10-20-2008, 10:19 PM
G8 SUMMIT FAILS AGAIN :
NEW BRETTON WOODS!
Helga Zepp-LaRouche
http://larouchepub.com/hzl/2008/3528g8_fails_again.html
Before our eyes, the world financial system is disintegrating at an ever more dramatically increasing rate; the G8 states are meeting for their annual summit in Japan and the systemic collapse is not even a topic on its agenda, let alone are they finding a solution for ending the crisis! These governments' collective avoidance of reality continues to mislead them into looking for escape-hatches within the confines of the collapsing system escape-hatches which in fact don't exist. Considering the fact that this is the collective wisdom of the governments of the seven leading industrial nations, plus Russia, and that the weal or woe of the vast majority of humankind hinges on their expertise, we can only speak of this as a tragedy, in the Classical meaning of that term.
In no time at all, it's going to dawn on even the dullest ignoramus, that there's nothing in this universe that can save the current global financial system. Freddie Mac and Fanny Mae, the two U.S. mortgage giants, are "insolvent," according to former Federal Reserve governor William Poole. "The financial crisis has returned in full fury," according to Spiegel-online. The Financial Times Germany edition headlined "There's Blood on the Floor in Zurich's Financial Center." The Danish Roskilde Bank is collapsing. The mortgage and real estate crises are escalating in the United States, Great Britain, Spain, and other countries, and more investment banks, such as Wachovia, JP Morgan, Lehmann Brothers, UBS, and Credit Suisse, are on the skids. In Austria, the government is supposed to shoulder the liabilities of Bawag Bank. The death-gyrations of the American airline companies are making another round, with mass layoffs of another 20,000, while in Germany, Siemens is firing almost 18,000 employees. And the list goes on.
The intensifying crisis of the government-backed mortgage financing companies Fannie Mae and Freddie Mac "signals the final collapse of the Greenspan bubble," commented Lyndon LaRouche. "This is not a crisis of these two institutions. It is the concentrated collapse of the entire globalized debt bubble Greenspan created falsely called the 'U.S. subprime mortgage bubble' falling onto these two institutions. And it signals that the next phase is the total explosion of the entire financial system." In the event that the U.S. government intervenes on these two institutions whose stock value plummeted by almost 50% on July 11 and takes them over, it will be the taxpayers who must pick up the tab, while the problem of the systemic crisis will remain unaddressed. For we must keep in mind that the primary function of these two institutions, has been to keep the bubble economy pumped up, by turning debts into assets which could then be resold as structured securities.
One well-placed source in the financial sector stressed that something gigantic, of unfathomable and unimaginable proportions, must be done by Aug. 1, or the world financial system will collapse completely. If the Americans could only think through the implications of Freddie Mac and Fanny Mae's bankruptcy, he said, they would realize that we're in the greatest financial crisis of all time. But instead, they're all leaving on vacation, as if everything were just fine.
In the month of June alone, financial institutions in the United States repossessed 110,000 family homes, and foreclosures were announced for an additional 250,000 homeowners. The number of such repossessions is four times greater than at the height of the Great Depression of 1933, and since July 2007, approximately 3 million homeowners have been in foreclosure proceedings, while $3.5 trillion in real estate value has been obliterated. The flood of foreclosures has, in turn, caused real estate prices to collapse, and many homeowners with mortgages they thought were secure, are now left with a house that is worth less than their mortgage; and so the spiral continues downward.
Hyperinflation and Austerity
The financial oligarchy's determination to keep its failing institutions afloat just a few days longer, even if it means hyperinflation, is typified by a press conference which International Monetary Fund Managing Director Dominique Strauss-Kahn gave on the side at the G8 summit. He recommended that the G7 countries' financial authorities should keep extremely careful watch over their respective financial sectors, and should come to the rescue of all institutions that get into difficulty, with injections of liquidity.
Now, that is truly outrageous: It's precisely the same "helicopter" strategy which earned Federal Reserve Chairman Ben Bernanke his nickname: the crazy idea that in an emergency, it would be better to fly helicopters over American cities and drop banknotes, than to permit large financial institutions to go bankrupt. And this, knowing full well that the resulting hyperinflation would devour the savings of all the so-called little people.
Just how the neoliberal oligarchy envisions the continuation of the crisis, is as clear as day: massive reductions in the population's standard of living, in the tradition of Hitler's Economics Minister Hjalmar Schacht. Strauss-Kahn presented the brilliant idea that price inflation in energy and food should be fully passed on to consumers, since this would create an incentive for producers to increase their production, while for consumers it would be an incentive to reduce consumption. And in typical British "lady-do-rightly" manner, he suggested that there be a safety net for the poor. Lorenzo Bini Smaghi, a member of the European Central Bank's board of directors, blew on the same horn, arguing that the sacrifices which the population will have to make, must be distributed evenly.
The fact that for the majority of the population, who in recent years haven't been able to accumulate savings, such a "reduction of consumption" and "equal distribution of sacrifice" mean a further plunge into poverty, with incalculable social and political consequences, is evidently a matter of indifference to these incompetents, whose own personal salaries would not be affected in the least by such a "distributed sacrifice."
One Contradiction After Another
The only positive result coming out of the G8 summit, was their unanimous commitment to a renaissance of nuclear energy worldwide—except for Germany, of course. Russian President Dmitri Medvedev announced the massive expansion of nuclear energy in Russia, as well as international cooperation with all countries which desired it. Perhaps more important than the G8 summit itself, was a bilateral side-meeting between Indian Prime Minister Manmohan Singh and Chinese President Hu Jintao, where they agreed on their countries' close cooperation in nuclear energy development.
Within the G7 states, however, one contradiction is piling on top of another, with the interests of nation-states sharply clashing with the ideology of the neo-liberal free-trade faction. French President Nicolas Sarkozy, for example, assured the European Parliament in Strasbourg that under no circumstances would he sign the final documents of the World Trade Organization's so-called Doha Round, which has been set to occur at a meeting on July 21 in Geneva. Admittedly, Sarkozy used a free-traders' argument that Brazil and China are also refusing to open their markets; but his real, more compelling reason, was surely the 100,000 agricultural jobs that would be eliminated in France, were the Doha agreements to go into effect. The WTO had made a desperate attempt to push the negotiations through by early June at the very latest, so that governments could get the required arrangements into place while the Bush Administration was still in office.
But the G8's inability to even put the problem of the systemic crisis onto its agenda, or to give serious consideration to a new financial architecture, is a sure sign that, very soon now, there will be an extremely rude awakening for governments who have insisted on clinging to their ideological prejudices. Just as the Communist system collapsed in 1989-91, so also the speculative system, which was started at the latest by Richard Nixon in 1971, and which, starting in 1987, was puffed up by Fed Chairman Alan Greenspan into the most immense casino economy the world has ever seen, is now finished. The invention of derivatives and other "creative financial instruments" created a global monster which has led to the absolutely unpayable indebtedness of the system, along with huge mountains of unmarketable structured financial securities.
No Breakthrough in Europe
The European side of this monster was bestowed upon us by Margaret Thatcher and Francois Mitterrand with the Maastricht and Amsterdam treaties, the currency union, the Stability Pact, and the Treaty of Nice. Thanks to these, we now have the bubble economy of the so-called catch-up economies, and in Germany, the collapse of the Mittelstand small and medium-sized industries and the past decade's reduction of real wages. The only ray of light in this otherwise dismal picture, is the Irish people's "No" on the referendum on the proposed Lisbon Treaty for European supranational government, and the subsequent declarations from the Presidents of the Czech Republic and Poland, that the Lisbon Treaty is a dead letter.
What has unfortunately become all too clear in this attempted coup from above, in which heads of government had sought to impose the EU Treaty in a cloak-and-dagger operation without any public discussion, is that democracy in Europe is in miserable shape. Even now, after the Irish "No" has at least ensured that the population knows that the Lisbon Treaty exists, there has not been a single in-depth analysis or presentation of the treaty in the media, with the exception of a brief talk show on the Phoenix network. If it is true that Germany's Chancellor Angela Merkel actually did demand that President Horst Kohler sign the EU Treaty right now, even though the Constitutional Court's decision on relevant cases is still outstanding, then this is a truly hair-raising deficit in democracy, in a woman who, already back in 2005, said on the occasion of the 60th anniversary of her party, the Christian Democratic Union: "For truly, we do not have any legal claim to democracy and the social market economy for all eternity." So, what, then? Dictatorship?
A Solution Can Still Be Implemented
One thing is clear: The world is now facing shocks of an extent heretofore unknown. Lyndon LaRouche's proposal that it is only if the world's four most powerful nations the United States, Russia, China, and India join in cooperation, that a solution can be found for a new financial architecture (a "New Bretton Woods") may seem unlikely to many, but under the crisis conditions we are now headed for, it is not so. The world's people are currently thinking about solutions: for example, a continental Eurasian solution, without the U.S.A. and Great Britain, or a strictly Asiatic or South-South solution, or a ruble zone, or a British-Scandinavian zone, etc., etc. But already in the 15th Century, Nicholas of Cusa recognized that universal problems cannot be solved on the basis of side-arrangements, and that concordance in the macrocosm is only possible if all microcosms develop into a harmonious whole.
And so, even if today this might appear unlikely to most citizens, the only way to prevent humanity from being plunged into a really dark age, lies in our ability to establish a new and just world economic order, one which can secure the survival of all people and all nations, in human dignity. And the best thing that we in Germany can do, is develop ourselves into true citizens of our country.
A CALL FOR A NEW BRETTON WOODS
We Need a New World Economic Order, Now!
Helga Zepp-LaRouche
http://larouchepub.com/hzl/2008/3529need_nbw_now.html
The author is the founder of the Schiller Institute, which has branches in many countries, and its president in Germany. She issued this open call, titled "World Financial System Faces a Meltdown; Call for a New Bretton Woods System; We Need a New World Economic Order!" on July 17. It is being distributed as a leaflet in Germany, and has been translated from German for EIR.
[PDF version of this text]
Inflation is gobbling up the income of the so-called "little people": 56% of German citizens don't make enough to be able to save anything. And now, as the result of speculation, prices for food, gasoline, heating oil, electricity, and raw materials are exploding. But the people do realize that a much bigger catastrophe is hitting us.
The fact is, the financial system has collapsed. The so-called subprime mortgage-market crisis in the U.S.A., which broke out a year ago, is now exploding with the insolvency of the mortgage-lenders Freddie Mac and Fannie Mae, which reportedly are holding or backing $5.3 trillion in mortgages that's 5,300 billion dollars which is 70% of the American real estate market! But both of these giants were at the core of the "creative financing instruments" that former Federal Reserve chairman Alan Greenspan bestowed upon the world, by means of which, debts were miraculously transformed into assets, and sold throughout the entire globe as so-called structured financial packages, without the slightest control by governments or central banks.
The Federal Reserve's attempt to put practically unlimited financial infusions at the disposal of both giants will only accelerate the hyperinflationary explosion of the system. The patient—the world financial system—has already died; it's only the burial that hasn't yet occurred. The dance around the Golden Calf that made the speculators super-rich, but the majority of the world's population poorer and poorer, has come to an end.
It is deplorable that the summit of the G8 countries that is, the seven most powerful Western industrial nations plus Russia, which recently took place in Japan unfortunately proved itself incapable, as was to be expected, of finding a solution for the systemic collapse that is playing out so dramatically before the very eyes of the world public. The heads of state of the G5 China, India, Brazil, Mexico, and South Africa who were also in attendance, were not seriously incorporated into the search for a solution. A number of governments will soon be voted out, since, during their term in office, they did not meet their obligation to take care of the common good of their populations.
The hyperinflationary disintegration of the world financial system has already led to hunger riots in 40 nations, as more and more people are threatened with the loss of their livelihoods. If even more, unforeseeable, harm to the world's population is to be prevented, an emergency conference must be called, at the level of heads of state, to establish a new financial architecture, in the tradition of the Bretton Woods system initiated by Franklin D. Roosevelt.
Lyndon LaRouche has reiterated in recent months, that only the combination of the four most powerful nations the U.S.A., where the election remains open, as well as Russia, China, and India is strong enough to take a stand against the international financial oligarchy. Other nations should then join these four to bring about a solution.
This emergency conference for a New Bretton Woods system must resolve that:
The present world financial system must be declared hopelessly bankrupt, and replaced by a new one.
It must promptly set up a fixed-exchange-rate monetary system, so that long-term investments in international infrastructure projects are possible, under predictable conditions.
Derivatives speculation and speculation in food, energy, and raw materials must be banned by treaty among governments.
There must be an immediate reorganization, including, for example, cancellation of debts.
In a New Deal for the world economy, in the tradition of Alexander Hamilton, Friedrich List, Henry Carey, and FDR, new credit lines must be made available for investments in basic infrastructure and technological renovation.
Building the Eurasian Land-Bridge, as the core project for reconstruction of the world economy, is therefore the vision that can not only bring a new economic miracle, but also bring peace to the 21st Century.
Food production must be doubled worldwide in the coming years.
A new "Peace of Westphalia" must, within at least 50 years, secure the availability and development of raw materials for all nations on this planet.
We, the undersigned, maintain that the system of "globalization," with its brutal, predatory capitalism, is economically, financially, and morally wrecked. Instead, man must be placed at the center again, and the economy must serve the common good. The new world economic order must guarantee the inalienable rights of all men on this planet.
LAROUCHE APPEALS TO NATIONS IN TIME OF CRISIS
http://larouchepub.com/hzl/2008/3531hzk_...tions.html
In the spirit of deliberations at an international EIR seminar held July 26 in Wiesbaden, Germany, attended by parliamentarians, economists, and legal experts from France, Italy, Denmark, Sweden, Austria, the U.S.A., Niger, Zimbabwe, Jordan, and Germany, Helga Zepp-LaRouche, president of the international Schiller Institute, has published the following resolution for worldwide circulation and endorsement. Titled "Make the Dream of the American Revolution Come True!" it is addressed "To All the Nations of the United Nations and the Presidential Candidates in the American Election Campaign."
"We hold these truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness. That to secure these Rights, Governments are instituted among Men, deriving their just Powers from the Consent of the Governed. That whenever any Form of Government becomes destructive of these Ends, it is the Right of the People to alter or abolish it, and to institute new Government, laying its Foundation on such Principles, and organizing its Powers in such Form, as to them shall seem most likely to effect their Safety and Happiness...." So reads the American Declaration of Independence of 1776.
And Martin Luther King reminded the world on August 28, 1963 in his famous "I Have a Dream" speech: "When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise, that all men, yes, black men as well as white men, would be guaranteed the unalienable rights of life, liberty, and the pursuit of happiness. It is obvious today that America has defaulted on this promissory note, insofar as her citizens of color are concerned."
But the American Revolution and the establishment of a republic in the New World was not only a "Beacon of Hope and Temple of Liberty" for America alone, but it represented a perspective for a future in which imperialism and colonialism would eventually be overcome, for the entire world. The plan of John Quincy Adams, for an international "community of principle" of fully sovereign republics, which would, notwithstanding, be bound together by the common aims of mankind, was the noble fulfillment of the idea of the international law of the people, as it was established by the 1648 Peace of Westphalia. Unfortunately, today, it is obvious that America has kept this promise over recent years just as little for the international community, as King complained it did for the citizens of color in his time. But a unique opportunity, and perhaps also the last chance, currently presents itself, with the American Presidential campaign, to infuse the ideals of the American Revolution, of John Quincy Adams, Abraham Lincoln, Franklin D. Roosevelt, and Martin Luther King, with new life.
An Unprecedented Threat
Never in its entire history has humanity been threatened by greater dangers than now. We are experiencing the end phase of a systemic crash of the global financial system, whose hyperinflationary effects have already led to hunger riots in more than 40 nations, and are massively threatening the living standards of the majority of the population in the so-called industrialized nations as well. The system of unrestrained free trade associated with globalization has utterly failed, and threatens to plunge the world into a state of chaos which threatens the lives of many millions, if not billions of people.
While, during the 1950s and '60s, the idea of UN Development Decades still prevailed that is, the perspective that the underdevelopment of the developing countries would be overcome in each decade, step by step, in order to reach, as soon as possible, the level of the industrialized nations sometime, in the middle of the 1960s, a paradigm-shift set in, in which the talk was no longer about overcoming underdevelopment, through the construction of infrastructure, industry, and agriculture, but of "overpopulation," "appropriate technology," and "sustainable development." Instead of producing harvests for the welfare of their own populations, the developing countries had to produce, more and more, so-called "cash crops" for export, in order to pay off their foreign debt, which had been constantly increased through the conditionalities of the IMF.
In the industrialized nations, this paradigm-shift led increasingly away from production, toward speculation. In Europe, this has taken the form of turning previous cooperation among sovereign nation-states into a free-trade nightmare, run by a supranational Brussels bureaucracy, while tying the hands of governments, under the disastrous Maastricht-Lisbon treaties. Through so-called "outsourcing" to the countries with low-wage production, the productive small and medium-sized industries and the highly skilled jobs in the industrialized nations were destroyed in many places, while the real income in the low-wage countries could not cover the real cost from the standpoint of physical economy. Through this policy of free trade, important capacities in industry and agriculture have been destroyed over the last 40 years. A small section of the population in all countries became obscenely rich, while about 80% of the population in all countries became ever poorer. The situation escalated more and more, to the point against which Gandhi had written in reference to the British colonial masters: "Wealth without work, pleasure without conscience, knowledge without character, commerce without morality, science without humanity, worship without sacrifice, and politics without principles."
The model of globalization and free trade has been proven a failure, which has been demonstrated, not the least, by the final collapse of the Doha Round of the WTO trade negotiations in Geneva. Therefore, it is of the greatest urgency that we again put on the agenda, the ideas which had been proposed earlier, for example, by the Non-Aligned Movement at the Sri Lanka conference in 1976, in the so-called Colombo Resolution, that is, the demand for a new, just world economic order, which affords all people and all nations on this planet a humane life in freedom, and the pursuit of happiness, as it is demanded in the Declaration of Independence.
The Last Chance
The upcoming General Assembly of the United Nations, which begins this year on Sept. 26, in New York, is perhaps the last opportunity to put the interests of humanity as a whole, and not that of a few speculators, on the agenda. If courageous leaders of several nations comport themselves like those outstanding personalities, such as former Foreign Minister of Guyana Fred Wills, did in 1976, or the former President of Mexico, Jose Lopez Portillo, did in 1982, then the reconstruction of the world economy after the crash of the system can be set in motion in sufficient time.
What mankind needs today, are individuals who have the vision and the love for the idea of the international community, to put the question of a new, just world economic order on the agenda. This resolution is a call to leading representatives of all nations, to work toward this goal. And the more that forces appeal to the three Presidential candidates who still find themselves in the race, to honor the promise of the American Constitution and Declaration of Independence for all nations on this planet, the greater the chance that America can return to the positive role which it played in the times of Benjamin Franklin, Alexander Hamilton, John Quincy Adams, Abraham Lincoln, and Franklin D. Roosevelt.
PUT UP THE FIREWALL, BRING IN THE SHRINKS!
John Hoefle
http://larouchepub.com/other/2008/3528fi...rinks.html
As their speculative financial system crumbles around them, the bankers and their regulators are in obvious denial about the nature of the problems they face, and the nature of the solutions. Rather than being guided by reason, they are being guided by their compulsions, trying to save what cannot be saved, by methods which have failed repeatedly. Like crack addicts or compulsive gamblers, they find themselves unable to stop their destructive behavior, even when they know, deep in their hearts, that their actions are leading them to their doom.
All the signs are there. Fed chairman Ben Bernanke has rather openly stated that the Fed's escalating series of emergency bank loan operations will continue, thereby confirming that the U.S. banking system is insolvent. Treasury Secretary Henry Paulson, while talking openly about the possibility of the failure of a major U.S. investment bank, is pushing for further deregulation of the financial system. Regulators are discussing the possibility of using the big private equity funds to inject badly needed capital into the banks, in exchange for further deregulation; and some of the bankers, like J.P. Morgan Chase CEO Jamie Dimon, are calling for the banks to be allowed to operate like private equity funds. Congress, under the guise of protecting homeowners, is pushing legislation designed to protect the banks and other holders of mortgage-related debt. More bailouts, more deregulation, more of the same poison that is killing us all.
Meanwhile, the disintegration continues. The FDIC is gearing up to handle a rash of commercial bank failures, as rumors of problems circulate amid suggestions that quiet runs on suspect banks have already begun. The FDIC is, at least nominally, focussing its attention on small and medium-sized banks with large exposures to their local/regional commercial real estate markets, in the hope that the Plunge Protection Team can head off the open failure of the giant banks. The situation is far worse than they will publicly admit, and they have no solution other than buying time, in the hope that the financial markets can somehow be brought back to life.
What they are doing is the equivalent of rearranging the deck chairs on the Titanic, trying to keep themselves and their passengers calm as their ship sinks beneath the waves. They are in denial, paralyzed with fear, and making the same mistakes over and over again. They obviously cannot stop themselves so we must intervene, get them some professional psychiatric help, and let more reasonable minds take over.
It's the System
The tendency of most people, regulators and citizens alike, is to approach this banking crisis through the prism of individual institutions. As institution after institution flames out, from mortgage lenders to giants like Bear Stearns, we are treated to a series of soap operas, a new cast of villains to be blamed for our trouble. The Justice Department has indicted over 400 individuals in the mortgage-loan business as part of Operation Malicious Mortgage, including two former officers of Bear Stearns. While we leave it to the courts to decide the innocence or guilt of individuals, there is certainly no shortage of criminal culpability in the mortgage sector, and people who committed fraud should be held to account for their actions. However, this approach falls far short of what is needed.
Take the cases of Fannie Mae and Freddie Mac, the big government-sponsored enterprises that buy mortgages and issue mortgage-backed securities. Both institutions, due to their huge exposure to the collapsing residential mortgage system, are effectively insolvent, and both have had their share of investigations and accounting problems. Nevertheless, the Plunge Protection Team and the Congress are using both Fannie and Freddie, along with the Federal Housing Administration, as integral parts of their bailout machine. The name of the game is to convert as much of the private mortgage paper as possible into government-guaranteed paper, even though that will ultimately mean huge taxpayer bailouts.
Former St. Louis Fed president William Poole made the point about Fannie and Freddie explicitly, in a interview with Bloomberg News July 9. "Congress ought to recognize that these firms are insolvent, that it is allowing these firms to exist as bastions of privilege, financed by the taxpayer," Poole said. Poole later told the New York Times, "We are potentially looking a crisis in the face, and we must not allow this to happen. The government must intervene."
Poole's comments helped accelerate the slide in the stock prices of both institutions. Fannie Mae's stock is off 76% from a year ago, Freddie Mac is down 83%, and they are now at their lowest levels in 17 years.
Poole's blunt comments and the stock slide had both Paulson and Bernanke in damage-control mode during Congressional hearings July 10. Paulson claimed that both companies were "adequately capitalized" and "working though this challenging period," while Bernanke claimed that they "are well capitalized in a regulatory sense." Given the dismal track record of this pair and the weakness of their statements, they were less than reassuring.
Sooner, rather than later, Fannie Mae and Freddie Mac will blow up and require huge bailouts. Inevitably, investigations will be launched to find out what went wrong, and those investigations will likely focus on events and personalities inside the companies, whereas the real culprits will be people like Paulson and Bernanke, whose policies put the companies in an untenable situation.
To understand what has gone wrong, one must focus on the system itself, the overall process, rather than merely one or two components of the system. It is the policy of attempting to bail out the bankrupt system, which will be the cause of the damage to come.
Coverups
What is required, is for the public to be told the truth about the condition of the financial system, and the costs—monetary and societal—of the bailout operation. No constitutional republic can function properly when the citizens are lied to, repeatedly and systematically, about the most important matters before them. The citizens have a right to know the true condition of their financial system. Instead, what we get are lies and coverups, designed to hide the damage.
Perhaps the most egregious case of this is the speculation in oil and food. Much of the money being stolen from the population through this oil and food speculation is being funnelled into the financial system to fund the restructuring now under way. Despite a series of Congressional hearings on the subject, nothing has been done to curb this speculation. Regulators like the Commodity Futures Trading Commission (CFTC), which are supposed to defend the citizens, are instead captives of the financial markets, and protect the looting apparatus. The CFTC, like its regulatory peers, is determinedly oblivious to what is so obvious to the rest of us. "We see no evidence" is the mantra they repeat over and over.
Not only that, but this deadly price-gouging is being actively protected by Wall Street. After a recent House Agriculture Committee hearing in which he testified on the need to rein in speculation, Rep. Bart Stupak (D-Mich.) reported that a "Wall Street warroom" had been set up to block any action by the government against speculation. Later, Stupak told EIR that this warroom was being run by investment banking giant Morgan Stanley, and that the banks and other financial companies are doing all they can to stop any action aimed at ending speculation in food, oil, and other commodities.
Blowing Out
This "Wall Street warroom" operation is another sign of the desperation of the bankers to avoid dealing with the truth of their situation. Despite their efforts, and in many cases, because of their efforts, the banking system continues to disintegrate. Mortgage lender Countrywide has now been absorbed into Bank of America, at a cost of making the problems faced by Bank of America even worse. Now we see IndyMac Bank, a spinoff of Countrywide, disintegrating before our eyes; it's laid off over half its workforce and ceased making loans. It is but the latest in a never-ending series of disasters.
The regulators and the financiers assured us that the "subprime crisis" was contained and would not pose a threat to the banks—but they were wrong. The regulators and financiers assured us that the "credit crunch" was contained and did not pose a threat—but they were wrong. Now, after hundreds of billions of dollars of admitted losses to the world's banks, they tell us that the banking system is safe despite its problems—but they are wrong. They tell us that Fannie Mae and Freddie Mac are safe, even while they use them as vehicles to transfer enormous losses from the speculators to the taxpayers.
The bankers' plan is to save themselves by sticking the government, and thus the taxpayers, with their losses, to protect their looting rights at all costs, and to eliminate any laws, regulations, and government efforts which get in their way. They will accept consolidation among their ranks, and even the demise of some important institutions, in order to protect the system itself.
The irony is that their own efforts to protect themselves will destroy them. They cannot bail themselves out, even via the government, because our economy can not support the debt. It can't be paid, and all their bailout schemes do is add more debt to a dead system.
PAULSON's THREE POINT PLAN:
PANIC, CHANGE PANTS, RINSE AND REPEAT
John Hoefle
"Take a deep breath," President George Bush advised us this week, and for once, on that one point, he was right. Bush was trying to head off the latest episode of financial panic by rallying us to hang tough, to have confidence. "We're going through a tough time," he said, but "we can have confidence in the long-term foundation of our economy." One of the proofs he offered of this is that "consumers are spending." No kidding! With prices for gasoline and food and virtually everything else in the consumer market-basket soaring, consumers will keep spending. Apparently, in Bush's limited worldview, price-gouging and hyperinflation are indications of strength.
Still, everybody knows that Bush knows nothing about the economy, or virtually anything else, but what about his vaunted experts, like Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke? Paulson, after all, is one of the Goldman Sachs "masters of the universe," while Bernanke is widely touted as an expert on the Great Depression.
This dynamic duo may know a lot about the financial markets, but when it comes to economics, they are just as stupid as their glorious leader. Lyndon LaRouche has more than once denounced Paulson as incompetent, and good ol' Hank has done everything he can to prove LaRouche right. This is the gang that couldn't shoot straight.
The latest bit of insanity from these boobs is the so-called "bailout" of Fannie Mae and Freddie Mac, done, we are told, to protect the "housing market" and help the American people. Once again, the big money is riding to the rescue of the little guy! If you believe that, I have a bridge for sale you might want to take a look at.
Paulson interrupted his ongoing panic on Sunday, July 13, to announce a three-part plan to rescue Fannie and Freddie by throwing more taxpayer money at them. He was aided in this fool's mission by Bernanke, who announced that the Fed stood ready to lend the ailing companies whatever they needed, until Paulson's plan could kick in.
Faced with the worst economic disaster since the 14th Century, the one that spawned the Black Death, we have a dimwit President assuring us that all is well, while his experts pour our money down the bottomless rathole of a dead financial system. On top of that, we have legions of economists, analysts, pundits, and other prostitutes assuring us that all is well, if we just believe. The economy is fine, so grow a pair, and keep your chin up. When the going gets tough, ... ad nauseam. They talk a good game, but they've been wrong about virtually everything so far, and seem incapable of getting it right.
Delusional
What Paulson, Bernanke, and the rest of the Ding-a-ling Brothers, Barney and Bailout Circus refuse to accept, is that the bubble has popped, and their speculative financial casino has failed, leaving the banks holding trillions of dollars of securities which are now virtually worthless, dependent upon a business model which no longer exists. The heady days of expansion are gone, replaced by a desperate fight for survival, in which once-powerful institutions have begun to disappear, with many more to follow. The game is over, but the players remain on the field, shell-shocked, refusing to admit they have lost.
For decades, the bankers have pushed deregulation and globalization, fighting to break free of the rules and regulations imposed upon them by nations. They have largely accomplished that goal, only to find that they have destroyed themselves in the process, and, much to their chagrin, must turn to governments to save themselves. Even so, they refuse to admit the errors of their ways, blaming everyone but themselves for their failures.
Last December, as the year came to a close and books needed to be balanced, the major western central banks delivered a series of liquidity injections designed to save the banks. The European Central Bank announced $500 billion in emergency loans, and followed that up in January with another $250 billion; the total is now well beyond $1 trillion. The Federal Reserve created a new lending window for depository institutions called the Term Auction Facility (TAF) in December, promising $100 billion for the month; the TAF began holding twice-monthly auctions, offering $20 billion at each, but the amount has increased steadily to the current $75 billion per auction. To date, the TAF has loaned $810 billion to the banks, out of $1.3 trillion requested.
In March, as the first quarter was ending, the Fed created two more of these emergency lending windows, the Term Securities Lending Facility (TSLF) and the Primary Dealers Credit Facility (PDCF) to lend to investment banks. This represented both a significant expansion of the Fed lending operations, and a leap in the Fed's power, as heretofore, its lending operations had been restricted to depository institutions. To date, the Fed has lent over $550 billion through the TSLF.
Now, just a few months later, Paulson is seeking yet another expansion of the bailout mechanism, this time, for Fannie Mae and Freddie Mac. The plan originally leaked to the press was to inject up to $15 billion into the companies to bolster their balance sheets, but that quickly turned into a three-point plan involving an expanded line of credit from the Treasury, the authority for the Treasury to buy equity in the companies, and giving the Fed a role in the regulation of the companies. In addition, the Fed announced that it would allow Fannie and Freddie to borrow from the Federal Reserve Bank of New York. Paulson declined to state how much money would be required, effectively asking for a blank check, while vowing to "protect the taxpayer." He also claimed the emergency funds and powers would be temporary.
Thus we have an ever-growing bailout operation, trying to cope with an accelerating banking collapse and failing miserably, all being managed by regulators who have yet to get anything right. Paulson's credibility as the expert from Goldman Sachs has been considerably tarnished. His M-LEC SuperSIV bailout plan announced last year never got off the ground; his plans to "modernize" the U.S. financial regulatory system would reduce oversight and give more power to the Federal Reserve the same Fed which played a major role in getting us into this mess; and now he is moving to put the taxpayer on the hook for the losses in the mortgage bubble.
Thrown to the Wolves
This insane plan is being sold as a way to stabilize Fannie Mae and Freddie Mac and thus the U.S. housing market, in order to help homeowners, but what it really is, is a way to transfer losses from the bankers to the taxpayer by turning Fannie and Freddie into toxic waste dumps. Far from saving the already broke Fannie and Freddie, Paulson's plan will destroy them.
The banks are broke and cannot save themselves, so they turn to the only institution that can, the U.S. government. Paulson has already made clear, through his Hope Now Alliance and public statements, that Fannie and Freddie must play a crucial role in the refinancing of problem mortgages.
Protecting homeowners from foreclosures is an admirable goal, but the primary purpose of all of these bailout measures is to protect the banks, by protecting the valuations of the securities they hold by the trillions. What Paulson, Bernanke, and the Plunge Protection Team are trying to do is to put a floor under the real estate market, to slow or stop the decline in housing prices, as a way of slowing the vaporization of the trillions of dollars of mortgages, and the hundreds of trillions, perhaps quadrillions, of dollars of mortgage-related securities and speculation leveraged on top of those mortgages.
The loans to the banks and the investment banks from the Fed serve a similar purpose, since the Fed accepts a wide range of collateral, including mortgage securities, for loans, giving the banks the opportunity to dump their bad paper on the Fed in exchange for cash. The primary purpose of many of these loans appears to be taking the bad paper off the banks' books, addressing their insolvency crisis under the guise of dealing with a "credit crunch." It is the mountain of bad paper, not the lack of cash, which is killing the banks.
Overall, the various bailout schemes being pushed by Paulson and Bernanke amount to a giant debt-recycling scheme, in which losses are transferred from the banks to the taxpayers, giving the banks the profits and the public the losses. It is incredibly corrupt, and incredibly stupid.
This scheme cannot work. The bailouts may seem to be working, with obligations being transferred from the books of the banks to the books of government-backed institutions, but transferring bookkeeping entries is not the same as paying the debts, and this is where it all breaks down. The problem is that the U.S. economy no longer produces enough wealth to cover the debt. We have been operating below breakeven for some four decades, dismantling our manufacturing capability and cannibalizing our infrastructure to the point that we cannot support the existing debt load, much less the endless trillions of dollars of losses the bankers would dump on us. We are a net debtor nation; during the 2000s to date, we have incurred over $5 in debt for every $1 rise in GDP, and most of GDP is services and other overhead. We incur this debt because we no longer produce enough wealth to cover our expenses. The government can print money to try to cover these huge debts, but the resulting hyperinflation will destroy the dollar, and everything in its path. The only solution is LaRouche's: Write it off.
NEW BRETTON WOODS!
Helga Zepp-LaRouche
http://larouchepub.com/hzl/2008/3528g8_fails_again.html
Before our eyes, the world financial system is disintegrating at an ever more dramatically increasing rate; the G8 states are meeting for their annual summit in Japan and the systemic collapse is not even a topic on its agenda, let alone are they finding a solution for ending the crisis! These governments' collective avoidance of reality continues to mislead them into looking for escape-hatches within the confines of the collapsing system escape-hatches which in fact don't exist. Considering the fact that this is the collective wisdom of the governments of the seven leading industrial nations, plus Russia, and that the weal or woe of the vast majority of humankind hinges on their expertise, we can only speak of this as a tragedy, in the Classical meaning of that term.
In no time at all, it's going to dawn on even the dullest ignoramus, that there's nothing in this universe that can save the current global financial system. Freddie Mac and Fanny Mae, the two U.S. mortgage giants, are "insolvent," according to former Federal Reserve governor William Poole. "The financial crisis has returned in full fury," according to Spiegel-online. The Financial Times Germany edition headlined "There's Blood on the Floor in Zurich's Financial Center." The Danish Roskilde Bank is collapsing. The mortgage and real estate crises are escalating in the United States, Great Britain, Spain, and other countries, and more investment banks, such as Wachovia, JP Morgan, Lehmann Brothers, UBS, and Credit Suisse, are on the skids. In Austria, the government is supposed to shoulder the liabilities of Bawag Bank. The death-gyrations of the American airline companies are making another round, with mass layoffs of another 20,000, while in Germany, Siemens is firing almost 18,000 employees. And the list goes on.
The intensifying crisis of the government-backed mortgage financing companies Fannie Mae and Freddie Mac "signals the final collapse of the Greenspan bubble," commented Lyndon LaRouche. "This is not a crisis of these two institutions. It is the concentrated collapse of the entire globalized debt bubble Greenspan created falsely called the 'U.S. subprime mortgage bubble' falling onto these two institutions. And it signals that the next phase is the total explosion of the entire financial system." In the event that the U.S. government intervenes on these two institutions whose stock value plummeted by almost 50% on July 11 and takes them over, it will be the taxpayers who must pick up the tab, while the problem of the systemic crisis will remain unaddressed. For we must keep in mind that the primary function of these two institutions, has been to keep the bubble economy pumped up, by turning debts into assets which could then be resold as structured securities.
One well-placed source in the financial sector stressed that something gigantic, of unfathomable and unimaginable proportions, must be done by Aug. 1, or the world financial system will collapse completely. If the Americans could only think through the implications of Freddie Mac and Fanny Mae's bankruptcy, he said, they would realize that we're in the greatest financial crisis of all time. But instead, they're all leaving on vacation, as if everything were just fine.
In the month of June alone, financial institutions in the United States repossessed 110,000 family homes, and foreclosures were announced for an additional 250,000 homeowners. The number of such repossessions is four times greater than at the height of the Great Depression of 1933, and since July 2007, approximately 3 million homeowners have been in foreclosure proceedings, while $3.5 trillion in real estate value has been obliterated. The flood of foreclosures has, in turn, caused real estate prices to collapse, and many homeowners with mortgages they thought were secure, are now left with a house that is worth less than their mortgage; and so the spiral continues downward.
Hyperinflation and Austerity
The financial oligarchy's determination to keep its failing institutions afloat just a few days longer, even if it means hyperinflation, is typified by a press conference which International Monetary Fund Managing Director Dominique Strauss-Kahn gave on the side at the G8 summit. He recommended that the G7 countries' financial authorities should keep extremely careful watch over their respective financial sectors, and should come to the rescue of all institutions that get into difficulty, with injections of liquidity.
Now, that is truly outrageous: It's precisely the same "helicopter" strategy which earned Federal Reserve Chairman Ben Bernanke his nickname: the crazy idea that in an emergency, it would be better to fly helicopters over American cities and drop banknotes, than to permit large financial institutions to go bankrupt. And this, knowing full well that the resulting hyperinflation would devour the savings of all the so-called little people.
Just how the neoliberal oligarchy envisions the continuation of the crisis, is as clear as day: massive reductions in the population's standard of living, in the tradition of Hitler's Economics Minister Hjalmar Schacht. Strauss-Kahn presented the brilliant idea that price inflation in energy and food should be fully passed on to consumers, since this would create an incentive for producers to increase their production, while for consumers it would be an incentive to reduce consumption. And in typical British "lady-do-rightly" manner, he suggested that there be a safety net for the poor. Lorenzo Bini Smaghi, a member of the European Central Bank's board of directors, blew on the same horn, arguing that the sacrifices which the population will have to make, must be distributed evenly.
The fact that for the majority of the population, who in recent years haven't been able to accumulate savings, such a "reduction of consumption" and "equal distribution of sacrifice" mean a further plunge into poverty, with incalculable social and political consequences, is evidently a matter of indifference to these incompetents, whose own personal salaries would not be affected in the least by such a "distributed sacrifice."
One Contradiction After Another
The only positive result coming out of the G8 summit, was their unanimous commitment to a renaissance of nuclear energy worldwide—except for Germany, of course. Russian President Dmitri Medvedev announced the massive expansion of nuclear energy in Russia, as well as international cooperation with all countries which desired it. Perhaps more important than the G8 summit itself, was a bilateral side-meeting between Indian Prime Minister Manmohan Singh and Chinese President Hu Jintao, where they agreed on their countries' close cooperation in nuclear energy development.
Within the G7 states, however, one contradiction is piling on top of another, with the interests of nation-states sharply clashing with the ideology of the neo-liberal free-trade faction. French President Nicolas Sarkozy, for example, assured the European Parliament in Strasbourg that under no circumstances would he sign the final documents of the World Trade Organization's so-called Doha Round, which has been set to occur at a meeting on July 21 in Geneva. Admittedly, Sarkozy used a free-traders' argument that Brazil and China are also refusing to open their markets; but his real, more compelling reason, was surely the 100,000 agricultural jobs that would be eliminated in France, were the Doha agreements to go into effect. The WTO had made a desperate attempt to push the negotiations through by early June at the very latest, so that governments could get the required arrangements into place while the Bush Administration was still in office.
But the G8's inability to even put the problem of the systemic crisis onto its agenda, or to give serious consideration to a new financial architecture, is a sure sign that, very soon now, there will be an extremely rude awakening for governments who have insisted on clinging to their ideological prejudices. Just as the Communist system collapsed in 1989-91, so also the speculative system, which was started at the latest by Richard Nixon in 1971, and which, starting in 1987, was puffed up by Fed Chairman Alan Greenspan into the most immense casino economy the world has ever seen, is now finished. The invention of derivatives and other "creative financial instruments" created a global monster which has led to the absolutely unpayable indebtedness of the system, along with huge mountains of unmarketable structured financial securities.
No Breakthrough in Europe
The European side of this monster was bestowed upon us by Margaret Thatcher and Francois Mitterrand with the Maastricht and Amsterdam treaties, the currency union, the Stability Pact, and the Treaty of Nice. Thanks to these, we now have the bubble economy of the so-called catch-up economies, and in Germany, the collapse of the Mittelstand small and medium-sized industries and the past decade's reduction of real wages. The only ray of light in this otherwise dismal picture, is the Irish people's "No" on the referendum on the proposed Lisbon Treaty for European supranational government, and the subsequent declarations from the Presidents of the Czech Republic and Poland, that the Lisbon Treaty is a dead letter.
What has unfortunately become all too clear in this attempted coup from above, in which heads of government had sought to impose the EU Treaty in a cloak-and-dagger operation without any public discussion, is that democracy in Europe is in miserable shape. Even now, after the Irish "No" has at least ensured that the population knows that the Lisbon Treaty exists, there has not been a single in-depth analysis or presentation of the treaty in the media, with the exception of a brief talk show on the Phoenix network. If it is true that Germany's Chancellor Angela Merkel actually did demand that President Horst Kohler sign the EU Treaty right now, even though the Constitutional Court's decision on relevant cases is still outstanding, then this is a truly hair-raising deficit in democracy, in a woman who, already back in 2005, said on the occasion of the 60th anniversary of her party, the Christian Democratic Union: "For truly, we do not have any legal claim to democracy and the social market economy for all eternity." So, what, then? Dictatorship?
A Solution Can Still Be Implemented
One thing is clear: The world is now facing shocks of an extent heretofore unknown. Lyndon LaRouche's proposal that it is only if the world's four most powerful nations the United States, Russia, China, and India join in cooperation, that a solution can be found for a new financial architecture (a "New Bretton Woods") may seem unlikely to many, but under the crisis conditions we are now headed for, it is not so. The world's people are currently thinking about solutions: for example, a continental Eurasian solution, without the U.S.A. and Great Britain, or a strictly Asiatic or South-South solution, or a ruble zone, or a British-Scandinavian zone, etc., etc. But already in the 15th Century, Nicholas of Cusa recognized that universal problems cannot be solved on the basis of side-arrangements, and that concordance in the macrocosm is only possible if all microcosms develop into a harmonious whole.
And so, even if today this might appear unlikely to most citizens, the only way to prevent humanity from being plunged into a really dark age, lies in our ability to establish a new and just world economic order, one which can secure the survival of all people and all nations, in human dignity. And the best thing that we in Germany can do, is develop ourselves into true citizens of our country.
A CALL FOR A NEW BRETTON WOODS
We Need a New World Economic Order, Now!
Helga Zepp-LaRouche
http://larouchepub.com/hzl/2008/3529need_nbw_now.html
The author is the founder of the Schiller Institute, which has branches in many countries, and its president in Germany. She issued this open call, titled "World Financial System Faces a Meltdown; Call for a New Bretton Woods System; We Need a New World Economic Order!" on July 17. It is being distributed as a leaflet in Germany, and has been translated from German for EIR.
[PDF version of this text]
Inflation is gobbling up the income of the so-called "little people": 56% of German citizens don't make enough to be able to save anything. And now, as the result of speculation, prices for food, gasoline, heating oil, electricity, and raw materials are exploding. But the people do realize that a much bigger catastrophe is hitting us.
The fact is, the financial system has collapsed. The so-called subprime mortgage-market crisis in the U.S.A., which broke out a year ago, is now exploding with the insolvency of the mortgage-lenders Freddie Mac and Fannie Mae, which reportedly are holding or backing $5.3 trillion in mortgages that's 5,300 billion dollars which is 70% of the American real estate market! But both of these giants were at the core of the "creative financing instruments" that former Federal Reserve chairman Alan Greenspan bestowed upon the world, by means of which, debts were miraculously transformed into assets, and sold throughout the entire globe as so-called structured financial packages, without the slightest control by governments or central banks.
The Federal Reserve's attempt to put practically unlimited financial infusions at the disposal of both giants will only accelerate the hyperinflationary explosion of the system. The patient—the world financial system—has already died; it's only the burial that hasn't yet occurred. The dance around the Golden Calf that made the speculators super-rich, but the majority of the world's population poorer and poorer, has come to an end.
It is deplorable that the summit of the G8 countries that is, the seven most powerful Western industrial nations plus Russia, which recently took place in Japan unfortunately proved itself incapable, as was to be expected, of finding a solution for the systemic collapse that is playing out so dramatically before the very eyes of the world public. The heads of state of the G5 China, India, Brazil, Mexico, and South Africa who were also in attendance, were not seriously incorporated into the search for a solution. A number of governments will soon be voted out, since, during their term in office, they did not meet their obligation to take care of the common good of their populations.
The hyperinflationary disintegration of the world financial system has already led to hunger riots in 40 nations, as more and more people are threatened with the loss of their livelihoods. If even more, unforeseeable, harm to the world's population is to be prevented, an emergency conference must be called, at the level of heads of state, to establish a new financial architecture, in the tradition of the Bretton Woods system initiated by Franklin D. Roosevelt.
Lyndon LaRouche has reiterated in recent months, that only the combination of the four most powerful nations the U.S.A., where the election remains open, as well as Russia, China, and India is strong enough to take a stand against the international financial oligarchy. Other nations should then join these four to bring about a solution.
This emergency conference for a New Bretton Woods system must resolve that:
The present world financial system must be declared hopelessly bankrupt, and replaced by a new one.
It must promptly set up a fixed-exchange-rate monetary system, so that long-term investments in international infrastructure projects are possible, under predictable conditions.
Derivatives speculation and speculation in food, energy, and raw materials must be banned by treaty among governments.
There must be an immediate reorganization, including, for example, cancellation of debts.
In a New Deal for the world economy, in the tradition of Alexander Hamilton, Friedrich List, Henry Carey, and FDR, new credit lines must be made available for investments in basic infrastructure and technological renovation.
Building the Eurasian Land-Bridge, as the core project for reconstruction of the world economy, is therefore the vision that can not only bring a new economic miracle, but also bring peace to the 21st Century.
Food production must be doubled worldwide in the coming years.
A new "Peace of Westphalia" must, within at least 50 years, secure the availability and development of raw materials for all nations on this planet.
We, the undersigned, maintain that the system of "globalization," with its brutal, predatory capitalism, is economically, financially, and morally wrecked. Instead, man must be placed at the center again, and the economy must serve the common good. The new world economic order must guarantee the inalienable rights of all men on this planet.
LAROUCHE APPEALS TO NATIONS IN TIME OF CRISIS
http://larouchepub.com/hzl/2008/3531hzk_...tions.html
In the spirit of deliberations at an international EIR seminar held July 26 in Wiesbaden, Germany, attended by parliamentarians, economists, and legal experts from France, Italy, Denmark, Sweden, Austria, the U.S.A., Niger, Zimbabwe, Jordan, and Germany, Helga Zepp-LaRouche, president of the international Schiller Institute, has published the following resolution for worldwide circulation and endorsement. Titled "Make the Dream of the American Revolution Come True!" it is addressed "To All the Nations of the United Nations and the Presidential Candidates in the American Election Campaign."
"We hold these truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness. That to secure these Rights, Governments are instituted among Men, deriving their just Powers from the Consent of the Governed. That whenever any Form of Government becomes destructive of these Ends, it is the Right of the People to alter or abolish it, and to institute new Government, laying its Foundation on such Principles, and organizing its Powers in such Form, as to them shall seem most likely to effect their Safety and Happiness...." So reads the American Declaration of Independence of 1776.
And Martin Luther King reminded the world on August 28, 1963 in his famous "I Have a Dream" speech: "When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise, that all men, yes, black men as well as white men, would be guaranteed the unalienable rights of life, liberty, and the pursuit of happiness. It is obvious today that America has defaulted on this promissory note, insofar as her citizens of color are concerned."
But the American Revolution and the establishment of a republic in the New World was not only a "Beacon of Hope and Temple of Liberty" for America alone, but it represented a perspective for a future in which imperialism and colonialism would eventually be overcome, for the entire world. The plan of John Quincy Adams, for an international "community of principle" of fully sovereign republics, which would, notwithstanding, be bound together by the common aims of mankind, was the noble fulfillment of the idea of the international law of the people, as it was established by the 1648 Peace of Westphalia. Unfortunately, today, it is obvious that America has kept this promise over recent years just as little for the international community, as King complained it did for the citizens of color in his time. But a unique opportunity, and perhaps also the last chance, currently presents itself, with the American Presidential campaign, to infuse the ideals of the American Revolution, of John Quincy Adams, Abraham Lincoln, Franklin D. Roosevelt, and Martin Luther King, with new life.
An Unprecedented Threat
Never in its entire history has humanity been threatened by greater dangers than now. We are experiencing the end phase of a systemic crash of the global financial system, whose hyperinflationary effects have already led to hunger riots in more than 40 nations, and are massively threatening the living standards of the majority of the population in the so-called industrialized nations as well. The system of unrestrained free trade associated with globalization has utterly failed, and threatens to plunge the world into a state of chaos which threatens the lives of many millions, if not billions of people.
While, during the 1950s and '60s, the idea of UN Development Decades still prevailed that is, the perspective that the underdevelopment of the developing countries would be overcome in each decade, step by step, in order to reach, as soon as possible, the level of the industrialized nations sometime, in the middle of the 1960s, a paradigm-shift set in, in which the talk was no longer about overcoming underdevelopment, through the construction of infrastructure, industry, and agriculture, but of "overpopulation," "appropriate technology," and "sustainable development." Instead of producing harvests for the welfare of their own populations, the developing countries had to produce, more and more, so-called "cash crops" for export, in order to pay off their foreign debt, which had been constantly increased through the conditionalities of the IMF.
In the industrialized nations, this paradigm-shift led increasingly away from production, toward speculation. In Europe, this has taken the form of turning previous cooperation among sovereign nation-states into a free-trade nightmare, run by a supranational Brussels bureaucracy, while tying the hands of governments, under the disastrous Maastricht-Lisbon treaties. Through so-called "outsourcing" to the countries with low-wage production, the productive small and medium-sized industries and the highly skilled jobs in the industrialized nations were destroyed in many places, while the real income in the low-wage countries could not cover the real cost from the standpoint of physical economy. Through this policy of free trade, important capacities in industry and agriculture have been destroyed over the last 40 years. A small section of the population in all countries became obscenely rich, while about 80% of the population in all countries became ever poorer. The situation escalated more and more, to the point against which Gandhi had written in reference to the British colonial masters: "Wealth without work, pleasure without conscience, knowledge without character, commerce without morality, science without humanity, worship without sacrifice, and politics without principles."
The model of globalization and free trade has been proven a failure, which has been demonstrated, not the least, by the final collapse of the Doha Round of the WTO trade negotiations in Geneva. Therefore, it is of the greatest urgency that we again put on the agenda, the ideas which had been proposed earlier, for example, by the Non-Aligned Movement at the Sri Lanka conference in 1976, in the so-called Colombo Resolution, that is, the demand for a new, just world economic order, which affords all people and all nations on this planet a humane life in freedom, and the pursuit of happiness, as it is demanded in the Declaration of Independence.
The Last Chance
The upcoming General Assembly of the United Nations, which begins this year on Sept. 26, in New York, is perhaps the last opportunity to put the interests of humanity as a whole, and not that of a few speculators, on the agenda. If courageous leaders of several nations comport themselves like those outstanding personalities, such as former Foreign Minister of Guyana Fred Wills, did in 1976, or the former President of Mexico, Jose Lopez Portillo, did in 1982, then the reconstruction of the world economy after the crash of the system can be set in motion in sufficient time.
What mankind needs today, are individuals who have the vision and the love for the idea of the international community, to put the question of a new, just world economic order on the agenda. This resolution is a call to leading representatives of all nations, to work toward this goal. And the more that forces appeal to the three Presidential candidates who still find themselves in the race, to honor the promise of the American Constitution and Declaration of Independence for all nations on this planet, the greater the chance that America can return to the positive role which it played in the times of Benjamin Franklin, Alexander Hamilton, John Quincy Adams, Abraham Lincoln, and Franklin D. Roosevelt.
PUT UP THE FIREWALL, BRING IN THE SHRINKS!
John Hoefle
http://larouchepub.com/other/2008/3528fi...rinks.html
As their speculative financial system crumbles around them, the bankers and their regulators are in obvious denial about the nature of the problems they face, and the nature of the solutions. Rather than being guided by reason, they are being guided by their compulsions, trying to save what cannot be saved, by methods which have failed repeatedly. Like crack addicts or compulsive gamblers, they find themselves unable to stop their destructive behavior, even when they know, deep in their hearts, that their actions are leading them to their doom.
All the signs are there. Fed chairman Ben Bernanke has rather openly stated that the Fed's escalating series of emergency bank loan operations will continue, thereby confirming that the U.S. banking system is insolvent. Treasury Secretary Henry Paulson, while talking openly about the possibility of the failure of a major U.S. investment bank, is pushing for further deregulation of the financial system. Regulators are discussing the possibility of using the big private equity funds to inject badly needed capital into the banks, in exchange for further deregulation; and some of the bankers, like J.P. Morgan Chase CEO Jamie Dimon, are calling for the banks to be allowed to operate like private equity funds. Congress, under the guise of protecting homeowners, is pushing legislation designed to protect the banks and other holders of mortgage-related debt. More bailouts, more deregulation, more of the same poison that is killing us all.
Meanwhile, the disintegration continues. The FDIC is gearing up to handle a rash of commercial bank failures, as rumors of problems circulate amid suggestions that quiet runs on suspect banks have already begun. The FDIC is, at least nominally, focussing its attention on small and medium-sized banks with large exposures to their local/regional commercial real estate markets, in the hope that the Plunge Protection Team can head off the open failure of the giant banks. The situation is far worse than they will publicly admit, and they have no solution other than buying time, in the hope that the financial markets can somehow be brought back to life.
What they are doing is the equivalent of rearranging the deck chairs on the Titanic, trying to keep themselves and their passengers calm as their ship sinks beneath the waves. They are in denial, paralyzed with fear, and making the same mistakes over and over again. They obviously cannot stop themselves so we must intervene, get them some professional psychiatric help, and let more reasonable minds take over.
It's the System
The tendency of most people, regulators and citizens alike, is to approach this banking crisis through the prism of individual institutions. As institution after institution flames out, from mortgage lenders to giants like Bear Stearns, we are treated to a series of soap operas, a new cast of villains to be blamed for our trouble. The Justice Department has indicted over 400 individuals in the mortgage-loan business as part of Operation Malicious Mortgage, including two former officers of Bear Stearns. While we leave it to the courts to decide the innocence or guilt of individuals, there is certainly no shortage of criminal culpability in the mortgage sector, and people who committed fraud should be held to account for their actions. However, this approach falls far short of what is needed.
Take the cases of Fannie Mae and Freddie Mac, the big government-sponsored enterprises that buy mortgages and issue mortgage-backed securities. Both institutions, due to their huge exposure to the collapsing residential mortgage system, are effectively insolvent, and both have had their share of investigations and accounting problems. Nevertheless, the Plunge Protection Team and the Congress are using both Fannie and Freddie, along with the Federal Housing Administration, as integral parts of their bailout machine. The name of the game is to convert as much of the private mortgage paper as possible into government-guaranteed paper, even though that will ultimately mean huge taxpayer bailouts.
Former St. Louis Fed president William Poole made the point about Fannie and Freddie explicitly, in a interview with Bloomberg News July 9. "Congress ought to recognize that these firms are insolvent, that it is allowing these firms to exist as bastions of privilege, financed by the taxpayer," Poole said. Poole later told the New York Times, "We are potentially looking a crisis in the face, and we must not allow this to happen. The government must intervene."
Poole's comments helped accelerate the slide in the stock prices of both institutions. Fannie Mae's stock is off 76% from a year ago, Freddie Mac is down 83%, and they are now at their lowest levels in 17 years.
Poole's blunt comments and the stock slide had both Paulson and Bernanke in damage-control mode during Congressional hearings July 10. Paulson claimed that both companies were "adequately capitalized" and "working though this challenging period," while Bernanke claimed that they "are well capitalized in a regulatory sense." Given the dismal track record of this pair and the weakness of their statements, they were less than reassuring.
Sooner, rather than later, Fannie Mae and Freddie Mac will blow up and require huge bailouts. Inevitably, investigations will be launched to find out what went wrong, and those investigations will likely focus on events and personalities inside the companies, whereas the real culprits will be people like Paulson and Bernanke, whose policies put the companies in an untenable situation.
To understand what has gone wrong, one must focus on the system itself, the overall process, rather than merely one or two components of the system. It is the policy of attempting to bail out the bankrupt system, which will be the cause of the damage to come.
Coverups
What is required, is for the public to be told the truth about the condition of the financial system, and the costs—monetary and societal—of the bailout operation. No constitutional republic can function properly when the citizens are lied to, repeatedly and systematically, about the most important matters before them. The citizens have a right to know the true condition of their financial system. Instead, what we get are lies and coverups, designed to hide the damage.
Perhaps the most egregious case of this is the speculation in oil and food. Much of the money being stolen from the population through this oil and food speculation is being funnelled into the financial system to fund the restructuring now under way. Despite a series of Congressional hearings on the subject, nothing has been done to curb this speculation. Regulators like the Commodity Futures Trading Commission (CFTC), which are supposed to defend the citizens, are instead captives of the financial markets, and protect the looting apparatus. The CFTC, like its regulatory peers, is determinedly oblivious to what is so obvious to the rest of us. "We see no evidence" is the mantra they repeat over and over.
Not only that, but this deadly price-gouging is being actively protected by Wall Street. After a recent House Agriculture Committee hearing in which he testified on the need to rein in speculation, Rep. Bart Stupak (D-Mich.) reported that a "Wall Street warroom" had been set up to block any action by the government against speculation. Later, Stupak told EIR that this warroom was being run by investment banking giant Morgan Stanley, and that the banks and other financial companies are doing all they can to stop any action aimed at ending speculation in food, oil, and other commodities.
Blowing Out
This "Wall Street warroom" operation is another sign of the desperation of the bankers to avoid dealing with the truth of their situation. Despite their efforts, and in many cases, because of their efforts, the banking system continues to disintegrate. Mortgage lender Countrywide has now been absorbed into Bank of America, at a cost of making the problems faced by Bank of America even worse. Now we see IndyMac Bank, a spinoff of Countrywide, disintegrating before our eyes; it's laid off over half its workforce and ceased making loans. It is but the latest in a never-ending series of disasters.
The regulators and the financiers assured us that the "subprime crisis" was contained and would not pose a threat to the banks—but they were wrong. The regulators and financiers assured us that the "credit crunch" was contained and did not pose a threat—but they were wrong. Now, after hundreds of billions of dollars of admitted losses to the world's banks, they tell us that the banking system is safe despite its problems—but they are wrong. They tell us that Fannie Mae and Freddie Mac are safe, even while they use them as vehicles to transfer enormous losses from the speculators to the taxpayers.
The bankers' plan is to save themselves by sticking the government, and thus the taxpayers, with their losses, to protect their looting rights at all costs, and to eliminate any laws, regulations, and government efforts which get in their way. They will accept consolidation among their ranks, and even the demise of some important institutions, in order to protect the system itself.
The irony is that their own efforts to protect themselves will destroy them. They cannot bail themselves out, even via the government, because our economy can not support the debt. It can't be paid, and all their bailout schemes do is add more debt to a dead system.
PAULSON's THREE POINT PLAN:
PANIC, CHANGE PANTS, RINSE AND REPEAT
John Hoefle
"Take a deep breath," President George Bush advised us this week, and for once, on that one point, he was right. Bush was trying to head off the latest episode of financial panic by rallying us to hang tough, to have confidence. "We're going through a tough time," he said, but "we can have confidence in the long-term foundation of our economy." One of the proofs he offered of this is that "consumers are spending." No kidding! With prices for gasoline and food and virtually everything else in the consumer market-basket soaring, consumers will keep spending. Apparently, in Bush's limited worldview, price-gouging and hyperinflation are indications of strength.
Still, everybody knows that Bush knows nothing about the economy, or virtually anything else, but what about his vaunted experts, like Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke? Paulson, after all, is one of the Goldman Sachs "masters of the universe," while Bernanke is widely touted as an expert on the Great Depression.
This dynamic duo may know a lot about the financial markets, but when it comes to economics, they are just as stupid as their glorious leader. Lyndon LaRouche has more than once denounced Paulson as incompetent, and good ol' Hank has done everything he can to prove LaRouche right. This is the gang that couldn't shoot straight.
The latest bit of insanity from these boobs is the so-called "bailout" of Fannie Mae and Freddie Mac, done, we are told, to protect the "housing market" and help the American people. Once again, the big money is riding to the rescue of the little guy! If you believe that, I have a bridge for sale you might want to take a look at.
Paulson interrupted his ongoing panic on Sunday, July 13, to announce a three-part plan to rescue Fannie and Freddie by throwing more taxpayer money at them. He was aided in this fool's mission by Bernanke, who announced that the Fed stood ready to lend the ailing companies whatever they needed, until Paulson's plan could kick in.
Faced with the worst economic disaster since the 14th Century, the one that spawned the Black Death, we have a dimwit President assuring us that all is well, while his experts pour our money down the bottomless rathole of a dead financial system. On top of that, we have legions of economists, analysts, pundits, and other prostitutes assuring us that all is well, if we just believe. The economy is fine, so grow a pair, and keep your chin up. When the going gets tough, ... ad nauseam. They talk a good game, but they've been wrong about virtually everything so far, and seem incapable of getting it right.
Delusional
What Paulson, Bernanke, and the rest of the Ding-a-ling Brothers, Barney and Bailout Circus refuse to accept, is that the bubble has popped, and their speculative financial casino has failed, leaving the banks holding trillions of dollars of securities which are now virtually worthless, dependent upon a business model which no longer exists. The heady days of expansion are gone, replaced by a desperate fight for survival, in which once-powerful institutions have begun to disappear, with many more to follow. The game is over, but the players remain on the field, shell-shocked, refusing to admit they have lost.
For decades, the bankers have pushed deregulation and globalization, fighting to break free of the rules and regulations imposed upon them by nations. They have largely accomplished that goal, only to find that they have destroyed themselves in the process, and, much to their chagrin, must turn to governments to save themselves. Even so, they refuse to admit the errors of their ways, blaming everyone but themselves for their failures.
Last December, as the year came to a close and books needed to be balanced, the major western central banks delivered a series of liquidity injections designed to save the banks. The European Central Bank announced $500 billion in emergency loans, and followed that up in January with another $250 billion; the total is now well beyond $1 trillion. The Federal Reserve created a new lending window for depository institutions called the Term Auction Facility (TAF) in December, promising $100 billion for the month; the TAF began holding twice-monthly auctions, offering $20 billion at each, but the amount has increased steadily to the current $75 billion per auction. To date, the TAF has loaned $810 billion to the banks, out of $1.3 trillion requested.
In March, as the first quarter was ending, the Fed created two more of these emergency lending windows, the Term Securities Lending Facility (TSLF) and the Primary Dealers Credit Facility (PDCF) to lend to investment banks. This represented both a significant expansion of the Fed lending operations, and a leap in the Fed's power, as heretofore, its lending operations had been restricted to depository institutions. To date, the Fed has lent over $550 billion through the TSLF.
Now, just a few months later, Paulson is seeking yet another expansion of the bailout mechanism, this time, for Fannie Mae and Freddie Mac. The plan originally leaked to the press was to inject up to $15 billion into the companies to bolster their balance sheets, but that quickly turned into a three-point plan involving an expanded line of credit from the Treasury, the authority for the Treasury to buy equity in the companies, and giving the Fed a role in the regulation of the companies. In addition, the Fed announced that it would allow Fannie and Freddie to borrow from the Federal Reserve Bank of New York. Paulson declined to state how much money would be required, effectively asking for a blank check, while vowing to "protect the taxpayer." He also claimed the emergency funds and powers would be temporary.
Thus we have an ever-growing bailout operation, trying to cope with an accelerating banking collapse and failing miserably, all being managed by regulators who have yet to get anything right. Paulson's credibility as the expert from Goldman Sachs has been considerably tarnished. His M-LEC SuperSIV bailout plan announced last year never got off the ground; his plans to "modernize" the U.S. financial regulatory system would reduce oversight and give more power to the Federal Reserve the same Fed which played a major role in getting us into this mess; and now he is moving to put the taxpayer on the hook for the losses in the mortgage bubble.
Thrown to the Wolves
This insane plan is being sold as a way to stabilize Fannie Mae and Freddie Mac and thus the U.S. housing market, in order to help homeowners, but what it really is, is a way to transfer losses from the bankers to the taxpayer by turning Fannie and Freddie into toxic waste dumps. Far from saving the already broke Fannie and Freddie, Paulson's plan will destroy them.
The banks are broke and cannot save themselves, so they turn to the only institution that can, the U.S. government. Paulson has already made clear, through his Hope Now Alliance and public statements, that Fannie and Freddie must play a crucial role in the refinancing of problem mortgages.
Protecting homeowners from foreclosures is an admirable goal, but the primary purpose of all of these bailout measures is to protect the banks, by protecting the valuations of the securities they hold by the trillions. What Paulson, Bernanke, and the Plunge Protection Team are trying to do is to put a floor under the real estate market, to slow or stop the decline in housing prices, as a way of slowing the vaporization of the trillions of dollars of mortgages, and the hundreds of trillions, perhaps quadrillions, of dollars of mortgage-related securities and speculation leveraged on top of those mortgages.
The loans to the banks and the investment banks from the Fed serve a similar purpose, since the Fed accepts a wide range of collateral, including mortgage securities, for loans, giving the banks the opportunity to dump their bad paper on the Fed in exchange for cash. The primary purpose of many of these loans appears to be taking the bad paper off the banks' books, addressing their insolvency crisis under the guise of dealing with a "credit crunch." It is the mountain of bad paper, not the lack of cash, which is killing the banks.
Overall, the various bailout schemes being pushed by Paulson and Bernanke amount to a giant debt-recycling scheme, in which losses are transferred from the banks to the taxpayers, giving the banks the profits and the public the losses. It is incredibly corrupt, and incredibly stupid.
This scheme cannot work. The bailouts may seem to be working, with obligations being transferred from the books of the banks to the books of government-backed institutions, but transferring bookkeeping entries is not the same as paying the debts, and this is where it all breaks down. The problem is that the U.S. economy no longer produces enough wealth to cover the debt. We have been operating below breakeven for some four decades, dismantling our manufacturing capability and cannibalizing our infrastructure to the point that we cannot support the existing debt load, much less the endless trillions of dollars of losses the bankers would dump on us. We are a net debtor nation; during the 2000s to date, we have incurred over $5 in debt for every $1 rise in GDP, and most of GDP is services and other overhead. We incur this debt because we no longer produce enough wealth to cover our expenses. The government can print money to try to cover these huge debts, but the resulting hyperinflation will destroy the dollar, and everything in its path. The only solution is LaRouche's: Write it off.