James Galbraith Echoes "LaRouche Plan"

Reflecting the political environment created by Lyndon LaRouche's ideas and the LaRouche movement, economist James Galbraith has just published a piece in The New Republic which contains key elements of many of LaRouche's most important domestic economic proposals, including the Homeowners and Bank Protection Act (HBPA), Glass-Steagall, and the "LaRouche Plan" for long-term, low-interest rate credits for infrastructure and economic reconstruction.

"The financial crisis in America isn't over," Galbraith's article begins—which is far more feisty than his earlier writings. "It's ongoing, it remains unresolved, and it stands in the way of full economic recovery."

The legal framework for the breakdown "was laid with the repeal of Glass-Steagall in 1999 and the Commodities Futures Modernization Act of 2000," Galbraith writes, also adding in the Basel II process relaxing international bank supervision. He says "the response to desupervision was a criminal takeover of the home mortgage industry," citing subprime mortgages written with inflated values, the issuing of "teaser" or counterfeit mortgages, the laundering of these by the rating agencies to make them look real, and taking the laundered good to market by packaging them as bonds with AAA ratings.

"Upon taking office, President Obama had a chance to change course and didn't take it," Galbraith continues. And now, with Obama's inaction, "the financial sector remains a fatal drag on the capacity for growth," and it will remain so until the frauds and balance sheets are cleaned up, which requires a rigorous audit of the banks and the Fed, and criminal investigations—with "indictments, prosecutions, convictions, and imprisonments."

"The first step toward health is realism. We must first stop pretending that bad assets can be made good, that bad loans will someday be repaid, and that bad people can run good banks. Debt crises are resolved when debts are written down and gotten rid of, when the institutions that peddled bad debts are restructured and reformed, and when the people who ran the great scams have been removed."

But, Galbraith warns, "there will not be another bank-sponsored private credit boom." Instead, he argues, "we need to create new, policy-focused financial institutions like the Reconstruction Finance Corporation to take over the role that the banks and capital markets have abandoned," and he also calls for "a national infrastructure bank, an energy-and-environment bank, a new Home Owners Loan Corporation, and a Gulf Coast Reconstruction Authority modeled on the Tennessee Valley Authority." And echoing LaRouche's HBPA, he calls for "refinancing of mortgages or conversion to rentals with right-to-rent provisions so that people can stay in their homes at reasonable rates."

This reconstruction of the nation, he says, should be financed by "loans made at low interest rates and for long terms," to deal with the neglect of the past 30 years.