From Volume 38, Issue 6 of EIR Online, Published Feb. 11, 2011

U.S. Economic/Financial News

Barofsky Calls Biggest Banks a 'Recipe for Disaster' Unless Broken Up

Feb. 1 (EIRNS)—In his report released to Congress Jan. 26, the day before the Angelides Commission (FCIC) report, TARP bailout inspector-general Neil Barofsky advised that the 12 to 13 biggest U.S.-based banks be broken up, calling their continued operations as commercial bank/investment bank/securities conglomerates a "recipe for disaster." Barofsky's report did not explicitly call for restoration of the Glass-Steagall Act, but he said that without "some other effective regime" for breaking these banks up and reorganizing them, they will produce "a doomsday cycle" of collapse and huge bailouts.

Barofsky's testimony was attended by only a handful of members of Rep. Darrell Issa's (R-Calif.) Government Oversight Committee, and Issa asked him just one question about "Too Big To Fail" (TBTF) banks, referencing Bank of America. But Barofsky's report, which focuses on the past and future bailouts of Citigroup, has the same warning as does the Angelides Commission report: If those measures necessary to reorganize banking and prevent global monetary collapse are not taken, the consequences will be disastrous. This requires immediate Glass-Steagall restoration.

The SIGTARP report says in effect, that the Bush and Obama administrations have created a dozen Fannie Mae and Freddie Mac monster financial institutions, all with virtually explicit guarantee of bailout under any collapse circumstances, all the borrowing and leverage advantages which go with that, and which are too overextended and complicated to be managed. It cites the fact that Standard % Poors now states that it takes the implicit "TBTF" government bailout guarantee into account in rating the credit and securities of banks "throughout the cycle and not just during a crisis."

As to the solution, Barofsky's report discusses the Dodd-Frank Act's so-called "resolution authority," which is supposed to head off the collapse too-big-to-fail banks and non-banks; it cites FDIC head Sheila Bair's position, that the Fed and FDIC can compel break-up of these institutions without waiting for a "crisis." But Barofsky also cites Kansas City Fed President Thomas Hoenig, who is calling for "re-establishing Glass-Steagall."

Treasury Secretary Tim Geithner, interviewed by Barofsky's office about TARP on Dec. 16, admitted that, "in the future we may have to do exceptional things again," referring to huge bailouts. Barofsky concludes that unless "some effective regime" to reorganize the big banks is implemented, "the cost of TARP will remain unknown until the next financial crisis occurs," because the bailout guarantee for TBTF institutions is open-ended.

Behind Closed Doors, Bernanke Admits: 'Worst Financial Crisis in History'

Jan. 30 (EIRNS)—Admitting what only Lyndon LaRouche has had the guts to say publicly, Federal Reserve chairman Ben Bernanke stated the following in a closed session, as reported in the Angelides Commission report, Chapter 20, titled, "Ben Bernanke, closed-door session with FCIC, November 17, 2009."

"As a scholar of the Great Depression, I honestly believe that September and October of 2008 was the worst financial crisis in global history, including the Great Depression." Bernanke explained: "If you look at the firms that came under pressure in that period ... only one ... was not at serious risk of failure.... So out of maybe the 13, 13 of the most important financial institutions in the United States, 12 were at risk of a failure within a week or two."

If this wasn't just an excuse for ramming through the bailout, it shows Bernanke was even more of a witting criminal, in acting to sacrifice the U.S. population to a failed bankrupt system.

The Abandoned Millions of Unemployed

Feb. 5 (EIRNS)—Real people pay the price for the fraud of the Obama Administration's unemployment statistics, what Lyndon LaRouche denounced, yesterday, as the "symbolic decapitation of the labor force." This cost is dramatized in two articles posted yesterday on two progressive websites. Dave Johnson, a blogger for the Campaign for America's Future, wrote of his astonishment that almost no one is covering the plight of the "99ers," those who have been unemployed for longer than 99 weeks, and have exhausted their unemployment benefits. "The long-term unemployed are forgotten, a nuisance," he writes, and each month "another several hundred thousand people drop into the void." He notes that the 99ers are more likely to be older Americans and yet "the deficit cutters, just back from passing more tax cuts for the wealthy, are saying we need to cut Social Security and raise the retirement age."

Another article, by Lila Shapiro, posted on the Huffington Post website, discusses another, but possibly overlapping group of unemployed, those who are no longer even counted by the Bureau of Labor Statistics, which Shapiro puts at 4.9 million, workers who she says "have effectively gone missing." She quotes from a number of economists who are trying to figure out what has happened to these people; one goes after the fraud in the Obama Administration's unemployment reports. "You could solve the 'unemployment problem' tomorrow if all fourteen and a half million [unemployed] workers just said 'I give up. I don't want a job anymore," said Carl Van Horn, a labor economist at Rutgers University who has studied the phenomenon of the long term unemployed. Van Horn was referring to the Bureau of Labor Statistics' practice of massaging the unemployment rate, by dropping people out of the labor force.

Shapiro adds to the picture by citing a number of cases of highly qualified older workers who were unable to find new jobs after getting laid off. One of these, a man of 65 who believes he still has another 20 good years left in him, says, "There seems to be this unspoken hope that people like me will just sort of disappear."

Blackouts Freeze Texans, Fill Pockets of Speculators

HOUSTON, Feb. 2 (EIRNS)—Texas was hit by rolling power blackouts on Feb. 2, as temperatures dipped below freezing. The Electric Reliability Council of Texas (ERCOT) announced that the cold weather led to the shutdown of 8% of the state's power production, with generators which produce 7,000 megawatt hours closed down. To protect the whole state system, ERCOT initiated rolling blackouts in the morning, and warned that it might be forced to continue blacking out areas of the state tonight and tomorrow. It is reported that "electricity traders," i.e., speculators, were charging $2,000 per mwh, when the average price is $50/mwh. It was also reported tonight that Texas is importing electricity from Mexico!

Foolish Texans have been bragging for years that they had cleverly made sure that the state would have enough power, with the construction of natural gas plants in the last decade. However, there have been no new nuclear plants, and there is a lack of redundancy, for crises such as this, when the temperature uncharacteristically drops below freezing for several days. Further, using the "Enron model" of electricity trading, the speculators are taking advantage. Included among the areas of the state affected by the rolling blackouts, were many sectors of Houston, the nation's third-largest city, and areas immediately around Austin, the state capital.

All rights reserved © 2011 EIRNS