Molly and Dingell Had it Right
September 29th, 2008 at 4:26 pm
As the Senate’s proposed $700 billion bailout bill goes thudding down to ignominious defeat—an hour after John McCain rushed to claim credit for its success—it’s worth remembering another vote, in another time, that just may have helped get us where we are today.
On September 23, Jay Bookman from the Atlanta Journal Constitution reprinted a Molly Ivins column on the 10th anniversary of its original publication. In it, Ivins argues that proposed deregulation of the banking industry is going to lead to “financial disaster.”
Watching Washington Mutual and Wachovia’s catastrophic collapses, it’s easy to forget that way back, oh, about 10 years ago, things seemed pretty good. The economy was going through one of the biggest booms in our history. People had savings accounts. Students could get loans. Major banks weren’t failing. And the Senate met to vote on the Gramm-Leach-Bliley Act, a proposal to, in Ivins’ synopsis, “eliminate barriers between banks, brokerage firms, and insurance companies.”
Her critique is worth quoting at some length. “This sets up financial holding companies that offer all three types of services simultaneously. The most obvious risk is that a blunder in the insurance or brokerage end of the business could bring down a bank, putting insured deposits at risk. The taxpayers, of course, then wind up with the tab, as we did with the savings-and-loan mess.
“So what we have here is (1) increasing likelihood of a recession dead ahead, (2) banks already looking at serious trouble because of stupid lending policies, and (3) a bill that effectively further deregulates the banks and hurts consumers, making it even more likely that banks will get themselves into serious trouble . . . Veto, veto, veto.”
Almost a year after that column, as the bill went to a vote in the House, U.S. Representative John Dingell (D-Michigan, and now chairman of the Commerce Committee) stood before the House to warn that the act would create “a group of institutions which are too big to fail.
“Not only are they going to be big banks, they are going to be big everything, because the are going to be in securities and insurance, in issuance of stocks and bonds and underwriting, and they are also going to be in banks . . . Taxpayers are going to be called upon to cure the failures we are creating tonight, and it is going to cost a lot of money, and it is coming. Just be prepared for those events.”
Nine days later, on November 12, 1999, President Clinton signed the Gramm-Leach-Bliley Act into law. Phil Gramm (R-Texas), co-sponsor of the act, was there to claim credit.
“The world changes,” he said, “and Congress and the laws have to change with it. We have learned that government in not the answer. We have learned that we promote economic growth and we promote stability by having competition and freedom.”
He added, “I believe that this is the wave of the future, and I am awfully proud to have been part of making it a reality.”
September 30th, 2008 at 8:58 am
Professor George W. Bush
One of the great tragicomics
Taught eight years of CRASH economics!
A FULL of it PROFESSOR
September 30th, 2008 at 10:15 am
Those who fancy themselves exempt from the lessons of history will repeat them until they learn better.
Unfortunately, they will screw the rest of us in the process.
September 30th, 2008 at 12:54 pm
Ms. Ivins was correct on the effects of the changes to the regulations.
But, the “deregulation” in 1995 was not actually deregulation. It was changing the regulations of a highly regulated market. If there was true regulation then you and I could create an honest bank which offers only two products:
1) Demand deposits with 100% reserves and charged a Vault Storage Fee of 0.5% per annum.
2)Certificates of deposit for time spans ranging of 1 week to 30 years with stiff penalties for early withdrawl, but which can be legitimately lent out to borrowers.
3) Accept only gold, silver or other specie in order to avoid the entanglements of the federal reserve system and the FDIC; ie. Take the king’s federal reserve note, dance to the king’s regulations.
You know such a “bank” while honest and immune from a bank run would be shut down as illegal. Even if the “bank” prominently and boldly displayed a banner “NOT FDIC insured and damned proud of it.” on every door, window, and piece of paper it printed.
Until such a bank can be created (probably on an Indian reservation) there is no bank deregulation, there is only varying levels of regulation. There is no free market only a highly regulated one.
October 1st, 2008 at 12:35 am
Fed Reserve floods & continues to flood money. Fed Reserve holds Prime Rate extremely low. Exec. Branch continues extreme war expenditures. Exec. Branch continues timid ‘financial’ regulation. Legislature legalizes systemwide business loopholes. Legislature will try another ‘rescue plan’ which will continue to be the basic 700b swindle, only with some ‘new’ parameters. Corporations have systemically implemented, and TAUGHT their employees ‘anything goes’ other than business conducted honourably. You don’t pay a guy 130million a year, unless he is able to resort to the very lowest of tactics.
And last but not least…Carve yourself a golden calf and see it still standing in Wall Street to this day. They get on there knees & worship it. Seems like I’ve heard that warning also.
wild
October 3rd, 2008 at 2:06 pm
Don’t you know it’s those pesky poor people getting all those mortgages that caused all the problems. What I see are people who were not poor, overextending themselves buying (or building) more and more houses, pushing up the prices beyond what was in any way reasonable. Across the street from me is a tiny old cottage that sold in the past for less that $100,000 and was overpriced at that. It sold last year for $350,000. It is only big enough for 2 people who are very friendly. No working person in town could even begin to afford it.