“No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. You cannot serve God and mammon.”
t’s time to face some uncomfortable facts about America, as yet more banking malfeasance makes the news:
WASHINGTON — Shareholders of JPMorgan Chase filed two lawsuits Wednesday against the biggest U.S. bank, accusing it and its leaders of taking excessive risk and causing the recently disclosed $2 billion trading loss.
The provision in the Banking Act of 1933 (Glass-Steagall) that prohibited commercial banks from
gambling investing gambling using depositors’ money (and vice versa) had been gradually weakened over time, apparently starting in the 1970s, through permissive interpretations of the law by federal banking regulators and the courts.
As the Congressional Research Service put it:
Facing lower profits and stiffer competition from securities firms, banks began seeking approval from regulators to engage in a greater universe of securities activities.
“Facing lower profits,” you see, can justify nearly anything in an increasingly corporatized America. And if there is enough campaign money spread around (this, before Citizens United), well, things can get fixed and profits can rise again like Jesus on Easter!
Seeking to stick a fork into and finish off Glass-Steagall, in 1999 a Republican-controlled Congress (you know, the same one that impeached and tried Bill Clinton), with a shameful assist from, uh, Bill Clinton (and too many Democrats to contemplate), passed the Financial Services Modernization Act, which finally allowed commercial and investment banks and securities and insurance companies to stop slyly shacking up with each other and unite in unholy but legal matrimony.
Now, to be fair to Clinton and his conservative-minded pals, they argue that their legislative efforts to finally kill Glass-Steagall actually “softened” the Great Recession. Gulp.
I have really thought about this a lot. I don’t see that signing that bill had anything to do with the current crisis…On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I’d be glad to look at the evidence. But I can’t blame [the Republicans]. This wasn’t something they forced me into. I really believed that given the level of oversight of banks and their ability to have more patient capital, if you made it possible for [commercial banks] to go into the investment banking business as Continental European investment banks could always do, that it might give us a more stable source of long-term investment.
It’s nice to know that Mr. Clinton hasn’t lost his unparalleled ability to rationalize.
Fortunately, around at the time of the repeal of Glass-Steagall was Democratic Senator Byron Dorgan. Unfortunately, not many listened to him.
Dorgan was one of only seven—seven!—Democrats in the Senate who voted against finishing off Glass-Steagall (Missouri’s two senators at the time, Messrs. Ashcroft and Bond were Ya-Ya sisters). He warned us in 1999:
I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930’s is true in 2010…We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.
Fortunately, once again Dorgan the Prophet is here to present a way to fix things. Unfortunately, once again not enough people are listening to him. But you can for half a minute:
Vodpod videos no longer available.
Get that? Restore Glass-Steagall, prohibit naked credit default swaps, and break up too-big-to-fail companies. By the way, here is the way the Financial Times described naked default swaps:
A naked CDS purchase means that you take out insurance on bonds without actually owning them. It is a purely speculative gamble. There is not one social or economic benefit. Even hardened speculators agree on this point. Especially because naked CDSs constitute a large part of all CDS transactions, the case for banning them is about as a strong as that for banning bank robberies.
Pretty simple, no? So why won’t any of it happen? Oh, that’s pretty simple, too. Senator Bernie Sanders blurted it out Wednesday night in a beatified bit of truth-telling:
Let me tell you what many others might not tell you. Some people think, well, gee, the Congress regulates Wall Street. I think the truth is that Wall Street regulates the Congress.
Yikes. He restated the truth a little bit later:
Let me just say again what many people will not be happy to hear. Wall Street is extraordinarily powerful. Congress doesn’t regulate them, the big banks regulate what Congress does.
Another Senator, Dick Durbin, said three years ago:
…hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.
Well, at least we still get free checking! What? Oh my God.
Here is the entire 7-minute segment from The Ed Show, featuring Sanders:
Vodpod videos no longer available.