Under the Glass-Steagall Act of 1933, certain types of financial institutions had been prohibited from commingling their services. For example, with limited exceptions, only broker-dealers could provide brokerage services; only banks could offer banking and only insurers could offer insurance.
One reason for keeping the sectors separate was to ensure that banks with federally-insured deposits did not engage in the type of high-risk activities that would be common for a broker-dealer or commodities trader. Thus the government, and hence taxpayers, did not underwrite Wall Street”s lust for high-risk-and-return via insured deposits.
This was repealed in 1999 by a Democratic Congress and signed by President Clinton. The legislation was authored in the Senate by a former Secretary of the Treasury and co-authored by the Chairman of the House Committee on Banking and Currency. Now unfettered by legal constraint or any real oversight, these newly created investment banks grew fat with widespread derivatives gambling and debt-speculation practices, which eventually brought the economy to the brink of disaster. The latest bubble, housing, inevitably deflated as had all the previous ones we had become so dependent on for economic growth.
The response to this crisis has been for government to undertake a commitment to spending about $11 trillion dollars with $3 trillion currently spent in a myriad of ways to get credit flowing. Bernanke”s dictum that lack of government spending was the major cause for the length and severity of the Great Depression would be tested against an onslaught of federalist spending approved by both parties and presidents from each party. Three years later Wall Street is bloated with profits and corporate America declares robust bottom lines built on tax deferrals and bailouts. Most telling, no new federal laws regulating derivative abuse have been passed to date. To further assist holders of these greatly devalued derivative debts, marked to market rules were also finessed to allow unrealistic valuations to effectively hide losses. Wouldn”t it be great if you could suddenly decide that $500,000 house you bought in ”07 was still worth at least that much and determine your financial worth accordingly ? But sadly for the rest of us the federal Santa never arrived.
Unemployment is higher than 9 percent and inflation hovers at about 3 percent. That, of course, assumes you drink the Kool Aid these numbers float on. With the approval of both political parties, wealthy and powerful interests were protected and nourished on the public teat. We certainly found out who among us was too important to fail, and who was not. So when you pubs and dems start bashing each other in earnest with the usual regurgitated talking points in advance of the 2012 elections, remember who had your back during this crisis and who did not. And remember to call anyone who expresses concerns an extremist for pointing such inconvenient facts as federal, state and local municipal debts now equal close to 100 percent of our annual gross domestic product. This means we would have to take the value of all goods and services produced in the economy for one year to resolve this debt, while congress quibbles about reducing it about 1 percent per year. It is truly a shame the anti-debt movement has been co-opted by the establishment media into the Tea Party Movement.
Those united by the core concern of massive debt more accurately reflect the Populist Party that grew out of farmers alliances in the late 19th century versus the financial oppression of eastern banking and industrial interests. The fact remains the same “too-big-to-fail” players are sitting on Uncle Sam”s shoulders more than 100 years later. Maybe the Wizard of Oz, arguably a parable of the political and economic environment of the Populist era, said it best. “Pay no attention to the man behind the curtain.”
Jerry Nicoletti
Kelseyville
