February 20, 2008 (LPAC)--Under the headline "America's economy risks mother of all meltdowns," the chief economics commentator of the Financial Times, Martin Wolf, CBE, yesterday reported on the "12 steps to financial disaster" scenario of economist Nouriel Roubini. (For those not versed in British chivalric orders, the CBE after Wolf's name stands for Commander of the British Empire, one of those pompous honors the British award themselves for being parasites.) Roubini, a professor at New York University, wrote a paper outlining an escalating collapse of the U.S. economy, beginning with sharp falls in the value of housing and further large subprime-related losses, big losses on consumer debts, the downgrading of the monoline insurers and the collapse of the commercial real estate market, and the failure of a large regional or national bank, followed by waves of losses on leveraged buy-out loans and corporate defaults, big losses in the hedge-fund and off-balance-sheet worlds, further falls in stock prices, and a general drying up of liquidity across all financial markets, leading to "a vicious circle of losses, capital reduction, forced liquidation and fire sales of assets," with losses exceeding one trillion dollars.

The scenario Roubini lays out is not only plausible, but most of it has already happened, with the rest coming quickly. These events are all reflections of the death of the global financial system, which occurred last year. We have already seen losses in the trillions of dollars, and all of the big banks are already bankrupt, keeping their doors open due to a combination of Federal life support and "three monkeys" accounting (hear no losses, see no losses, speak no losses).

The issue here is not the financial system, which is gone, but the response ito ts demise. Commander Wolf correctly asserts that, "in the last resort, governments resolve financial crises," but then lies that they do so only "via overt government assumption of bad debt, inflation, or both." There is another alternative, which is for the government to put the financial system through bankruptcy, write off all the worthless paper, and begin rebuilding the productive capability of the U.S. economy. The U.S. government should indeed resolve this crisis, beginning with the passage of LaRouche's Homeowners and Bank Protection Act.