The Alabama Moderate

Painting the Red State Purple.

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“Nobody could have predicted…” A look back at 1999

Posted by ALmod on March 26, 2009

Here’s a little gem from the New York Times.  It’s dated Friday, November 5, 1999.  It appeared on page 1 of section A, or the “front page,” as it’s called.  Read on. I’ll warn you, though.  Reading this article will make you want to hit something or someone.

Congress approved landmark legislation today that opens the door for a new era on Wall Street in which commercial banks, securities houses and insurers will find it easier and cheaper to enter one another’s businesses.

The measure, considered by many the most important banking legislation in 66 years, was approved in the Senate by a vote of 90 to 8 and in the House tonight by 362 to 57. The bill will now be sent to the president, who is expected to sign it, aides said. It would become one of the most significant achievements this year by the White House and the Republicans leading the 106th Congress.

This is the bill that I believe did it.  It was passed by the Republican Congress and signed into law by President Bill Clinton.  The Democrats didn’t exactly offer stellar opposition to it, either.  And while the Bush Administration poured gasoline onto the fire, this would have been the lit cigarette butt thrown onto a pile of leaves in a dense, dry forest.

As we now know, the economic situation we’re currently experiencing came into being when bad mortgage loans were packaged and sold over and over to banks and other entities.  Meanwhile they were backed by insurance companies in association with those banks.  And the insurance companies were rated by agencies owned by those insurance companies.  Houses quit selling, people suddenly owned more on homes than they were worth, loans went bad, insurers couldn’t back the loans after all, and it all collapsed.  (Yes, I’m aware that it’s more complicated than that, but I’m trying to paraphrase it.)  There were other factors, but this is the rough scenario is what led to the collapse and bailouts of several banks and insurers who are now being bailed out.

This is also a very similar situation to what happened back in the Great Depression.  That’s why Glass-Steagall was passed. It was put into place to prevent conflicts of interest where insurers, banks, and brokers were under the same company.  The legislation described in this article basically repealed Glass-Steagall.

As much as I dislike Sen. Richard Shelby, he voted against this turd.  Kudos to him on that.

Some of the opponents predicted exactly what would happen.

The decision to repeal the Glass-Steagall Act of 1933 provoked dire warnings from a handful of dissenters that the deregulation of Wall Street would someday wreak havoc on the nation’s financial system. The original idea behind Glass-Steagall was that separation between bankers and brokers would reduce the potential conflicts of interest that were thought to have contributed to the speculative stock frenzy before the Depression.

…The opponents of the measure gloomily predicted that by unshackling banks and enabling them to move more freely into new kinds of financial activities, the new law could lead to an economic crisis down the road when the marketplace is no longer growing briskly.

”I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930’s is true in 2010,” said Senator Byron L. Dorgan, Democrat of North Dakota. ”I wasn’t around during the 1930’s or the debate over Glass-Steagall. But I was here in the early 1980’s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.”

We were warned, folks.  And how was that warning received?

”The world changes, and we have to change with it,” said Senator Phil Gramm of Texas, who wrote the law that will bear his name along with the two other main Republican sponsors, Representative Jim Leach of Iowa and Representative Thomas J. Bliley Jr. of Virginia. ”We have a new century coming, and we have an opportunity to dominate that century the same way we dominated this century. Glass-Steagall, in the midst of the Great Depression, came at a time when the thinking was that the government was the answer. In this era of economic prosperity, we have decided that freedom is the answer.”

…Supporters of the legislation rejected those arguments. They responded that historians and economists have concluded that the Glass-Steagall Act was not the correct response to the banking crisis because it was the failure of the Federal Reserve in carrying out monetary policy, not speculation in the stock market, that caused the collapse of 11,000 banks. If anything, the supporters said, the new law will give financial companies the ability to diversify and therefore reduce their risks. The new law, they said, will also give regulators new tools to supervise shaky institutions.

If the name Phil Gramm sounds familiar, it should.  He wrote John McCain’s economic policy when McCain was running for POTUS.  That tells me that we’re still embracing the same knuckleheads who got us into this mess and asking them to get us out.  Sound familiar? Be afraid, folks.  Be very afraid.

Are you angry, yet?


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