- (LPAC) -- Over the past two days, European and U.S. central
bankers have opened the floodgates of cheap credit for imperilled banks,
contradicting their own "do-nothing" policies announced as recently
as this past Tuesday, August 7. In doing so, they have shown that they
consider a systemic crisis of the banking system to be an imminent threat.
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- Lyndon LaRouche said this morning, "This is the
crisis I was speaking of in my /news/2007/07/31/larouche-financial-system-has-already-collapsed.html
- statement of last week. That has not changed. What has
happened is that this crisis has become so much worse in just a few days,
that the central bankers have had to reverse their stand. The crisis is
overwhelming them."
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- On the U.S. side, Bloomberg reports that the Federal
Reserve injected $24 billion in temporary reserves into the U.S. banking
system today.
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- Earlier this morning in Europe, as all interbank transactions
were suspended for two to three hours, the European Central Bank convened
an emergency meeting on the acute crisis in the credit markets, and decided
to provide an extra overnight facility for the 49 banks which had asked
for it, totalling just under 95 billion euros ($130 billion). A senior
French banking source said the ECB's hand was forced by "intense demand
[for money to cover losses] from the U.S." As in the case of the U.S.
Federal Reserve, this was a spectacular reversal of their previous policy
that nothing should be done against the worsening liquidity "crunch"
worldwide.
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- The Swiss National Bank had already reversed policy last
night, in providing Swiss banks with extra money, according to financial
news wires.
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- Increasingly widespread reports, though denied by Goldman
Sachs, said that that bank's $9 billion Global Alpha fund was being liquidated.
Other sell-off rumors pointed to the huge D.E. Shaw hedge fund, "worth"
$19 billion in assets.
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- Already on Tuesday, the ECB had given the go-ahead for
a "regular" overnight facility in the range of 292.5 billion
euros. Together with available facilities before Tuesday, there are now
an estimated 440 billion euros in ECB injection money pumped into the banking
system.
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- Nomura International's head of European rate strategy,
Charles Diebel, responded to today's action by the ECB by writing, "No
one really knows how big the current credit problems are. This is undermining
confidence in the system as a whole, and hence the reaction this morning,"
Bloomberg reports. Ina Steinke, a money-market trader at NordLB in Hannover,
said "Every bank is suspect now, so no one is willing to lend money
to anyone."
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- High Frequency Economics writes, "if it turns out
that banks are chronically nervous about lending to each other -- this
is the dark scenario -- imagine how they will feel about lending to you
or me, or to companies with anything but impeccable credit ratings ...
or to hedge funds. Pay attention here. This is either a false alarm or
a pivotal moment in history"--as reported by the Wall Street Journal.
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