A Warning From 1995 About the Repeal of Glass-Steagall

Here is a reprint of a warning that was published in the NY Times in 1995 about Robert Rubin's and Alan Greenspan's misguided attempts to overturn Glass-Steagall.

Any reasonably informed student of economic history ought to have understood this argument.

 

There was a well-funded, decade long campaign led by the Banks to overturn Glass-Steagall.  A lot of propaganda was written, and lot of political connections were made, and a lot of money was spent.

Too many were willfully blind. Some through their devotion to utopian ideology.  Others through devotion to their careers.  And even more just kept their heads down and hid their noses in their books and reams of irrelevant data.

And for the most part they still are, with many caught in a credibility trap. 

Until the music stops. 

 

Related:   The Long Demise of Glass-Steagall

NY Times
End Bank Law and Robber Barons Ride Again

 Sunday, March 5, 1995

To the Editor:

Re "For Rogue Traders, Yet Another Victim" (Business Day, Feb. 28) and your same-day article on Treasury Secretary Robert E. Rubin's proposal to eliminate the legal barriers that have separated the nation's commercial banks, securities firms and insurance companies for decades: The American Bankers Association, Senator Alfonse M. D'Amato, Representative Jim Leach and Treasury Secretary Rubin are gravely misguided in their quest to repeal the Glass-Steagall Act.

Their contention that insurance companies, commercial banks and securities firms should be freed from legislative obstructions is predicated on fallacious, historically inaccurate statements. If the Baring Brothers failure does not give them pause, a history lesson is our only hope before the Administration and bank lobby iron out their differences and set the economy back 90 years.

The argument that American financial intermediaries will become "more efficient and more internationally competitive" is false. The American financial system is the most stable, most profitable and most dynamic in the world.

The notion that Glass-Steagall prevents American financial intermediaries from fulfilling their utmost potential in a global marketplace reflects inadequate understanding of the events that precipitated the act and the similarities between today's financial marketplace and the market nearly a century ago.

Although Glass-Steagall was enacted during the Great Depression, it was put in place because the Aldrich-Vreeland Act of 1908, the blue-sky laws following 1910 and the Federal Reserve System of 1913 failed to keep the concentration of financial power in check. The investment climate that ultimately led to Glass-Steagall was one filled with emerging markets, interlocking control of productive resources and widespread bank ownership of securities.

Ever since railroad securities began driving secondary capital markets in the late 1860's, "emerging markets" have existed for investors looking for high-yield opportunities, and banks have been primary agents in industrial development. In the 19th century, emerging markets were scattered throughout the United States, and capital flowed into them from New York, Boston, Philadelphia and London. In the same way, capital flows from the United States, Japan and England to Latin America and the Pacific rim -- today we just have more terms to define the market mechanisms.

The economy and financial markets were even more interconnected in the 19th century than now. Commercial and investment banks could accept deposits, issue currency, underwrite securities and own industrial enterprises. With Glass-Steagall lifted, we will chart a course returning us to that environment.

J. P. Morgan and Andrew Mellon made their billions through inter locking directorates and outright ownership of hundreds of nationally prominent enterprises. Glass-Steagall is one crucial piece of a litany of legislation designed to place checks and balances on the concentration of financial resources. To repeal it would be tantamount to bringing back the days of the robber barons.

The unbridled activities of those gifted financiers crumbled under the dynamic forces of the capital marketplace. If you take away the checks, the market forces will eventually knock the system off balance.

MARK D. SAMBER

Stamford, Conn.

Feb. 28, 1995

The writer is a management consultant specializing in business history.

Gold Daily and Silver Weekly Charts - No Sustainable Recovery From Serial Policy Errors

There are those who think that we are back to 'normal' and that The Recovery™ is already sustainable.

This is no recovery. This is the propagation of financial bubbles, systemic corruption, and serial policy errors that support them.

The growth in the US economy is still coming primarily from the growth of paper assets and not from any underlying activity in the real economy.

This is not stimulus. This has the complexion of a control fraud.

Have we no shame? No sense of decency?

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - Third Time Is the Charm

The first chart represents the three bubbles that have been created since the repeal of Glass-Steagall.

 

The Federal Reserve has been a key actor in all three, both as monetary authority and as key banking regulator and policy influencer. The government certainly plays a central role as well. But at the heart of it are the Banks.

 

Three strikes and you're out.

Stocks were in rally mode on the 'better than expected' economic news, and the forgetfulness of the markets with regard to anything older than this morning.

Have a pleasant evening.

The White Rose, In the Land of the Willfully Blind

This is one of my favorite leaflets from Die Weiße Rose. I enjoy their observation that "German intellectuals fled to their cellars, there, like plants struggling in the dark, away from light and sun, gradually to choke to death."

One cannot blame them in some ways, since from the very beginning the National Socialists were backing their words with violent street thugs in brown shirts. And so many among the very wealthy and the highly trained professional classes threw themselves into the arms of the powerful like hypocrites and whores.

But even if we rightfully condemn the failure of those whose obligation it is to speak, how often are we seeing this in our own time?

When the economy was very obviously building towards the financial crisis of 2008, how many economists were ignoring the bubble conditions, preferring to keep their noses in their statistics, a willful condition that I call data blindness. How many lawyers look at outrageous miscarriages of justice and say and do nothing? How many of those who have been blessed by circumstances sit back and smugly attribute their good fortune to their natural superiority as a the new ubermensch?

It is not safe to see too much, and even less safe for the career minded to speak out against the actions of powerful insiders who control the benefactions of position, and the perks of the privileged class. 

It is much more judicious to hide one's nose in a selective book of statistics, ignoring the reality, and relying instead on being data blind or ideologically blind to what is really happening.

It is easier to say 'I didn't know of this injustice' and afterwards, 'who could see such a thing approaching?'

And then to do it all over again.

The White Rose
Second Leaflet
Munich, 1942

We will not be silent.

It is impossible to engage in intellectual discourse with National Socialist philosophy, for if there were such an entity, one would have to try by means of analysis and discussion either to prove its validity or to combat it. In actuality, however, we face a totally different situation.

At its very inception this movement depended on the deception and betrayal of one's fellow man; even at that time it was inwardly corrupt and could support itself only by constant lies. After all, Hitler states in an early edition of "his" book (a book written in the worst German I have ever read, in spite of the fact that it has been elevated to the position of the Bible in this nation of poets and thinkers): "It is unbelievable, to what extent one must betray a people in order to rule it."

If at the start this cancerous growth in the nation was not particularly noticeable, it was only because there were still enough forces at work that operated for the good, so that it was kept under control. As it grew larger, however, and finally in an ultimate spurt of growth attained ruling power, the tumor broke open, as it were, and infected the whole body.

The greater part of its former opponents went into hiding. The German intellectuals fled to their cellars, there, like plants struggling in the dark, away from light and sun, gradually to choke to death.

Now the end is at hand. Now it is our task to find one another again, to spread information from person to person, to keep a steady purpose, and to allow ourselves no rest until the last man is persuaded of the urgent need of his struggle against this system. When thus a wave of unrest goes through the land, when "it is in the air," when many join the cause, then in a great final effort this system can be shaken off.

After all, an end in terror is preferable to terror without end.

We are not in a position to draw up a final judgment about the meaning of our history. But if this catastrophe can be used to further the public welfare, it will be only by virtue of the fact that we are cleansed by suffering; that we yearn for the light in the midst of deepest night, summon our strength, and finally help in shaking off the yoke which weighs on our world.

We do not want to discuss here the question of the Jews, nor do we want in this leaflet to compose a defense or apology. No, only by way of example do we want to cite the fact that since the conquest of Poland three hundred thousand Jews have been murdered in this country in the most bestial way.

Here we see the most frightful crime against human dignity, a crime that is unparalleled in the whole of history. For Jews, too, are human beings - no matter what position we take with respect to the Jewish question - and a crime of this dimension has been perpetrated against human beings.

Someone may say that the Jews deserve their fate. This assertion would be a monstrous impertinence; but let us assume that someone said this - what position has he then taken toward the fact that the entire Polish aristocratic youth is being annihilated? (May God grant that this program has not yet fully achieved its aim as yet!)

All male offspring of the houses of the nobility between the ages of fifteen and twenty were transported to concentration camps in Germany and sentenced to forced labor, and all the girls of this age group were sent to Norway, into the bordellos of the SS!

Why tell you these things, since you are fully aware of them - or if not of these, then of other equally grave crimes committed by this frightful sub- humanity? Because here we touch on a problem which involves us deeply and forces us all to take thought.

Why do German people behave so apathetically in the face of all these abominable crimes, crimes so unworthy of the human race? Hardly anyone thinks about that.

It is accepted as fact and put out of mind. The German people slumber on in their dull, stupid sleep and encourage these fascist criminals; they give them the opportunity to carry on their depredations; and of course they do so.

Is this a sign that the Germans are brutalized in their simplest human feelings, that no chord within them cries out at the sight of such deeds, that they have sunk into a fatal consciencelessness from which they will never, never awake?

It seems to be so, and will certainly be so, if the German does not at last start up out of his stupor, if he does not protest wherever and whenever he can against this clique of criminals, if he shows no sympathy for these hundreds of thousands of victims. He must evidence not only sympathy; no, much more: a sense of complicity in guilt.

For through his apathetic behavior he gives these evil men the opportunity to act as they do; he tolerates this "government" which has taken upon itself such an infinitely great burden of guilt; indeed, he himself is to blame for the fact that it came about at all...

Please make as many copies of this leaflet as you can and distribute them.

Gold Daily and Silver Weekly Charts - Zzzzzzzz... The Mad Doctors

Sleepy summer days.

Madame Tussaud's-on-the-Hudson is acting according to form.

Nothing happened in the Comex precious metals reports yesterday. 

Price discovery based on real market demand and the exchange of goods is reserved for the neighborhood luncheonettes.

Someone suggested, on an economics forum today, that the Fed should raise interest rates to encourage people to save more.  

Let's see, median wages are so stagnant that they are forming economic shale deposits in the middle class, and most potential consumers below the multimillionaire class are living paycheck to paycheck.  The recovery is carefully directed to the wealthiest few, compliments of the Fed's highly targeted-to-financial-assets top down stimulus.

So let's raise interest rates to encourage savings in the face of slack aggregate demand and stagnant wages.  

 

That is like an emergency room doctor suggesting that the heart attack patient just wheeled in should go do wind sprints until he finishes the job that Dr. Greenspan's bacon rinds and milkshakes with intravenous butter chasers diet had created.

Have a pleasant evening.

SP 500 and NDX Futures Daily Charts - When the Music Stops

“When the music stops, in terms of liquidity, things will be complicated.

But as long as the music is playing, you’ve got to get up and dance. We’re still dancing,"

Chuck Prince, CEO Citigroup, 9 July 2007

In this record inequality and atmosphere of serial policy errors by the privileged ruling class, the markets no longer need the broad, direct participation of the public.

The Fed is taking care of the moneyed interests, and the sychophants in government will do anything to smooth their way.

Have a pleasant evening.