Black People : 10 years after the Economic Safeguard was trashed and burned

Discussion in 'Black People Open Forum' started by Ankhur, Nov 13, 2009.

  1. Ankhur

    Ankhur Well-Known Member MEMBER

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    Published on Thursday, November 12, 2009 by CommonDreams.org
    Reflections on Glass-Steagall and Maniacal Deregulation
    by Robert Weissman
    Today marks the 10-year anniversary of the passage of the repeal of the 1933 Glass-Steagall Act and related legislation. It is an anniversary worth noting for what it teaches us about forestalling financial crises, the consequences of maniacal deregulation, and the out-of-control political power of the megafinancial institutions.
    The repeal of Glass-Steagall removed the legal prohibition on combinations between commercial banks on the one hand, and investment banks and other financial services companies on the other. Glass-Steagall's strict rules originated in the U.S. government's response to the Depression and reflected the learned experience of the severe dangers to consumers and the overall financial system of permitting giant financial institutions to combine commercial banking with other financial operations.
    Glass-Steagall protected depositors and prevented the banking system from taking on too much risk by defining industry structure: Commercial banks could not maintain investment banking or insurance affiliates (nor affiliates in non-financial commercial activity).
    As banks eyed the higher profits in higher risk activity, however, they began in the 1970s to breach the regulatory walls between commercial banking and other financial services. Starting in the 1980s, responding to a steady drumbeat of requests, regulators began to weaken the strict prohibition on cross-ownership.
    Despite herculean efforts by Wall Street throughout the 1990s, Glass-Steagall remained law because of intra-industry and intra-regulatory agency disagreements.
    Then, in 1998, in an act of corporate civil disobedience, Citicorp and Travelers Group announced they were merging. Such a combination of banking and insurance companies was illegal under the Bank Holding Company Act, but was excused due to a loophole that provided a two-year review period of proposed mergers. The merger was premised on the expectation that Glass-Steagall would be repealed. Citigroup's co-chairs Sandy Weill and John Reed led a swarm of industry executives and lobbyists who trammeled the halls of Congress to make sure a deal was cut. But as the deal-making on the bill moved into its final phase in Fall 1999, fears ran high that the entire exercise would collapse. (Reed now says repeal of Glass-Steagall was a mistake.)
    Robert Rubin stepped into the breach. Having recently stepped aside as Treasury Secretary, Rubin was at the time negotiating the terms of his next job as an executive without portfolio at Citigroup. But this was not public knowledge at the time. Deploying the credibility built up as part of what the media had labeled "The Committee to Save the World" (Rubin, Fed Chair Alan Greenspan and then-Deputy Treasury Secretary Lawrence Summers, so named for their interventions in addressing the Asian financial crisis in 1997), Rubin helped broker the final deal.
    The Financial Services Modernization Act, also known as the Gramm-Leach-Bliley Act of 1999, formally repealed Glass-Steagall. Among a long list of deregulatory moves large and small over the last two decades, Gramm-Leach-Bliley was the signal piece of financial deregulation.
    Repeal of Glass-Steagall had many important direct effects but the most important was to change the culture of commercial banking to emulate Wall Street's high-risk speculative betting approach.
    "Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people's money very conservatively," writes Nobel Prize-winning economist Joseph Stiglitz. "It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people's money -- people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risk-taking."
    This is a very important part of the story of what created the financial crisis.
    What lessons should be learned from the 10-year debacle?
    First, Glass-Steagall's key insight was in the need to treat regulation from an industry structure point of view. Glass-Steagall's authors did not set out to establish a regulatory system to oversee companies that combined commercial banking and investment banking. They simply banned the combination of these enterprises. Cleaning up the current mess, we need strategies that focus on industry structure -- meaning, especially, that we must break up the big banks -- as well as more traditional regulation.
    Second, we need to return to Glass-Steagall's more particular understanding: depository institutions backed by federal insurance protection cannot be involved in the risky, speculative betting of the investment banking world. (Notably, the Glass-Steagall problem is now worse than it was before the financial crisis, following JP Morgan's acquisition of Bear Stearns, and Bank of America's takeover of Merrill Lynch.) Moreover, we need not just to reinstate Glass-Steagall, but infuse its underlying principles throughout the financial regulatory scheme. Commercial banks should not be in the business of speculation. They have a job to do in providing credit to the real economy. They should do that. Their job is not to engage in betting on derivatives and other exotic financial instruments.
    Third, giant financial institutions exercise too much political power, and for that reason alone must be broken up.
    Fourth, we need broad reform in the area of money and politics. We need public financing of Congressional regulations, even stronger lobbyist reforms, and tight restrictions to close the revolving door through which individuals spin as they travel between positions in government and industry.
    A year ago, as the financial crisis was unfolding, it seemed very plausible that these reforms would be seriously debated in Congress

    full article:
    http://www.commondreams.org/view/2009/11/12-8
     
  2. Ankhur

    Ankhur Well-Known Member MEMBER

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    Published on Thursday, November 19, 2009 by The Capital Times (Wisconsin)
    Split Up The Banks! Restore Glass-Steagall
    by Dave Zweifel

    Ten years ago, the Republican-controlled Congress - egged on by that champion deregulator, former Texas Sen. Phil Gramm - passed legislation that arguably did more to plunge the United States into our crippling great recession than anything else: It repealed the Great Depression era's Glass-Steagall Act.

    Then on Nov. 12, 1999, an acquiescent Democratic president, Bill Clinton, signed the repeal into law.

    Glass-Steagall stood as a firewall between commercial banks and Wall Street since 1933, when the country's leaders heeded the lessons of the 1929 stock market crash and set in place strict regulations in an attempt to prevent such an economic calamity from happening again.

    But the country's financial institutions chafed for decades under Glass-Steagall's restrictions. If only commercial banks could merge with investment banks and insurance companies, they argued, it would be so much better for the nation's economy. Gramm, who infamously insisted that the U.S. had become a nation of whiners when the economy started to tank in the fall of 2008, fought for years to repeal Glass-Steagall and finally got his way. Get government out of the way of the free marketplace, he argued, ignoring the fact that historically conservative banks would be joining the high-risk investment community and all the pitfalls it represents.

    The repeal sanctioned the formation of the conglomerate Citigroup, for example, permitting commercial bank Citicorp's merger with Travelers insurance corporation. Citigroup, which now included Citibank, Smith Barney, Primerica and Travelers, combined banking, securities and insurance services under one giant and, as we painfully learned, "too big to fail" financial institution.

    That's how we got today's Bank of America, JPMorgan Chase and the many other giants that participated in dicing and slicing subprime mortgages, and traded in complicated hedge funds, derivatives and other financial manipulations, which commercial banks were forbidden to do for more than 65 years.

    Now some of the biggies are coming to recognize the peril they and the country are in as a result. Last week, JPMorgan CEO James Dimon called the idea that any bank is too big to fail "ethically bankrupt" and added that regulators should have the power to let them fail.

    Even Citigroup's co-founder, John Reed, said earlier this month that he's sorry for creating the monster and that it was a big mistake when the bank merged with Travelers, opening the door to massive risk.

    Indeed, Reed said Glass-Steagall should be restored, joining former Federal Reserve Chairman Paul Volcker, who has been trying to convince the Obama administration of the need to return to the act's strict regulation. That would mean breaking up the "too big to fail" institutions and restoring banks to being banks and investment houses to their own businesses.

    Breaking up the biggies would go a long way toward returning stability to the broken system, in which taxpayers are asked to save the conglomerates from their own bad behavior and then forced to sit by while the behemoths return to big profits and obscene bonuses.

    U.S. Sen. Bernie Sanders, the Vermont independent, has introduced legislation that would require the Treasury Department to identify the so-called "too big to fail" conglomerates and force them to break up within a year.

    Meanwhile, the Madison-based Center for Media and Democracy has started a new project called BanksterUSA to rally support for Sanders' legislation and advocate for prosecution of Wall Street executives who purposely manipulated markets for their private gain. Its motto is: "Too big to fail, but not too big for jail!" More information is on its website at www.BanksterUSA.org [1].

    full article:
    http://www.commondreams.org/view/2009/11/19-4
     
  3. Ankhur

    Ankhur Well-Known Member MEMBER

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    The bizzare fact of the matter is that no one or very few in Washington are even talking about
    returning to Glass Steagall, or even, Bretton Woods!

    http://www.youtube.com/watch?v=w_GS...-the-se_n_201557.html&feature=player_embedded
     
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