From Volume 38, Issue 22 of EIR Online, Published June 3, 2011

U.S. Economic/Financial News

Bankrupt U.S. Banks Are Getting Very Nervous

May 27 (EIRNS)—In discussions with economists in the environs of the Federal Reserve on May 27, EIR found a good deal of openness about what Lyndon LaRouche had to say on the implications of the Dominique Strauss-Khan affair. The reality is, they are faced with an impossible situation.

Topping the agenda, they said, are the looming crises of Bank of America and Citigroup, which are in desperate need of funds—between $50 billion and $75 billion more in "capitalization"—i.e., bailout money—before the end of the fiscal year. Bank of America is apparently trying to unwind its mortgage-backed securities positions, but is finding it impossible, given the continuing collapse of the housing markets, and the (criminal) investigations under way. If the California investigation goes forward, one of the economists said, Bank of America could have huge problems.

These economists were well aware of the motion around Glass-Steagall, including H.R. 1489, the bill introduced by Rep. Marcy Kaptur (D-Ohio), now before the House, to revive it.

Glass Steagall or Die! Republicans Will Go Down in Default

May 22 (EIRNS)—Lyndon LaRouche denounced those Republicans who say that a U.S. default on its debt will be a good thing, because it would force the needed austerity measures. "They will go down," said LaRouche. "They think that others will be hit, but they will be the ones to go down."

Rep. Devin Nunes (R-Calif.), in a statement to Politico, said that default is an option. "By defaulting on the debt, in the short and long term, it could benefit us to go through a period of crisis that forces politicians to make decisions" on major budget issues.

But Nunes didn't come up with this on his own. Writing in the May 14 Wall Street Journal, George Soros's longtime former partner Stanley Druckmiller said that he'd be willing to accept a delay in interest payments on the Treasury paper that he owns, if, in the words of the Journal, "the result is a Washington deal to restrain runaway entitlement costs."

"'I think technical default would be horrible,' [Druckmiller] says from the 24th floor of his midtown Manhattan office, 'but I don't think it's going to be the end of the world. It's not going to be catastrophic. What's going to be catastrophic is if we don't solve the real problem,' meaning Washington's spending addiction," wrote the Wall Street mouthpiece.

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