Ten years ago, the Republican-controlled Congress - egged on by
that champion deregulator, former Texas Sen. Phil Gramm - passed
legislation that arguably did more to plunge the United States into
our crippling great recession than anything else: It repealed the
Great Depression era's Glass-Steagall Act.
Then on Nov. 12, 1999, an acquiescent Democratic president, Bill
Clinton, signed the repeal into law.
What's up with Barack Obama? The candidate
for change once promised to take on the powerful banking interests but
is now doing their bidding. Finally, a leading Democrat, in this case
Senate Banking Committee Chairman Chris Dodd, has a good idea for
monitoring the Wall Street fat cats who all but destroyed the American
economy, and the Obama administration condemns it.
In a recent Nation cover story,
William Greider decried the lack of attention being paid by the media to
the Financial
Crisis Inquiry Commission (FCIC) charged with investigating the
causes of the financial meltdown.
"The press has moved on. Financial crisis was last year's story," he
wrote. But "how can Washington reform the financial system when we still
don't know what happened?"
It was a startling admission from one of the architects of the modern financial system. John Reed, who with Sandy Weill created Citigroup, said the merger was a mistake. What's more, Reed went on to say that the repeal of the Glass-Steagall Act,
which was needed to make the merger legal, was also a mistake.
When it comes to understanding the real economy and the struggles of
ordinary Americans, Senator Bernie Sanders always seems to be ahead of
the curve and fighting like hell for Congress to show leadership and be
responsive.
The Obama administration promised to reform the financial system and
make it safe for the rest of us, but recent Congressional action is more
likely to reset the fuse for another explosive calamity. The time bomb
in this case is that arcane financial instrument known as
derivatives--the hedging devices that the big banks sell to investors,
corporations and other banks to reduce risk or evade the requirements to
hold adequate capital on their books.
President
Obama will go to Asia next week and has promised to say something about
the exchange rate between the Chinese yuan and the U.S. dollar.
Today marks the 10-year anniversary of the passage of the repeal of the
1933 Glass-Steagall Act and related legislation. It is an anniversary
worth noting for what it teaches us about forestalling financial
crises, the consequences of maniacal deregulation, and the
out-of-control political power of the megafinancial institutions.
Financial regulation is the next item on the political horizon, and it doesn't have to be the deathly dull wonk-battle that it sounds like. In fact, if the Democrats do their job, it can just as easily become a platform for addressing the greatest issues of them all.
Our current way of regulating the financial system is dysfunctional. Oversight is dispersed among numerous confusing bodies that at times have seemed to be racing each other to the bottom. Setting up One Big Regulator would end that problem.
