September 17, 2008 (LPAC)--"The pathology of this crisis is that unless you get ahead of it and deal with it from a position of strength, it devours the weakest link in the chain and then moves on to devour the next weakest link," former Fed chairman Paul Volcker, former Treasury Secretary Nicholas Brady and former Comptroller of the Currency Eugene Ludwig said in an op-ed in today's Wall Street Journal. That is a fair description of the problem, but the solution they provided, having the Federal government buy all the bad paper in the banking system, would be, to quote Lyndon LaRouche, "criminally insane."
"Right now the system is clogged with enormous amounts of toxic real-estate paper that will not repay according to its terms," the trio wrote. "This paper, in turn, is unable to support huge quantities of structured financial instruments, levered as much as 30 times." However, what they propose is a new "resolution mechanism" based upon the Resolution Trust Corp. (RTC), the agency created to oversee the collapse of the savings and loan sector in the late 1980s to early 1990s. "This new governmental body would be able to buy up the troubled paper at fair market values," warehousing it and giving it the "the chance for much of it to recover a portion of its value."
The same edition of the Urinal also carried op-eds by former assistant to the president for economic policy Lawrence Lindsey, and former Lazard banker and current fund manager Steven Rattner, pushing similar insane fantasies. Lindsey called for a "firewall" around the payments system, noting that "nearly 40% of the assets in the banking system are not protected by the FDIC." He also called for allowing the banks more leeway in valuing the assets they have on the books, as a way of improving their capital positions. Rattner suggested that what we need is bigger banks, noting that "even the vaunted Goldman Sachs and the venerable Morgan Stanley may prove too small to remain independent."
Interestingly, Lindsey cites Isaac Newton and Rattner quotes Friedrich Nietzsche, a classic case of dead minds quoting dead minds, while presenting dead ideas to save a dead financial system.
The only "position of strength" from which to deal with this crisis, is the position advocated by Lyndon LaRouche, which begins by admitting the truth about the state of the global financial system, and taking the hard decisions that flow from that truth, To try to bail out this bankrupt system, as the bankers are so desperately trying to do, will trigger a hyperinflationary explosion of the same destructive force that hit Weimar Germany in 1923, only on a much larger, global scale. Looking at the events of the day, LaRouche said, "This is like Weimar Germany in November, 1923."
