From Volume 7, Issue 35 of EIR Online, Published August 26, 2008

Global Economic News

LaRouche: ECB Tries To Bail Out Spain with a Bottomless Bucket

Aug. 21 (EIRNS)—European Central Bank head Jean-Claude Trichet "is trying to bail out Spain with a bottomless bucket," commented Lyndon LaRouche today, about the alarm sounded by Dutch Central Bank chief Not Wellink, over the continuing flood of ECB bailouts. The problem is that the euro is plunging more precipitously than the dollar, LaRouche observed.

Wellink's statements were reported by Ambrose Evans-Pritchard in his London Telegraph blog on Aug. 21, under the title, "Bank Borrowing from ECB Is Out of Control." Wellink told the Dutch financial daily Het Finacieele Daglad that, "We see banks becoming very dependent on central banks," and "there is a limit how long you can do this. There is a point where you take over the markets."

Evans-Pritchard said that his ECB sources are worried, but, "Nobody dares pinpoint the country ... because as soon as we do, it will cause a market reaction and lead to a meltdown for the banks." He adds that Spain, a center of mortgage disaster, owes about Eu49.6 billion to the ECB, in short- and medium-term debt. Some Spanish banks are issuing mortgage securities for the sole purpose of using them as collateral in ECB borrowing, says Evans-Pritchard. As EIR has reported, every month, the ECB rolls over the existing loans, and increases the overall lending a bit more.

IKB To Be Sold to U.S. Locust Lone Star

Aug. 21 (EIRNS)—After a six-person presidium board meeting of the state institution KfW (Kreditanstalt für Wiederaufbau, or Reconstruction Finance Agency), which included German Economics Minister Glos (CSU) and Finance Minister Steinbrück (SPD), the decision was made to sell IKB to the U.S. hedge fund Lone Star. KfW controls the biggest share of IKB (45%), which is set to increase to more than 90% by a $1.5 billion capital increase. The outrageous conditions of this sale are basically that the taxpayer has to pay for the bank's subprime mortgage losses. The most interesting part of the IKB still is its Mittelstand (small and medium-size) business, which this locust fund will now control.

Lone Star also obtained the first-ever German banking license going to a foreign private equity fund in June 2005, taking over Mitteleuropäische Handelsbank (MHB) from NordLB.

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