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Time Travel: Glass-Steagall Repealed in 1999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):


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

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