Sunday, November 09, 2008

NaBloPoMo, Day 9: History Repeats Itself

Reader, we've all been trying to make sense of our present, ever-deepening financial shithole. Untangling the furled knot leads us to the 1999 repealing of the Glass-Steagal Act, which I mentioned briefly last week.

The origins of the Act, posted on a pro-investment site, ring eerily familiar:
"Commercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks.

...the GSA set up a regulatory firewall between commercial and investment bank activities, both of which were curbed and controlled."
The 1999 demise of the Act set the stage for our present problems:
Consequently, to the delight of many in the banking industry (not everyone, however, was happy), in November of 1999 Congress repealed the GSA with the establishment of the Gramm-Leach-Bliley Act, which eliminated the GSA restrictions against affiliations between commercial and investment banks. Furthermore, the Gramm-Leach-Bliley Act allows banking institutions to provide a broader range of services, including underwriting and other dealing activities."
William Kaufman has written a more pro-consumer view of the bipartisan origins of this mess including the 1999 roll call. You'll see it includes many Democrats like Joe Biden, described by the author as an "ever-servile corporate factotum." Kaufman also cites an investigative piece from the Phoenix Business Journal, which uncovered that:
Obama and McCain . . . have accepted a substantial amount of campaign money from Wall Street bankers, investment and securities firms and their executives during this election cycle.

Investment firms have donated $9.9 million to Obama and $6.9 million to McCain this campaign thus far, according to the Center for Responsive Politics. Commercial banks have given Obama $2.1 million and McCain $1.9 million. Private equity firms and hedge funds have given Obama $2 million and McCain $1.4 million, according to CFRP.

Lehman Brothers, Goldman Sachs, JP Morgan Chase & Co., UBS and heavyweight law firm DLA Piper are among Obama's top contributors.
Change we can believe in or business as usual? Elected by the people for his stated commitment to Main Street yet funded with Wall Street dollars, only time will tell who Obama will answer to.

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