BANKING CRISIS

[...]

Since late July, both of the two "bookends" of Sir Alan Greenspan's last and greatest debt bubble have been collapsing in on it: the U.S. mortgage-securities bubble, on which the banks of Europe and Asia were feeding, and which had already grown to 49% of all bank assets in the United States; and the now-unwinding "yen carry trade," which was feeding some $500 billion annually in "free money," by some estimates, into that and related financial bubbles. That cheap-yen carry trade shrank as the yen rose steadily against the dollar during August, and more rapidly against the euro and, especially, the British pound sterling.

By the second half of August, financial news services were also reporting that the $1 trillion-plus asset-backed commercial paper (ABCP) market was in crisis, and thus the credit-market meltdown was starting to hit the savings of the general public directly. Some 40 million Americans, for example, invest savings in "money-market funds"; and those funds commonly invest in ABC paper because it is supposed to be both very safe—keeping the constant $1 value of every share in those money-market funds—and very liquid, allowing people to write checks on those funds.

Now, the ABC paper market is apparently anything but safe, and anything but liquid, with one big British bank, HBOS, attempting to organize a rescue Aug. 21 of its ABPC fund which could neither roll over, nor redeem, $30 billion of the stuff. The entire Canadian ABCP market froze up in the week of Aug. 13, and when temporarily bailed out, some of that "immediately liquid" commercial paper involuntarily became eight-year loans! One Canadian economist told EIR that the money-market funds—worth about $3 trillion total—have $100 billion invested in ABC paper, and another $100 billion in the mortgage derivatives called collateralized debt obligations (CDOs) which are laying low hedge funds and banks around the world.

The failures of major hedge funds, and banks, is now a matter of time. By early Fall, in the judgment of Lyndon LaRouche, the financial system will be unable to continue functioning, without bankruptcy reorganization carried out by governments to save their people's jobs, homes, and savings, and to invest in restoring their productivity.

[...]