Next Year's Basel II: "Without Comparison in Modern History"
Lyndon LaRouche
November 22, 2007 (LPAC)--A senior European financial source described the current situation to EIR today, as "without comparison in modern history." The financial system froze in August and since then, "no solution has been found to the problem."
The source also underscored Lyndon LaRouche's judgment of the devastating potential of the Ohio foreclosure cases, where judges have prevented foreclosures because the banks seeking them, including Deutsche Bank, could not produce in court ownership documents for house mortgages. He said that "the consequences of that are so immense, that there is no description for it." The fact that so far nothing has happened, is only because nobody knows about it.
We are now in a new phase, the source said, where "prime" loans are going under, starting with the AAA-rated ones. "In every single board room in the world there is complete panic, as there is nobody who is able to foresee the consequences of their actions." He forecasts that sometimes around the turn of the year, the second leg of the system, the stock market, will go under.
In this situation, which is unprecedented in history, starting January 1st, new guidelines for the financial markets will go into effect. Called Basel II, these guidelines will replace old capital requirements for banks with a rating system. Capital requirements will be lowered, and everything will be based on ratings. But such guidelines were decided when nobody had foreseen that AAA would become a risk rating, the source said. So, nobody knows what will happen when Basel II is in place.