Glass-Steagall and Deja Vu Politics
Even though many countries throughout the world largely blame the US for what was called the global financial crisis the greed responsible and regulatory incompetence that enabled excessive risk in financial markets has its roots where most massive failures do; the legislative halls of the US Congress and other such institutions around the planet. Those countries citing the US as responsible for their crippling losses are as guilty as anyone for gladly participating while everything was working out in that house of cards.
International criticism and commentary aside there have been other suggested culprits throughout the long history of actions leading to the economic problems Americans now face. Senator Chris ‘Countrywide’ Dodd as well as sputtering Congressman Barney Frank are but two politicians connected to the banking industry. There are many more who helped themselves to the profits available in the mortgage industry during the run up to disaster and one such person is none other than Rahm Emanuel, President Obama’s Chief of Staff. The President’s choice for Secretary of the Treasury, Timothy Geithner, also has dirt on his hands from his tenure at the Federal Reserve Bank of New York.
During the initial reporting on such matters over the last couple of years the mortgage portion of the crisis included criticism that the Community Reinvestment Act was responsible for much of what happened. It was suggested that financial institutions were forced to extend credit for housing that borrowers were not likely to pay back.
Another culprit receiving criticism in recent years was the Securities and Exchange Commission or SEC. In the past this site featured press releases from the SEC describing the results of legal action against various types of fraud in the financial markets. Almost exclusively the outcome involved what essentially was profit sharing between the offenders and the government. Rather than ever seeing jail time the perps were merely barred from engaging in business in the financial markets and paying some amount of money to the SEC that no doubt came from the ill-gotten gains.
Testimony by former Fed Chair Paul Volcker has focused attention on what may be the single largest reason for problems in banking and Wall Street. The Banking Act of 1933 also known as Glass=Steagall was enacted to avoid problems within the banking industry that occurred then and are remarkably similar to what happened lately. Over the years various parts of the ‘act’ were repealed and some are calling for restoration of those limitations now.
You can do a search on the topic at your favorite engine. You will likely find information about the original safeguards and a repeal history. In addition, HR4375 is a bill sponsored by a Democrat and co=sponsored by nine more plus a Republican. The bill seeks to restore some of Glass-Steagall. Also Senators McCain and Cantwell are in the news claiming to want the same thing or something similar.
This story and the items mentioned above point to the central theme of this post. Political rhetoric and ‘after the fact’ reactions are all too common. It is the evidence that proves what most of us already know about government and those who run it. They govern poorly allowing events to occur that could have been prevented. Where were all these people before the problems referenced here took place? Certainly most of them were in office before the so-called global financial crisis emerged.
The author of this blog supports restoring common sense in government. Like most expressing a personal preference for conservative principles and adhering to our nation’s founding documents Congress and the rest of government is encouraged to concur. And if in this particular case wisdom dictates restoring Glass-Steagall to its original form, please do.
It seems logical to accept the following idea. If the current economic turmoil is in fact the worst since the Great Depression and none has occurred since Glass-Steagall until certain portions of it were repealed then restoring the original legislation is prudent.
It would be helpful to all involved if those in government could produce a series of consecutive actions that can be applauded universally as successful and impressive. At least then citizens could be reassured that it IS possible for government to do something right. There is currently little evidence to suggest that is the case.
Stanford Matthews
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