The financial collapse- House Banking Committee

[Terry Mauro]

John Hoefle gave testimony to Henry Gonzales House Banking Committee back in September 1993. Hoefle was invited to speak before the committee by none other than JFK Democrat, Chairman Henry Gonzales.

DOCUMENTATION

EIR COLUMNIST JOHN HOEFLE'S 1993 TESTIMONY ON DERIVATIVES

TO CONG. HENRY GONZALEZ'S HOUSE BANKING COMMITTEE

{On Sept. 8, 1993, EIR bank columnist John Hoefle delivered the

following testimony to the House Banking Committee hearing on the

effects of the financial services chapter of NAFTA on the U.S.

banking system. The exchange between Chairman Gonzalez and Mr.

Hoefle follows.}

Mr. Chairman, members of the committee, I am honored to have

been invited here today to speak today on the impact of NAFTA on

the U.S. banking system.

NAFTA is fundamentally a financial agreement, and to

understand it, one must understand the systemic crisis facing the

banking system today.

Since 1978, the financial community has repeatedly insisted

upon the deregulation of banks and other financial institutions,

while demanding austerity and cutbacks everywhere else.

Every time we have done this, it has led to disaster, as the

destruction of the airlines, the S&Ls and the American workforce

attest.

In response to these disasters, the bankers demand further

deregulation and deeper cuts.

Now, with NAFTA, the bankers are demanding that the United

States deregulate its international political and financial

relations the same way we've deregulated internally. The purpose

of NAFTA is to open up Mexico and eventually all of Latin America

for unbridled speculation and looting, of the sort that has

already devastated the American economy and bankrupted our

banking system.

When are we ever going to learn that the answer lies not in

more deregulation, but rather in the abandonment of the policy of

deregulation, and the return to rational rules and regulation?

Take Citicorp, for example. Here's a bank that jumped with

both feet into every harebrained quick-buck scheme they could

find. Citicorp made a killing in the 1980s, growing almost as

much in ten years as it had in the previous 168. This growth

came, not from real economic activity, but from the growth of a

huge speculative bubble, in real estate, junk bonds, derivatives

and other paper transactions which looked good until the bills

came due.

Citicorp's great deals of the 1980s have become the

spectacular financial disasters of the 1990s. The list, which

includes blowouts such as Olympia & York and Citicorp's

humiliation in London after the Big Bang, keeps on growing as the

real economy dies. Citicorp has demonstrated an astonishing knack

for losing money. It's the ambulance-chaser of banks: Every time

you find a disaster, Citicorp is there.

Citicorp made a killing all right -- it killed itself.

If Citicorp were headquartered in San Antonio, Mr. Chairman,

it would have already been closed and its officers publicly

humiliated and thrown in jail.

But Citicorp is not headquartered in San Antonio. It's in

New York, where a far different set of rules apply.

So instead, the government -- or rather, the Federal

Reserve, which acts like it's the government but is really owned

by the banks -- launched the biggest bailout in U.S history.

Three years ago, the Federal Reserve Bank of New York took

the bankrupt Citicorp over, putting it into de facto

receivership. Naturally, this was a secret action, since were the

banks' depositors to know just how damaged their bank was, they

would have run for the hills.

Citicorp lied about its financial condition, and published

phony financial reports. When Rep. John Dingell revealed that

Citicorp was technically insolvent, Citicorp angrily denied it.

And so did the banking regulators, who are supposed to serve the

public, but who clearly serve the banks instead.

When the Texas S&Ls hid their losses, and the Federal Home

Loan Bank Board looked the other way, the Justice Dept. created a

task force to investigate, and poor Danny Wall's career was

ruined. But now, with Citicorp and the other big banks doing the

lying, the attack dogs of the Justice Dept. and the press are

silent. Executives of the Texas S&Ls were denounced as the

symbols of greed and excess, but nobody says a word about

Citicorp and John Reed.

We are on the verge of the biggest financial blowout in

centuries, bigger than the Great Depression, bigger than the

South Sea bubble, bigger than the Tulip bubble. The derivatives

bubble, in which Citicorp, Morgan and the other big New York

banks are unsalvageably overexposed, is about to pop. The

currency warfare operations of the Fed, George Soros and Citicorp

have generated billions of dollars in profits, but have destroyed

the financial system in the process. The fleas have killed the

dog, and thus they have killed themselves.

What is required, as EIR founder Lyndon LaRouche has

repeatedly stated, is a restructuring of the U.S. banking system,

including the nationalization of the Federal Reserve, taking it

out of the hands of the bankers and putting it back in the hands

of the Congress as mandated by the Constitution. It is the

welfare of the people which is paramount, not the maintenance of

the speculative financial system. It's high time we put the

speculators out of business, instead of surrendering to them even

further by passing NAFTA.

That's the issue. We'd better deal with it, and fast, while

we still have a chance.

Thank you again, Mr. Chairman and members of the committee,

for this opportunity to testify.

----------------

GONZALEZ: "Here I wanted to render thanks and tribute to Mr.

Hoefle. For several--well I'd say a couple of years--I've been

very much respectful and admiring of his ability to gather

statistics that I intuitively felt but had no way of obtaining

until I read them in your articles that you so very well did...."

GONZALEZ: "When Mr. Hoefle finally got the statistics on the

off-balance-sheet activities of these banks--20 principal banks

in the United States--which I couldn't get. Now off-balance-sheet

activities are those for which they don't have to have reserves.

So when Mr. Hoefle brought the statistics, and I guess--I think

you said you had obtained them from Goldman Sachs or somebody

else."

HOEFLE: "Salomon Brothers."

GONZALEZ: "Salomon Brothers. Well now here's an expert--they

were skilled in gypping the U.S. Treasury out of $2 billion, and

getting off with a slap on the wrist. I can understand why they'd

be a good source of that. But how can we rest comfortably,

knowing that when the banks report--and especially the large

ones -- so-called profits, almost half or more [of] that is

actually from the very, very speculative gambling known as the

derivatives market? Which is not as complicated as people would

like you to think. It's just a mega-Las Vegas. And I think you're

right when you say that one of the dangers that likely will face

us is, if NAFTA goes through uninspected as it has thus far, is

that we'll be promoting in Mexico the second largest or

mega-gambling joint as far as banking (unclear) are concerned.

And that's my fear."

[Len Colby]

What exactly was the point of posting this?