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.

David Cay Johnston: You Can Only Push People So Far

"For decades the American financial system was stable and safe. But then something changed. The financial industry turned it's back on society, corrupted our political system and plunged the world economy into crisis. At enormous cost, we've avoided disaster and are recovering.

But the men and institutions that caused the crisis are still in power and that needs to change. They will tell us that we need them and that what they do is too complicated for us to understand. They will tell us it won't happen again. They will spend billions fighting reform. It won't be easy.

But some things are worth fighting for."

Inside Job

Chris Hedges: Reform or Revolution

"In the task of that redemption the most effective agents will be men who have substituted some new illusions for the abandoned ones. The most important of these illusions is that the collective life of mankind can achieve perfect justice. It is a very valuable illusion for the moment; for justice cannot be approximated if the hope of its perfect realization does not generate a sublime madness in the soul.

Nothing but such madness will do battle with malignant power and 'spiritual wickedness in high places.' The illusion is dangerous because it encourages terrible fanaticisms. It must therefor e be brought under the control of reason. One can only hope that reason will not destroy it before its work is done."

Reinhold Niebuhr


"Those who make peaceful revolution impossible will make violent revolution inevitable."

John F. Kennedy

The illusions of extremists, of both the right and the left, are very dangerous things, for the very reason that they often incline themselves to sacrifice the individual, and even surprisingly large groups of individuals and segments of society, for the 'greater good' of their extremes and their illusions.

One only has to look to the excesses of the French Revolution, with the slaughter of the aristocracy and the burning and desecration of churches and monasteries, the wantonness of the Terror and the Reaction, and the eventual rise of Napoleon out of that chaos of the sacrifice of reason.

An seemingly endless parade of infamous tyrants, forgotten viceroys, and faceless bureaucrats always seem to have their roots in the extremity of illusion that rises out of some turmoil of excess, and the throwing off of the restraints of reason.

And no people, no organization of people, and no nation is immune or exceptional to this extremity, not by a long shot. The human being is remarkably clever and wonderfully self-deluding in choosing the things that they know are wrong, that they hide both from the world and themselves at first. That they excuse, wrap in exceptionalism, drape in personal exemption and necessity.

Evil is a choice, or more properly a long, gradual succession of choices. And it never sleeps, is always open for business.

Shanghai Gold Exchange Has 73.3 Tonnes of Bullion Withdrawn Its Third Largest Week

For the week ending July 24th there were 73.289 tonnes of gold bullion withdrawn from the Shanghai Exchange into China.

That is about 2,356,296 troy ounces in one week.

I have included the most recent statistics from the Comex Gold Warehouses below.  There are currently 351,519 ounces of gold available for delivery at these prices there for the month of August.

Nine out of ten Americans will notice that in terms of technical analysis this is 'a lot less.'

But as the very serious people like to point out, the Comex is not really 'a physical exchange.'  Yep.

And as you may have seen in the posting from earlier today showing the sea change in leverage over even the past ten years there, it is seemingly getting a lot less physical all the time, even compared to just five or six years ago. Winning...

Even the US Mint seems to be getting in on the act.  The mint sold 202,000 ounces of gold in the form of coins for the month of July, one of its largest monthly sales totals in several years.

That's a lot of pet rocks.

Do the math. I wonder where the poor, deluded ignoramuses who obviously do not understand finance are getting all that money to spend on such worthless trifles.  Does the US Mint take food stamps?

While they last.

This chart is from the date wrangler Nick Laird at sharelynx.com.

Gold Daily and Silver Weekly Charts - Entering the Active Month of August - July Payrolls Next Week

Gold and silver popped today and the soaring dollar dipped as wage growth, as plotted by the ECI, was shown to be at a twenty year low.

What a surprise.

Keep in mind that the 'dollar index' DXY is hopelessly outdated, and is little more than the inverse of the Euro.  And brother does the euro have problems. 

So it might make the dollar look good when in fact it is fundamentally deteriorating as well, just not on the same timescale.

A strong dollar does what again?  Oh yeah, it stifles exports and domestic manufacturing.  Perfect policy choice, but only if you are a predatory financial vulture looking to buy up foreign assets on the cheap with overpriced dollars.

Former President Jimmy Carter says that the US is an oligarchy with unlimited political bribery.  I don't remember hearing about this on the evening news or the mainstream political talk shows.  Ho hum.  Who cares.

The rest of the world already knows it, and the American olilgarchs are too busy dividing the garments of His creation by casting lots to care.

There was intraday commentary on the gold market here.   The precious metals market is going to blow up at some point if it continues in this manner.
  

I am not looking for a default on the exchange since it is set up to be settled in more paper.  Rather, I am thinking of a serious break in confidence in the markets overall, at long last, as sort of 'a con too far.'   How many frauds in major markets have been exposed in the past ten years.   Are there any markets that are not manipulated by the financiers?

The problem is that the wiseguys get all full of themselves, and the easy victories fill them with puffery and bravado.  And so they keep pressing their bets until they hit the wall.  And the last two times we bailed them out.  Big mistake.

It is the outcome of almost every financial fraud that has ever been.  They never know when to quit, and certainly cannot stop themselves.  They are like addicts.  And it works for them.

It may not be the precipitant of the financial event, but it will be in the mix.  It looks like an accident waiting to happen, all of it, just like the 2007-08 mess that everyone denied until it rolled over on us.

Non-Farm Payrolls next week.

Have a nice weekend.

SP 500 and NDX Futures Daily Charts - US Wages Are Not Growing, What a Surprise

The big tickle today was that wages for the second quarter were showing their slowest growth in twenty years.

As if wage stagnation is news. 

We have seen this 'phenomenon' as a decades long trend as the power in the political system has shifted significantly to those corporate interests with the most power and money.

The bad news is that when people do not have disposable income, and they cannot keep adding debt and use things like their homes, with homeownership also falling to twenty year lows, as ATMs for ordinary consumption, then they cannot buy things, and aggregate demand falls.

What a revelation!

Next week we will have another baked-to-order Non-Farm Payrolls number, and all may be forgotten once again.   Or we will see a shot of Kim Kardashian's belly button, or Donald Trump will say something outrageous.

Its always something in the United States of ADHD.

Have a pleasant weekend.