In 1929 Banking was the epitome of co-mingling. Bank officials thought nothing of using their depositor’s money to speculate in the ever rising stock market. The day the bubble burst, October 29,1929, not only did investors lose what they thought they had in the market but also what they thought they had safely tucked away at the local bank.
The 1933 Banking Act, including the Glass-Steagall provisions, sought to separate commercial and investment banking. The idea was to learn from history and take away public deposits from the Bankers ability to access them for private gain.
Starting in the early 60’s campaigns mounted to overturn Glass-Steagall by a few in Congress. They were driven by lobbyist’s check book. The position was taken that Glass-Steagall inhibited US banks from being competitive in the world’s markets. The reality was that the newly created financial engineering coupled with the ever increasing pools of depositor’s cash made the profit potential irresistible.
Finally in 1999, the two provisions restricting affiliations between banks and securities firms were repealed. President Clinton said “the Glass-Steagall Law is no longer appropriate.” Thus, the seeds were sown for another ’29 meltdown. In less than a decade America and the world experienced the financial crisis of 2008. The cookie jar was made available and the bankers, like 1929, took full advantage.
I summarize and re-live this brief bit of financial history because the chief architect of the repeal of Glass-Steagall was Senator Phil Gramm. The Gramm-Leach-Bliley Act (GLBA) allowed large investment banks (TBTF) to be exempt from regulators. (Hmmmm maybe I shouldn’t do that? We’ll just pay the fine) In addition, Gramm lobbied and won a provision that made credit default swaps, the central culprit in the ’08 housing collapse, exempt from any regulatory oversight.
As millions lost jobs, homes were foreclosed and life savings wiped out, Phil Gramm responded by declaring that everything was simply a “mental recession.” He also said that the U.S. had become “a nation of whiners” over the economy.
All this would have remained cocktail party conversation or a few simple footnotes in history had Presidential candidate Ted Cruz not brought it all front and center.
Isn’t TrusTed vowing that never again will we see the decimation as we saw in’08?
Isn’t he demanding the re-institution of Glass-Steagall?
Isn’t he vowing to keep on the sidelines the culprits from the last crisis?
TrusTed continues to amaze and confuse as he has just recently announced that former Texas Senator Phil Gramm will be his new Senior Economic Advisor.
Yes, that is correct, the same Gramm of the Gramm-Leach-Bliley fame. It is the same Gramm who told SEC Chairman Arthur Levitt that “unless the waters are crimson with the blood of investors, I don’t want you embarking on any regulatory flights of fancy.”
TrusTed’s financial line up is almost complete: 1) Heidi Cruz- Investment Management Division Goldman Sachs 2) Phil Gramm- author of GLBA 3)????
Perhaps Hank Paulson or Tim Geithner would be available to fill slot number 3. That would certainly complete the hat trick of TBTF advocates for TrusTed.
All told it should make every investor feel very comfortable knowing President (?); TrusTed’s true feelings about the BIG BANKS.