EDINBURG, September 23 - Home foreclosures are averaging about 250,000 a month - one million families forced out of their homes in the past four months, around 2 million so far this year.
Government is busy bailing out mortgage companies - Bear Stearns, Freddie and Fannie, AIG - and pretty much leaving home owners to drown in Hurricane Mortgage. What? You’re shocked?
Aside from government, for at least the past 28 years, favoring business and the rich over the people, exactly how did we get into this mess? Thanks to the July/August edition of Mother Jones magazine, we have a concise timeline which is summarized below.
We must begin in 1933 with passage of the Glass-Steagall Act that served as the foundation of most subsequent banking regulations, and which was systematically dismantled and ultimately repealed in 1999 by the Gramm-Leach-Bliley Act. Texas Senator Phil Gramm, who co-authored legislation that made the mortgage meltdown inevitable, was and remains a close economic advisor of John McCain. McCain, who describes himself as “fundamentally a deregulator”, strongly supported Gramm’s deregulation legislation. But I get ahead of myself.
Glass-Steagall established a compact between the federal government and a banking industry that had begun to collapse in January, 1933. To restore faith in bankers who, in many instances, had absconded with depositors’ money, the Federal Deposit Insurance Corporation was established to insure all deposits up to an established maximum - $5,000 in 1933, $100,000 today, $250,000 for IRA’s. In return, investment banks and commercial deposit banks were separated to eliminate the conflicts of interest that resulted in bad loans and to curb speculation; and banks submitted to federal regulations.
If a bank subject to federal regulation failed, the federal government would cover deposits up to the established limit. Banks, backed by the government, regained public confidence. That compact worked well until greed and corrupt politicians voided half of Glass-Steagall (banking regulation) while leaving the other half (federal bailout) in place - a sweetheart deal for the financial industry.
One would think the nation had learned from how deregulation in the early 1980’s precipitated the Savings and Loan meltdown. Obviously Phil Gramm (who allegedly has a Doctorate in Economics) did not. Or was he just another corrupt politician driven by craven desire to feed the greed of blood sucking, amoral corporate capitalistic scum? Then President George H.W. Bush bailed out the Savings and Loan companies, at a cost of $126 billion to U.S. taxpayers. Beneficiaries included the shady S&L dealings of his sons Neil and Jeb.
Dismantling Glass-Steagall began in the Nixon administration with the Bank Holding Company Act allowing commercial banks both to accept deposits and make commercial loans through holding companies - one bank owning all or a majority of stock in other banks.
In 1980, with high inflation, Senator Jake Garn, R-Utah, authored legislation eliminating usury caps on interest rates banks can charge. Welcome to credit card interest rates of 28 percent, or more. This was followed in 1982 by Garn’s bill deregulating Savings and Loan companies.
In 1987, Senator John McCain became one of the “Keating 5” as he helped lobby to protect Charles Keating from investigation of Lincoln Savings and Loan. Keating, a major McCain campaign contributor, flew McCain around the country in his personal jet, including all expense paid vacations. So much for McCain’s vaunted ethics.
Newt Gingrich’s 1995 “Contract with (on?) America” included a law making it more difficult to sue companies for securities fraud, opening the door for, uh, securities fraud. This was followed by the 1998 merger of CitiCorp and Travelers Insurance, still illegal under Glass-Steagall but permitted by Bushite regulators with a wink and a nod.
The clincher came in 1999 with Gramm’s legislation completely repealing Glass-Steagall. Anyone who knew anything about U.S. banking history - the 1933 crash, the S&L crash - knew and predicted basically what would follow. It was not a question of “whether” but of “when.” Warning flags went up as early as June, 2000 when the Treasury Department and the Department of Housing and Urban Development asked Greenspan’s Federal Reserve to investigate sub-prime lending. But Greenspan was too busy posturing as an economic genius to pay attention to a real economic problem.
That December (2000), Gramm added to the injury by slipping a 262 page amendment into an appropriations bill to deregulate derivatives trading, enabling the ENRON scandal. No one would accuse “Honest Phil” of a conflict of interest given his wife sat on ENRON’s board of directors, and profited handsomely (something over $1 million). Gramm subsequently left the Senate to jump on the gravy train as a highly paid lobbyist for the Swiss Bank UBS, which had bought the Paine Webber investment house, thanks to deregulation legislation written by Gramm and strongly supported by John McCain.
Though talk is muted now, Phil Gramm has been widely considered as the most likely Secretary of the Treasury in a McCain administration. Given the damage Gramm did to the American economy as a Senator, one only can imagine the devastation he will produce as Treasury Secretary. I have no doubt about John McCain’s campaign pledge to “shake things up” - like a 10.0 earthquake. That kind of shakeup we do not need.
Apologists for the financial industry have fallen all over themselves to minimize the worst financial disaster since the 1933 banking collapse. CNBC financial “guru” (read “idiot”), Jack Cramer said in July, 2007 the sub-prime “lending thing” was “completely meaningless… It has no relevance whatsoever.” Tell that to the millions of families forced from their homes over the past year, and the millions more staring foreclosure and eviction in the face. Did I say “idiot”?
Even as Lehman Brothers collapsed, idiot apologists for corporate capitalists were saying no one could have anticipated these collapses. Why do these idiots get air time on national news programs instead of people who actually know something about economics, and who both predicted and can explain why our financial institutions are collapsing? Rhetorical question; answer should be obvious.
What is the Bush/McCain/financial institutions solution? First Step: Consolidation. JPMorgan-Chase took over Bear Stearns; Bank of America acquired Countrywide, MBNA and now Merrill Lynch. Consolidation into three monopolistic financial giants - Bank of America, JPMorgan-Chase, and CitiCorp absolutely - is NOT the way to go. Second Step: $700 billion bailout with no oversight and no accountability.
Our economy, according to 82-year-old Alan Greenspan, is the worst he has seen in his lifetime. Yet, on the day the stock market lost over 500 points, President Bush asserted U.S. financial institutions are “flexible and resilient.” John McCain proclaimed “the fundamentals of our economy are strong.” In what parallel universe?
On the campaign trail after the collapse of Lehman Brothers, McCain tried to distance himself from the stench of the Bush administration. But McCain needs to distance himself from the stench of John McCain. What we need is not more Gramm-McCain economics, but to repeal ALL of Gramm’s legislation, reinstate Glass-Steagall, and modernize banking regulations to counter all of the new financial gimmickry invented since banking regulations from 1933 through the 1960s - something John McCain is not willing to do.
Samuel Freeman is a political science professor based in the Rio Grande Valley. His weekly columns can be found in the Pharr Advance News Journal.
