E.I.R.STRATEGIC ALERT

E.I.R.STRATEGIC ALERT

WEEKLY NEWSLETTER

Volume 30, No. 16 - April 21, 2016

Too Big to Fail Banks Are a Threat to All

For the third year in a row, the “living wills” submitted by five

of the eight largest Wall Street banks were found to be unworkable

and not credible by the Federal Reserve and Federal

Deposit Insurance Corporation (FDIC), as announced on April

13. Bank of America, JPMorgan Chase, Wells Fargo, State

Street Bank, and BONY Mellon were all flunked outright by

both agencies. In the case of JP Morgan Chase, regulators sent

a strong letter warning that the bank is a potential threat to

the entire United States.

The “living will” is the plan that the “too big to fail” banks

are required to develop to deal with a potential bankruptcy internally,

without needing a taxpayer bailout. In addition to the

first five, the plan submitted by Goldman Sachs was rejected

by the FDIC but accepted by the Fed, while Morgan Stanley’s

case was the reverse. As for Citigroup, known for failing the

“stress tests,” its “living will” was accepted by both agencies

but with “shortcomings.” The requirement was postponed for

four foreign banks -- Barclays, Deutsche Bank, UBS, and Credit

Suisse – which would have made a charade of it in any case.

In the letter to JP Morgan, the Federal regulators reveal

that they “have identified a deficiency” in the living will, that

“could pose serious adverse effects to the financial stability of

the United States.” As pointed out by analysts Pam and Russ

Martens, that statement “should strike fear” in everyone, if

just one bank is so dangerous.

The number one problem is liquidity, also cited by the regulators

in the case of other banks. “JPMC does not have an

appropriate model and process for estimating and maintaining

sufficient liquidity at, or readily available to, material entities in

resolution,” the letter says. “JPMCs liquidity profile is vulnerable

to adverse actions by third parties.”

Thus, the bank is overly reliant on funds in foreign entities

that “may be subject to defensive ring-fencing during a time of

financial stress.” This clearly refers to the bank’s huge exposure

to financial derivatives contracts, involving collateral and

short-term deposits which can be seized in a crisis, dooming a

bank’s liquidity.

In fact, JPMC failed to provide any plan on how to wind

down the derivatives portfolio, whose nominal value is $51

trillion. Furthermore, 69% of that is over the counter derivatives,

not cleared on any exchange.

Overall, since the internal controls of the TBTF banks have

been found to be unworkable and no barrier to forced bailouts,

the Federal Reserve is now authorized under Dodd-Frank itself,

by no later than Oct. 1, to break up these banks by ordering

them to sell off their “non-core” units, of which there are

thousands. This point was forcefully made by Stanford economist

Dr. Anat Admati at the April 4 hearing at the Minneapolis

Federal Reserve (cf. SAS 15/16). However, that authorization

does not mean that the Fed will do it. Lawmakers must move

to separate the banks by law, pre-emptively, before a blowup

of the derivative sector destroys the entire system.

Glass-Steagall and Wall Street at the

Forefront of New York Presidential Primary

Media coverage of the fight to reinstitute a strict separation

between commercial and investment banks, in order to rein in

Wall Street, reached new heights in the run-up to the April 19

Democratic primary in New York State. In particular after the

two candidates, Hillary Clinton and Bernie Sanders, engaged in

a shouting match on the subject during their April 14 debate.

The New York City radio station WNYC began running a series

on April 11 titled “Break Up the Too-Big-To-Fail Banks Now

-- or not?” The first segment was devoted to Glass-Steagall historically,

including quotes from President Franklin Roosevelt.

Host Brian Lehrer interviewed New York Times financial columnist

Gretchen Morgenson, who asserted that some of the

major risky abuses that led to the 2007-08 crises would have

been impossible without the repeal of Glass-Steagall in 1999.

She also dismissed Dodd-Frank which did not end the problem

of “too big to fail” banks, and whose regulations have still not

been written six years later!

Another major development last week was the introduction

into the New York State Assembly of a resolution calling on the

legislature to convey to Congress its support for reinstatement

of Glass-Steagall. The resolution, introduced by Schenectady

Assemblyman Phil Steck, has 26 co-sponsors.

Also on April 11, the PBS New Hour devoted a segment to a

critique of the Dodd- Frank reform, in which a member of the

U.S. Treasury’s Financial Research Advisory Committee, Lynn

Stout, called for revival of the rules in place before 1999-2000,

including Glass-Steagall. In her view, Obama’s Wall Street reform

(Dodd-Frank) has really changed nothing. In that context,

she brought up the case of Goldman Sachs, which was just

fined $5 bn for fraud. While that may seem like a lot of money,

it’s just “peanuts” compared to how much the bank made from

defrauding their customers.

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2 WEEKLY NEWSLETTER n°16 / 2016

Senator Sanders is a co-sponsor of the current Senate bill S.

1709, which would reinstate Glass-Steagall. Hillary Clinton has

explicitly opposed reinstatement, as has the Republican Party

generally. Indeed, former Senator Phil Gramm, who was key

in killing the bill in 1999, is now a top adviser to the Ted Cruz

campaign. The House bill to reinstate Glass-Steagall (HR 381)

has 73 sponsors, and so far cannot get a hearing.

The Danger of General War Accelerates

The April 17 New York Times published a blunt warning that

the United States is headed for a potential nuclear confrontation

with rivals Russia and China. The story revolved around

the Obama Administration’s plans to invest $1 trillion over the

next decade on an overhaul of the nuclear weapons arsenal.

The most alarming feature of the plan is the deployment of

hundreds of new B61-12 tactical nuclear weapons, which have

greater accuracy, a longer range, and a greatly reduced throw

weight, making them much more likely to be used. Russia and

China, in turn, are developing similar weapons. And all are

working on hypersonic vehicles, that are able to avoid antimissile

defenses and hit a target with such speeds as to destroy

it even without explosives.

The Times correctly warned that all this is upsetting the balance

that the “mutual assured destruction” doctrine ensured in

the past, under which the use of a nuclear weapon would cause

the annihilation of all.

The stark warnings from the United States come just as the

U.S. and NATO are moving forces right up against the Russian

borders, in the Baltic Sea and the Black Sea regions. Last week,

Russian fighter planes carried out two warning actions against

a U.S. surveillance aircraft and an Aegis-class destroyer, both in

the Baltic Sea region and as close as 100 km from the Russian

border.

Lithuania, one of the three Baltic states which are now NATO

members, has called for the forward basing of U.S. nuclear

weapons on their territory, claiming that such a deployment

would be a deterrent against Russian aggression. That would

be tantamount to Russia stationing tactical nuclear weapons

inside Mexico along the Rio Grande River.

At the same time, tensions are rising in the Asia-Pacific area

over the increasing military profile of the Obama Administration’s

Asia pivot, as we have reported. U.S. Defense Secretary

Ashton Carter was back in the Philippines last week, where he

demonstrably visited the aircraft carrier USS John C. Stennis,

sailing in the South China Sea. He took the occasion to reveal

that the American and Philippine navies have been engaged in

joint patrols in the South China Sea since March.

The Chinese are also very concerned over the likely deployment

of B61-12 weapons to Asia, which will lower the threshold

to use of nuclear bombs there as well.

There is a reasonable alternative to this new arms race, although

the Times does not mention it, and one which Lyndon

LaRouche has been promoting since the beginning of the 1980s.

The three nuclear superpowers should engage in strategic cooperation

to build a global ballistic missile defense shield, which

would render nuclear weapons increasingly obsolete.

NATO Looking to Closer Alliance

with Persian Gulf Countries

President Obama is in Riyad this week for meetings with Saudi

officials and with leaders of all six Gulf Cooperation Council

countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United

Arab Emirates). According to Middle East Briefing, a Dubaibased

intelligence publication, the number one agenda item of

the summit involves plans for a formal alliance between NATO

and the GCC.

Elements of such an arrangement would include a NATO forward-

based permanent presence in the Gulf countries and the

formation of the long-planned unified GCC armed force. Saudi

Arabia has recently formed a 34-nation Muslim military bloc,

which is already partially active in Yemen and in their surrogate

regime-change operations in Syria.

Such a NATO treaty arrangement would be clearly directed

against Saudi Arabia’s number one regional competitor, Iran,

and would be seen in Moscow as a Western military response

to Russia’s return to a leading role in Middle East peace and

stability efforts.

It is particularly ominous at a time when Washington is again

openly talking of a Plan B for Syria. A major aspect of it would

have the CIA provide MANPADS (Man Portable Air Defense

Systems) to the “moderate” Syrian forces, whose main intent

is to overthrow Bashar al-Assad. On the face of it, the plan

is absurd, since those forces are practically non existent, and

most of the weapons the Americans or their regional allies –

those same GCC countries -- have provided up until now have

ended up in the hands of ISIS and al-Nusra.

At the same time, Turkish President Erdogan is very upset

with the progress made by the Syrian National Army against

the jihadists. His main fear is that the Turkish-Syrian border

will be sealed off, stopping all kinds of lucrative smuggling to

and from ISIS.

Spotlight on Saudi Role in Sponsoring 9/11

Attacks, as Obama Headed to Riyadh

The pressure on the President Obama to lift the classification

of the famous “28 pages” covering the Saudi involvement

in the September 11, 2001 terrorist attacks in New York

and Washington has grown tremendously over the past two

weeks. With the U.S. President scheduled to arrive in Riyadh

on April 20, the urgency of challenging the tight geopolitical

alliance the United States maintains with the Saudis, who are

notorious funders of Islamic radicalism throughout the world,

has brought new voices to the fore.

Nonetheless, the White House has continued to indicate its

intention to stonewall the efforts to release the 28 pages of the

Joint Congressional Inquiry report. An administration spokesman

said a “review” will be conducted, confirming Obama’s intent

to keep stalling a decision, until he leaves office.

Renewed pressure began with a bombshell report on April

9 on CBS-tv’s 60 Minutes, which exposed the cover-up of the

Saudi role in the terrorist attacks since 2001, by both the Bush

and the Obama administrations. While the story was ready for

airing for months, its release was timed with Obama’s trip to

Riyadh.

In the last days, former Senator Bob Graham, who served as

the co-chair of the Congressional Committee, has been featured

in numerous interviews, restating the case for declassification.

He has been saying for years that the classification not only

makes no sense, but gives the Saudis a “green light” to continue

their support for global jihadists. For example, he joined with

LaRouchePAC and several Congressmen within hours after the

attack on Charlie Hebdo in Paris, to say that, had the Saudi role

in 9/11 been exposed, the murders carried out in Paris might

have been avoided (cf. SAS 3/15 and 48/15).

Among those who have spoken since the 60 Minutes proEIR

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gram is New York Sen. Kirsten Gillebrand, who said Obama

should declassify the 28 pages before he goes to Saudi Arabia.

She said her constituents, which include many family members

of victims of 9/11, have a right to know what role the Saudis

played. Importantly, the House Minority leader Nancy Pelosi

has also, finally, called for declassification.

Another bit of bad news for the Saudis is a bill co-sponsored

by Senators Chris Murphy (Democrat) and Rand Paul (Republican),

which calls for cutting off most military sales to Saudi

Arabia, because of the destruction of Yemen.

Murphy told Defense News he is “increasingly worried the

Saudi-led bombing campaign in Yemen is not supporting US national

security interests. I’ve been hearing regularly, in Yemen,

that this is being seen as a US campaign. It’s clearly creating

more, not less, space for extremist groups to operate, and I

think the bar should be higher for the US to send replacement

munitions.”

The Obama Administration, back in November, cleared a

$1.29 billion sale to the Saudis of more than 10,000 air-toground

munitions, but the issue Murphy is raising extends to

all US arms sales to the Persian Gulf countries.

Saudis Threaten Financial Warfare

against the United States

There is yet another aspect of the coverup of the Saudi role

in 9/11. The White House has continued to protect the Saudis

from civil law suits seeking payment of damages stemming

from the attacks. The Obama administration still argues that

the Saudi government is exempted by “sovereign immunity.”

A bill has been introduced in the Senate, cosponsored by New

York Democrat Charles Schumer and Texas Republican John

Cornyn, which would remove “sovereign immunity” for states

found complicit in supporting terrorist acts on U.S. soil.

The bill, Justice Against Sponsors of Terrorism Act (JASTA),

made headlines last week, when the New York Times revealed

that the Saudi Foreign Minister threatened that, if such a measure

were adopted, the Saudis would sell off their U.S. Treasury

notes, estimated by some to be around $750 billion. The

article began: “Saudi Arabia has told the Obama administration

and members of Congress that it will sell off hundreds of billions

of dollars worth of American assets held by the kingdom

if Congress passes a bill that would allow the Saudi government

to be held responsible in American courts for any role in the

Sept. 11, 2001 attacks.”l

The Obama Administration is already lobbying against JASTA,

on the pretext that it would jeopardize American troops

and officials abroad.

This has led many to ask just how many Treasury securities

Saudi Arabia actually holds. Well, that is unknown to all but

the Saudi monarchy, and, presumably, a few officials at the

U.S. Treasury. That is because the Saudi holdings have been

kept secret for 40 years, as a concession to the House of Saud.

While detailed statistics are provided for over 100 countries,

including China, the Saudis are exempt from the rule.

Former Sen. Bob Graham noted, in an April 17 New York

Daily News interview: “I think the action by Saudi Arabia is reprehensible

and also very revealing. They are so fearful of what

would emerge if there were to be a full trial [on the victims’

families’ lawsuit]. That says something about Saudi Arabia’s involvement

in 9/11.”

He went on to criticize Obama’s backing of the Saudis. “I

think it’s even more objectionable that the U.S. government

has been supporting Saudi Arabia and erecting roadblocks to

the passage of the legislation.”

Steel Crisis in Europe? Brussels Is to Blame!

On April 11, workers of the German steel sector, supported by

the companies, held a “day of action” to protest against imports

of Chinese steel at dumping prices. They charge that German

steel is “clean”, i.e. produced with reduced carbon emissions,

which is very costly, while the Chinese production is “dirty”,

and thus cheaper.

The German Metal workers union is demanding, reasonably

so, that the EU drop the plans to raise taxes on CO2 emissions,

which would burden the industry with an extra EU1 bn annually,

i.e., the equivalent of net annual new investments in the

sector, without any significant impact on the environment. But

they are also demanding that the EU impose punitive tariffs on

imports from China. To put that into perspective, Chinese steel

exports to the EU have doubled since 2013, reaching 7 million

tons in 2015, but that is equivalent to only 14 days of steel

production in the entire EU. In fact, long before the Chinese

started exporting, the steel sector in all European countries

was hard hit. The main problem is the same “globalization”

that the neo-liberals imposed on China.

But even since the 1970s and the infamous “Davignon Plan”,

the Eurocrats in Brussels have pursued the ideological policy of

scaling down steel production in Europe under the pretext of

alleged “over-capacity.” The monetarists have always argued

that Europe could not compete against the low costs of steel

production elsewhere in the world – the same argument that

had been used to phase out coal mining in Europe.

The EU Commission therefore never really attempted to protect

European steel producers from lower-priced imports, and

from 2002 until February of this year, it refused to impose

tariffs on imported steel, including from China.

But just imagine that European leaders were to decide to

begin building all the crucial infrastructure projects (rail, road,

waterways), which have been stashed away in drawers for decades.

At that point, Europe would be faced with a very real

under-capacity in steel production and would have to invest in

new production sites, specialized in the highest quality products.

At the same time, the banks operating under Glass-Steagall like

criteria could extend low-cost loans to the steel producers, and

the entire sham of selling emissions rights would be scrapped.

So, what is needed is a drastic change in EU policies, away

from globalization and radical free-market practices, toward

long-term cooperation agreements on a government-togovernment

level with predictable prices, along the mutually

recognized principle of “good product, fair price, low-interest

productive credit”. In other words, European countries should

take up the Chinese offer of joining the One Belt, One Road

project.

Jacques Cheminade Campaigns

for New Economic Paradigm

Following Jacques Cheminade’s official announcement that he

would run for the 2017 Presidential election in France, there

was a spate of media coverage, much of which highlighted the

major theme of his campaign, which is the fight against the

financial oligarchy.

Since then, Cheminade has continued his own tour de France,

meeting with supporters and a number of mayors of small rural

villages who have already supported his candidacy, or are

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open to doing so. Last week, Cheminade was in Normandy,

where the dire situation of farmers and of agriculture in general

in the EU was up front in his discussions. He also met with

the president of Normandy section of the Coordination Rurale,

the second largest farmers’ union in France.

On April 6, Cheminade was invited to the Debate Association

of the Lille School of Management, which is listed as one of

the top 25 business universities in the world by the Financial

Times. The theme of the dialogue was « What Solutions for the

Financial Crisis in Europe ».

During an unusually open discussion with the students,

Cheminade not only presented his presidential platform, but

was also able to explain in depth the axiomatic fallacies of the

financial economy as it is taught in most universities, where the

focus is much more on managing wealth, than on actually creating

it. Robotics, the digital economy, space exploration and

the future shape of agriculture were frankly discussed with the

candidate.

Although this is considered an « elite » school, there were

no major protests at Cheminade’s proposal to leave the euro

and the European Union. On the contrary, there was a serious

discussion on the need to forge a new economic paradigm,

based on the physical economy. Many students today, including

those seemingly headed for a bureaucratic career, sense that

« something is rotten in the state » of finance today. They are

searching for other answers, new horizons and a vision for the

future. Interestingly, the main foreign language studied there,

after English, of course, is Chinese !

After the debate, Jacques Cheminade was profusely thanked

for his « outspokenness, his sincerity and his humor ». Indeed,

those qualities are few and far between in the French ruling

class.

Impeachment Vote Throws Brazil

into New Phase of Ungovernability

In a congressional session that was more of a cross between

a Roman circus and a mob of soccer rowdies, Brazil’s lower

house voted to impeach President Dilma Rousseff late on April

17, by a majority of 367 in favor, 137 against, and nine abstentions

or absent. If a simple majority of the 81 Senators

now vote to hold an impeachment trial, Rousseff will have to

take leave of the office while the trial proceeds.

The accusation against Rousseff is flimsy, to say the least.

She is charged, as The Economist of London put it, with “using

accounting trickery to hide the true size of the budget deficit”.

Just how many world leaders could be cleared of similar

charges? If forced to step down, Rousseff would be replaced

by the current Vice President Michel Temer, but he is accused

of the same accounting maneuvers.

In fact, many of the leaders of the drive to impeach Rousseff

are themselves already under investigation for corruption,

and are next in line to be indicted. With the financial oligarchy

demanding that any new government must impose unending

austerity, political and social chaos is now on the agenda.

The return of former President Cristina Fernández de Kirchner

to the fight in Argentina this week, strengthens the hand

of President Rousseff, former President Lula da Silva and others

around South America, who have vowed to fight against

what they accurately call “a coup d’etat.” Indeed, it is broadly

recognized as a blatant attempt to overthrow a democratically

elected President. Beyond that, the intention is to pull Brazil

out of the BRICS group, which is pursuing economic development

independently of the Wall Street and City of London

dominated financial system.

Cristina Fernández Provides Leadership

to Argentines against Neoliberal Policy

Former President Cristina Fernández de Kirchner returned last

week to Buenos Aires after a four-month absence to testify

before Judge Claudio Bonadio, who has charged that, as President,

she headed up a criminal enterprise that cost the country

billions of dollars. Bonadio, a notoriously corrupt crony of

current Argentine President Mauricio Macri, has never made a

secret of his desire “to get” the former President.

Speaking for an hour before a huge, enthusiastic crowd after

her court appearance, Fernández urged her fellow citizens, who

are reeling from the brutal austerity policies imposed by her

successor, to leave behind their fear, anger and partisan bickering,

and take responsibility for changing the neoliberal policies

that are causing immense “pain, anguish and uncertainty”

among broad swaths of the population. The feisty leader told

her countrymen that now is the time to create a non-partisan

“great patriotic front” capable of “changing ideas and policies”

that are crushing them.

Lyndon LaRouche was delighted with Fernández’s message,

noting happily that she is leading “an insurrection against an

insurrection.” Aside from the significant domestic impact, her

speech will be felt in Brazil where her close personal friend

Dilma Rousseff is facing impeachment on trumped-up charges

(cf. above).

Just four months after Mauricio Macri won the Presidential

election against the candidate favored by Fernandez, the social

environment in Argentina is explosive, due to growing unrest

over the impact of the government’s policies -- devaluation,

huge increases in utility rates and food prices and mass firings

in both the public and private sector. Fernández now plans to

stay in Buenos Aires, to organize and lead the opposition to

these anti-human policies.

The response from the crowd, estimated to number in the

hundreds of thousands, was electric. Many had traveled to the

capital from interior provinces and stood for hours in the rain

in front of the city’s main court building. Before Judge Bonadio,

she had delivered a stinging denunciation of both the orchestrated

witch hunt against her by Macri’s allies and of Macri’s hypocrisy

in claiming to be the “anti-corruption” President, when

he, his immediate family and no less than seven of his cabinet

members have been named in the Panama Papers as officers in

Bahamas and Panama-based offshore companies set up by the

murky Mossack Fonseca law firm.

“I’m not afraid,” Cristina Fernández told the crowd. “They

can subpoena me 20 times; they won’t keep me from saying

what I think.”

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