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I guess this was a bad idea huh? Greenspan, Clinton, and the Republican Congress cost us over 700 billion dollars and that is if we don't start bailing out foreign banks.

Threat to financial stability

The proposed deregulation will increase the degree of monopolization in finance and worsen the position of consumers in relation to creditors. Even more significant is its impact on the overall stability of US and world capitalism. The bill ties the banking system and the insurance industry even more directly to the volatile US stock market, virtually guaranteeing that any significant plunge on Wall Street will have an immediate and catastrophic impact throughout the US financial system.
And there is a much more recent experience than 1929 to serve as a cautionary tale. A financial deregulation bill was passed in the early 1980s under the Reagan administration, lifting many restrictions on the activities of savings and loan associations, which had previously been limited primarily to the home-loan market. The result was an orgy of speculation, profiteering and outright plundering of assets, culminating in collapse and the biggest financial bailout in US history, costing the federal government more than $500 billion. The repetition of such events in the much larger banking and securities markets would be beyond the scope of any federal bailout.
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http://www.wsws.org/articles/1999/nov1999/bank-n01.shtml

WSWS : News & Analysis : North America : US Economy

Clinton, Republicans agree to deregulation of US financial system
By Martin McLaughlin
1 November 1999
Use this version to print

An agreement between the Clinton administration and congressional Republicans, reached during all-night negotiations which concluded in the early hours of October 22, sets the stage for passage of the most sweeping banking deregulation bill in American history, lifting virtually all restraints on the operation of the giant monopolies which dominate the financial system.

The proposed Financial Services Modernization Act of 1999 would do away with restrictions on the integration of banking, insurance and stock trading imposed by the Glass-Steagall Act of 1933, one of the central pillars of Roosevelt's New Deal. Under the old law, banks, brokerages and insurance companies were effectively barred from entering each others' industries, and investment banking and commercial banking were separated.

The certain result of repeal of Glass-Steagall will be a wave of mergers surpassing even the colossal combinations of the past several years. The Wall Street Journal wrote, "With the stroke of the president's pen, investment firms like Merrill Lynch & Co. and banks like Bank of America Corp., are expected to be on the prowl for acquisitions." The financial press predicted that the most likely mergers would come from big banks acquiring insurance companies, with John Hancock, Prudential and The Hartford all expected to be targeted.

Kenneth Guenther, executive vice president of Independent Community Bankers of America, an association of small rural banks which opposed the bill, warned, "This is going to begin a wave of major mergers and acquisitions in the financial-services industry. We're moving to an oligopolistic situation."

One such merger was already carried out well before the passage of the legislation, the $72 billion deal which brought together Citibank, the biggest New York bank, and Travelers Group Inc., the huge insurance and financial services conglomerate, which owns Salomon Smith Barney, a major brokerage. That merger was negotiated despite the fact that the merged company, Citigroup, was in violation of the Glass-Steagall Act, because billionaire Travelers boss Sanford Weill and Citibank CEO John Reed were confident of bipartisan support for repeal of the 60-year-old law.


Campaign of influence-buying

They had good reason, to be sure. The banking, insurance and brokerage industry lobbyists have combined their forces over the last five years to mount the best-financed campaign of influence-buying ever seen in Washington. In 1997 and 1998 alone, the three industries spent over $300 million on the effort: $58 million in campaign contributions to Democratic and Republican candidates, $87 million in "soft money" contributions to the Democratic and Republican parties, and $163 million on lobbying of elected officials.

The chairman of the Senate Banking Committee, Texas Republican Phil Gramm, himself collected more than $1.5 million in cash from the three industries during the last five years: $496,610 from the insurance industry, $760,404 from the securities industry and $407,956 from banks.

During the final hours of negotiations between the House-Senate conference committee and White House and Treasury officials, dozens of well-heeled lobbyists crowded the corridors outside the room where the final deal-making was going on. Edward Yingling, chief lobbyist for the American Bankers Association, told the New York Times, "If I had to guess, I would say it's probably the most heavily lobbied, most expensive issue" in a generation.

While Democratic and Republican congressmen and industry lobbyists claimed that deregulation would spark competition and improve services to consumers, the same claims have proven bogus in the case of telecommunications, airlines and other industries freed from federal regulations. Consumer groups noted that since the passage of a 1994 banking deregulation bill which permitted bank holding companies to operate in more than one state, both checking fees and ATM fees have risen sharply.

Differing versions of financial services deregulation passed the House and Senate earlier this year, and the conference committee was called to work out a consensus bill and avert a White House veto. The principal bone of contention in the last few days before the agreement had nothing to do with the central thrust of the bill, on which there was near-unanimous bipartisan support.

The sticking point was the effort by Gramm to gut the Community Reinvestment Act, a 1977 anti-redlining law which requires that banks make a certain proportion of their loans in minority and poor neighborhoods. Gramm blocked passage of a similar deregulation bill last year over demands to cripple the CRA, and bank lobbyists were in a panic, during the week before the deal was made, that the dispute would once again prevent any bill from being adopted.

Gramm and other extreme-right Republicans saw the opportunity to damage their political opponents among minority businessmen and community groups, who generally support the Democratic Party. Gramm succeeded in inserting two provisions to weaken the CRA, one reducing the frequency of examinations for CRA compliance to once every five years for smaller banks, the other compelling public disclosure of loans made under the program.

The latter provision was particularly offensive to black and other minority business and community groups, who have used the CRA provisions as a lever by threatening to challenge mergers and other bank operations which require government approval. In most such cases, the banks have offered loans to businessmen or outright grants to community groups in return for dropping their legal actions. These petty-bourgeois elements have been able to posture as defenders of the black or Hispanic community, while pocketing what are essentially payoffs from finance capital and concealing from the public the details of this relationship.

The banks and other financial institutions did not themselves oppose continuation of the CRA, which they have treated as nothing more than a cost of doing a highly profitable business in minority areas. Loans tied to the CRA average a 20 percent rate of return. Financial industry lobbyists complained that they were being caught in a crossfire between the Republicans and Democrats which was unrelated to the main purpose of the bill.

The Clinton White House threatened to veto the bill if CRA provisions were substantially weakened, in response to heavy pressure from the Congressional Black Caucus and the Reverend Jesse Jackson, whose Operation PUSH has made extensive use of CRA in its campaigns to pressure corporations and banks for more opportunities for black businessmen. But eventually the White House caved in to Gramm, accepting his amendments so long as the program remained formally in place.

The White House similarly retreated on pledges that consumer privacy would be protected in the legislation. Consumer groups pointed to the potential for abuse of financial information once giant conglomerates were created which would handle loans, investments and insurance at the same time. For example: a bank could refuse to give a 30-year mortgage to a customer whose medical records, filed with the bank's insurance subsidiary, revealed a fatal disease.

The final draft of the bill contains a consumer privacy protection clause, but it is extremely weak, applying only to the transfer of information outside of a financial conglomerate, not within it. Thus Citigroup will be able to pass on financial information about its bank depositors to Travelers Insurance, but not to an outside company like Prudential. Even that limitation would be breached if there was a contractual relationship with the outside company, as in the case of a telemarketer which did work for Citigroup and was given private information about Citigroup depositors to aid in its telephone solicitations.


Threat to financial stability

The proposed deregulation will increase the degree of monopolization in finance and worsen the position of consumers in relation to creditors. Even more significant is its impact on the overall stability of US and world capitalism. The bill ties the banking system and the insurance industry even more directly to the volatile US stock market, virtually guaranteeing that any significant plunge on Wall Street will have an immediate and catastrophic impact throughout the US financial system.

The Glass-Steagall Act of 1933, which the deregulation bill would repeal, was not adopted to protect consumers, although one of its most celebrated provisions was the establishment of the Federal Deposit Insurance Corporation, which guarantees bank deposits of up to $100,000. The law was enacted during the first 100 days of the Roosevelt administration to rescue a banking system which had collapsed, wiping out the life savings of millions of working people, and threatening to bring the profit system to a complete standstill.

As a recent history of that era notes: "The more than five thousand bank failures between the Crash and the New Deal's rescue operation in March 1933 wiped out some $7 billion in depositors' money. Accelerating foreclosures on defaulted home mortgages—150,000 homeowners lost their property in 1930, 200,000 in 1931, 250,000 in 1932—stripped millions of people of both shelter and life savings at a single stroke and menaced the balance sheets of thousands of surviving banks" (David Kennedy, Freedom from Fear, Oxford University Press, 1999, pp. 162-63).

The separation of banking and the stock exchange was ordered in response to revelations of the gross corruption and manipulation of the market by giant banking houses, above all the House of Morgan, which organized huge corporate mergers for its own profit and awarded preferential access to share issues to favored politicians and businessmen. Such insider trading played a major role in the speculative boom which preceded the 1929 crash.

Over the past 20 years the restrictions imposed by Glass-Steagall have been gradually relaxed under pressure from the banks, which sought more profitable outlets for their capital, especially in the booming stock market, and which complained that foreign competitors suffered no such limitations to their financial operations. In 1990 the Federal Reserve Board first permitted a bank (J.P. Morgan) to sell stock through a subsidiary, although stock market operations were limited to 10 percent of the company's total revenue. In 1996 this ceiling was lifted to 25 percent. Now it will be abolished.

The Wall Street Journal celebrated the agreement to end such restrictions with an editorial declaring that the banks had been unfairly scapegoated for the Great Depression. The headline of one Journal article detailing the impact of the proposed law declared, "Finally, 1929 Begins to Fade."

This comment underscores the greatest irony in the banking deregulation bill. Legislation first adopted to save American capitalism from the consequences of the 1929 Wall Street Crash is being abolished just at the point where the conditions are emerging for an even greater speculative financial collapse. The enormous volatility in the stock exchange in recent months has been accompanied by repeated warnings that stocks are grossly overvalued, with some computer and Internet stocks selling at prices 100 times earnings or even greater.

And there is a much more recent experience than 1929 to serve as a cautionary tale. A financial deregulation bill was passed in the early 1980s under the Reagan administration, lifting many restrictions on the activities of savings and loan associations, which had previously been limited primarily to the home-loan market. The result was an orgy of speculation, profiteering and outright plundering of assets, culminating in collapse and the biggest financial bailout in US history, costing the federal government more than $500 billion. The repetition of such events in the much larger banking and securities markets would be beyond the scope of any federal bailout.
 

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Poor analysis above. It was political interference, not deregualtion, that caused the debacle.
The primary cause was the Community Redevelopment Act and all that flowed from it over the last 2 decades when the rules were changed to allow no doc, no downpayment, uncapped principal, interest-only, and negative amortization loans via Fannie and Freddie to buy the votes of minorities for the Democratic Party under the code words of "affordable housing". The prime congressional bagmen were Barney Frank (D-MA) and Chris Dodd (D-CT). Clinton via Janet Reno let it be known that institutions that did not make such risky loans would have to prove they were not "redlining" and might well get sued by the DOJ.
Attempts to reform the regulation of Fannie and Freddie in 2002 & 2003 by the Bush administration were blocked by Frank, Dodd and other Democrats using the race card and Frank said that Fannie and Freddie were not in trouble and taxpayers had no exposure to them. Those 2 organizations were well known inside the Beltway as slush funds and playpens for the Democraic Party. Franklin Raines looted almost $100 for himself, Jaimie Gorelick (yes, THAT Gorelick, the Waldo of the Democratic Party) $75 million, Jim Johnson $25 million, Mr. Mudd $20 million and virtually all of them now are top Obama campaign advisors, and when running Fannie shoveled money to the Dems via lobbying contributions, with Dodd #1 and Obama #2 recepients.
All of the contamination of Freddie/Fannie mortagages to Wall Street repackagers to pension and money fund investors, to AIG as the insurer of the default risk on many of these contracts came from the subprime debacle. And it was simply a cynical vote-buying stunt by the Democaratic Party using taxpayer funds via schemes executed behind thier backs.
And now these very same jokers want more money and more control while blaming the very markets they legally threatened and crippled economically.
And the practical proof of this is that, unlike Enron, which was 1/5,000 the size and involved no taxpayer funds, there is no call for an investigation and prosecution of the major players - because they are virtually all Democrats.
The irony is too rich for words.
 

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Both current elected Dems and Republicans (1999- 2007) had a hand in this crap. Everyone is looking to point a finger at one side or the other when in fact they are both corrupt as ****. The Dems wanted low income housing, the Republicans had the House, Senate, and the Executive office from 2001-2006, if they wanted this changed it would have been.

I say they let it fail. Look, anyone who invested in risky money deals knew the risk. It's no different than playing the ponies at the race track. You take a risk, sometimes you win, sometimes you loose.

Screw bailing these a-holes out. Go after the CEO's first, then Speculators, then tell foreign banks to put something in the till or loose your shirt. Take the most solvent assets and fund them with US taxpayer money that have the greatest chance to break even or make a profit. Blackball speculators that were involved. They are out for life globaly.
 

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The Republicans tried and were beaten back. True it was a failure of spine
on their part for which they should be blamed, but it is far from being the cause.
It is true we should let it fail and endure the consequences.
However, the "everyone is guilty" approach is the same as the "nobody is guilty" approach. Unless the primary individuals get burned, then we will have more and bigger of the same in the future.
And absent from the list of CEOs, speculators, and foreign banks whom you wish to go after are the real culprits, the politicians and their lobbyists.
Again, some of these organizations were coerced into these actions under threat of Justice Department suit.
If we fall for the media misdirection spin and look everywhere except where the primary culpability lies, we will not survive the Marxist economic model that emerges on the other side of this debacle.
 

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Well, okay... but... It was more of a prediction. The point of my post was that it was written back in 1999 and the possible outcome he feared is dang close to what we have.
 

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That is true.
What is stunning is the large number of statements from various sources for over a decade that easily saw this coming. Even the New York Times in September, 1999 said that the 1997 changes by Andrew Cuomo in HUD would be OK as long as the economy was good, but could cause a cascasding set of defaults when the economy weakened.
The dull Republican chairman of Ways and Means (whose name I forget) in 2002 said this was a looming disaster.
GAO and SEC reports saying Fannie/Freddie were incapable of self regulation under the current setup after they studied the manipulation of bonus-generating accounting fraud by Franklin Raines. This led to the Bush admin legislative reform proposal that was successfully beaten back by Dodd and Frank.
And no one was confused about the source of the problem: the de facto give away of houses under the standardless-mortgage lending practices forced by DOJ and HUD.
 
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