From Volume 37, Issue 27 of EIR Online, Published July 16, 2010

United States News Digest

Galbraith Calls for Pecora-Type Prosecutions, Other Reforms

July 9 (EIRNS)—Reflecting the political environment created by Lyndon LaRouche's ideas, economist James Galbraith published a piece in the July 9 New Republic which contains key elements of LaRouche's most important domestic economic proposals, including the Homeowners and Bank Protection Act (HBPA), Glass-Steagall, and the "LaRouche Plan" for long-term, low-interest rate credits for infrastructure and economic reconstruction.

"The financial crisis in America isn't over," Galbraith's article begins—which is far more feisty than his earlier writings. "It's ongoing, it remains unresolved, and it stands in the way of full economic recovery."

The legal framework for the breakdown "was laid with the repeal of Glass-Steagall in 1999 and the Commodities Futures Modernization Act of 2000," Galbraith writes, adding in the Basel II process relaxing international bank supervision. He says "the response to desupervision was a criminal takeover of the home mortgage industry," citing subprime mortgages written with inflated values, the issuing of "teaser" or counterfeit mortgages, the laundering of these by the rating agencies to make them look real, and taking the laundered goods to market by packaging them as bonds with AAA ratings.

"Upon taking office, President Obama had a chance to change course and didn't take it," Galbraith continues. And now, with Obama's inaction, "the financial sector remains a fatal drag on the capacity for growth," and it will remain so until the frauds and balance sheets are cleaned up, which requires a rigorous audit of the banks and the Fed, and criminal investigations—with "indictments, prosecutions, convictions, and imprisonments."

"The first step toward health is realism. We must first stop pretending that bad assets can be made good, that bad loans will someday be repaid, and that bad people can run good banks. Debt crises are resolved when debts are written down and gotten rid of, when the institutions that peddled bad debts are restructured and reformed, and when the people who ran the great scams have been removed."

But, Galbraith warns, "there will not be another bank-sponsored private credit boom." Instead, "we need to create new, policy-focused financial institutions like the [FDR-era] Reconstruction Finance Corporation to take over the role that the banks and capital markets have abandoned," and he also calls for "a national infrastructure bank, an energy-and-environment bank, a new Home Owners Loan Corporation, and a Gulf Coast Reconstruction Authority modeled on the Tennessee Valley Authority." And echoing LaRouche's HBPA, he calls for "refinancing of mortgages or conversion to rentals with right-to-rent provisions so that people can stay in their homes at reasonable rates."

This reconstruction of the nation, he says, should be financed by "loans made at low interest rates and for long terms," to deal with the neglect of the past 30 years.

Senators Reject Obama's Shutdown of Manned Space Program

July 9 (EIRNS)—The bipartisan leadership of the Senate Committee on Commerce, Science and Transportation has reportedly agreed upon a bill to authorize NASA's FY2011 budget, which reverses almost all of the cuts the Obama Administration tried to make to the nation's space program. According to today's New York Times, the bill was the result of negotiations among Committee chair Jay Rockefeller (D-W.Va.), ranking member Kay Bailey Hutchison (R-Tex.), subcommittee chair Bill Nelson (D-Fla.), and ranking member David Vitter (R-La.).

The Senate bill proposes to: 1) add a Space Shuttle flight, using the Shuttle Atlantis, which is being prepared as a launch-on-need rescue vehicle, for the last scheduled mission in February; 2) continue development of the full (Moon-capable) Orion crewed vehicle, not the trimmed-down rescue vehicle proposed by Obama; 3) speed up development of a heavy-lift vehicle (Saturn V-class), not wait five years as Obama proposed; 4) slow down funding for a commercial crew vehicle, making it milestone-based, in which companies have to demonstrate capability before they get huge infusions of government monies.

The Senate Committee is scheduled to discuss and mark up the bill on July 15. The House Science and Technology Committee has not yet drafted an authorization bill.

Obama Gives Sir Donald Berwick a Recess Appointment

July 7 (EIRNS)—President Obama took the pretext of the ten-day Congressional recess to bypass the Senate confirmation process, and appointed a Knight of the British Empire, Donald Berwick, as head of the Center for Medicare and Medicaid Services (CMS). As director of the CMS, Berwick will play a major role in the implementation of the Obamacare system.

Republicans were looking forward to a confirmation hearing at which they could expose Sir Donald's pro-rationing views, but Max Baucus (D-Mont.), chairman of the Senate Finance Committee, refused to schedule a hearing for Berwick, who had been nominated by Obama in April. The White House today blamed Republicans for delaying Berwick's confirmation.

Sen. John Barrasso (R-Wyo.) said he had been calling on Obama to nominate someone to head CMS. "He waited until after the bill was signed into law to nominate someone," Barrasso said, "and then he puts someone in, who has been knighted by the Queen in England because of what his thoughts are toward the British health care system."

Recess appointments are good until the end of the next session of Congress, or late 2011.

Florida Budget Cutters Let Food-Borne Bacteria Run Free

July 6 (EIRNS)—Florida will no longer carry out food safety inspections in hospitals, nursing homes, or daycare centers, following passage of new legislation on July 1. This, in a tropical state which has seen 15 separate outbreaks of food-borne illnesses at just these institutions since 1995. Three state agencies—the Departments of Agriculture and Consumer Services, Business and Professional Regulation, and Health—which formerly had authority to enter properties for inspection, will no longer be authorized to do so.

According to Sarah Klein of the Center for Science in the Public Interest (who broke the story), "Florida politicians were clearly not thinking about their young children or their aging parents when they passed this bill. These consumers—and anyone who is immuno-compromised—are already at greater risk of being hospitalized from food-borne illness. Florida consumers deserve more from their legislature than budget cuts to critical public health services." Klein warned, "A budget savings on the front end, by eliminating inspections, can lead to huge costs later—when people get sick from foodborne illness. And if it's your child, or parent, or sick loved one, you can bet those savings weren't worth it."

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