larouchepac.com

Jan. 6, 2016 (EIRNS) -- Stock markets fell heavily again Jan. 6 across Europe and the United States, while restoring the Glass-Steagall Act -- the one action which can shut down the Wall Street casino before it destroys the economy again -- was the subject of widespread debate.

The drops in commodity prices and stock markets were led by the oil price dropping below $34/barrel, an incredible development with extreme religious-war tensions spiking among the major oil producing nations in the Mideast. One major criminal bank, UBS, called for the U.S. Federal Reserve to reverse itself in 2016, return to zero interest rates, and start QE4.

The extraordinary danger of a financial crash is the condition of precisely such megabanks, loaded with bad and delinquent debt. The first impositions of the "bank bail-in"
policy, since last month, have led to bailed-in banks immediately having their credit ratings downgraded and bank stocks falling across the board.

A {Financial Times} piece of Jan. 4, based on an interview with the new European Commission bank bail-in czar, Elke Koenig, made clear that her office has become an arbitrary tyranny over Europe's banks and savers, but one which is out to protect the giant London-centered banks from the bail-in regime. A former UniCredit chief tells the {FT}, "For the big banks this change should be like the atomic bomb; they know it's there, but it will never be used." The paper reports finding widespread skepticism that "bail-in" will be used against megabanks even if they face insolvency; rather, the EU "resolution fund" will be used to bail them out.

But the small and medium-sized banks loaded down with delinquent real estate debt are Ms. Koenig's targets. The suicide of at least one among many thousands of expropriated bank bondholders in Italy does not move her; it "should not be seen as undermining the case for creditor bail-ins," she said, even though she acknowledges that those savers were "mis-sold" bank bonds (i.e., by fraud and deception). "We all know that especially in Italy, but also in some other countries, you have a lot of retail investors [in bank bonds]," Ms. Koenig allows. "I feel sorry for each and every one who loses money. But at the same time an investor also has his own responsibility, and we should have learned to make sure that mis-selling ...
is addressed."

Ms. Koenig is in the inner circle of fascist German Finance Minister Wolfgang Schaeuble. Her Single Bank Resolution Authority now has just what it sounds like: sole authority, free of any set rules, to order bail-in -- or no bail-in -- for each bank in all of Europe. And power that will be thrown against any national effort in Europe to legislate Glass-Steagall bank reorganization.

Moody's Downgrades Portuguese Bank Novo Banco

Jan. 6, 2016 (EIRNS)--The Portuguese bank, Novo Banco, the ``good bank'' created after Banco Espirito Santo (BES) went bankrupt last year, has been downgraded by Moody's to ``poor quality and very high credit risk.'' Furthermore, Moody's believes that the solvency situation at Novo Banco ``can further worsen.'' This follows the move by the Bank of Portugal in the last hours of 2015 to transfer 1.985 billion euros in bonds from Novo Banco back to the bad bank of BES. This was seen as a thoroughly arbitrary move, and set off alarm bells for bondholders and holders of Credit Default Swaps.

Carlos Costa, head of the Bank of Portugal, hopes to sell Novo Banco for 4.9 billion euros, but Moody's believes it is not worth anywhere near that amount, says a report in the Algarve Daily News.

Moody's also refers to ``the uncertainty surrounding the very weak credit profile of the bank and the impact of the restructuring plan recently submitted to the European Commission.'' Moody's further warned that the relaunch of the sales process of Novo Banco scheduled for January 2016, coupled with its fragile solvency position, ``together can affect the final evaluation by Moody's of the senior debt and deposits'' at Novo Banco.

The Left Bloc is rightfully making a big deal over the salary of Sergio Monteiro, a man appointed by Central Bank chief Costa in October to coordinate the sale of institutions (privatization), a salary of no less than 25,000 euros a month. The bloc is also raising the way the appointment was made. Furthermore, the Left Bloc pointed to the fact that Monteiro worked at Caixa General de Depositos, which is a creditor of the resolution fund, the fund created by Portugal's banks which was used by the Bank of Portugal in the BES bailout and in the establishment of Novo Banco.

Puerto Rico's Default: It's Every Vulture for Himself

Jan. 6, 2016 (EIRNS)--On Jan. 4, Puerto Rico defaulted on a $37 million payment owed to bondholders by the Puerto Rico Infrastructure Financing Authority (PRIFA), and another $1.4 million owed by the Public Finance Corporation. It did manage to meet a $330 million obligation due that day on its general debt payments--but only by "clawing back" some $164 million previously allocated to PRIFA, among others, arguing that the Puerto Rican Constitution requires that the general debt obligations be given priority treatment. In other words, the government momentarily closed one gaping hole by ripping open another one--all the time destroying the population's living standard to satisfy the vultures.

Now lawyers for the insurers on the defaulted debt, Ambac Financial, which got stuck with a $10.3 million payment, have written to Governor Garcia Padilla demanding that he return the clawbacks!

This is utterly insane--and reminiscent of the recent Portuguese bail-in, in which bonds issued by the Novo Bank "good bank" were unilaterally transferred (on EU orders) to the Banco Espirito Santo "bad bank," where they were promptly expropriated (bailed-in). In other words, when the whole shebang starts to crumble--i.e., now--there are no rules that can possibly hold, and it's every vulture for himself.

AEI economist Desmond Lachman caught a whiff of the matter:
"This raises the very real prospect that we could be at the start of a legal free-for-all where different classes of bondholders press their claims in a legal environment where there is no bankruptcy court to adjudicate those claims and work out an orderly debt restructuring for the island." Lachman, of course, fails to note that the only "orderly debt restructuring" possible is called Glass-Steagall, and that it will have to involve $2 quadrillion in global financial assets, not just Puerto Rico's
$72 billion in debt.

As for that debt, Bloomberg reports that Puerto Rico owes $331 million in interest payments in February, and then another $432 million in May. "The payments swell to almost $2 billion in July, when some general obligations mature." Puerto Rico has no prospect of making these payments.

Wide Glass-Steagall Debate Set Off Again by Sanders Speech

Jan. 6, 2016 (EIRNS) -- It was easy, today, to find 30 major media articles debating restoring the Glass-Steagall Act, from {The Atlantic} to the {Salt Lake Tribune}, after Bernie Sanders's New York City challenge to Hillary Clinton on Glass-Steagall Jan. 5.

Sanders, at Manhattan's Town Hall, directly attacked Clinton's lying about Glass-Steagall, claiming that it would not have affected the 2007-08 crash.

"Secretary Clinton says that Glass-Steagall would not have prevented the financial crisis because shadow banks like AIG and Lehman Brothers, not big commercial banks, were the real culprits. On this issue, Secretary Clinton is wrong. Shadow banks did gamble recklessly, but where did that money come from? From the federally insured bank deposits of big commercial banks -- something that would have been banned under Glass-Steagall."

Sanders was correct regarding every single instance of the non-banks which blew out in 2007-08; Clinton is just mouthing the eight-year old lies of Obama, Geithner, Bernanke, Summers, Barney Frank, etc.

National Public Radio's "Marketplace" program made this their lead story Jan. 5, and quoted Sanders that FDR signed the Glass-Steagall Act "to prevent Wall Street from causing another Great Depression" -- as Wall Street is now about to do if Glass-Steagall is not restored immediately.

Almost all articles on the attack -- and there are probably hundreds
-- covered Sanders's stress that he supports legislating a "21st Century Glass-Steagall Act"; many followed the Jan. 5 {The Hill} article by Robert Hockett, in pronouncing that Sanders was right and Clinton wrong. {The Atlantic} tried to prove that her foreign policy "superiority" over the other candidates would protect her margin, but "Hillary should be looking over her shoulder on this," wrote {Salon}.

Sanders actually simultaneously promotes the Warren-McCain 21st Century Glass-Steagall Act, and opaque legislation of his own which allows the Treasury Secretary to break up too-big-to-fail banks within one year. His fellow Democratic candidate Martin O'Malley has been much more single-mindedly committed to Glass-Steagall since launching his campaign last May.

-###-

larouchepac.com