The U.S Federal Reserve’s March 14 bail-out of Wall Street investment bank Bear Stearns, the same week it massively expanded its regular 28-day auctions with a $400 billion injection into U.S. banks, signals a new phase of the escalating collapse of the financial system.

It was the collapse of two Bear Stearns hedge funds in late July 2007 that triggered the current crisis, variously called the “sub-prime crisis”, the “credit crunch”, but which in reality is proving to be what U.S. physical economist Lyndon LaRouche called it at the time—the blowout of the entire international monetary and financial system.

The Fed’s bailout confirms Bear’s bankruptcy, making it the first of the very big financial institutions to go under. To date, the victims of the crisis have been hedge funds, non-banks lenders, over-extended corporations, and mortgage lenders, most notably Britain’s Northern Rock. In recent weeks those collapses have accelerated, claiming major private equity funds like Carlyle Capital, KKR Funding, and Blackstone.

Now, with Bear’s demise, a very big Wall Street bank has gone under, just as serious questions are being raised about Australia’s own banks. JP Morgan banking analyst Brian Johnstone raised questions on ABC Lateline Business on March 13 about the lack of transparency of the National Australia Bank: “National Australia Bank I’ve got to flag,” Johnstone said. “If you look at National Australia Bank it’s the one that has got the worst trends for its operational risks and these things blowing up and it’s the one thus far, the only bank thus far that hasn’t come out and flagged problems with its margin. It’s incomprehensible to me they won’t have problems with their margin when everyone else has kind of acknowledged it...”

(Johnstone was speaking to Lateline after releasing the JP Morgan/Fujitsu Consulting “Mortgage Stress-O-Meter” which reported that since the rapid hikes in interest rates by the RBA, to 7 per cent, the February forecast that 300,000 households faced foreclosure this year, has been revised upward to 300,000 in six months.)

In addition to the NAB, there are concerning reports about other Australian financial institutions: ANZ is facing further writedowns on its mortgage originator, Origin, and is scaling back its lending activities; mortgage lender, Amazing Loans, is facing difficulty refinancing and “may be unable to continue as a going concern”; and Macquarie Bank, which raised its rates on low-doc mortgages by three times that of the RBA’s last increase, is reassigning staff from its mortgage branch, to other sectors.

The only policy that addresses the full scope of this crisis is the Homeowners and Bank Protection Bill, which will keep all families—mortgagees and renters—in their homes, and protect banks from closures, while the mess in the financial system is reorganised, through massive write-downs of the unpayable debt.