10-Year Anniversary of the Bill That Led to the Current Economic Crisis

The legislation sounded innocuous enough: The Financial Modernization Act. But proponents, who included almost the entire U.S. Senate and the Clinton administration, were euphoric over the passage of the bill in November 1999 that revoked the Depression-era Glass-Steagall Act, and consequently helped lay the quicksand foundation that sunk the nation into the Great Recession less than 10 years later.

 
The Glass-Steagall Act, officially known as the Banking Act of 1933, separated commercial banks, those that held the deposits of everyday citizens, from investment banks that engaged in risky profit-making strategies. This separation protected depositors’ savings from the possible excesses of the investment banks, and it worked well for 65 years.
 
The Financial Modernization Act, or Gramm-Leach-Bliley as it came to be known, lifted the federal restrictions on banks using depositors’ money as capital for corporate investments and mergers and as collateral for risky loans. Supporters of Gramm-Leach-Bliley promised great things would come of deregulating banks. Then-Treasury Secretary Lawrence Summers said, “This historic legislation will better enable American companies to compete in the new economy,” and declared it would “benefit American consumers, business, and the national economy for many years to come.” Summers, who was painfully wrong in his assessment, is now the director of President Barack Obama’s National Economic Council.
 
Summers celebrated the repeal of Glass-Steagall with the likes of Congressman Jim Leach (R-IA) and Federal Reserve Chairman Alan Greenspan, along with lobbyists, staffers and reporters by drinking champagne and eating a cake decorated with the words: “Glass-Steagall, R.I.P., 1933-1999.” In July 2009, President Obama appointed Leach to be Chairman of the National Endowment for the Humanities.
 
But not everyone on Capitol Hill was happy with the repeal of Glass-Steagall. Senator Byron Dorgan (D-ND) said, “I want to sound a warning call today about this legislation,” which he added was “a financial swamp” and nothing short of “fundamentally terrible.” The late Sen. Paul Wellstone (D-MN) put it this way: “Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was designed to prevent a handful of powerful financial conglomerates from holding the rest of the economy hostage. Glass-Steagall was one of the few stabilizers designed to keep that from ever happening again, and until recently, it was very successful.”
 
A few other senators agreed with Dorgan and Wellstone, including Barbara Boxer (D-CA), Richard Shelby (R-AL), and Russ Feingold (D-WI). But opponents had no chance of preventing the act from passing because the momentum for “modernizing” the financial system was too great. The bill passed the Senate 90-8 and the House 362-57. President Clinton signed the bill on November 12, 1999. Less than nine years later, the risky and speculative practices that the repeal of Glass-Steagall unleashed led to the near-collapse of the U.S. economy and the bailing out of banks by U.S. taxpayers.
-Noel Brinkerhoff, David Wallechinsky
 
Deregulation Was So Much More Fun! By Kevin Connor, (LittleSis)
A Decade Without Glass-Steagall: Heckofa Job, Larry (by Tim Dickinson, Rolling Stone)

Latest News

CEO Pay System at Top U.S. Energy Firms Rewards Execs for Deepening Climate Crisis

Stock value of the top 10 U.S. publicly held coal companies fell by 58% between 2010 and 2014. During this period, cash compensation of executives of these companies went up 8%. The biggest winner was ExxonMobil CEO Rex Tillerson, who made $33 million last year. Given this setup, it is no wonder Big Oil and Big Coal don’t want to change their ways. It also helps to explain why none of the 30 companies studied have programs that reward investment in renewable energy sources.   read more

Global Tree Loss Surges—45 Million Acres Gone from the Planet in 2014

More than half of the forest loss occurred in tropical countries, which chopped down or burned 24.5 million acres. Cambodia, Sierra Leone, Madagascar, Uruguay and Paraguay have accelerating rates of deforestation. Cambodia in 2014 had four times as much tree loss as it did in 2001. An increase in the price of rubber has caused more forests to be cleared for its production.   read more

Top Bank Executive Sentenced to 8 Years in Prison for Fraud in TARP Bank Failure Case

“This massive criminal scheme defrauded investors, including Treasury who became an investor through TARP,” said Christy Romero. While receiving TARP’s help, Shabudin carried out what prosecutors said was a “delay-and-pray” scheme that couldn't prevent UCB from becoming the first bailout-boosted bank to fail during the financial meltdown. “Its dramatic failure cost the federal fund that insures Americans’ deposits more than $675 million,” said the Post.   read more

High Levels of Radioactivity Found in Coal Ash at Major U.S. Coal Basins

The radioactivity in the ash was determined to be five times higher than in normal soil and up to 10 times higher than in coal itself because of the way combustion in power plants concentrates radioactivity. “We don’t know how much of these contaminants are released to the environment, and how they might affect human health in areas where coal ash ponds and landfills are leaking. Our study opens the door for future evaluation of this potential risk,” according to Vengosh.   read more

Underrepresentation of Minorities in Police Departments is Widespread across U.S.

Data from the Bureau of Justice Statistics showed that racial and ethnic minorities are underrepresented by a combined 24% on average when police department’s demographics are compared with U.S. Census figures for the general public. “In 35 of the 85 jurisdictions where either blacks, Asians or Hispanics make up the single largest racial or ethnic group, their individual presence in the police department is less than half their share of the population,” Mike Maciag wrote at Governing.   read more
see more...