Banking Reform Must Start With A Bankruptcy Reorganization!

As the global financial system continues to disintegrate, the issue of regulatory reform is increasingly coming to the fore. Some of the people pushing for reform are serious about correcting abuses, while others are trying to hijack the reform process to actually prevent needed reforms. But even the most honest efforts at reform will be wasted unless that reform is preceded by putting the global monetary system through bankruptcy reorganization, and writing off speculative debts and bets. Any attempt to implement reforms within the present system is doomed to failure.

The Obama Administration and the House leadership are reportedly working on a bill that would make it easier for the government to seize control of failing systemically important financial institutions. The bill would, according to a report in today's New York Times, "make it easier for the government to seize control of troubled financial institutions, throw out management, wipe out the shareholders, and change the terms of existing loans held by the institution." The bill would also set up "the equivalent of living wills for corporations," by having them put together plans for their own dissolution in times of trouble.

We agree that the government should seize control of failing institutions, but doing it one institution at a time is a prescription for failure, because it is the system that failed, and any solution must deal with that reality. The one bank at a time game would actually play into the hands of the financial oligarchy, allowing the parasites to consolidate the banking system into ever fewer hands—theirs!

The volume of calls for the re-implementation of Glass-Steagall is also growing, something we heartily endorse. The repeal of Glass-Steagall in 1999, which only legalized activities in which certain banks were already engaged, opened the floodgates for unrestrained speculation which destroyed not only the banks which engaged in that speculation, but destroyed the global economy. Going back to a system in which commercial banks are prohibited from engaging in the securities business is an essential step to restoring sanity.

However, not everyone who is calling for a return to Glass-Steagall is doing so honestly. Perhaps the best example of that is Mervyn King, the Governor of the Bank of England. In a speech to Scottish businessmen in Edinburgh Oct. 20, King stated that the "utility aspects of banking" should be separated "from those that can safely be left to the discipline of the market." That is, functions associated with depository institutions should be separated "from some of the riskier financial activities that banks undertake." King stated that such a separation might be the only alternative to "ever increasingly detailed regulatory oversight," which the Bank of England clearly wants to avoid. King closed his speech by asserting that "we can turn this crisis to our long-run advantage" so that "our varied and internationally competitive financial services industry will thrive."

The Bank of England is one of the nastiest institutions on the planet, acting as the flagship of the global central-banking system. King's speech is a skillful bit of Delphic sophistry, pretending to support reform while actually trying to defeat it. The concession he makes in the direction of Glass-Steagall is done out of the fear that serious actions might be taken which would weaken the ability of the empire to loot the planet. If you can't beat them, pretend to join them and lead them astray—that's the historic method of Perfidious Albion.

The only chance we have to avoid a new Dark Age is to implement the full LaRouche Plan, beginning with putting the banking system into bankruptcy protection, and reorganizing it under strict control. That means forcing commercial banks and thrifts to adhere to Glass-Steagall standards, eliminating derivatives entirely, and writing off the speculative debts which are choking our people. It also means breaking the power of the Bank of England and the Brutish Empire. Anything less will fail, and failure at this point is not an option. The bankruptcy reorganization is the line in the sand; on one side is victory, on the other, defeat.