Did the U.S. banking system nearly collapse last week? On Monday, July 14, spurred by an open run by depositors to pull their funds out of the failed IndyMac Bank (reopened by the Federal Depositors Insurance Corporation—FDIC), the banking crisis was once again in the headlines. During the day, bank stocks plunged as shareholders rushed to sell, and there were indications that the runs were not limited to IndyMac. Two banks, Washington Mutual and National City, took the unusual step of issuing press releases saying they were okay. WaMu, a $320 billion thrift based in Seattle, issued a statement saying it had “excess liquidity” and that it “exceeds all regulatory ‘well-capitalised’ minimums for depository institutions. National City, based in Cleveland and with $155 billion is the twelfth-largest bank holding company in the nation, said it was “experiencing no unusual depositor or creditor activity” and touted its own capital levels.

The next day, the Securities and Exchange Commission (SEC) issued an emergency decree that blocked “naked” short selling in the securities of Fannie Mae, Freddie Mac and 17 other major financial institutions, including Citigroup, J.P. Morgan Chase, Bank of America, Merrill Lynch, Lehman Brothers, Morgan Stanley, and Goldman Sachs. Such activity “threatens the stability of financial institutions.” As a result of this and what appears to have been a major intervention by the Plunge Protection Team and the Fed, U.S. bank stocks had their best day in 16 years.

Reports flowing into this news service indicate that there is a high degree of nervousness in the population, and among bank employees, over the state of the banking system, and fears that such anxiety could turn into panic is evident. It is becoming increasingly obvious to citizens that the situation is rapidly deteriorating, and the assurances of the bankers and the regulators ring more hollow by the day. It would take very little for the situation to turn into a full-fledged banking panic.

NOTE: Similar bail-out moves occurred in London last week, as the Bank of England and the Financial Services Authority lined up Banco Santander to take over failing British mortgage lender Alliance and Leicester (A&L), out of fear of a run against the entire British banking system—“We have never seen anything like this before,” a seasoned banking veteran told London’s Daily Mail. “This is the worst financial crisis that most of us have ever seen.”

For the real story behind these events, tune into Lyndon LaRouche’s webcast, broadcast live, July 23^rd 3am AEST and archived shortly thereafter, at www.cecaust.com.au. At his July 25^th 2007 webcast LaRouche stated that the monetary system is “currently in the process of disintegrating”, after which the so-called “sub-prime crisis” phase of the financial crash ensued. On June 6^th this year LaRouche warned that the crash would be going through its “greatest rate of escalation” by approximately the end of July.