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Glass-Steagall, and Jailing the Bank Criminals, Required To Break Banker Control of Government—Daisuke Kotegawa

Oct. 10, 2016 (EIRNS)—Daisuke Kotegawa, the Japanese economist largely responsible for resolving the Japanese banking crisis in the late 1990s, and Japan’s Executive Director at the International Monetary Fund from 2007 to 2010, said in an Oct. 8 interview with EIR that if the western nations are to survive the current breakdown of their financial system, they must divide the banks in a Glass-Steagall manner, and must arrest the bankers responsible for bankrupting the financial system.

Japan imprisoned several dozen bankers at the time of their crisis, while the United States arrested no one after the Lehman shock of 2008, Mr. Kotegawa stressed. He said the imprisonment of the bankers was necessary to win the confidence of the population that the cost of restructuring the banks would not lead to the same crisis occurring down the road, and restoring confidence in the banking system.

And, the arrests broke the power of the banks over the government, especially the parliament. While Kotegawa did not spell it out, it was clear that he was aware that the failure of the U.S. and Europe to either impose bank separation, or arrest the criminals responsible, has resulted in the repeat of the bubble process, and the near-total control over the governments by Wall Street and the City of London banks.

Productive companies, he said, can not go bankrupt overnight, since they have a productive base to deal with financial problems over time. Not so with banks. If a bank, or a banking system, loses confidence, the entire edifice can collapse overnight, Kotegawa emphasized. This is what is happening with Deutsche Bank.

He repeated his earlier proposal for dealing with Deutsche Bank: full or partial nationalization; immediate bank separation between the commercial banking sectors and the investment banking sectors; and the arrest of the responsible bankers. At the same time, he said, the authorities of all the western nations must jointly, and secretly, set a date positive for the settlement of the gigantic derivatives exposure of Deutsche Bank. The counterparties of these derivatives—which include every major U.S. and European bank—must be prepared, he said, to impose the same Glass-Steagall separation on their banks, or they will be dragged down by the collapse of the investment banking portion of Deutsche Bank.

Kotegawa added that the role of the advanced sector at that point is to address the huge gap in the developing world between the standard of living and the aspirations of their populations. Any solution to the western bank crisis depends on real demand for products—not the printing of money—which will come from a commitment to the real development of the world as a whole. He noted that historically the key innovations in production were centered in the United States, Germany, and Japan, and these three nations must restore that dedication to innovation and production.