Friday, March 27, 2009

Time Travel: Glass-Steagall Repealed in 1999

The Democratic Activist
Free-marketeers (nearly everyone in both houses of congress, Republicans and Democrats over the past 30 years) thought getting rid of Depression-era restrictions on banks couldn't possibly do any harm. All that "market regulation" stuff was "so 1930's." What we needed for the new century was "freedom," since the captains of finance (conservatives all) could certainly be trusted to police themselves and would never be so irresponsible as to risk the farm on dangerous speculative gambling.

Got that wrong!

As BuzzFlash put it ... find your deregulation villians and heroes here (the 1999 article in the New York times reporting on the repeal of Glass-Steagall):

CONGRESS PASSES WIDE-RANGING BILL EASING BANK LAWS

Exerpts from the article:

''The world changes, and we have to change with it,'' said Senator Phil Gramm of Texas, who wrote the law that will bear his name along with the two other main Republican sponsors, Representative Jim Leach of Iowa and Representative Thomas J. Bliley Jr. of Virginia. ''We have a new century coming, and we have an opportunity to dominate that century the same way we dominated this century. Glass-Steagall, in the midst of the Great Depression, came at a time when the thinking was that the government was the answer. In this era of economic prosperity, we have decided that freedom is the answer.''

''The concerns that we will have a meltdown like 1929 are dramatically overblown,'' said Senator Bob Kerrey, Democrat of Nebraska.

The opponents of the measure gloomily predicted that by unshackling banks and enabling them to move more freely into new kinds of financial activities, the new law could lead to an economic crisis down the road when the marketplace is no longer growing briskly.

''I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010,'' said Senator Byron L. Dorgan, Democrat of North Dakota. ''I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.''

Senator Paul Wellstone, Democrat of Minnesota, said that Congress had ''seemed determined to unlearn the lessons from our past mistakes.''

''Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis,'' Mr. Wellstone said. ''Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring ...''

Interesting that by and large it was only the sparsely populated left wing of the Democratic Party (Boxer, Wellstone, Feingold, Harkin, etc.) that thought repealing Glass/Steagall back in 1999 was a bad idea. The left got it right. Paying proper respect to skeptics of unchecked corporatism in just this one case could have entirely prevented the economic crisis and collapse through which the entire world must now suffer.

Why does the Democratic Party leadership (including, unfortunately, President Obama himself) still insist on flirting with discredited conservative economics while thumbing its nose at its prescient liberal base?

Perhaps the better question is how can the Dems as a group be moved back to the left where they belong?

Thank you.

Pass it on.
The Democratic Activist

Thursday, March 26, 2009

Why can't I assess my own assets ... like banks can?

The Democratic Activist
When you or I apply for a refi loan, do we get to assess the value of our home ourselves because we think the market for that asset is "distressed," and in so doing hide our poor financial health and low aggregate net worth?

Certainly not. Don't be silly.

We have to pay $400 for a 15-minute independent property appraisal that determines the current market value of our home.

Well ... bankers have just been given the right to assess the value of their own assets, to just make self-serving guesses as to what they'd be worth in a "normally functioning market," in order to make themselves appear financial viable and hide their true insolvency!

One easy going rule for a small cadre of wealthy, powerful, corrupt Wall Street pirates, and another entirely different, difficult, harsh, and unforgiving rule for all the rest of us mere average Americans.

Excerpts from an article appearing in today's Huffington Post:

Rep. Alan Grayson (D-Fl.), who quizzed Herz on the accounting rule, said that the demand to change the rules is "representative of exactly the kind of thing that's put us in this position in general...We have people who break every rule in the book and then they think that the answer to their problem ss is to break more rules. It's given us some real insight into the human nature and the pathology of the people who have created these problems for America."

If banks are allowed to determine the value of their assets without regard to current prices, investors have less trust and confidence in the integrity of their books and their assets, which could further freeze markets and further drive down prices.

Treasury Secretary Timothy, testifying before Congress on Tuesday, expressed some support for the rule change, calling it a "constructive set of changes" that struck a balance "between preserving confidence in the quality of public disclosure, which is very important to getting through this, [and addressing] some of the complications of applying those standards in a market like we're experiencing today."

This is beyond outrageous, exasperating, ridiculous, and utterly unacceptable.

If you agree, here's how you can ...

TAKE ACTION!

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Public comments are being collected by the The Financial Accounting Standards Board (FASB) until 4/1/09:

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Email:

director@fasb.org

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Snail mail:

Technical Director,
FASB
401 Merritt 7, PO Box 5116
Norwalk, CT 06856-5116

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IMPORTANT: In your comment, be sure to include the following text (do so in the subject line for email messages, or in the first line of your letter):

File Reference: Proposed FSP FAS 157-e.

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Here's a sample message (feel free to copy all or part of it):

Mark-to-market rules must NOT be changed for a small subset of Americans, i.e. rich bankers, while the rest of us, ordinary Americans, get no such favor. If I go to refinance my home mortgage, will I be allowed to value my home at some fictional future price, because the current market for this asset, my home, is currently "distressed?"

OF COURSE NOT! Because I'm not a wealthy Wall Street billionaire banker!

Why should special rules be created that make life easy for a small subset of the American population? Doing so flies directly in the face of both the letter and the spirit of the U.S. Constitution (violating equal protection). It is literally un-American to allow one small class of people cushy privileges that the rest of the population doesn't have.

Again ... do NOT change mark-to-market rules to allow banks to hide their insolvency. I'm not allowed to assess the current value of my own assets, neither are you ... why should they be allowed to do so?

Please inform me as to the final decision made by the FASB on this matter.

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Thank you.

Pass it on.
The Democratic Activist

Friday, March 20, 2009

Krugman scores again

The Democratic Activist
Paul Krugman's right on the money, as usual:

I’ll leave to others the question of who knew or should have known that the bonus firestorm was coming; but it’s part of a pattern. At every stage, Geithner et al have made it clear that they still have faith in the people who created the financial crisis — that they believe that all we have is a liquidity crisis that can be undone with a bit of financial engineering, that “governments do a bad job of running banks” (as opposed, presumably, to the wonderful job the private bankers have done), that financial bailouts and guarantees should come with no strings attached.

This was bad analysis, bad policy, and terrible politics. This administration, elected on the promise of change, has already managed, in an astonishingly short time, to create the impression that it’s owned by the wheeler-dealers. And that leaves it with no ability to counter crude populism.

http://krugman.blogs.nytimes.com/2009/03/20/aig/

No question ... Obama's blowing it.

Conservative cabinet appointments have in fact foreshadowed a dangerous reluctance to abandon faith in the champions of Wall Street "free-for-all" capitalism and instead shift the power back to responsible regulation by those not devoted mainly to the cause of the ultra-wealthy and ├╝ber-powerful in America.

Why is common sense liberalism still so radiocative in Washington even after America's economy goes critical right before our eyes due to injuries sustained in a horrible Reaganomic trainwreck?

Will Obama (finally) take Krugman's advice, bite the bullet, temporarily nationalize zombie banks and institutions like AIG, clean out the corrupt culture of "me first" greed that still so pollutes the waters of America business and finance, roll back the Reagan tax cuts on zillionaires, etc. – before it's too late to actually make a difference?

If not, he may find his own political capital account is bankrupt before his first 100 days are over.

You know what to do.

O's contact info:

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President Barack Obama

Phone: 202-456-1111

Email form: http://www.whitehouse.gov/contact/

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Thank you.

Pass it on.

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UPDATE 3/22/09 : Frank Rich of the New York Times seems to agree with my assessement. In his latest excellent piece, Rich ponders the calamitous consequences should Obama's cozy relationship with and ridiculous coddling of Wall Street turn out to be his administration's "Katrina Moment." Read it here.
The Democratic Activist