Damaging banking/investment practices combined with corporate profiteering wiped out life savings of millions of working Americans and brought the American Economy to a standstill in 1929. In response, The Glass-Steagall Act was passed in 1933 to prohibit banks, brokerages, and insurance companies from operating within each others' industries and separate risky investment banking from commercial banking. Over $7 Billion in depositor money vanished as more than 5,000 banks failed between the 1929 Crash and passage of Glass-Steagall. Approximately 600,000 foreclosures on homes/properties that were essentially forced into default occurred between 1930 and 1932. Millions of working people lost everything as some of the same banks that fueled the market crash fed on real assets of working people to stay afloat, and government ramped up tax foreclosures.
Despite abuses of the working class, Glass-Steagall was not consumer protection law. The law rescued a banking system collapsing under the weight of its own greed. Some institutions really stood out but nearly all banks/investment houses were guilty of organizing huge/risky corporate mergers for their own profit while offering cooperative politicians and businessmen privileged access to stock offerings. Banks, brokerage houses, insurance companies, corporations, and political insiders moved massive amounts of money around the market and timed investments to generate artificially inflated wealth. This insider trading was the primary fuel that grossly over-valued stocks and eventually triggered the 1929 market crash. Glass-Steagall effectively ended manipulation of the speculative stock market by giant financial conglomerates.
In 1999, the Clinton administration and congressional Republicans negotiated agreement on the Gramm–Leach–Bliley Act (also called The Financial Services Modernization Act). Its bi-partisan/nearly unanimous passage set into motion the most economically disastrous banking deregulation in American history. Restrictions on integrated banking, insurance and stock trading were eliminated. Once again financial monopolies were granted pre-Great Depression influence over the entire financial system.
The first predictable result of repealing Glass-Steagall, was a massive glut of mergers, (financial and corporate) surpassing all imaginable levels of acquisition volume and transaction value. The alarm bells should have gone off early as Citigroup, in a $72 Billion merger between Citibank, (largest New York Bank), Travelers Group, Inc., (insurance/financial services), and Solomon Smith Barney (major brokerage) was formed in direct violation of Glass-Steagall before Gramm–Leach–Bliley was passed. Travelers executive Sanford Weill and Citibank executive John Reed had complete confidence in bipartisan repeal of Glass-Steagall, they and others had spent nearly half a decade aggressively purchasing its repeal from elected officials on both sides of the aisle. Banking, insurance, and brokerage industry lobbyists executed the best financed influence buying campaign in history. Between 1997 and 1998 alone, over $300 million poured into campaign and party contributions, and direct lobbying of elected representatives. Chairman of the Senate Banking Committee, Republican Phil Gramm, received more than $1.5 million from the three industries.
Once more Democratic and Republican congressmen and industry lobbyists claimed deregulation would spark competition and improve services. The same false claims made in the 1980’s during the Regan administration with deregulation of the savings and loan industry. The result was unbridled plundering of depositor assets and collapse of the Savings and Loan system. What was then the largest Federal financial bailout in US history cost taxpayers more than $500 Billion.
Those opposing deregulation highlighted the Savings and Loan disaster and other disasters of deregulation. Deregulation of the Oil and Gas industry that fueled massive mergers, severely reduced industry competition, and left consumers with highly volatile, speculation driven price gouging. Deregulation of the Telecommunications, Airlines and other industries that also reduced completion and increased consumer costs. Limited banking deregulation in 1994 that hit consumers with sharp increases in checking and ATM fees. In each case vast amounts of money poured into Washington from special interests lobbying for deregulation. Consumer groups and a growing history of deregulation failures were ignored as legislators from both party’s catered exclusively to special interest money.
It would seem impossible, but the core provisions of Gramm–Leach–Bliley had near-unanimous bipartisan support. One sticking point was efforts by Gramm to destroy the Community Reinvestment Act, of 1977 requiring banks to issue CRA loans in minority and poor neighborhoods. Gramm and other Republicans were accused of attempting to damage political opponents that used CRA loans to gain support for Democrats from minority businessmen and community groups. Industry lobbyists complained they were caught between Republican and Democrat politics. Banks and other financial institutions had no intention of discontinuing highly profitable CRA loans. However, under heavy pressure from Minority Caucus’ and Jesse Jackson the White House threatened to veto the bill. However, the CRA loan process was already compromised by self proclaimed representatives of minority communities pocketing payoffs for securing loans/grants. The White House had no option but to bow to Gramm who successfully reduced the frequency of examinations for CRA loan compliance and eliminated public disclosure requirements for loans made under the Act.
Another sticking point was consumer privacy protection. Consumer groups highlighted the potential for misuse of consumer information by giant conglomerates collecting virtually all financial, medical, and other sensitive information of private citizens. With little effort from the White House to press for strong privacy protections, the final bill passed with virtually no consumer privacy protection. Private information is freely transferred between business units, (bank deposits and investments information pass to telemarketing, medical insurance history pass to loan processing, etc., etc, etc.). At face value transfer of private information between conglomerates would appear prohibited, but private information about bank depositors, insurance, and other customers are freely sold to private telemarketers and other outside companies via contractual agreements that bypass the law’s weak privacy provisions.
As with previous deregulation, instead of promised increases in competition and service improvements, Gramm–Leach–Bliley spawned more monopolies, while increasing corporate profiteering and consumer abuse. It once again tied the health of our banking system, insurance industry, and economy directly to a volatile stock market exposed to manipulation by financial giants. The latest collapse of our Corporate/Financial System and housing market were virtually guaranteed with the repeal of Glass-Steagall. Taxpayers are left funding $2.5 Trillion spent on corporate/financial industry bailouts and government commitments to financial conglomerates totaling nearly $12 Trillion. No time was wasted in resuming the reckless profiteering largely responsible for the 1929 market crash. Recent financial events speak for themselves. Alarming, but not surprising, potential white collar crimes associated with this disaster have been virtually ignored.
A more frightening fact is the profiteering that triggered the latest collapse hasn’t been stopped and representatives are pushing even more deregulation in response to the latest lobbyist money flowing into Washington. Enormous volatility in the stock exchange and latest run up to grossly overvalued stocks has already set the stage for yet another collapse. Unless the U.S. Government starts selling off states, there are no resources left to continue holding this house of cards together.
I’ve attempted to accurately highlight influence peddling responsible for a single piece of legislation. Follow the money into virtually all bad legislation and it becomes clear that bipartisan politics is not impossible. However, bipartisanship appears only possible when legislators and the politically connected smell opportunity to increase their power and personal wealth.
Legislators use a First Amendment right “to petition the Government for a redress of grievances”, as license to sell legislation to the highest bidder. If you want real change, or a return to the Nation we once were, take away the money influencing the legislative process. Collectively, Democrats, Republicans, and Independents must regulate government. Ban financial lobbying, campaign/party contributions from special/foreign interests, “Soft Money”, and representatives investing with insider information from pending legislation. Require representatives to recues themselves from votes affecting industries or parties they have vested interests in. The salary and lavish taxpayer funded perks are all legislators should be entitled to during their public service. It may already be too late, but unless the American People begin living up to our obligation to hold government accountable, promising tomorrows may not exist for future generations of Americans.