgages on their own books, decided to get rid of them. But who would want to buy all the risky mortgages? Certainly not Americans who were already maxed out on subprime debt. The answer was foreigners.

But here was the catch. To make the sales profitable, the risky mortgages had to be marketed as a “safe” investment.

So American banks sliced and bundled their subprime mortgages together into packages. Using complex computer models, and by geographically and otherwise diversifying the bundled mortgages, American banks convinced world-renowned and trusted American investment-rating agencies like Moody’s and Standard & Poor’s to give the mortgage securities higher valuations than regular subprimes would typically rate.

Later it became public knowledge that these same ratings agencies, which foreign investors were relying on for impartial advice, were being paid by the very banks and lenders that were bundling and selling the subprime mortgages—a huge conflict of interest that produced some terribly misleading data for foreign investors.

It has also emerged, at least in Moody’s case, that the agency knew for years that the mortgages securities they rated as safe were more than 10 times as risky as other similarly rated bonds (Daily Reckoning, September 3).

But at the time, even the banks were happy. They could merrily issue subprime mortgages (and still collect all their fees) because they were able to both quickly remove the mortgages from their books and get top dollar for them, thanks to the high ratings. And foreign investors (as well as domestic investors) confidently purchased these supposedly safe mortgage investments.

That is, until interest rates started to rise—and subprime borrowers began defaulting in droves.

As with all parties, the fun and games eventually end. Suddenly the world woke up to the fact that subprime mortgages were just that—subprime—regardless of what American ratings agencies and banks pretended. As the U.S. housing market slumped, suddenly nobody wanted any American mortgage securities anymore, let alone subprime ones.

Investors around the world tried to sell American mortgage securities, but by this time, the shoddy credit ratings had become public knowledge. American credit-rating agencies embarrassingly began to issue massive ratings downgrades, and foreign investors found that to even get any bidders on their American mortgage portfolios, they had to accept steeply marked-down prices.

Hedge funds and other investment vehicles began to seize up as people tried to pull their money out of any and all businesses associated with U.S. mortgages. Panic ensued.

As the credit crunch spread, it became evident that the “made in America” economic crisis was not contained. America’s trade partners would also take the hit for the moral breakdown in America, a breakdown that could have been avoided had greed not been such a big factor.

Banks and mortgage lenders across Europe and America began to fail.

German, French and British banks, as well as stock market investors around the world, got hit especially hard as the credit crunch and fears of new restrictive lending practices shook international bourses. Investors lost billions.

Things got so bad in Germany that the government had to step in to save two banks from failing. In France, bnp Paribas, one of the nation’s largest banks, had to suspend redemptions from three investment funds it managed.

In Britain, Northern Rock Plc., the nation’s fifth-largest lender, experienced an unprecedented bank run as customers lined up for hours to clamor for their money when it was revealed that it was having trouble accessing enough credit to continue normal operations. The Telegraph compared the scene to something out of Zimbabwe.

And the few big-name collapses experienced so far may be just the beginning.

You can be sure that billions in losses—all as a result of what amounts to a con—will not pass without a response. International backlash is growing.

“The entire world is growing in its disgust for having been defrauded,” says economic analyst Jim Willie. “French, British, German, Japanese and Chinese banks have been harmed from ingesting falsely labeled food items. What was sold as ‘AAA’ rated milk products was actually highly toxic acid ….”

For example, in a foreign-policy speech on August 27, French President Nicolas Sarkozy called for an enhanced global rule book to avoid financial crises—a rule book governing America. Sarkozy, who has vowed to “moralize financial capitalism,” said America’s crisis could recur if “the leaders of major countries” did not take “concerted action to foster transparency and regulation of international markets.”

Peter Bofinger, a member of the German government’s economic advisory board, agrees. “We need an international approach, and the United States needs to be part of it,” he said.

Dick Bryan, a professor of economics at the University of Sydney, says the world must respond as well. “[T]here is the need to challenge the sovereignty of national regulators—why should the rules of lending in the U.S. be left to U.S. regulators when the consequences go everywhere?” he said. In this globalized world, “a problem in one location is a problem everywhere.”

If and how long Washington can resist international pressure is unclear. So far the response from Washington is that it wants “no form of oversight.”

But a new global rule book may be the least of America’s worries.

While regulators in the U.S. have been unreceptive to international monitoring, Europe and Asia, unlike in years past, now have growing financial leverage up their sleeves.

What if foreigners stopped lending to the U.S.? Worse, what if they started dumping U.S. debt in the form of treasuries and bonds?

“America depends on the rest of the world to finance its debt,” Bofinger reminds us. If foreigners stopped buying America’s financial products, it would be a catastrophe.

Foreign willingness to purchase U.S. debt has kept interest rates low in America—thereby creating millions of jobs in real estate, home construction, remodeling and other associated industries. America has become so dependent on foreign money that if foreigners stop lending to America, the America you know today would not survive.

Even now, the foreign backlash is beginning to be felt. The U.S. dollar is dropping to lows never before experienced. In September, the dollar fell to the lowest it has ever been against the euro. Against the Canadian dollar it hit a 31-year low, making the two dollars almost equal in value.

So while U.S. officials continue to brag that all will work out just fine and that the credit crunch is contained, they are missing the bigger point: America cheated the very people it depends upon for loans. Now, foreigners are voting with their feet and are choosing to reduce investment in America. They are abandoning the dollar.

As Jim Willie warns, we “might be in the early stages of … a boycott of U.S.-dollar-based financial assets.”

But who can blame them?

Greed and corruption have been exposed for being endemic to so many levels within America’s economy. Who is to say that even U.S. government bonds more closely resemble subprime mortgages than their conventional reputation as a safe investment?

The world is approaching an end of an era. America’s moral collapse now lies exposed to all—a virtual death sentence to an economic system based on trust. Confidence lost, America’s reputation as a financial safe haven is being replaced with subprime status—and as foreigners have found out, subprime risks just aren’t worth it.

By Robert Morley