What better time, than the day before a long Labor (or lack of Labor) Day weekend to start blaming others for the problems we have.
A commenter on a recent post of mine mentioned that the repeal of the Glass-Steagall Act is the cause of the World economic crisis. My initial response to this was, what the hell is the Glass-Steagall Act?
Well, in a nutshell, the Glass-Steagall Act was actually two acts sponsored by two Democratic Senators Carter Glass and Henry B. Steagall back in 1932 and 1933. The first, passed in 1932 allocated paper currency for the Federal Reserve System, so I think it was the first step in moving off the gold standard which we eventually did in 1933.
Then the more influential Glass-Steagall Act came in 1933 which basically separated, for the first time, commercial and investment banks in reaction to the failure of a large number of commercial banks in the early part of 1933.
But then, in the middle of a gangbuster economy of 1999 two (you guessed it) Republican Congressman introduced a repeal of the Glass-Steagall Act and it was eventually signed into law in November 1999 by Bill Clinton. By repealing this Act the lines between loans, securities, and deposits were blurred and banks were allowed to pull their tricky games of bundling mortgages and selling them as mortgage backed securities. Basically, they were allowed to be the greedy crooks they are.
Before the Act was repealed, sub-prime mortgages were five percent of all mortgage lending and by the time 2008 rolled around they were approaching 30 percent. And this makes perfect sense because a bank could afford to take more risk if they could sell the mortgage and make profit that way as well. Was Bernie Madoff in on this deal?
There is actually a lot of heated debate (at least on the web) about what caused this massive downturn and there will certainly never be a clear scapegoat, but it's always fun to sit in our armchairs and blame people other than ourselves. What better way to spend Lack of Labor Day?
Posts
Blame seldom falls in the right place when white collar acts of terrorism are done. The system usually finds a scapegoat and its usually some idiot in middle management.
ReplyDeleteBut that is good information and comes as no surprise.
The banks still aren't trying to fix anything, instead they are trying to get their next angle working. Its tough, we don't need more regulations, we need responsible people running government. Good luck getting that. Its already business as usual.
There are many reasons we are in recession. The Federal Reserve holding interest rates too low for too long, I believe, was the primary driver. Artificially low interest rates encourages borrowing and discourages saving. It drives home prices up because the payment was affordable. But, it is better to have higher interest rates and lower home prices. Certainly this bill didn't help.
ReplyDeleteThis blog entry has a whiff of Democrats = good; Republicans = bad. This is folly. Both parties have had a hand in the mess. Larry Summers, Obama's economic adviser, called Gramm-Leach-bliley legislation "historic" and "will better enable American companies to compete in the new economy". His mentor, Robert Rubin, went on to be CEO of Citigroup and make $126M. Democratic stalwart Goldman-Sachs (5x more in contributions to the democratic party) have made a tidy profit from this legislation.