As LaRouche Said, ‘This Is Much Worse Than 2008’

The market mudslide and commodity collapse continued Monday despite U.S. markets being closed for the Martin Luther King holiday; the collapse is moving faster, to the point of drawing admissions that “it’s worse than 2008,” as EIR Founding Editor Lyndon LaRouche announced it would be one month ago.

In a sign of the rapidly growing fears of a financial blowout, the habitual Wall Street cheerleading network, CNBC-TV, carried two commentaries, “Oil Credit Crunch Could Be Worse Than The Mortgage Crisis,” and “A Recession Worse than 2008 Is Coming.” The latter, by investment manager and author Michael Pento, is a straightforward forecast that the Federal Reserve will soon be desperately resuming money-printing (quantitative easing) to save the Wall Street and European banks, although its author shows considerable confusion about the cause of the collapse. The former commentary, by 33-year oil industry consultant Mark Harrington, is a much more detailed crash prospectus.

A flood of “hard defaults against bank lenders and bondholders” is coming immediately and throughout 2016, Harrington says, and each will create cross-defaults with other securities. The Economist this week estimates half of all U.S. shale oil/gas production/exploration companies will go bankrupt in 2016, not to mention those in North Sea oil which have already cut 55,000 jobs in the U.K. alone. “Even more importantly, most oil-price hedges, price swaps/derivatives, also have cross-default provisions. Thus, counterparty credit risk [among banks] begins to escalate as those parties are forced to disgorge cash payments on those instruments. Given the ferocity and rapidity surrounding this meltdown, can lenders effectively process this burgeoning inventory of defaulted credit?” His answer is no.

Harrington also notes, using BIS and figures, that at least $2 trillion of high-yield debt for shale oil/gas “capital expenditures” has gone on the asset books of banks, expected to produce three times its value, now worth half its nominal value at best. “The selloff in energy bonds now underway creates general risk avoidance across the board. Ballooning loan write-offs hit the major banks and those smaller banks to whom the loans were syndicated. The manifestation of counterparty credit defaults and its cross defaults hit the banks again and many other firms that began originating swaps. The contagion through the expanding and loosely regulated derivative market is surely destined for surprises. Even with the selloff to date, one cannot gauge the magnitude of the problem and how it might play out. But we know one thing for sure: It will be ugly.”

Oil prices fell toward $28 Monday, but U.S. producers are actually getting as low as $15, or even giving oil away to get it stored and keep pumping. The Dallas Federal Reserve Bank Monday denied the weekend’s Zero Hedge story that it had told banks to keep “marking” oil at $49-59 on the banks’ books, while forcing oil/gas debtors to liquidate assets, pay down debt, and keep pumping with what is left. A Texas source with long knowledge of the industry told EIR that whether or not the Dallas Fed issued such instructions, that is, in fact, what the banks are doing.

Thus bank fraud is being combined with looting and liquidation of companies and employment, until the whole financial speculation blows up — or Wall Street is shut down by orderly, Glass-Steagall bankruptcy reorganization.