Wall Street: 'A Minute Past Midnight on the Clock for Reform'

NOMI PRINS

Prins is a former investment banker turned journalist. She used to run
the European analytics group at Bear Stearns and has also worked at
Lehman Brothers and Goldman Sachs. She has written extensively about
the 1999 repeal of the Glass-Steagall Act, which had regulated the
financial industry since the New Deal. A photo of Clinton signing the repeal is online.

"On November 12, 1999, as President Bill Clinton signed into law, and
former Federal Reserve Chairman Alan Greenspan, former Texas Senator
and Banking Committee head Phil Gramm (now a top McCain adviser), and
the rest of the captains of Congress gleefully applauded their final
dissolution of the Glass-Steagall Act of 1933, there is a question that
must be asked.

"Did they even consider that as [quoting Clinton at the ceremony]
'Financial services firms will be authorized to conduct a wide range of
financial activities, allowing them freedom to innovate in the new
economy,' they'd also be free to self-destruct, taking down with them
the general economy and international confidence in the U.S. banking
system amidst immense greed, overleveraged capital, poor transparency,
and complete lack of judgment?

"Or did they simply not care?

"Notably absent from the ceremony was former Treasury Secretary and
co-chairman of Goldman Sachs, Robert Rubin. Three weeks before the
signing of the Gramm-Leach-Bliley Act that he had championed and that
officially repealed Glass-Steagall, he rushed off to take on a plush
vice-chairmanship position at Citigroup [which had merged with
Travelers Insurance] -- the institution that first benefited most from
the repeal. Rubin is now a top adviser to Obama."

Prins is now a senior fellow at Demos. She is the author of two books: Other People's Money: The Corporate Mugging of America and Jacked: How Conservatives Are Picking Your Pocket. Her recent articles include " As Wall Street Collapses: Will Washington Get a Clue?" and "Which Investment Bank will Be Next?"

MICHAEL HUDSON

President of The Institute for the Study of Long-Term Economic Trends, Hudson is author of Super-Imperialism: The Economic Strategy of American Empire.
His writings and interviews of him regularly appear on
CounterPunch.org, and an in-depth piece of his titled "Saving
Capitalism" is forthcoming in the next edition of Harper's magazine. He
appeared Wednesday on Democracy Now.
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JOHN SAKOWICZ

Host of "The Truth About Money" on NPR affiliate KZYX, Sakowicz is a
former trader and cofounder of a multibillion-dollar offshore hedge
fund Battle Mountain Research Group; he also worked for Spear Leeds
Kellogg, now a division of Goldman Sachs, and Merrill Lynch. His recent
articles include "The Fannie and Freddie Flip."

JANE D'ARISTA 
D'Arista is an economic analyst at the Financial Markets Center,
which monitors the Federal Reserve as well as financial markets. She
said today: "The ongoing interventions by the Treasury and Fed to
assist institutions and bolster confidence in U.S. financial markets
illustrate many of the problems that have been spawned by deregulation,
unfettered innovation and failure to analyze the implications of the
shift from a bank-based to a market-based financial system. The Fed's
unprecedented loan to a large, global insurance company is a case in
point. The tipping point for AIG is its role as a major counterparty in
derivatives markets -- the various trillion-dollar non-public,
non-transparent markets in which the more important institutions in all
sectors have become interrelated through the process of buying and
selling various forms of financial insurance to one another. Having
been allowed to develop outside the framework of exchange or
clearinghouse structures, over-the-counter derivatives contracts pose a
systemic risk by virtue of the fact that they cannot be sold; existing
positions must be hedged by buying or selling even more contracts,
pushing up the nominal value of outstandings to immense proportions and
increasing interdependency (and the potential domino effect) within the
global system.

"The systemic effects that flow from AIG's sizable share of outstanding
contracts result from the procyclical downward pressure imposed by the
rules of the game in a market-based system: declining prices for the
assets backing the contracts mean additional collateral must be posted;
writedowns of asset values require charges against capital; the decline
in capital triggers a drop in credit ratings that dries up funding,
raising the cost of what little credit can be obtained while making it
more difficult to raise additional capital.

"AIG warned last week that this scenario might play out if Lehman --
one of the ten largest parties in the $62 trillion market for credit
default swaps -- went down. It did and it has. But is the loan to AIG
the end? Where are the plans to deal with the systemic effects these
markets have posed since the demise of Long Term Capital Management a
decade ago? Ignoring the root of the problem can only increase the
likelihood of more interventions. It is already a minute past midnight
on the clock for reform."