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Thursday, December 17, 2009

Learn From History...Bring Back Glass Steagall Act


Seal of the United States Federal Deposit Insu...Image via Wikipedia

There is talk - just talk - on The Hill of re invoking the Glass Steagall Act whcih was first made law in 1933, the same year the FDIC was created.  Glass Steagall basically kept banks from entering other business like insurance and stock brokerage.

Glass Steagall was repealed during the Clinton Administration giving a green light for banks - commercial and investment - to enter the insurance and stock brokerage business or for that matter any business they wanted to be in.  This repeal was the beginning of "The Monopoly Game".

History taught us in 1933 and again in 2007 that allowing banks to monopolize financial markets was a recipe for disaster.  Hence the disaster called The Great Depression and the disaster history will call The Greater Depression.

It is often said that history repeats itself and how often have we seen that it does.  If we know then that allowing banks to be in different business was detrimental to the health of the economy we should have know it in 1999.  But then again, maybe we did and the repeal was intentional in order to knowingly create this current crisis and allow the greatest transfer of wealth the world has ever - or will probably - ever see.

As we now look back to the beginning of this current disaster, we see that markets shut down almost overnight.  World wide investors ranging from countries to individuals suddenly and almost unilaterally stopped buying securities backed by mortgages.  The demise began in March of 2007 even though the official time line says September of 2008.

Why the difference in times?  Because in 2007 it  was being called a "mortgage meltdown".  The word Recession was not used and typically is not used until we are six months into a recession  The other reason is that hiding the truth is and has been a tactic our government uses to "protect us".  They - whoever they are - believe that if we're told everything is OK we will believe it is OK.  But we - the people sometimes called sheeple - are not as dumb as "they" think.

Senator John McCain is now co sponsoring the legislation to reenact Glass Steagall.  Something this writer believes should be done.  By dong so it will begin to break up those "too big to fail" institutions and it will stop their ability to play games with various financial products.

Banks need to go back to being banks.  Take deposits for checking and savings accounts and loan that money out prudently.  Savings and Loans should be just what their name implies - a savings and loan institution.  Investment banks should also be what their name implies - places that invest your money.

If Glass Steagall comes back into law we may see the break up of all those "too big to fail" companies that have profited on the backs of the people.  For one, I would hope that it takes away commercial bank status from companies like Goldman Sachs and Morgan Stanley who use this "freebe" designation to borrow money from The Fed at almost zero interest and reinvest it allowing them to make billions and to pay themselves billions.  Note:  GS pays out about 50 percent of their revenue in bonuses.

This legislation is just a small step for Congress but is a giant leap for the people.  Let's end monopolies in all industries, bring back the interest usury laws and begin to enforce all the regulatory provisions we already have.

To fix our problem is simple while I admit complex.  Simply put, enforce the laws on the books, regulate by regulators like the SEC, find the fraud and criminal activity and prosecute no matter who they are or how big they are. 
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