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Former French Prime Minister
Comes Out for Glass-Steagall

October 2011

In a spectacular development, coincidental with the rising influence of LaRouche ally and French Presidential pre-candidate Jacques Cheminade, former Socialist Prime Minister Michel Rocard, in a full-page op-ed for the October 3 issue of Le Monde, the French daily of record, endorsed the reintroduction of an FDR-style Glass-Steagall system. Headlined "To Re-Think a Banking System," the article begins with a long introduction acknowledging that nothing was learned from the breakdown of previous speculative bubbles, and pointing to the enormous threat which the current bubble is creating.

He writes:

"The speculative funds continue to prosper and even new ones are created, while nothing or practically nothing was done to limit the volume on the markets of virtual derivatives products, that is, detached from any link with the real economy. And emitted liquidity, the way it is, is no way directed toward productive investments or the financing of growth, but awaits deployment on the financial markets....

"In any case, what we face is a financial tsunami [which would] little change the nature of the problem. At that point, the issue is less to try to avoid an all-too-likely financial tragedy than to try to limit its scope. There are numerous possible and desirable measures, among them, one of the most obvious involves the reintroducing, on an emergency basis, the separation between deposit banks, which must forbid all risky activity, and banks that make their living from high-risk finance, including investment, and which must finance their operations from their own funds or from earmarked funds. We would thereby cut off most of the liquidity available for speculative movement, and protect the physical economy....

"The European banking world rejects this idea. Understandably. The mobilization of funds from deposits for current risky operations generates huge profits. It is true that at this juncture, more than ever, we need solid banks. But the risk is too great. I'm talking here about a lightning rod, and we are in the midst of a storm.

"Naturally, this means that the enormous mass of dubious toxic debt, in this separation, will find itself on the side of those banks taking the risks. It will be necessary to scrap a notable proportion of it. That is the price of the risk—that if all the debt can't be paid, it must be sacrificed, and certainly not grown. And if someone has to pay, which now seems to be fated, it is more equitable that it be those risk-takers, rather than taxpayers, or especially, the unemployed.

"Let's not forget history: This idea came from Franklin D. Roosevelt, who put in place the Glass-Steagall Act in 1933, by an act of Congress, against the advice of the banks at the time, of course. It was an order for separation of the banking institutions, according to whether they took risks or managed deposits in order not to take risks.

"It was introduced in Europe after the end of the war. It prevented all severe financial crises for us for nearly 60 years. It was repealed under German pressure in the 1980s, and in the United States at the end of the 1990s. Since then, mergers have become allowed, banking establishments have become multifunctional, and we have been drawn into financial crises every four or five years. Of course, this should be a global matter."

He concludes with a call for immediate international action, even potentially at the UN Security Council.

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Franklin D. Roosevelt signing the Glass-Steagall Banking Act in 1933.