De-regulation

In 1999 the Glass-Steagal Act was removed by Congress. This was a bi-partisan action brokered by then-President Bill Clinton. It was seen at the time as an act of trust between the federal government and the financial industry. In effect the leaders were saying: “We can do our jobs better if the fetters of regulation are reduced.” And so a bill enacted in 1933 to be a wall of protection so another great depression would not occur, was removed.

The Great Depression is generally believed to have been the result of unrestrained greed within the banking, investment, and insurance industries. Promises to pay ‘in the event of’ were broadly provided in daily business. Problems occurred when the chips began to fall and promises could not be kept.

In those days insurance companies, banks and investment companies could own each other. They proliferated because profits were easy to come by. Insure an outcome, or rather, insure the losses from bad outcomes, and people were willing to take larger risks. In turn the industries and financial community overextended their abilities to make good on their promises.

Once the downward spiral began the economy went down the drain in a hurry.

It was hoped that the new millennium – the year 2000 – would be the right time for a fresh beginning. And so Glass-Steagal was removed. Banks, insurance companies and investment companies could now own each other and expand their business models. An overheated real estate industry joined the mix and soon the economy was driving upwards in one of America’s most classic bubbles. After 9-11 challenged that bubble, the crash began. It took a few years but the strained economy went into hyper-speed and the result is the largest recession since the great depression. The recession shattered records of past bad times. This was the Great Recession on methamphetamine.

Congress and White House combined their efforts to solve the escalating problems. Trillions of dollars were spent to restore confidence in the economy but the political fire-storm that resulted from the bailouts created a new playing field of mistrust among the players. The rest you know.

Greed during the first decade of the 2000’s, nearly ripped the global economy to pieces. That’s because America couldn’t contain its exuberance and greed to just our nation, but packaged enormous real estate mortgages into investment opportunities for foreign markets. Unsustainable in American markets, they crashed world-wide. America’s economy was toast; so was Europe’s and Asia’s.

Once trusted partners, nations scrambled to stabilize their national banks, banking systems and currencies. America’s face was red from embarrassment. The pain of economic failure was shared globally. That’s how contagious greed is.

And that is why America’s financial industry needs to be re-regulated.

Instead, the spending bill just approved by Congress (House and Senate) de-regulation of banks, insurance companies and Wall Street firms was given a boost. This is viewed as a victory of political hacks of the conservative stripe vowing an unfettered economy is the best means of growing out of the past recession. 

Trouble is brewing with that position. De-regulation is now believed the core cause of the recession and more of the same will most likely result in a meltdown of the very financial systems we have all spent trillions on repairing. Greed is still greed. Greed got us into this mess. Greed will return us to a world of hurt. Only now it is viewed as a political solution.

It was not a solution in 1999 nor is it one now. Greed does not work well unfettered.

It would be nice if police departments were not needed throughout our nation and everyone else’s; but they are needed.  We all know that. Why would private industry be expected to work better without the police? They cannot. And they have proven that. Over and over again.

As much as I dislike over-burdensome regulation, rather than less I think we need to restore some. Perhaps a revamped Glass-Steagal Act is required?

This will take political resolve and leadership at the federal level. But is that likely with the present congress? Even the new one forming in January 2015?

I doubt that. They can’t get anything done of a bi-partisan nature unless there are goodies hidden away in their bag of tricks. Like quiet de-regulation. Like authorization for pension plans to reduce their own liabilities by redefining past promises.

Shame on all the parties. Shame!

December 15, 2014