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By F. William Engdahl~Global Research
The unexpected rejection by the US Congress of the Bush Administration financial rescue plan, TARP on September 29 has opened up the spectre for the first time of a 1931-style domino wave of worldwide bank failures. That is already underway across the US banking spectrum with the failure, nationalization or forced liquidation in the past two weeks of Fannie Mae and Freddie Mac, of the giant Washington Mutual mortgage lender, of the nation’s fourth largest deposit bank, Wachovia. That was on top of a wave of smaller bank failures that began with IndyMac in the spring. For some it is appealing and more simple to grasp the magnitude of these titanic events in the US-centered financial world by assuming it is all part of a pre-planned grand conspiracy by the Money Masters, what in the 1920s in the USA was termed the Money Trust, to control the entire financial world.
As the details of the present crisis reveal, there are huge ideological fault lines making for chaos and a potential meltdown of the Laissez Faire financial system. That present system, which was built on the back of Wall Street financial and banking deregulation since 1987 when Alan Greenspan, a devout follower and close friend of radical individualist Ayn Rand, became Wall Street’s man at the Federal Reserve for almost 19 years, is over now with the failure of the Henry Paulson $700 billion bailout scheme. Governments worldwide now face no alternative but to begin the painful process of putting the financial genie back in the bottle and re-regulating an out-of-control financial system. The failure of the UK Government and the US Government to address that fundamental issue is behind the present crisis of confidence.
A brief look at history
The Great Depression in Germany in 1931 began with a seemingly minor event—the collapse of a bank in Vienna, Creditanstalt, that May. For readers interested in more on the remarkable parallels between that crisis and that of today, I recommend the treatment in my earlier volume, A Century of War: Anglo-American Oil Politics and the New World Order.
That Vienna bank collapse in turn was triggered by a political decision in Paris to sabotage an emerging German-Austrian economic cooperation agreement by pulling down the weakest link of the post-Versailles system, the Vienna Creditanstalt. In the process, Paris triggered a series of tragic events that led to the failure of the German banking system over a period of several weeks. The post-1919 Versailles System, much like the post-1999 US Securitization System, was built on a house of cards with no foundation. When one card was removed, the entire international financial edifice crumbled.
Then, in 1931, there was an inept Brüning government in Germany, which believed severe austerity was the only solution, merely feeding unemployment lines to pay the Young Plan German reparations to the new Bank for International Settlements in Basle.
Then, in 1931 George Harrison, a Germano-phobe, was the inexperienced Governor of the powerful New York Federal Reserve. Harrison was a member of the anglophile Skull & Bones, the elite Yale University secret society which also included George H.W. Bush and George W. Bush as initiates. Harrison, who went on to coordinate the secret Manhattan Project on the development of the Atomic bomb under fellow Skull & Bones member, War Secretary Henry Stimson, believed the crisis had started not from abroad but with German bankers trying to make a profit at the expense of others.
Within weeks of rumor and jitters, the New York Bankers Trust, ironically today a part of Deutsche Bank, announced it would be forced to cut the credit line to Deutsche Bank and by July 1931 began to pull its deposits from all big Berlin banks. Harrison insisted the Reichsbank dramatically raise interest rates to stabilize things, only turning bad into worse as a credit crisis across the German economy ensued.
The Bank of England Governor, Montagu Norman, while somewhat more supportive of Luther argued that his friend Hjalmar Schacht was better suited to manage the crisis. On July 13, 1931, a major German bank, Darmstädter-und Nationalbank (Danat) failed. That triggered a general a depositors’ run on all German banks. The Brüning government merged the Danat with a weakly capitalized Dresdner Bank, and made large state guarantees in an effort to calm matters. It didn’t.
New York Fed governor, Harrison, who was personally convinced it was a ‘German’ problem, barked orders to Reichsbank chief Hans Luther on how to manage the crisis according to archival accounts. A foreign drain on Reichsbank gold reserves ensued.
The rest is history, the tragic history of the greatest most destructive war of the 20th Century, with all the suffering that ensued. At that time in history, the American banking elite saw itself, despite a stock market crash and Great Depression in America, as standing at the dawn of a new American Century.
The decline of the American Century
Today, in 2008, some 77 years later, a German Finance Minister stands before the Bundestag announcing the end of that American Century. Today the German government encourages a fusion of Dresdner with Commerzbank. Today Deutsche Bank, which some years ago acquired Bankers Trust in New York in a merger wave, appears to be in a stronger position than its American counterparts as Wall Street investment banks, some more than 150 years old as the venerable Lehman Bros., simply vanish in a matter of days. The American financial Superpower crumbles before our eyes.
In March 2008 there were five giant Wall Street investment banks, banks which underwrote Mortgage-Backed Securities (MBS), corporate bonds, corporate stock issues. They were not deposit banks like Citibank or Bank of America; they were known as investment banks—Morgan Stanley, Merrill Lynch, Goldman Sachs, Lehman Brothers, Bear Stearns.
The business of taking deposits and lending by banks had been split during the Great Depression from the business of underwriting and selling stocks and bonds—investment banking—by an act of Congress, the Glass-Steagall Act of 1933. The law was passed amid the collapse of the banking system in the United States following the bursting of the Wall Street stock market bubble in October 1929.
Related posts:
- Colossal Financial Collapse: The Truth behind the Citigroup Bank “Nationalization”
- Financial crisis has moved from Wall Street to all streets
- Geithner’s ‘Dirty Little Secret’: The Entire Global Financial System is at Risk
- Bankers Want World Economic Government To Solve Financial Crisis They Created
- Misdirected “Bailout Rage†Sets Pretext For New Financial World Order
- World Financial System In A State Of Insolvency
- Anatomy of the American Financial Crisis: How It is Turning into a Worldwide Crisis
