Glass-Steagall Introduced into Debate on Cyprus's Accelerating Foreclosure Crisis
August 2, 2014 • 10:12AM

In the midst of growing popular outrage at the banks in Cyprus, Glass-Steagall-type banking reform has been introduced into the huge debate over the mortgage foreclosure crisis. The Troika (European Commission, European Central Bank, and International Monetary Fund) is demanding new laws to fast-track the foreclosures on mortgage holders.

Cypriot attorney and Schiller Institute collaborator Katherine Alexander-Theodotou held a press conference on her cases defending Cypriot holders of mortgages denominated in Swiss francs. When the press asked her what her solution is for the banking reform in Cyprus, she declared that the only solution is that of the Glass-Steagall law enacted in 1933 by President Franklin Roosevelt, which separated commercial banks from investment banks. The proposal was apparently well-received; "everyone agreed," Alexander-Theodotou told EIR. She also announced that she is considering organizing a conference and a national referendum on mortgage and bank reform, in which Glass-Steagall will be a very important part.

The Swiss franc mortgage cases, which affect thousands of mortgage holders, is only part of the foreclosure crisis in Cyprus which constitutes a second "bail-in," since non-performing loans constitute 50% of the domestic banks' loan books. Now people will lose everything to maintain the bankrupt European banking system.

The Troika is demanding that the European Parliament pass the new foreclosure law that the Troika dictated in order to fast-track the process. Its passage, which is opposed by the opposition, is a "prior action" for allowing the next tranche of the bail-out to be released.

A parliamentarian with whom we have been in discussion on Glass-Steagall, and who supports the idea, told EIR that the bill fails to take two things into account. The first is that Cyprus has the highest interest rates in the Eurozone. More important is that the new law does not change the part of the old law in which the security for the mortgage is not only underwritten by the house whose purchase it finances, but also all the debtor's potential assets, which is contrary to generally accepted practice. It is not only by definition unjust, but it creates a situation in which the bank is not interested in preventing the collapse of real estate prices, since it can attack other assets.

If passed, the deputy said, hedge funds will soon be able to buy up Cyprus real estate for a song.