Monday, December 31, 2007

The System Is Dead; Now What?

by John Hoefle Dec. 30, 2007
The year 2007 was one of remarkable changes in the global
financial system, the chief among them, it being the year
that the casino of unpayable debts and off-balance-sheet
fantasies finally broke down, leaving us to watch as the
ramifications of that collapse spread inexorably across
the planet. This was the year that financial terms of
which most people had never heard, such as ``SIVs,''
``CDOs,'' and ``monolines,'' became almost household
words, the year the so-called ``subprime crisis'' turned
into the so-called ``credit crunch,'' only to be revealed
at the end as a solvency crisis of the international
banking system itself. It was the year that the central
banks went from talking tough about asserting market
discipline and letting speculators take their losses, to
launching increasingly desperate schemes to keep the whole
system from grinding to a halt.
We now enter 2008 in uncharted territory. The
problems we saw in 2007 will only get worse, and there are
new horrors to be discovered as the death throes intesify.
The losses to the banks in 2007, likely to be on the order
of $100 billion, once the final reports are in, are just
the beginning. The entire economy, particularly in the
United States, has depended upon the accumulation of vast
amounts of debt, with households, businesses, governments,
and the financial markets all depending upon the ability
to borrow to finance their existence. The ability to
finance that debt depended in turn upon the ability of the
banks to turn loans into securities that could be sold to
speculators, moving the loans off the banks' balance
sheets into what is euphemistically called the investment
community. That securitization game is now over, and its
demise will wreak havoc with the ability of the economy to
finance itself with debt. The wave of losses we have seen
thus far is but a glimpse of what is to come, as the
collapse eats its way through the world's balance sheets
and flows relentlessly home to the balance sheets of the
commercial banks, the investment banks, the insurance
companies and other financial institutions, and to the
lives of people.
- Battle Royal -
While the death of the system plays out before us in
the financial press, the soap opera of falling dominoes
and dueling pundits is but a cover for a much more
profound battle: the battle over the nature of the system
which will rise from the ashes. There are those poor fools
who are trying to save the current system, to pretend that
what has happened did not, to save their illusions of
wealth; but they are irrelevant and will simply be swept
away by events beyond their understanding and control. The
real battle is between those who know the system is gone,
and want to decide the nature of its replacement.
On the one side are the forces around Lyndon LaRouche
and the American System of economics, who want to put the
financial system through bankruptcy, putting up firewalls
to protect the General Welfare of the citizenry, stopping
home foreclosures and freezing the mass of financial
claims until the wheat can be separated from the chaff.
The speculative claims and fictitious values can be
written off over time, while the elements necessary to
protect the proper functioning of the economy can be
protected, and the economy rebuilt. The essence of
LaRouche's approach is that the welfare of the population
comes first, and must be protected at all costs.
On the other side are the forces of the international
financial oligarchy, organized around the Anglo-Dutch
rentier-financier model. Their intent is to use the crisis
to destroy the power of the nation-states and to restore
the power of the empires, in a world dominated by imperial
financiers and their trading cartels. To this crowd,
people are but expendable peasants, little more than herds
of cattle to be managed, sometimes slaughtered. What
motivates the oligarchy is power, the ability to rule the
world for the benefit of a small ruling class. In their
view, the nation-states, in particular the historic United
States, usurped their power, and they intend to reclaim
it. They have, in fact, already made large steps in that
There are, to be sure, fights among these jackals
which are of interest to those of us who oppose them, but
what they have in common is more important than their
differences. To the prey, fights among the jackals over
who will eat first are of little consequence.
The point which must be clearly understood is that
this is a political fight rather than a financial one. The
financial system is already gone and cannot be
resurrected, and there are no serious attempts to do so.
The moves by the central banks and the regulators are not
intended to bring back the bubble, but rather to attempt
to control its disintegration and buy the time to
establish the replacement system. The money is already
- British Moves -
The center of this global imperial assault is the
City of London, which is openly plotting to become the
capital of the new order. To do this, it must eliminate or
at least severely weaken its rivals, beginning with the
United States and its financial center, Wall Street.
The British take the long view of things, and began
preparing for this collapse years ago. In 1986, the City
of London transformed itself, breaking up its inbred
financial system in what was called the ``Big Bang,'' as
London positioned itself to be the center of a new global
system based upon trading and speculation. Most of the
old-line British merchant banks were sold off to better
capitalized partners, with S.G. Warburg going to what is
now known as UBS; Kleinwort Benson going to Dresdner Bank;
Hambros to Societe Generale; and Schroders to
Citigroup, to name a few of the more prominent banks.
These banks did not leave the City but stayed to help
orchestrate a shift which brought foreign banks to London.
In this way, London became the financial center of the new
derivatives game, while the exposures, and ultimately the
losses, were centered in New York, Tokyo, Frankfurt, and
Zurich. The City positioned itself as the casino,
profitting from the gambling of others and, through its
network of offshore centers like the Cayman Islands, it lured
its rivals into the trap.
Now the trap is being sprung. The Brits are using
their propaganda assets like Rupert Murdoch's News Corp.
to assault Wall Street. Murdoch's launching of the Fox
Business cable television channel and his purchase of the
{Wall Street Journal} provide the City with a platform to
undermine the credibility of U.S. institutions.
- It Began With Citigroup -
Illustrative is the crisis which hit Citigroup in
November. It began with a report issued by Canadian
Imperial Bank of Commerce analyst Meredith Whitney, who is
also a regular guest on Fox News. Whitney said that
Citigroup was in big trouble, in dire need of billions of
dollars of new capital, and should probably break itself
up into smaller pieces. The {Wall Street Journal} ran with
the report, which resulted (or perhaps provided cover for)
a sharp drop in Citigroup's stock. The crisis led to the
resignation of Citigroup chairman and CEO Chuck Prince
within days.
Citi was hit by yet another British blow when
HSBC--the infamous Hong Kong and Shanghai Bank of the
British East India Company's Dope, Inc.--announced that it
was taking $45 billion in SIV (structured investment
vehicle) assets onto its balance sheets, putting pressure
on Citigroup to do the same. Citigroup has thus far
survived, but in a weakened state, and its new chairman is
Sir Winifred Bischoff, a British knight who joined Citi
when it purchased Schroders.
The British also played a major role in blowing up
the subprime lenders. In March, Barclays forced New
Century mortgage, the big subprime lender, to buy back
mortgages, in effect, throwing New Century under the bus
and escalating the meltdown of the subprime lenders.
Barclays also played a role in the Bear Stearns hedge fund
fiasco which erupted in June, as a major creditor to the
bankrupt Bear funds.
The issue is not whether the problems
identified by the British were real--they are--but why the
British would choose to exacerbate them. In previous
financial crises, such problems would have been covered
up, the factions more interested in maintaining the
illusion of calm, but the nature of the battle has
changed. We are now in the endgame, where pushing as much
of the damage as possible onto your rivals has replaced
cooperation. The jackals are now fighting among
themselves, to see who will survive.
- Time To Move -
What is coming, is something none of us has ever seen
before. Were the British plans to prevail, the world would
descend into a fascist, Cheneyesque nightmare: Governments
stripped of what little remains of their abilities to
protect their populations from imperial looting, corporate
cartels gouging the public in ways that bring to mind what
Enron did to California, a veritable new dark age of
austerity, population reduction, and utter chaos--with the
City of London ruling over whatever pile of rubble is
The irony is that the nation-state is far superior to
the empire as a political structure, that the levers to
reverse this nightmare are within reach, should we choose
to grasp them. So, let us make 2008 the year America
reasserted itself, beginning with the passage of
LaRouche's Homeowners and Bank Protection Act. When you
consider the alternative, it is the only choice.

No comments: