Sydney (Release from CEC): The next phase of the global financial crisis is about to erupt, which will be much more violent than anything to date; the good news is, there is rapid and major progress in various nations which are moving towards the only genuine solution—a Glass-Steagall separation of essential banking from speculation.
In Switzerland, where anti-Glass-Steagall “bail-in” powers to steal deposits to prop up banks were rammed through into law in April, there is a massive political backlash. On 9 September an alliance of opposition parties outvoted the government coalition in the lower house of parliament, the Swiss National Council, to pass three separate statements calling for a strict, Glass-Steagall type of banking separation. The statements require the government, called the Federal Council, to report back to the parliament on the prospect of a banking separation, but knowing that the parties who make up the Federal Council oppose a banking separation, the opposition parties are also arranging for it to go to a referendum. It takes 100,000 signatures to initiate a referendum in Switzerland, and the result has the same validity as an Act of Parliament. The opposition is confident that at least 60% of the Swiss voters will support a banking separation. If successful, Switzerland’s two global banks, UBS and Credit Suisse, will be split up, and trillions of dollars worth of speculative liabilities will be hung out to dry!
Two very significant bankers have just come out supporting Glass-Steagall. On 9 September banking celebrity John Reed, the former CEO of Citigroup, called for the reinstatement of Glass-Steagall in an interview with London’s Financial Times. It was the merger of Citigroup with Travelers Insurance in 1998 that was the excuse to repeal the Glass-Steagall Act. Reed said the logic behind the merger was “flawed”, and in calling for the reinstatement of Glass-Steagall, he disagreed that it would be difficult. “It could be done. The finance industry is amazingly flexible. We don’t have big capital bases. It’s not like we have factories that need to be re-engineered.”
On 14 September the German press reported that Bryan Marsal, the banker who administered the bankruptcy of Lehman Brothers, which triggered the GFC when it collapsed in September 2008, is now recommending a worldwide Glass-Steagall banking separation. Marsal told the German paper Die Welt that he had supported the repeal of Glass-Steagall “until I saw what happened to Lehman.”
The CEC’s tireless campaigning for Glass-Steagall in Australia since 2009 has achieved a major breakthrough, with prominent experts now calling for banking separation to be included in the terms of reference for the financial system inquiry that new treasurer Joe Hockey has long promised. ABC TV’s Lateline Business on 12 September reported the growing concerns about the Australian banking system, and its concentration in just four very large and very unpopular banks, which has prompted calls for the inquiry to consider “narrow banking”, which in practise means Glass-Steagall: “Some have argued the inquiry should also consider the idea of narrow banking, where government protection is only given to those institutions engaged in deposit taking and lending, as opposed to investment banking.” Professor Kevin Davis, of the Department of Finance at the University of Melbourne, elaborated, “You want to have very safe utility banks where individuals can invest their deposits and feel very safe, and those funds are used in reasonably safe investments, but you also want to make sure that our financial sector does take risks, takes appropriate risks, is innovative and so on.”
Experts see crisis looming
This motion towards Glass-Steagall is racing against the onrushing global financial eruption. The renowned U.S. statesman and physical economist Lyndon LaRouche in a 16 September radio interview warned of an impending financial blowout worse than 2008. “What’s going on now, is we’re going through the greatest financial crisis in modern or related history,” LaRouche said. “It’s coming on fast. We can expect a crash, for example, of the Wall Street system, and similar kinds of systems. They may not go extinct, but under present conditions, they’re going to have to make some very large adjustments, because the rate of inflation built into that part of the banking system, is such that it just cannot keep going.”
Under the headline “Giant banks primed for new crisis”, leading Australian financial commentator Alan Kohler, reminded his readers in the 17 September Business Spectator of the crash of Lehman Brothers in 2008, which triggered “one of the greatest credit collapses in history”. Kohler wrote, “Five years later we’re getting more sleep, but the question now is: what, if anything, was learned and has enough been done to prevent the same thing happening again, as it has periodically through history? The answer is no. It will definitely happen again.”
Veteran City of London observer Ambrose Evans Pritchard reported in London’s 15 September Telegraph the warnings of William White, the chairman of the OECD’s Economic Development and Review Committee, that the credit excesses today are worse than prior to the Lehman Brothers collapse. “This looks like to me like 2007 all over again, but even worse,” said William White, who is famous for warning against the wild behaviour in the debt markets before the 2008 crisis hit. “All the previous imbalances are still there. Total public and private debt levels are 30% higher as a share of GDP in the advanced economies than they were then, and we have added a whole new problem with bubbles in emerging markets that are ending in a boom-bust cycle.”
Fight for Glass-Steagall with CEC
Australians are faced with a choice: the Cyprus-style deposit-stealing “bail-in” legislation being written right now in the Treasury department; or the only measure that will protect deposits and livelihoods—a Glass-Steagall-style separation of the big four banks into deposits banks and investment banks.