Wall Street Bankers Openly Discuss the Coming Crash: “The System Is Cracking”

As the LaRouche movement goes into high gear to shut down Wall Street and return to Glass-Steagall before a crash strikes, Wall Street and City of London bankers are now openly discussing the coming crash… and quietly panicking over how to handle it.

The lead article in the Oct. 3-9 edition of the Economist, the banner publication for City of London financial interests, warns that “the system is cracking,” and calls for an all-out effort to backstop the bubble with new waves of so-called quantitative easing—exactly as Lyndon LaRouche has warned is their intention. The article frets, however, that this hyperinflationary bailout policy may not work as it did in 2008, because the U.S. Congress might go instead for more regulation of the banks—although the article studiously avoids mentioning the feared words, “Glass-Steagall.”

A major problem today, the Economist writes, “is the lack of a backstop for the offshore dollar system if it faces a crisis. In 2008-09 the Fed reluctantly came to the rescue, acting as a lender of last resort by offering $1 trillion of dollar liquidity to foreign banks and central banks. The sums involved in a future crisis would be far higher. The offshore dollar world is almost twice as large as it was in 2007. By the 2020s, it could be as big as America’s banking industry. Since 2008-09, Congress has grown wary of the Fed’s emergency lending. Come the next crisis, the Fed’s plans to issue vast swap lines might meet regulatory or congressional resistance.”

The Economist article concludes: “There are things America can do to shoulder more responsibility–for instance, by setting up bigger emergency swap lines with more central banks. More likely is a splintering of the system, as other countries choose to insulate themselves from Fed decisions by embracing capital controls. The dollar has no peers. But the system that it anchors is cracking.”

Similarly, Forbes magazine’s Antoine Gara wrote on Oct. 2 about the danger of a new blowout, which unusually admits that the underlying problem is the gigantic pile of derivatives sitting on top of numerous nominal debt bubbles. Gara, in reviewing the current Glencore crisis, tries to whistle past the graveyard, arguing that “Glencore’s unraveling won’t turn into the next Lehman Brothers crisis.” He says that is because Glencore does not have the derivatives exposure that Lehman had.

But, he admits, “were Goldman Sachs, Morgan Stanley, or any other large investment bank to be thrown into Glencore’s current predicament, there would be good cause to worry about a Lehman 2.0. There are over $600 trillion in OTC derivatives outstanding [in actuality, there are probably double that amount–ed.], a greater number than prior to the crisis, and many of those contracts continue to trade bilaterally among banks, linking firms together.”

Gara concludes: “For the likes of JP Morgan, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley, these issues remain a topic of life or death. Last quarter, each firm disclosed trillions, if not tens of trillions outstanding in OTC derivatives contracts. No amount of rising retained capital would
protect those firms if there were a messy Lehman-like bankruptcy.”