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PRESS RELEASE


To Save Wachovia, Restore Glass-Steagall

Sept. 28, 2008 (EIRNS)--This release was issued on Sept. 27 by the Lyndon LaRouche Political Action Committee (LPAC).

The failure of Washington Mutual two days ago brought to 13 the number of U.S. banks to fail this year, and the pace is accelerating. The recent demands of President George Bush and Treasury Secretary Henry Paulson for an unprecedented bailout of the banking system to avoid a meltdown represent an admission that, just as Lyndon LaRouche said, the banking system is bankrupt. More failures are coming, at a pace which will take your breath away.

Many eyes have now turned to Wachovia Corp., the giant North Carolina-based bank holding company, as the next big bank to fail, and Wachovia is widely reported to be in "fire sale" talks with Citigroup, Wells Fargo and Spain's Banco Santander. Such a merger may occur, or the buyers may wait, as J.P. Morgan Chase did with Washington Mutual, and buy the bank from the FDIC after it is closed. However it occurs, it is likely that Wachovia will soon cease to exist as an independent bank.

One of the guiding principles behind LaRouche's Homeowners and Bank Protection Act (HBPA) is that, as properly regulated banking is an essential aspect of any economy, we must save the state- and Federally chartered commercial banks and thrifts. That means two things: First, we must extract the relevant banking functions from banks which have often become virtual casinos of speculative bets, and second, we must restore the modern regulatory regime established by FDR, beginning with the restoration of Glass-Steagall.

The Glass-Steagall Act of 1933 was one of the most important banking regulations ever passed, as it prohibited any commercial bank from engaging in investment banking activities. As FDR told the House of Morgan, you can be a commercial bank or an investment bank, but you can't be both. This was done to prevent a raft of abuses which occurred in the 1920s and early 1930s, as the bankers saved themselves at the expense of their customers and the public. Glass-Steagall forced the House of Morgan to split into two separate institutions, an act for which FDR has never been forgiven, but FDR was entirely correct, as recent events have demonstrated. The banks began to chip away at Glass-Steagall in the 1980s, and it was finally repealed in 1999, after the illegal merger of Travelers and Citicorp to form Citigroup in 1998. The repeal of Glass-Steagall opened the floodgates as the banks expanded their speculative activities, until the distinctions between commercial banking and investment banking have virtually disappeared. As has the solvency of the system.

Retrieving the commercial banking functions out of some of these abominations will require delicate surgery, akin to removing deeply embedded tumors. This is the case with Wachovia Corp., where the commercial bank, Wachovia Bank, N.A., is the largest among hundreds of subsidiaries. Wachovia Bank, however, is a toxic waste dump, holding among other nasties $4.4 trillion in notional value of derivatives, or $6.63 in derivatives for every dollar of assets. That means that saving the entire bank, much less its parent holding company, is not only undesirable but impossible. What can be saved, however, are the deposits first and foremost, and the loans and leases related to traditional banking activities; what will be let go, are the derivatives and other speculative activities. The holding company and all its subsidiaries should be seized by Federal banking regulators, and put into receivership. The necessary commercial banking activities would be reorganized into a new institution, while the rest would be frozen and dealt with later.

This approach of stripping out all the speculation and leaving a clean bank, accompanied by strict new banking regulations, would allow households and businesses to have unfettered access to their money and to necessary credit, while removing the burden imposed by the mountain of speculative bets, fictitious capital and other nonsense.

In the next couple of weeks, between Oct. 1 and Oct. 15, we will very likely see the complete collapse of the U.S. banking system. Should the Bush/Paulson bailout package be passed, it would immediately trigger a Weimar Germany-style hyperinflationary explosion, destroying the value of the dollar, and with it the economy. Should the bailout be rejected, the British banking system will collapse immediately, with the U.S. banks collapsing on its heels. With or without the bailout, we face the disintegration of the banking system, thanks in large part to deregulation and globalization.

LaRouche's HBPA is the only effective way of preventing the collapse of the financial bubble from taking the economy down with it. It is a dramatic measure, but far preferable to the absolute chaos and destruction which will ensue without it. Without it, the nation is lost.