03 August 2015

Rewriting the History of the Financial Crises and the Repeal of Glass-Steagall

In December 1996, with the support of Chairman Alan Greenspan, the Federal Reserve Board issues a precedent-shattering decision permitting bank holding companies to own investment bank affiliates with up to 25 percent of their business in securities underwriting (up from 10 percent).

This expansion of the loophole created by the Fed's 1987 reinterpretation of Section 20 of Glass-Steagall effectively renders Glass-Steagall obsolete. Virtually any bank holding company wanting to engage in securities business would be able to stay under the 25 percent limit on revenue. However, the law remains on the books, and along with the Bank Holding Company Act, does impose other restrictions on banks, such as prohibiting them from owning insurance-underwriting companies.

In August 1997, the Fed eliminates many restrictions imposed on "Section 20 subsidiaries" by the 1987 and 1989 orders. The Board states that the risks of underwriting had proven to be "manageable," and says banks would have the right to acquire securities firms outright...

As the push for new legislation heats up, lobbyists quip that raising the issue of financial modernization really signals the start of a fresh round of political fund-raising. Indeed, in the 1997-98 election cycle, the finance, insurance, and real estate industries (known as the FIRE sector), spends more than $200 million on lobbying and makes more than $150 million in political donations. Campaign contributions are targeted to members of Congressional banking committees and other committees with direct jurisdiction over financial services legislation.

PBS Frontline: The Long Demise of Glass-Steagall

"It is difficult to get a man to understand something, when his salary depends upon his not understanding it."

Upton Sinclair

The Glass-Steagall Law was enacted as a key reform in 1933, the depths of the Great Depression, in the overall effort to prevent the corruptions and abuses of the 1920's from enabling such a dire result again.

And together with other safeguards, such as antitrust laws and prosecutions for fraud, it worked. 
It worked, that is, until a long, and extremely well-funded effort by a few Wall Street Bankers, and strongly enabled and supported by the Federal Reserve, overturned this law piece by piece sixty years later in the 1990's.
It is almost amazing to watch the new American ruling class, and those who bask and benefit in their power, continue to spin fairy tales about what went wrong, what caused it, and what we need to do about it.

The high leverage and inherently dangerous asset concentration in the financial sector enabled by the Clinton-Bush tag team has taken down the American economy, and is keeping it down in a 'new normal' of stagnation by corruption.

This situation recently caused ex-President Jimmy Carter to observe that the US is now 'just an oligarchy, with unlimited political bribery being the essence of getting the nominations for president or to elect the president. And the same thing applies to governors and U.S. senators and congress members.'
In our despair, we turn to--  Bush or Clinton.  It looks less like an election that offers an honest examination of the issues, and more like a power struggle between competing oligarchies in a banana republic, with inflammatory issues, paid demonstrations,  and bought off analysis designed to distract and diffuse any serious attempts at change.

And always, behind the scenes, are the oligarchs, Wall Street, and the Fed. 
The corrupting power of big money on politics, the media, and public discourse is at the root of our problems.

Is there a mainstream economist anywhere who has the moral fiber to stand up to the Fed and and their grotesque series of policy errors to tell the emperor that they are naked?  Or to tell the scions of Wall Street that they are enriching themselves but strangling the real economy?  Is there a politician who will refuse to be bought off that has not already been made obscenely rich by a corrupt and rotten system?
How quickly the sycophants to the power of place and money fall all over themselves to support the sources of our misery.
Greed is not good.   Greed kills.

New York Times Pushes False Narrative on the Wall Street Crash of 2008
By Pam Martens and Russ Martens: August 3, 2015

William D. Cohan has joined Paul Krugman and Andrew Ross Sorkin at the New York Times in pushing the patently false narrative that the repeal of the Glass-Steagall Act in 1999 had next to nothing to do with the epic Wall Street collapse of 2008 and the greatest economic calamity since the Great Depression. (See related articles on Krugman and Sorkin below.)
The New York Times has already admitted on its editorial page that it was dead wrong to have pushed for the repeal of Glass-Steagall but now it’s dirtying its hands again by publishing all of these false narratives about what actually happened.
In a July 30 column, Cohan ridicules Senators Elizabeth Warren and John McCain over their introduction of legislation to restore the Glass-Steagall Act to separate insured deposit banks from their gambling casino cousins, Wall Street investment banks. The Senators are being joined in their call to restore Glass-Steagall by a growing number of Presidential aspirants, including Senator Bernie Sanders and former Governor of Maryland, Martin O’Malley, both running as Democrats.

Hillary Clinton, another Democratic presidential hopeful whose husband, Bill Clinton, signed the bill during his presidency that repealed Glass-Steagall, does not see the need to restore Glass-Steagall...
Read the entire article here.