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

Secretary of Treasury: Who Is Steven Mnuchin?

Steven Mnuchin foreclosed on at least 50,000 homes during the Great Recession. In fact, in 2011, a federal investigation forced Mnuchin's bank to agree to the issuance of a Consent Order to remedy numerous abusive practices it was using to make money. Recently, a complaint filed with the Dept of Housing accused his bank of violating the Fair Housing Act by “redlining,” an illegal practice of not doing business in minority neighborhoods in order to avoid making home loans to minorities.   read more

Secretary of Commerce: Who Is Wilbur Ross?

Trump, who has put several of his businesses into bankruptcy, nominated the so-called “King of Bankruptcy,” Wilbur Ross, to be his Commerce Secretary. Ross is currently on the board of directors of 59 different companies, including ArcelorMittal, the world’s largest steel firm. ArcelorMittal could be a beneficiary of Ross’ decisions as Commerce secretary. “He might be the second-most complicated person in the administration to vet, behind the President-elect himself,” said ethics lawyer Eisen.   read more

Acting Administrator of the Administration for Community Living: Who Is Edwin Walker?

Walker worked for Missouri’s Dept of Social Services and in 1988 was named director of the Missouri Division of Aging. He pushed through a program that made it easier for the elderly to remain in their homes, instead of being forced into nursing facilities. Walker joined the Administration on Aging in 1992 as associate commissioner for State and Community Programs. He later moved up to be Director of Program Operations and Development, and by 2009 was Deputy Assistant Secretary at AoA.   read more

Acting Director, Office of Legacy Management: Who Is Thomas Pauling?

Much of Pauling’s tenure with the Department of Energy includes 11 years working on the cleanup of the Weldon Springs weapons manufacturing site near St. Louis. A World War II munitions factory was on the site and later the DOE processed uranium ore there. A quarry was filled with contaminants including uranium. Pauling worked on the cleanup from the early 1990s to 2004. The site is now a tourist attraction.   read more

Director, National Renewable Energy Laboratory: Who Is Martin Keller?

A native of Germany, Keller came to the U.S. in 1994 as a consultant for biotech firm Diversa. He then joined the company full time and became director of screening and technology development. Diversa worked to turn organisms into enzymes that were used in chemicals. Keller even took organisms from boiling-hot thermal pools at Yellowstone National Park to be used in different compounds. Keller's work at Oak Ridge Lab centered on developing biological replacements for petroleum-based fuels.   read more
see more...