Published September 15, 2008
The 1999 deregulation of banking passed by Bill Clinton and a Republican Congress brought on a massive wave of mergers and acquisitions, purchased by $300 million in lobbying to both parties. It's no wonder Phil Gramm called us all "whiners:" he himself, as Senate Banking Committee chairman, received $1.5 million from banks, the securities industry, and the insurance industry.
Like my second-grader's building-block towers, as they grow too tall, they get precariously unsteady. When the tower's foundation is built on a sea of risk, it begins to sink—and quickly—as we saw today. Monday saw Wall Street's worst single-day drop since 9/11/2001.
Nevertheless, McCain insists "the fundamentals of our economy are strong," despite a 500-point drop in the Dow Jones Industrial Average. Obama predictably called him out for this nonsense, "Senator McCain, what economy are you talking about?" Biden, campaigning in Detroit, went one better, "Ladies and gentlemen, I could walk from here to Lansing, and I wouldn't run into a single person who thought our economy was doing well, unless I ran into John McCain."
A lot of bluster from both sides and some enjoyable one-liners, but the bottom line is that there's too much corporate money in politics that led to this situation. Both parties bear responsibility, and this is a moment to step back and take a look at the role the government plays in regulation. Does the government have a role to play in regulation?
The Guardian has an in-depth preview of what today's events may mean for the future of banking. Ironically, the Glass-Steagall Act that was repealed in 1999 had been on the books since the 1930s and was instituted in response to the Great Depression. And today's remarkable events were assessed by former Federal Reserve chairman Alan Greenspan as a "probably once-in-a-century type of event."
"New regulation of the US financial sector seems likely once the dust settles… Glass-Steagall was part of a package of banking reforms put in place by president Franklin D Roosevelt to restore trust in the banking system.
"After the Great Crash of 1929, Wall Street was vilified for misleading the masses. Congress introduced legislation that diluted the power of big financial institutions, splitting up commercial and investment banking into separate functions. According to the act, commercial banks were not allowed to use depositors' money to finance profit-making investments other than loans.
"Left to their own devices, several have managed to ruin themselves and create havoc in the international financial system. Wall Street bankers may be wishing that regulators had kept them on a tighter leash, not least because fewer of them would be out of a job today."