WEDNESDAY, JULY 13, 2016

Volume 2, Number 231

EIR Daily Alert Service

P.O. Box 17390, Washington, DC 20041-0390

EDITORIAL

Deutsche Bank Must Be Rescued, for the Sake of World Peace!

July 12 (EIRNS)—The following statement was issued today by Helga Zepp-LaRouche, Chairwoman of the German Civil Rights Movement Solidarity party (Bürgerrechtsbewegung Solidarität, BüSo).

The imminent threat of the bankruptcy of Deutsche Bank is certainly not the only potential trigger for a new systemic crisis of the trans-Atlantic banking system, which would be orders of magnitude more deadly than the 2008 crisis, but it does offer a unique lever to prevent a collapse into chaos.

Behind the SOS launched by the chief economist of Deutsche Bank, David Folkerts-Landau, for an EU program of €150 billion to recapitalize the banks, lurks the danger openly discussed in international financial media, that the entire European banking system is de facto insolvent, and is sitting on a mountain of at least €2 trillion of non-performing loans. Deutsche Bank is the international bank which, with a total of €55 trillions of outstanding derivative contracts and a leverage factor of 40:1, even outdoes Lehman Brothers at the time of its collapse, and therefore represents the most dangerous Achilles’ heel of the system. Half of DB’s balance sheet, which has plummeted 48% in the past 12 months and is down to only 8% of its peak value, is made up of Level 3 derivatives, i.e., derivatives amounting to circa €800 billion without a market valuation.

It probably came as a surprise to many that Lyndon LaRouche called today for Deutsche Bank to be saved through a one-time increase in its capital base, because of the systemic implications of its threatened bankruptcy. Neither the German government with its GDP of €4 trillion, nor the EU with a GDP of €18 trillion, would be able to control the domino effect of a disorderly bankruptcy.

The one-time capital injection, LaRouche explained, is only an emergency measure which needs to be followed by an immediate reorientation of the bank, back to its tradition which prevailed until 1989 under the leadership of Alfred Herrhausen. To actually oversee such an operation, a management committee must be set up to verify the legitimacy and the implications of the obligations, and finalize its work within a given timeframe. That committee should also draw up a new business plan, based on Herrhausen’s banking philosophy and exclusively oriented to the interests of the real economy of Germany.

Alfred Herrhausen was the last actually creative, moral industrial banker of Germany. He defended, among other things, the cancellation of the unpayable debt of developing countries, as well as the long-term credit financing of well-defined development projects. In December 1989, he planned to present in New York a plan for the industrialization of Poland, which was consistent with the criteria used by the Kreditanstalt für Wiederaufbau (KfW) for the post-1945 reconstruction of Germany, and would have offered a completely different perspective than the so-called “reform policy,” or shock therapy, of Jeffrey Sachs.

Herrhausen was assassinated on November 30, 1989, by the “Third Generation of the Red Army Fraction,” whose existence has yet to be proven to this day. It happened only two days after Chancellor Helmut Kohl, who counted Herrhausen among his closest advisors, had presented his ten-point program for gradually overcoming the division of Germany [between East and West]. The cui bono of the terrorist attack remains one of the most fateful issues in the modern history of Germany, and one which urgently needs to be clarified.

The fact is that Herrhausen’s successors introduced a fundamental paradigm change in the bank’s philosophy, which brought Deutsche Bank into the wild world of profit maximization at all costs, and also into countless unpunishable and punishable legal entanglements, which those responsible have avoided until now, mainly because of the “too big to fail” premises.

The transformation of Deutsche Bank into a global investment bank with the highest derivatives exposure, combined with the simultaneous credit crunch for German small and medium-sized enterprises, is symptomatic of the folly which has led to the current catastrophe.

We must now act with resolution, but not in the way Folkerts-Landau proposes, that is, not with more of the same medicine, which would certainly kill the patient. Although it has mainly operated over the past years out of London and New York, Deutsche Bank is too important for the German economy, and therefore for Germany, and ultimately for the fate of all of Europe. Its reorganization in the spirit of Alfred Herrhausen is not only the key to overcoming the banking crisis, but also for averting the acute danger of war.

Herrhausen’s assassination has gone unpunished. However, there exists “the dreaded might, that judges what is hid from sight,” which is the subject of Friedrich Schiller’s poem Die Kraniche des Ibykus. The Erinyes have begun their dreadful dance.

It is now incumbent upon all those who, in addition to the family, have suffered from the assassination of Herrhausen, upon the representatives of the Mittelstand, of the German economy and the institutional representatives of the German population, to honor his legacy and to seize the tremendous opportunity which is now offered to save Germany.

(See Friedrich Schiller, Die Kraniche des Ibykus; or in English The Cranes of Ibykus

COLLAPSING WESTERN FINANCIAL SYSTEM

British Empire in Mad Scramble, as Their System Disintegrates

July 12 (EIRNS)—“Britain Is Open for Business” is the telling headline that U.K. Chancellor of the Exchequer George Osborne put on his commentary published in yesterday’s Wall Street Journal, as he flew to the U.S. to huddle with Wall Street bankers, including JPMorgan Chase’s Jamie Dimon, as to what to do about the global financial meltdown underway. It is telling, because the British Empire is rapidly going out of business, as their financial system crumbles and they scramble to stay afloat.

Osborne told Wall Street that the U.K., after the Brexit vote, will now pivot to build an even stronger special relationship with the U.S. “As I will tell Wall Street, we want more finance in London, not less,” he wrote in his op-ed. “My message is simple: Britain may be leaving the EU, but we are not withdrawing from the world.” He added that U.S. Treasury Secretary Jack Lew would be visiting London later this week.

Ironically, Osborne’s visit came the same day as the U.S. House Financial Services Committee issued a report documenting that it was the British directly—specifically letters written in September 2012 by Osborne to Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner—who insisted that the Obama administration not prosecute HSBC bank for drug money laundering and other crimes, arguing that prosecution would be a “financial calamity” that could bring down the financial system.

Other desperate global actions by the City of London and Wall Street over the last 24 hours include:

Former Fed Chairman Bernanke is in Japan, where he met with Bank of Japan Governor Haruhiko Kuroda on Monday, and Prime Minister Shinzo Abe today. Reuters and Zero Hedge report that his mission is to push helicopter money for Japan, “and if successful, bring it across the Pacific to the U.S.,” as Zero Hedge put it. “Japan will now be a trial balloon for the rest of the world…. Things are about to get very volatile, very fast.”

The Bank of England Monetary Policy Committee will meet on July 14, and it is widely expected that Governor Mark Carney will lower interest rates further from their record low 0.5%.

The Eurogroup of euro area finance ministers met on Monday, and President Jeroen Dijsselbloem emerged to deny that there is any “acute crisis” with the Italian banks, and people should calm down. Germany’s Finance Minister Wolfgang Schäuble argued the same thing, saying stress tests were coming and that “we should not speculate before we have the results.”

The Economist cover story for July 9-15, urges that the hardline EU insistence that a bail-in of Italy’s banks occur first, before permitting a government bail-out, will simply not work, and that the Italian government has to be allowed to go with a bail out immediately before the crisis brings all of Europe down. “Handled badly, the Italian job could be the euro zone’s undoing,” they fret. “If Italians were ever to lose faith in the euro, the single currency would not survive. There is no point in following rules to the letter, if doing so leads to the demise of the single currency…. To give the European bail-in directive a greater chance of being implemented in future, it should be changed.”

HSBC’s quarterly report on the European economy is also panicked about where things are headed. If the EU continues to “muddle through on the back of more QE and bigger deficits,” then “the populist alternative—bigger hand-outs, protectionism, nationalism—is more enticing” and will sweep all of Europe, reported the Business Insider. “And so the EU now appears at a fork in the road, and has to consider changes (they don’t say what they have in mind). The EU might be wise to do this for its own sake. Resisting it may mean the U.K. is not the only domino to fall in the years ahead,” the HSBC report comments nervously.

HSBC Escaped U.S. Money-Laundering Charges after U.K. Warned of ‘Global Financial Disaster’

July 12 (EIRNS)—Today, the Guardian reported that the report issued by the U.S. House Financial Services Committee on July 11 said that direct British government interventions prevented HSBC from being charged with money-laundering by the Obama administration in 2012. The report said the British government “played a significant role in ultimately persuading the DOJ [Department of Justice] not to prosecute HSBC.” Instead of being prosecuted for crimes including terrorist and drug money laundering, the bank agreed to pay a record $1.92 billion fine in a “deferred prosecution.”

The House committee report charges that British Chancellor of the Exchequer George Osborne (who holds the same post to this day) and a British banking regulator warned of “global financial disaster” if HSBC were prosecuted.

The report published letters and emails from Osborne and Financial Services Authority (FSA) officials to their U.S. counterparts warning that launching criminal action against HSBC in 2012 could have sparked a “financial calamity.” Osborne wrote to Ben Bernanke, who was then the Federal Reserve Chairman, and Timothy Geithner, then Treasury Secretary, to warn that prosecuting a “systemically important financial institution” like HSBC “could lead to [financial] contagion” and pose “very serious implications for financial and economic stability, particularly in Europe and Asia.”

The report charged that the FSA was “problematic,” “weighed in very strongly” and caused a “firestorm,” which led then U.S. Attorney General Eric Holder to overrule the advice of his own prosecutors and not pursue criminal action.

“FSA has been on the phone for the criminal discussions,” officials wrote in emails released in the House report. “That’s what has caused the latest firestorm. The contents of that discussion are included in the Chancellor’s letter.”

The FSA was so freaked out by the possibility of HSBC losing its charter to operate in the United States, that the FSA repeatedly warned that even the threat of possible charter withdrawal could have caused a fresh global financial crisis. Furthermore the report said then-Attorney General Holder “misled” Congress about the Justice Department’s reasoning for declining to prosecute. It said the department did have enough evidence to pursue criminal charges against HSBC, despite Holder’s claim to the contrary, and pointed out that the bank had already admitted to the U.S. government that it broke money-laundering rules.

The report said: “Rather than lacking adequate evidence to prove HSBC’s criminal conduct, internal Treasury documents show that DOJ leadership declined to pursue [its legal team’s] recommendation to prosecute HSBC because senior DOJ leaders were concerned that prosecuting the bank ‘could result in a global financial disaster’— as the FSA repeatedly warned.”

This is a dramatic, “smoking gun” confirmation of Lyndon LaRouche’s repeated insistence that the Obama administration’s policies, including salvaging the criminal banking system, are issued by the British Empire.

Someone Calls the Shots on Deutsche Bank’s Toxic Assets

July 12 (EIRNS)—Two analysts of Il Sole 24 Ore draw from a 2015 Mediobanca report mapping toxic assets (so-called Level 3 assets) in German banks. This issue of Level 3 assets being ignored by the European Central Bank stress tests was addressed by European Parliament Member Marco Zanni at the June 25-26 Schiller Institute Berlin conference.

“Deutsche Bank and Commerzbank, according to data by R&S Mediobanca from June 2015, have ‘toxic’ assets (that cannot be valued, and are illiquid) respectively for 51.3% and 23.4% of their net tangible assets. The value of such securities cannot be estimated because they don’t have a market and nobody would buy them: banks therefore assign them a theoretical value, as a result of a simulation.”

Such Level 3 assets are worth less than non-performing loans (NPLs), which can always be sold at a discount because they are attached to collateral (a house for a mortgage, plants for corporate loans, etc.). In the case of Deutsche Bank, if the Mediobanca figures are true, over €800 billion of Deutsche Bank’s €1.6 trillion balance sheet is Level 3.

“If these assets were worth half in the simulation, banks would see their net assets eroded, and would need a capital increase, as in the case of Monte dei Paschi di Siena. The same would happen to the main Swiss banks (Credit Suisse has toxic assets of 72.6% of its tangible net assets), or French lenders. On the other end, Italian banks almost don’t know what these are,” Il Sole writes.

STRATEGIC WAR DANGER

Hague Decision on Philippines South China Sea Case Feeds Obama’s War Drive against China

July 12 (EIRNS)—The Permanent Court of Arbitration at The Hague today issued a unanimous, provocative, and over-reaching decision in the South China Sea arbitration case filed by the previous government of the Philippines; it ruled against China on all major points. This is the ruling which Obama and crew have claimed for months that China must obey, or the U.S. will “enforce” it by military means, whether any of the South China Sea nations wish it or not.

The court acknowledged that it has no mandate to rule on sovereignty over land territory and does not delimit any boundary between the parties, but then proceeded to de facto rule on sovereignty. The tribunal “concluded that there was no legal basis for China to claim historic rights within the sea areas falling within the ‘nine-dash line,’ ” which China has historically considered its sovereign territory. The tribunal also ruled that “it could—without delimiting a boundary—declare that certain sea areas are within the exclusive economic zone of the Philippines, because those areas are not overlapped by any possible entitlement of China.” This ruling rested on the incredible finding that the 110 acre Taiping Island, occupied by Taiwan and housing a military garrison, a hospital, and a farm, is not an island at all, but just a rock, and therefore is not granted the 200-mile Exclusive Economic Zone due any island. That 200-mile zone overlaps the other Spratly islands and reefs.

China never recognized the Arbitration Court’s right to even take up the case, and today the Chinese Foreign Ministry reiterated what the government has been stating for months: China “solemnly declares that the award is null and void and has no binding force. China neither accepts nor recognizes it.”

President Rodrigo Duterte’s government in the Philippines, which has put forward, since it was sworn in at the end of June, a policy of resolving disputes with China on the basis of dialogue, responded to the ruling with caution. Presidential Communications Secretary Martin Andanar stated that the Solicitor General would study the decision and provide the President with “a complete and thorough interpretation in five days,” and the Presidential spokesman Ernesto Abella said that no statements would be issued until the matter had been thoroughly discussed.

The Wall Street Journal quickly published a perspective for how the ruling can be used to overturn Duterte’s policy of working with China, and line up all of Southeast Asia against China. Citing “experts,” Wall Street’s rag asserted that Duterte can’t appear weak in defending Philippine sovereignty now that the court has ruled, so he will have to bow to the alleged “overwhelming public opinion” against China in the country.

The U.S. lawyer who represented the previous Philippine government’s filing at The Hague, Paul Reichler, of the U.S. law firm Foley Hoag LLP, told journalists afterward that the ruling would encourage other countries in the region to stand up to China. As reported in the Journal, Reichler insists “the tribunal’s ruling not only benefits the Philippines, it also benefits other states bordering the South China Sea, like Indonesia, Malaysia and Vietnam. If China’s nine-dash line is invalid as to the Philippines, it is equally invalid to those states and, indeed, the rest of the international community.”

EIR Nails U.S. War Hawks as the Continuing British Empire

July 12 (EIRNS)—On the very day of the imperial ruling by The Hague Court of Arbitration against China on the Philippines’ claim over the South China Sea, CSIS, the neocon center in Washington, D.C., held a full-day forum on the South China Sea, beginning with a keynote by Sen. Dan Sullivan (R-AK). Sullivan, Sen. John McCain’s cohort on the Senate Armed Services Committee, gave a speech which would have fit well at a Nazi Nuremberg rally, only to then be exposed by EIR’s Bill Jones as a spokesman and hitman for the British Empire in its modern guise of the bipartisan war hawks backing Obama’s war mobilization against Russia and China.

Sullivan, like others at the CSIS conclave, repeated Defense Secretary Ash Carter’s line that the U.S. military can and will “fly, sail and operate wherever international law allows.” He had the gall to say that the U.S. wants to use its military power so that “wars of aggression will be relegated to the past.” He continued that the founding fathers wrote “freedom of navigation” into the Declaration of Independence against a tyrant that restrained that freedom, and that the U.S. is continuing that defense of freedom of navigation today with our military in the South China Sea.

EIR Washington Bureau Chief Bill Jones countered that for him history was important, as one of his forefathers had been killed in the American Revolution, and that he had a correction to Sullivan’s history lesson: “Our founding fathers had revolted against a British Empire,” Jones said, “the Lord of the Seas at the time, which also claimed that they represented the ‘rule of law’, their law, and we had insisted that we had the right to determine our own destiny.

“Now we seem to have adopted the roll of the British Empire and are insisting China do the same thing. Think of how China is viewing this from the standpoint of their own history. If we follow up on your proposal to build up our military forces in the region on behalf of ‘freedom of navigation,’ or any other pretext, this will lead to war.”

Sullivan was thoroughly destabilized, as the audience was silent and clearly nervous.

“We don’t set the rules,” he finally managed. “We may be the leaders, but this is the rules-based order. To say we are some sort of dictator is wrong. We disagree on that. We want freedom of navigation and commerce. More and more countries are calling on us to help because we are trusted. Look at the NATO meeting last week. They trust us, that we have no territorial demands, they need our help to fight back against nations that use coercion, like Russia and now China.”

In the very next question, a Defense News reporter asked: “In following up that last question, you said that now we should send two aircraft carrier groups to be permanently deployed in the region. Isn’t that going to be an escalation which leads to further tension?” With Sullivan again exposed, he could only respond defensively, “I don’t view our country standing with our allies militarily, for trade and commerce, as some kind of a threat.”

The Nuremberg rally proceeded, nonetheless, in lock-step.

Perry: Risk of Nuclear Catastrophe Higher than Ever

July 12 (EIRNS)—Former U.S. Secretary of Defense William Perry told the Russian daily newspaper of record Rossiyskaya Gazeta, in an interview published today its English-language Russia Beyond The Headlines, that the danger of a nuclear catastrophe is higher than it has ever been. He criticized NATO expansion, not because he was opposed to having Eastern European be members per se, but because he thought the expansion shouldn’t have taken place until Russian membership was ready to be considered. He called the George W. Bush administration offer to extend NATO membership to Georgia and Ukraine “a significant mistake” on the part of the U.S. “We do not have the logistical ability to defend Georgia, for example. NATO is not a social club, nor a fraternity. It should not offer membership to any nation where you can’t carry out the charter.”

Perry called NATO’s ballistic missile defense system “a needless expense” that doesn’t actually threaten Russia’s nuclear deterrent, but warned that “there is a danger that each side is taking actions that move us closer to a situation where we could blunder into some kind of military conflict.” When asked about the Bulletin of the Atomic Scientists’ Doomsday Clock, Perry said: “I believe that the danger today of a nuclear catastrophe is greater than it was during the Cold War. Today we have the danger of nuclear terrorism that didn’t exist at that time. Another new danger is a nuclear regional war. Add the two possibilities that did exist in the Cold War: accidental nuclear war due to a false alarm for example, or nuclear war due to miscalculation.”

Russia Responds to NATO Summit: ‘The Confrontational Course towards Russia Is Futile and Even Dangerous’

July 12 (EIRNS)—In the first official Russian response to the July 8-9 NATO summit in Warsaw, the Russian Foreign Ministry issued a very stark statement on July 10 which noted that Russia-U.S. ties “have been seriously damaged by unfriendly steps Washington has been taking since early 2014…. Moscow is taking reciprocal steps in response to the U.S. attempt to inflict damage to us, including to dangerous actions in the military sphere.” The statement further warned that the “confrontational course towards Russia is futile and even dangerous.” The Foreign Ministry added, however, that U.S. Secretary of State John Kerry would be going to Moscow for talks on July 14-15, and expressed the hope that these talks would “facilitate the improvement” of the atmosphere between the two countries.

In addition, Russia’s Ambassador to NATO Alexander Grushko stated to the press yesterday, “Now, there is no balance of forces as it used to be before the beginning of all these NATO preparations. NATO is to be counterbalanced, certain counterbalancing steps are needed [which] will require steps to create the balance we used to have before NATO’s attempt to create a counter-potential at the borders that are now already NATO’s borders…. We are dealing with a significant change in the military-political situation. There is no parity of forces which used to exist before all the latest NATO preparations.” Grushko reminded the media that “We have an integrated rather than an isolated approach to this activity. Eventually, Europeans should realize that to have Russia as a potential enemy in the context of maintaining military potentials is a dead end.”

NEW STRATEGIC PARADIGM

The BRICS Bank Is Ready To Issue Its First Five-Year Bonds in Yuan

July 12 (EIRNS)—According to a news release from the New Development Bank (NDB), established by the BRICS at its 2014 summit, it will issue 3 billion yuan (about $450 million) in five-year “green bonds” on July 18 in China’s interbank market. This will be the first issuance of bonds by the NDB, and “first such issuance by a Multilateral Development Bank in China under the guidelines issued by PBOC [the People’s Bank of China] in December 2015.” Underwriters include the Industrial and Commercial Bank of China Ltd, China Construction Bank Ltd, HSBC Bank (China) Company Ltd, and Standard Chartered Bank (China) Ltd. Bond proceeds will be used to finance “green” projects in BRICS countries, the bank’s statement said.

“This is a significant milestone for the Bank and the Green Bond would help fulfill the sustainable development mission of the Bank. Furthermore, the NDB funding strategy will aim to ensure that the Bank contributes to the development of local capital markets in our member countries,” NDB President K.V. Kamath was quoted as saying in the statement.

India is the chairman of BRICS this year, and it will be hosting the eighth BRICS Summit in mid-October in the western coastal state of Goa. India has reportedly lined up 95 events leading up to the summit. These events will be held mostly in the Tier-II cities with the intent to “take BRICS to the people,” the Indian daily Economic Times reported today.

U.S. POLITICAL AND ECONOMIC

Congressional Action To Release Classified 28 Pages Featured

July 12 (EIRNS)—Investigative journalist Russ Baker’s “Who.What.Why” website yesterday reported on the July 6 press conference by Representatives Walter Jones, Stephen Lynch, and Thomas Massie, in a spirited entry published on the site’s blog, which embeds the LaRouchePAC video of the full conference in its story so that its readers can view it for themselves

Headlined “28 Pages Deadline Passes,” with the kicker, “But congressional lawmakers have new ideas,” Who.What.Why features Jones/Lynch/Massie’s H.Res.779 and discussion that Congress must act to end the stalling on the declassification of the 28 pages of the Joint Congressional Inquiry into 9/11, on the Saudi role in the 9/11 attack on the U.S.

“The language in the [H.Res.779] resolution is noticeably strong and demonstrates the unwavering determination of lawmakers hot on the trail of 9/11 transparency despite obvious roadblocks,” author Jeff Clyburn wrote. “Lynch, in the video above, makes clear that the Joint Inquiry report was a congressional document. That’s an extremely important distinction, considering the resolution reminds us all that the Constitution’s separation of powers doctrine prohibits the President from classifying congressional documents.”

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