Gutting of Glas Steegal by McCain advisor Gramm is the root of the crisis
Started by petrfitz
almost 18 years ago
Posts: 2533
Member since: Mar 2008
Discussion about
In 1933, a few years following the stock market crash, Congress passes the Glass-Steagall Act, in hopes that regulating banks will help prevent market instability, particularly amongst Wall Street banks. The purpose of the act is to separate commercial banks that focus on consumers from investment banks, which deal with speculative trading and mergers. The Glass-Steagall Act provided the proper... [more]
In 1933, a few years following the stock market crash, Congress passes the Glass-Steagall Act, in hopes that regulating banks will help prevent market instability, particularly amongst Wall Street banks. The purpose of the act is to separate commercial banks that focus on consumers from investment banks, which deal with speculative trading and mergers.
The Glass-Steagall Act provided the proper oversight and entity separation that would prohibit banks and other financial companies from merging into giant trusts (conflict of interests) -- giant trusts or corporations being more powerful, naturally, and having the seemingly limitless capital to lobby their corporate interests, however, with a very myopic scope (particularly when it comes to factoring in potential losses -- most banks, as seen in contemporary times, chose not to anticipate losses in the mortgage market; they presumed home prices would continue to appreciate).
In 1999, former Senator Phil Gramm (who is, incidentally, Senator John McCain's economic adviser and cochairs his presidential campaign) set out to completely gut the Glass-Steagall Act, and did so successfully, replacing most of its components with the new Gramm-Leach-Bliley Act: allowing commercial banks, investment banks, and insurers to merge (which would have violated antitrust laws under Glass-Steagall). Sen. Gramm was the driving force behind the Gramm-Leach-Bliley Act, as he had received over $4.6 million from the FIRE sector (Finance, Insurance and Real Estate donations) over the previous decade, and once the Act passed, an influx of "megamergers" took place among banks and insurance and securities companies, as if they had been eagerly awaiting the passage of Gramm's Act. Everything in between Glass-Steagall and Gramm-Leach-Bliley (i.e. Savings and Loan crisis/bust) was, in large part, the incubation period for what would take place over the nine years that would follow the passage of Gramm's Act: an experiment in deregulation.
Shortly after George W. Bush was elected president, Congress and President Clinton were trying to pass a $384 billion omnibus spending bill, and while the debates swirled around the passage of this bill, Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act. It is likely that few senators read this bill, if any. The essence of the act was the deregulation of derivatives trading (financial instruments whose value changes in response to the changes in underlying variables; the main use of derivatives is to reduce risk for one party). The legislation contained a provision -- lobbied for by Enron, a major campaign contributor to Gramm -- that exempted energy trading from regulatory oversight. Basically, it gave way to the Enron debacle and ushered in the new era of unregulated securities. Interestingly enough, Gramm's wife, Wendy, had been part of the Enron board, and her salary and stock income brought in between $900,000 and $1.8 million to the Gramm household, prior to the passage of the Commodity Futures Modernization Act.
In 2003, Gramm left the Senate to join UBS, which had acquired investment house PaineWebber due to his deregulation bill. At UBS, Gramm lobbied Congress, the Fed and the Treasury Department. During Gramm's tenor at UBS and as a lobbyist, Congress passed the Responsible Lending Act, billed as an anti-predatory-lending measure, but was called the "Loan Shark Protection Act" by consumer advocates, as it was designed to preempt stronger state laws against anti-predatory lending. The Fed largely ignored the underlying and growing problems within the subprime mortgage/housing markets, as Bernanke famously acknowledged the housing market in April, 2007 as, "[showing] signs of softening," but said that a "sharp slowdown," is unlikely. Then, according to Mother Jones magazine, Henry Paulson became the Treasury Secretary in July, 2007, when, "In 2005, [at] Goldman [he] securitized $68 billion in residential mortgages and $23 billion in 'other assets' primarily related to CDOs," (Mother Jones, August, 2008). With such self-interest, and a lack of the nation's interest, we can see how this subprime mess was allowed to escalate to such great proportions.
Some justice was served, however, this spring, as UBS became one of the subprime debacle's biggest losers, having to write down $37 billion -- the same amount as their previous four years of profits combined. UBS also made the public aware that two-thirds of its losses were due to reckless investing in collateralized debt obligations (CDOs).
Now, Gramm has a second chance of extending his out-of-touch and ill-performing policies, as Senator John McCain appointed Gramm to be his "economic expert" and cochair of his presidential campaign, last year. Also, it is likely that if Senator McCain were to win in November, Gramm would be our next Treasury Secretary, which means more of the same deregulatory mess and the continuation of failed and insidious economic policies.
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Response by anonymous
almost 18 years ago
I don't know too much about Wall Street, but if Bank of America is buying Merrill and Barclays buying Lehman and Bear going with Chase, isn't it a good thing that they allow them to combine?
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Response by West81st
almost 18 years ago
Posts: 5564
Member since: Jan 2008
A little off topic: Although Phil Gramm is unquestionably a soulless scumbag from Hell, does anyone else think he had a point about the "nation of whiners"?
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Response by petrfitz
almost 18 years ago
Posts: 2533
Member since: Mar 2008
absolutely not. If anything Americans should have yelled louder. We as citizens should have grown a pair of balls and stood up a long time ago and yelled for the Administration and their cronies to stop pilfering the treasury and to stop bankrupting our country.
If anything we are at fault for not complaining loud enough.
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Response by julia
almost 18 years ago
Posts: 2841
Member since: Feb 2007
phil gramm is no longer advising john mccain. I do agree with you that McCain is too long in wash. My worry is that democrats aren't any different. Obama does want to make sweeping reforms but with biden as his running mate (36 years in the senate) I just don't see it. BUT....i agree Obama is the only one who has a vision to change things. It appears everything is falling apart and that's going to scare a lot of Americans in voting for Obama (good news)
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Response by petrfitz
almost 18 years ago
Posts: 2533
Member since: Mar 2008
Basically there is one thing currently keeping the entire US economy solvent. do you know what that 1 thing is?
China's willingness to lend the US money. If China gets nervous and stops lending the USA government money to float our economy, then the game is over. A complete meltdown.
Thanks to Repulicans and Bush for making our entire way of life dependent on the communist country of China.
The Glass-Steagall Act was a poorly-written piece of legislation that had little to say in the way of oversight - that was left up to the Fed et al. Glass & Steagall weren't even knowledgeable about banking; the law was a knee-jerk reaction to the stock market crash of 1929.
The Act didn't provide much guidance other than stating that commercial banking should be separate from organizations that engage 'mainly' in broker-dealer type activities. 'Mainly' is key. Beginning in the 80's it became more difficult for banks to compete internationally so the Fed permitted limited i-banking activity to take place. But oversight had to be separate, which led to a host of internal control issues.
By the time the Act was finally repealed it was obsolete for the current marketplace. What help delay this effort was Sen. D'Amato as head of the Senate Banking Cmtee who had a lot of support from Wall St; the i-banking community didn't want the competition from the commercial banks.
The issues of today have nothing to do with Glass-Steagall or GLR; it has more to do with the obsolete regulatory oversight of the US financial system.
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Response by itseemstome
almost 18 years ago
Posts: 26
Member since: Aug 2008
Well really, China is giving us free money so we can buy their stuff. They need us to buy their stuff so their people stay employed. So driving the economy is cheap lending by the Chinese and cheap borrowing and constant spending by the American consumer.
God Bless the American Consumer
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Response by petrfitz
almost 18 years ago
Posts: 2533
Member since: Mar 2008
uptowngal - it is mind boggling how dedicated to the republican line you are. The world is falling apart directly because of their policies but you are there fully suuporting them and your own demise.
To translate your post - its not the fault of the politicians who wrote the legislation that actually caused this disaster, its the fault of the obsolete system which the republicans had complete control over but didnt do anything because they couldnt. It was in the end you say - somebody else's fault.
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Response by uptowngal
almost 18 years ago
Posts: 631
Member since: Sep 2006
petrfitz, it's mind boggling how much you blow air out of your butt (besides, if I were such a republican, why would I be critical of Sen. D'Amato?). This has nothing to do with which party is/was in control. I worked for a regulator so I understand first-hand the effects of banking legislation.
Perhaps you should educate yourself on issues on which you comment, otherwise please stop misinforming the public.
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Response by julia
almost 18 years ago
Posts: 2841
Member since: Feb 2007
I strongly believe the election is over...Obama is going to win in a landslide. The country will blame Bush and the republicans (rightly) on the economy. It's over we just have to wait for November 4, 08
Uptowngal...it doesn't matter if the republicans are solely to blame the perception is that it's their fault.
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Response by drdrd
almost 18 years ago
Posts: 1905
Member since: Apr 2007
Julia, I hope that you are right but after the last 8 looooooooong years with the "idiot" robbers in place, I wouldn't be so sure. First of all, McCain is WHITE & a HERO & Palin is attractive with cool eyeglasses. After 2 elections where Bush somehow prevailed, don't count the Republicans out.
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Response by uptowngal
almost 18 years ago
Posts: 631
Member since: Sep 2006
julia, you're probably right about the perception of the republicans. My point was to clarify some history regarding Glass Stegall and how regulation works.
What's going on now didn't happen overnight and transcends any party. Congress is also instrumental in this and it's now controlled by Democrats, and a lot of finger-pointing is going on.
If a Democrat were in the White House the perception would be to blame them. And at the end of the day the Fed is trying to do what it can to benefit the economy.
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Response by nyc10022
almost 18 years ago
Posts: 9868
Member since: Aug 2008
NYTimes actually noted that Clinton was at the forefront of that...
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Response by anonymous
almost 18 years ago
Clinton had nothing to do with it...of course not...but its better to just omit information then tell the complete story....
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Response by petrfitz
almost 18 years ago
Posts: 2533
Member since: Mar 2008
nyc10022 - please post the link you refer to.
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Response by petrfitz
almost 18 years ago
Posts: 2533
Member since: Mar 2008
nyc10022 - please post the link you refer to.
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Response by Sizzlack
almost 18 years ago
Posts: 782
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hah!
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Response by alanhart
almost 18 years ago
Posts: 12397
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Julia, I really hope you're right, but a few factors to counter that:
1. most people in most parts of the country get a very different news feed from what we get
2. that feed is brilliantly engineered by the GOP for a television world -- short, direct phrases/soundbites delivered on news shows (even allegedly left-wing ones) in flights (similar to advertisements) that pommel the brain, often deliberately timed to distract from real current events, and designed to trigger reptilian fears and petty jealousies. It's Goebbels updated for today's busy world.
3. just as cars used to be so simple that anyone could repair them, almost everything in today's world is too complex for anyone to try. That makes them susceptible to propaganda. And I don't blame the typical Walmart shopper for not being able to make sense of it all, or even really wanting to.
4. The GOP has been great at this sort of manipulation for at least 30 years, and the Democrats continue to think that policy and issues matter -- but they do only AFTER electoral politics.
The bottom line is that the economy and the housing situation has sucked in much of America for a couple of years now, and they haven't made the connection to GOP economic fuzzy-math debt-n-spend policies. Wall Street events will take awhile to directly affect Main Street, and people there still won't make the connection then. And in the meantime, do you think they perceive NYC's problems (where Wall Street is concerned) as anything but east coast liberal establishment problems?
But to reiterate, I really really hope you're right that it'll be Obama in a landslide. Or even a squeaker (except you can be sure the GOP will have lots of dirty tricks going on in Florida, Ohio and/or Michigan to tip those states. Not least of all those Diebold voting machines.)
I like to track the polling at the nonpartisan site http://www.electoral-vote.com/ -- although today's commentary will seem leftwing to the radical right, because it discusses the Marxist-Leninist aspects of the AIG nationalization.
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Response by julia
almost 18 years ago
Posts: 2841
Member since: Feb 2007
alanhart.....this is different. there is a sinking feeling that everything is going wrong and we're on a speeding train. I have friends in NC that are just in shock. Bush is in the white house and hasn't come out to say one word. We need new leadership and hopefully Obama will bring new solutions. I've never felt this nervous about the economy before.
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Response by nyc10022
almost 18 years ago
Posts: 9868
Member since: Aug 2008
this wasn't the original article, but here you go...
"While the Clinton Administration supported a broad approach to lowering the barriers separating financial industries, the Treasury Department opposed Mr. Leach's bill.."
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Response by jake
almost 18 years ago
Posts: 277
Member since: Jan 2007
petrfitz,
Your post makes me wonder what educational system you were schooled in. The rules against copying the work of others and passing it off as your own are made clear early in life here in the US. Third grade is where I was taught to cite the author and to use quotations. Why do you continue to post the work of others as your own. To sound smart? Do you not have an original thought in that hard head of yours? Is your sole function in life to regurgitate the "Obama Talking Points' of the day? No less on a board devoted to new york city real estate?
No disagreement from me that the repeal of G-S was a bad thing. But get your timeline and your facts straight. The repeal helped 1 individual and 1 organization more than anybody else and that was Sandy Weill and Citigroup. The bill to repeal G-S was signed by your hero Bill Clinton, supported at the time by Robert Rubin and oh yeah where did Rubin go to work after he left Treasury - that's right with his old pal Sandy at Citi.
"Billionaire Sanford I. Weill, who according to Louis Uchitelle made “Citigroup into the most powerful financial institution since the House of Morgan a century ago,” has what I call the Wall of Me leading to his office, which he has decorated with tributes to him, including a dozen framed magazine covers. A major trophy is the pen Bill Clinton used to sign the repeal of the Glass-Steagall Act, a move which allowed Weill to create Citigroup. Fittingly, Citigroup is a major contributor to guess which current Democratic Presidential candidate?"
And from wikipedia
"On November 12, 1999, President William J. Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One of the effects of the repeal was to allow commercial and investment banks to consolidate. Some economists have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.[8][9]"
I don't know too much about Wall Street, but if Bank of America is buying Merrill and Barclays buying Lehman and Bear going with Chase, isn't it a good thing that they allow them to combine?
A little off topic: Although Phil Gramm is unquestionably a soulless scumbag from Hell, does anyone else think he had a point about the "nation of whiners"?
absolutely not. If anything Americans should have yelled louder. We as citizens should have grown a pair of balls and stood up a long time ago and yelled for the Administration and their cronies to stop pilfering the treasury and to stop bankrupting our country.
If anything we are at fault for not complaining loud enough.
phil gramm is no longer advising john mccain. I do agree with you that McCain is too long in wash. My worry is that democrats aren't any different. Obama does want to make sweeping reforms but with biden as his running mate (36 years in the senate) I just don't see it. BUT....i agree Obama is the only one who has a vision to change things. It appears everything is falling apart and that's going to scare a lot of Americans in voting for Obama (good news)
Basically there is one thing currently keeping the entire US economy solvent. do you know what that 1 thing is?
China's willingness to lend the US money. If China gets nervous and stops lending the USA government money to float our economy, then the game is over. A complete meltdown.
Thanks to Repulicans and Bush for making our entire way of life dependent on the communist country of China.
http://news.yahoo.com/s/bloomberg/20080917/pl_bloomberg/a8zvtv0iunks
The Glass-Steagall Act was a poorly-written piece of legislation that had little to say in the way of oversight - that was left up to the Fed et al. Glass & Steagall weren't even knowledgeable about banking; the law was a knee-jerk reaction to the stock market crash of 1929.
The Act didn't provide much guidance other than stating that commercial banking should be separate from organizations that engage 'mainly' in broker-dealer type activities. 'Mainly' is key. Beginning in the 80's it became more difficult for banks to compete internationally so the Fed permitted limited i-banking activity to take place. But oversight had to be separate, which led to a host of internal control issues.
By the time the Act was finally repealed it was obsolete for the current marketplace. What help delay this effort was Sen. D'Amato as head of the Senate Banking Cmtee who had a lot of support from Wall St; the i-banking community didn't want the competition from the commercial banks.
The issues of today have nothing to do with Glass-Steagall or GLR; it has more to do with the obsolete regulatory oversight of the US financial system.
Well really, China is giving us free money so we can buy their stuff. They need us to buy their stuff so their people stay employed. So driving the economy is cheap lending by the Chinese and cheap borrowing and constant spending by the American consumer.
God Bless the American Consumer
uptowngal - it is mind boggling how dedicated to the republican line you are. The world is falling apart directly because of their policies but you are there fully suuporting them and your own demise.
To translate your post - its not the fault of the politicians who wrote the legislation that actually caused this disaster, its the fault of the obsolete system which the republicans had complete control over but didnt do anything because they couldnt. It was in the end you say - somebody else's fault.
petrfitz, it's mind boggling how much you blow air out of your butt (besides, if I were such a republican, why would I be critical of Sen. D'Amato?). This has nothing to do with which party is/was in control. I worked for a regulator so I understand first-hand the effects of banking legislation.
Perhaps you should educate yourself on issues on which you comment, otherwise please stop misinforming the public.
I strongly believe the election is over...Obama is going to win in a landslide. The country will blame Bush and the republicans (rightly) on the economy. It's over we just have to wait for November 4, 08
Uptowngal...it doesn't matter if the republicans are solely to blame the perception is that it's their fault.
Julia, I hope that you are right but after the last 8 looooooooong years with the "idiot" robbers in place, I wouldn't be so sure. First of all, McCain is WHITE & a HERO & Palin is attractive with cool eyeglasses. After 2 elections where Bush somehow prevailed, don't count the Republicans out.
julia, you're probably right about the perception of the republicans. My point was to clarify some history regarding Glass Stegall and how regulation works.
What's going on now didn't happen overnight and transcends any party. Congress is also instrumental in this and it's now controlled by Democrats, and a lot of finger-pointing is going on.
If a Democrat were in the White House the perception would be to blame them. And at the end of the day the Fed is trying to do what it can to benefit the economy.
NYTimes actually noted that Clinton was at the forefront of that...
Clinton had nothing to do with it...of course not...but its better to just omit information then tell the complete story....
nyc10022 - please post the link you refer to.
nyc10022 - please post the link you refer to.
hah!
Julia, I really hope you're right, but a few factors to counter that:
1. most people in most parts of the country get a very different news feed from what we get
2. that feed is brilliantly engineered by the GOP for a television world -- short, direct phrases/soundbites delivered on news shows (even allegedly left-wing ones) in flights (similar to advertisements) that pommel the brain, often deliberately timed to distract from real current events, and designed to trigger reptilian fears and petty jealousies. It's Goebbels updated for today's busy world.
3. just as cars used to be so simple that anyone could repair them, almost everything in today's world is too complex for anyone to try. That makes them susceptible to propaganda. And I don't blame the typical Walmart shopper for not being able to make sense of it all, or even really wanting to.
4. The GOP has been great at this sort of manipulation for at least 30 years, and the Democrats continue to think that policy and issues matter -- but they do only AFTER electoral politics.
The bottom line is that the economy and the housing situation has sucked in much of America for a couple of years now, and they haven't made the connection to GOP economic fuzzy-math debt-n-spend policies. Wall Street events will take awhile to directly affect Main Street, and people there still won't make the connection then. And in the meantime, do you think they perceive NYC's problems (where Wall Street is concerned) as anything but east coast liberal establishment problems?
But to reiterate, I really really hope you're right that it'll be Obama in a landslide. Or even a squeaker (except you can be sure the GOP will have lots of dirty tricks going on in Florida, Ohio and/or Michigan to tip those states. Not least of all those Diebold voting machines.)
I like to track the polling at the nonpartisan site http://www.electoral-vote.com/ -- although today's commentary will seem leftwing to the radical right, because it discusses the Marxist-Leninist aspects of the AIG nationalization.
alanhart.....this is different. there is a sinking feeling that everything is going wrong and we're on a speeding train. I have friends in NC that are just in shock. Bush is in the white house and hasn't come out to say one word. We need new leadership and hopefully Obama will bring new solutions. I've never felt this nervous about the economy before.
this wasn't the original article, but here you go...
http://query.nytimes.com/gst/fullpage.html?res=9C05E6DF143EF931A25755C0A960958260&partner=rssnyt&emc=rss
"While the Clinton Administration supported a broad approach to lowering the barriers separating financial industries, the Treasury Department opposed Mr. Leach's bill.."
petrfitz,
Your post makes me wonder what educational system you were schooled in. The rules against copying the work of others and passing it off as your own are made clear early in life here in the US. Third grade is where I was taught to cite the author and to use quotations. Why do you continue to post the work of others as your own. To sound smart? Do you not have an original thought in that hard head of yours? Is your sole function in life to regurgitate the "Obama Talking Points' of the day? No less on a board devoted to new york city real estate?
No disagreement from me that the repeal of G-S was a bad thing. But get your timeline and your facts straight. The repeal helped 1 individual and 1 organization more than anybody else and that was Sandy Weill and Citigroup. The bill to repeal G-S was signed by your hero Bill Clinton, supported at the time by Robert Rubin and oh yeah where did Rubin go to work after he left Treasury - that's right with his old pal Sandy at Citi.
"Billionaire Sanford I. Weill, who according to Louis Uchitelle made “Citigroup into the most powerful financial institution since the House of Morgan a century ago,” has what I call the Wall of Me leading to his office, which he has decorated with tributes to him, including a dozen framed magazine covers. A major trophy is the pen Bill Clinton used to sign the repeal of the Glass-Steagall Act, a move which allowed Weill to create Citigroup. Fittingly, Citigroup is a major contributor to guess which current Democratic Presidential candidate?"
And from wikipedia
"On November 12, 1999, President William J. Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One of the effects of the repeal was to allow commercial and investment banks to consolidate. Some economists have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.[8][9]"
Here are the links:
http://thestrangedeathofliberalamerica.com/foreclosed-blame-bill-clintons-repeal-of-glass-steagall.html
http://en.wikipedia.org/wiki/Glass-Steagall_Act
sometimes I wonder why we bother correcting perfitz...