There seems to be a lot of demonstrating going on in New York and Washington regarding the world financial crisis. Why all these demonstrations? Why not just have a conversation with our Senators and Representatives? Maybe it is because a lot of us think that it is pointless. It would be pointless because all too many of our Congressmen and Senators don’t appear to be representing us anymore. They represent Wall Street, the Insurance Industry, the Health Care Industry, the Pharmaceutical Industry. etc. Additionally, they don’t have to and are not interested in representing all points of view. Take another look at my October 14 view of Gerrymandering.
You might also want to take a look at where “our” senators and representatives are getting their money. Take one of your favorites (either because you really like his/her voting record, or you hate them), go to a web site such as (my favorite) http://www.opencongress.org/money_trail and you will see why they vote the way they do. Where is YOUR contribution? Why should he vote your interests. Who the hell are you to demand that your senator represent you? You are a nobody!
When it comes to election time, he’ll invest some money in TV ads and convince you that it is your interest that he has at heart. No such thing! He isn’t nuts. Why would he have your interest at heart? What have you done for him lately? How did that happen? Let’s take a look.
To discuss where we are economically, we need a historical context. So, let’s start with the depression of 1929. The unfortunate thing about a Free Market economic system are the extreme boom times that has had nearly full employment, and bust times in which there are high numbers of unemployed. Different economic system proposals in the past (Socialism, Communism, etc.) have been made in an effort to dampen these extreme swings of a market economy like the US has. The down-swing is a disaster for many families, as well as countries.
From the signing of our constitution in 1789 up through 1932, it has been the philosophy of government in the US to stay out of the economic cycle, knowing from past history that eventually everything would be OK. Then, the process repeats itself. One of our many downswings started in 1929 when Herbert Hoover, a Republican, was president. No one could reasonably accuse him of being anything other than a well-meaning, honorable person but his philosophy — and those of his advisors — was to stay out of the nation’s business.
By 1932 — an election year — things were unusually bad. Unemployment was almost 25% of the American workforce. The Democratic party challenged Hoover with Franklin Roosevelt, a former governor of New York. Roosevelt felt that the government needed to step in and by creating certain regulations and regulatory agencies that could dampen the extreme economic swings that our country was going through. His philosophy was very different from that of President Hoover.
With unemployment so high, the country was ready to listen to some new ideas. Roosevelt won with an overwhelming mandate. With Roosevelt’s election — and the Republicans being swept out of power in congress — Roosevelt was free to propose many new programs. He hired a lot of brilliant advisors, some of whom had all sorts of brilliant ideas — and some not so brilliant. He mostly made the right moves.
Possibly one of the best ideas to originate in congress was the Glass-Stiegel Act. This is officially called the Banking Act of 1933. Carter Glass was a Democrat from Virginia, and Henry Steagall was a Democrat from Alabama. The act introduced the separation of bank types according to their business (commercial and investment banking). As far as we are concerned, the act addressed the fact that banks in the 1920s were taking our deposits and investing them in very risky activities. The act covered many other things, but to many of us, stopping the risky loan practice went a long way toward restoring faith in the banks.
The Glass-Stiegel Act also created the Securities and Exchange Commission (SEC) which had the power to investigate banks and possibly punish them for stepping over the line. Needless to say, the banks were not happy about the idea of a policeman (the SEC) looking over their shoulder.
Over the years, from about the 1980s we were told by the financial community and their lackeys in congress that bank regulations (the Glass-Stiegel Act) were old and obsolete. We should get rid of them. For the 21st century the banks need to be “lean and mean” to compete. These silly regulations stop the banks from being competitive in the world market. By intensive lobbying, slowly but surely regulation after regulation was wiped from the books. Slowly but surely our banks were given a blank check to be as greedy as possible – with your money.
Finally the Republicans reached the ultimate victory, the Glass-Stiegel Act was repealed in 1999 by the Gramm (R-TX), Leach (R-IA), Bliley(R-VA) Act This effectively removed the separation that previously existed between investment banking which issues securities, and commercial banks which accepts deposit. Now, with that repeal the investment banking firms could use YOUR money on very risky investments just like they could do before the great depression of 1929. The Conservative movement had succeeded in doing what they had been trying to do for a very long time.
Phil Gramm was once called the “high priest of deregulation” by Nobel Laureate Paul Krugman. It would seem, however, that Gramm as well as a lot of other elected officials should have learned the lessons of history. A lot of his political career was involved in financial deregulation.
Now, Mr. Gramm is generally recognized as one of the top 10 individuals responsible for the current world meltdown by Nobel Laureate Paul Krugman as well as by Time Magazine and The Guardian Newspaper of Manchester England. Congratulations, Mr. Gramm! What an honor!
After getting the Glass-Stiegel Act repealed Mr. Gramm retired from the Senate and became a Vice Chairman of the Investment Bank division of UBS – a Swiss bank. He legislated himself a free hand to play with your money, and then took advantage of that legislation.
How has your money been doing lately?
OK, my head is going through a meltdown of its own. More tomorrow.
As usual, I invite your comments. Click on “Leave a Comment” at the upper right of this post.