Banking system may not make it to Christmas

The troubles that have hit Australia’s banking system in recent weeks reflect the deepening crisis in the global banking system, especially the eurozone, which prompted Lyndon LaRouche to warn on 8^th December that the banks may not make it to Christmas.

The National Australia Bank’s so-called “technical glitches”, which threw Australia’s financial payments system into disarray, coincided with revelations that NAB, along with Westpac, joined the rush of panicked banks in 2008 that borrowed desperately-needed emergency funds from the U.S. Federal Reserve.

It also coincided with the shockwaves in European bond markets set off by the Irish crisis—Australia’s banks were estimated back in May to have a $56 billion exposure to the eurozone, and NAB was until recently directly involved in two Irish banks and also had a sizeable exposure to the steadily collapsing Italian government bonds. (To top it off, NAB’s exposure to the toxic derivatives bubble skyrocketed in the last year to $3.476 trillion, up $457 billion in just the last year!—by far the most exposure of any Australian bank.)

London’s 8^th December Financial Times foreshadowed that the eurozone bond markets face a pre-Christmas explosion: “Eurozone bond markets face a testing run-up to Christmas amid fears the regional crisis could blow up again because of thin trading volumes that may send borrowing costs of the most vulnerable countries to new highs. Bankers say December is traditionally a time when most dealing rooms close their trading books and sit on the sidelines as they wait for the new year before strategically investing money in the financial markets. But the extreme nervousness surrounding the eurozone has prompted warnings that markets could see a vicious downward spiral as small sell transactions trigger dramatic falls in thin trading.”

None of this is unexpected for anyone who has paid attention to Lyndon LaRouche’s analysis of the global financial system, and understands the fact that the entire system has been on terminal-patient life support since mid-2008, from taxpayer-funded government bailouts.

The true extent of that bailout has just been revealed by the office of U.S. Senator Bernie Sanders. The total bailout was much greater than the $700 billion “TARP” program, and in fact was in the many trillions—perhaps as high as $16 trillion. Much of it went to foreign financial firms, including NAB and Westpac, and/or was loaned by the Fed against crap collateral, in violation of the Federal Reserve law. Two aspects of these reports are most shocking:

• First, foreign banks and financial corporations tapped 4,200 different loans/securities purchases under 13 different bailout programs of the Fed for $3.8 trillion total. In one Fed program, the Commercial Paper Funding Facility (CPFF), foreign financial firms got 68 per cent of the $396 billion in bailout loans.
• Second, under one of those programs, the Term Asset-Backed Securities Loan Facility (TALF), the Fed loaned at least $60.8 billion to more than 100 hedge funds, private equity funds, and other funds located in the Caymans or other British offshore havens. These funds are, right now, conducting intense speculations on the bonds of various European nations, in particular those of Spain, Portugal, Ireland, Belgium, and now Germany; and they are publicly attacking the European Central Bank for failing to throw in enough of its own buying, to make sure they make super-profits.

Senator Sanders’ office estimates that 36 per cent of the collateral pledged to the Fed’s primary dealer [overnight] credit facility was merely stock—this is not allowed under the Federal Reserve Act—or bonds ranked below investment grade. Another 17 per cent of the collateral was unrated—downright pornographic—credit or loans. The biggest mass of low-grade/illegal collateral was pledged immediately after the September 2008 Lehman collapse, by Morgan Stanley and Merrill Lynch, which were clearly going to collapse themselves, without the Fed bailouts.

Citizens Electoral Council leader Craig Isherwood said today, “It is good news that this terminal system may be finished by Christmas, because that will force nations that wish to survive to organise for LaRouche’s proposal of a global Glass-Steagall, which would be a great Christmas present for the whole world!”