Republicans to blame for
Wall Street mess
Mark Palermo
If you only listen to
conservative political commentators, you
get the idea that the banking crisis was
caused by liberals. They compelled banks,
so the story goes, to make millions of
high risk loans to low income borrowers,
most of them black and Hispanic, who
later defaulted on these loans. If you
like a simplistic analysis, there it is-
all framed and predigested for Rushs
dittoheads, Howie Curmudgeon acolytes and
OReilly enthusiasts. No further
discussion necessary for these folks.
Heres the rest of the story: the
lions share of blame for the
looting of our financial institutions
rests firmly upon the Republicans, who
have been enthusiastic architects and
promoters of deregulation. John McCain
was still touting deregulation as late as
last month.
After the stock market crash of 1929 and
the banking failures that followed,
Franklin Roosevelts administration
enacted legislation designed to restore
confidence in the banking industry. In
the early 1930s, the Glass-Steagall
and Bank Holding Company Acts
prohibited banks from engaging in
conflicts of interest, pyramid
schemes, commingling of funds,
leveraging and speculation. The act
prohibited savings banks from merging
with investment banks and mandated
frequent government audits, all of which
contributed to the sound banking
practices that lasted until the Reagan
administration. If you are over 50, you
remember when the banking industry was
the most ultra conservative, traditional,
and boring industry imaginable- in other
words, the ideal people to trust with
your money. And people did trust them.
Nobody questioned the integrity of banks
because the industry was regulated.
The fever for deregulation grew from
Ronald Reagans promise to get
government off our backs.
Deliriously happy throngs cheered Reagan
as he pledged to clear the way for his
vision of Morning in America.
Those nasty liberals created all those
barriers to commerce. If we just removed
the offending regulations, the awesome
power of free markets would be unleashed.
And so Reagan deregulated banks with the
Garn-St. Germaine Act of 1982, much of
which was written by lobbyists for the
financial industry. The resulting orgy of
greed and looting was so rampant that
even loan sharks, shady real estate
developers and gangsters were purchasing
savings and loan institutions, granting
themselves massive loans, and then
defaulting on them. (Is that what they
mean by free markets?) Within a decade,
the savings and loan crisis resulted in a
500 billion dollar bailout.
Deregulation should have ended then, but
it didnt. Big business wanted even
more banking regulations lifted and they
spent millions of dollars lobbying for
it. Perhaps no one was more a champion of
deregulation than Republican Senator Phil
Gramm, the bankers friend. After 12
attempts in 25 years, a Republican
congress (with the help of President
Clinton) finally brought down the
Glass-Steagall Acts. A law co-authored by
Gramm repealed the offending,
old-fashioned banking regulations which
had been in place since the 1930s.
Gramm was handsomely rewarded for his
help by his banking benefactors.
Gramm also sponsored the Commodity
Futures Modernization Act of 2000, which
deregulated the energy industry.
Enron lobbyists wrote most of the bill,
which accounted for the loophole
exempting Enron from energy trading
regulations. In just one year, the
loophole allowed speculators to plunder
11 billion dollars from California. In
return for his services, Gramm was the
second largest recipient of campaign
donations from Enron.
You might think that a man who single
handedly almost brought down the entire
countrys banking system would show
some humility, but not so. In July,
Gramm accused the American people of
whining and stated that the
nations economic woes were not
real, but mental. Gramm said
nothing about the whining of the
financial industry which comes begging to
the American taxpayers once again with
its empty cup.
You might think that such an exemplar of
incompetence and dishonesty would be
reviled, censured, perhaps held up to
ridicule, but not so. Today, Gramm serves
as co-chair of the McCain presidential
campaign. Since retiring from the Senate,
Gramm has secured a lucrative position as
vice president of UBS/Switzerland, the
worlds largest private bank. And
until recently, Gramm was being seriously
considered by John McCain for the post
of-are you ready for this?- Treasury
Secretary.
Are you surprised or shocked that we
might face a Latin American style era of
runaway inflation? Im not. Thomas
Jefferson faced these same kind of
problems with banks as did Andrew
Jackson. In 1837, Abraham Lincoln had
this to say about banks: These
capitalists generally act harmoniously,
and in concert, to fleece the people, and
now, that they have got into a quarrel
with themselves, we are called upon to
appropriate the peoples money to
settle the quarrel.
This is old stuff and we should know
better by now. Maybe before the next
bailout twenty or so years from now,
someone will have thought about
regulating the banking system, but I
doubt it. Most of us never learn from the
past.
Mark Palermo is a professor at Northern
Essex Community College in Haverhill. You
can email him at markpalermo@gmail.com.
Visit his website at http://markpalermo.tripod.com
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