By John Hoefle
Monday, September 29, 2008 (3:30PM)
Since this article was written, a number of important developments have occurred. First, the bailout bill was defeated by a vote of 228 to 205, throwing Washington into chaos; Wall Street was already in chaos, now more than ever. House leaders kept the vote open for 40 minutes while trying to force dissenters to change their votes, without success. No doubt the pleas, threats and bribe offers are flowing, in the hopes that the measure might pass on a second vote.
Wachovia, the fourth-largest bank in the U.S., effectively failed this morning, when the FDIC arranged an assisted takeover by Citigroup. Citigroup is buying the banking functions, including deposits, of Wachovia, and making Citigroup the largest bank in the U.S. by deposits. As with the failure of Washington Mutual late last week, the deal was structured in a way which avoided the FDIC's having to take over and run the bank, and immediately eat the losses, something the FDIC has neither the manpower nor the funds to do.
Banks are also failing in Europe, where the Belgian, Dutch and Luxembourg governments announced a partial nationalization of Fortis, a trillion-dollar Belgian-Dutch bank, the British government has seized Bradford & Bingley, and Iceland seized Glitnir.
Whether the Bush Administration and the Congressional leadership can force through their bailout bill remains to be seen, but even if it passes, the $700 billion it would authorize is far short of the trillions which would be needed. But either way, the system is collapsing at an accelerating pace, and there is nothing Washington can do to stop it, except call in LaRouche.
September 29, 2008 (LPAC)— Lyndon LaRouche has some advice for the two presidential candidates, and for all candidates running is the coming elections: Stand up and denounce the Bush/Paulson bankers' dictatorship bailout scheme. The American public has made their position loud and clear, no bailout for the parasites of Wall Street.
"What's going to be decisive is who gets up first and denounces this crap the loudest," LaRouche said. "This is not a matter to sit back and watch what happens: the question is who makes the loudest noise in protest against this swindle, and calls it a swindle. That's the key. The guy who calls it a swindle first, is ahead!"
The public outrage has already gummed up the works considerably, with Congress being flooded with so many calls and e-mails that some Congressional e-mail servers crashed. Both the Bush Administration and the Congress know the public has overwhelmingly rejected the swindle, and Paulson has already made some compromises.
Now that we've got them scared, LaRouche said, we should push them even harder. There can be no compromise, no deal. Our demand is, stop the bailout, and stop it now!
Caught In A Trap
The Bush Administration and Secretary Paulson have fallen into a trap of their own making. They have made it clear to everyone that the financial system is doomed, that all their past bailout operations have failed, and that only a massive injection of taxpayer cash into the financial system will stop it from collapsing completely. They have admitted with their actions that LaRouche was right, that the global financial system has died, that the U.S. banking system is bankrupt, and that unprecedented Federal government intervention is necessary to solve the crisis.
Paulson initially demanded that he be given the power to do whatever he saw fit, with no interference from the courts or other government agencies, and from his perspective, for good reason. "Hjalmar Hank" knows that he cannot bail out all the banks, that the banking system must be dramatically restructured to adapt to the shrunken level of financial activity, and he knows that there will be a lot of screaming as he feeds the little banks to the bigger ones.
The disappearance of the big investment banks is indicative of the problem. These giants grew rapidly with the rise of the securities machine, building football-field-sized trading floors to speculate in every form of currency, commodity, bond and derivative. The became, in their view, the Masters of the Universe, the gods of the capital markets, around which the entire world revolved. Now, they are gone. Bear Stearns failed in March, Lehman Brothers failed in September, on the same day that Bank of America bought Merrill Lynch, and a week later Goldman Sachs and Morgan Stanley converted to bank holding companies. They are gone because their business died, and they were all failing. They did not choose to do this, the decision was forced upon them by reality, the inevitable result of the collapse of the system.
Paulson is in the same position, a would-be dictator whose actions are being shaped by powers far beyond his control and comprehension. He is reacting in the only way his banker's mind knows, trying to save what he can. His plan is to take the money from the government and use it to fund the restructuring, consolidating the remaining 8,500 U.S. banks and thrifts into a much smaller number of giant institutions. Some will be merged, while others will be closed by the regulators, the FDIC eating the losses and then either liquidating the institution or selling its remains to a bigger bank. The closure of Washington Mutual and its purchase by J.P. Morgan Chase is indicative. Paulson may deny that this is his plan, but he will do it because he has no choice.
Paulson Cannot Succeed
Paulson is caught between Scylla and Charybdis. If Congress gets up on their hind legs and denies him his bailout, he is finished. Having admitted that the system is bankrupt, he can't take it back—the government will have to act, and the only serious option left is LaRouche's three-point plan, putting the financial system through bankruptcy.
If Congress does capitulate and give him his bailout, his victory is Phyrric because is plan will not work. Treasury will have to issue billions, then trillions of dollars of Treasury bonds, to swap for all the bad paper from the banks and other institutions included in the bailout, and it will have to buy them at prices far above their current market values. In order to maintain the illusion of solvency, the banks are carrying huge amounts of financial paper at or near face value; selling it to the government at market price—pennies to nickels on the dollar—would be the same as writing it down to those values, which they cannot afford to do. Thus Paulson's plan is premised upon significantly overpaying for these "assets," which in turn reveals the blatant lie in the claims that the taxpayer might ultimately turn a profit on the deal.
Pouring trillions of dollars of new money into the banking system in this way is highly inflationary. We are already in a hyperinflationary state, similar to the situation of Weimar Germany in November, 1923, and what Paulson proposes to do would result in an accelerating collapse of the dollar which would quicky render it worthless. In January, 1922, it took 192 German marks to equal one U.S. dollar, and by January, 1923, that ratio was 17,972 per dollar; by August it was nearly 5 million marks per dollar, rising to 99 million in September, 25 billion in October, 2 trillion in November and 4 trillion marks to the dollar in December, 1923, at which point Hjalmar Schacht issued a new Rentenmark, at one Rentenmark in exchange for one trillion old marks. This is the path "Hjalmar Hank" has chosen for the dollar, whether he understands it or not.
The Only Alternative
The only proposal capable of dealing with this financial crisis without unleashing the Hounds of Hell is that of Lyndon LaRouche, with his Homeowners and Bank Protection Act (HBPA), a two-tiered system of Federal credit issuance designed to rebuild America's productive base, and international alliance among major nations—Russia, China, India and Brazil the most crucial—representing enough of the world's population to give the alliance the necessary clout to force through a global reorganization over the determined opposition of the British Empire and the financiers of the Anglo-Dutch Liberal system.
The HBPA starts with the idea that we can not allow people to be thrown out of their homes because of this banking crisis, and that the flow of essential goods and services upon which life depends, must be maintained—save the people, write off the funny money. This can be done by putting the banking system through bankruptcy, freezing all the crap while making sure that money flows to keep the people alive and households functioning. The banking part of the act would create a highly regulated, functioning banking system out of the corpse of the dead one, to protect deposits and facilitate commerce.
As the financial crisis is brought under control, the two-tier credit system, with low-interest credit directed by the Federal government into a series of science-driver and infrastructure projects designed to recreate an efficient environment in which we can rebuild our productive base. These projects would include emergency programs to expand our electrical generation capacity using the most modern nuclear reactors, water projects to solve the shortages in western North America and other parts of the country, the upgrading of our transportation system using high-speed mag-lev trains and the development of hydrogen-powered motor vehicles. Such programs would rapidly promote optimism among the population, as people realized that our long national decline had ended, and a new era of prosperity was beginning.
We can even save the parasites, if they choose to join us. Otherwise, we can put them in zoos, so our children can study them.