Repeal of Glass-Steagall Caused the Financial Crisis

The repeal of the law separating commercial and investment banking caused the 2008 financial crisis.

By James Rickards | Contributor Aug. 27, 2012

The oldest propaganda technique is to repeat a lie emphatically and often until it is taken for the truth. Something like this is going on now with regard to banks and the financial crisis. The big bank boosters and analysts who should know better are repeating the falsehood that repeal of Glass-Steagall had nothing to do with the Panic of 2008.

In fact, the financial crisis might not have happened at all but for the 1999 repeal of the Glass-Steagall law that separated commercial and investment banking for seven decades. If there is any hope of avoiding another meltdown, it's critical to understand why Glass-Steagall repeal helped to cause the crisis. Without a return to something like Glass-Steagall, another greater catastrophe is just a matter of time.

History is a good place to begin. After the Depression of 1920-21, the United States embarked on a period of economic prosperity known as the Roaring Twenties. It was a time of innovation, especially in consumer goods such as automobiles, radio, and refrigeration. Along with these goods came new forms of consumer credit and bank expansion. National City Bank (forerunner of today's Citibank) and Chase Bank opened offices to sell securities side-by-side with traditional banking products like deposits and loans.

As the decade progressed, the stock market boomed and eventually reached bubble territory. Along with the bubble came market manipulation in the form of organized pools that would ramp up the price of stocks and dump them on unsuspecting suckers just before the stock collapsed. Banks joined in by offering stocks of holding companies that were leveraged pyramid schemes and other securities backed by dubious assets.

In 1929, the music stopped, the stock market crashed and the Great Depression began. It took eight years from the start of the boom to the bust. Subsequent investigations revealed the extent of the fraud that preceded the crash. In 1933, Congress passed Glass-Steagall in response to the abuses. Banks would be allowed to take deposits and make loans. Brokers would be allowed to underwrite and sell securities. But no firm could do both due to conflicts of interest and risks to insured deposits. From 1933 to 1999, there were very few large bank failures and no financial panics comparable to the Panic of 2008. The law worked exactly as intended.

[font color="green"]In 1999, Democrats led by President Bill Clinton and Republicans led by Sen. Phil Gramm joined forces to repeal Glass-Steagall at the behest of the big banks. What happened over the next eight years was an almost exact replay of the Roaring Twenties. Once again, banks originated fraudulent loans and once again they sold them to their customers in the form of securities. The bubble peaked in 2007 and collapsed in 2008. The hard-earned knowledge of 1933 had been lost in the arrogance of 1999.[/font color]

CONTINUED...

http://www.usnews.com/opinion/blogs/economic-intelligence/2012/08/27/repeal-of-glass-steagall-caused-the-financial-crisis

One of the staffers told IG investigators that it was made clear that "the matter was not to be discussed any further," according to the report. The other employee said staffers were told "never to speak of the Secretary's personal email system again," it says.

http://www.nbcnews.com/news/us-news/what-state-department-email-report-means-hillary-clinton-n580516

9 Shameless Warmongers Who Call Fox News Home

By , Media Matters for America
Posted on September 5, 2010, Printed on September 6, 2010
http://www.alternet.org/story/148086 /

1. Karl Rove...

White House Iraq Group was formed to “set strategy” for going to war with Iraq.

The Washington Post reported in 2003 (accessed via Nexis) that the White House Iraq Group (WHIG) was formed in August 2002 “to set strategy for each stage of the confrontation with Baghdad. A senior official who participated in its work called it ‘an internal working group, like many formed for priority issues, to make sure each part of the White House was fulfilling its responsibilities.’ ” Part of the WHIG’s mission, according to the Post, was to decide “what to demand of the United Nations in the president’s Sept. 12 <2002> address to the General Assembly, when to take the issue to Congress, and how to frame the conflict with Iraq in the midterm election campaign that began in earnest after Labor Day.” Rove was a regular participant in this group.

WHIG promoted view that Saddam “had weapons of mass destruction and was seeking more.” The Los Angeles Times reported on August 25, 2005, (accessed via Nexis) that the WHIG “promoted the view that Hussein had weapons of mass destruction and was seeking more”

SNIP...

4. Bill Kristol

Kristol: “American and alliance forces will be welcomed in Baghdad as liberators.”

In testimony delivered February 7, 2002, before the Senate Committee on Foreign Relations, Kristol said:

(A)s in Kabul but also as in the Kurdish and Shi’ite regions of Iraq in 1991, America and alliance forces will be welcomed in Baghdad as liberators. Indeed, reconstructing Iraq may prove to be a less difficult task than the challenge of building a viable state in Afghanistan.

The political, strategic and moral rewards would also be even greater. A friendly, free, and oil-producing Iraq would leave Iran isolated and Syria cowed; the Palestinians more willing to negotiate seriously with Israel; and Saudi Arabia with less leverage over policymakers here and in Europe. Removing Saddam Hussein and his henchmen from power presents a genuine opportunity — one President Bush sees clearly — to transform the political landscape of the Middle East.

CONTINUED with details on each warmonger...

http://www.alternet.org/story/148086/9_shameless_warmongers_who_call_fox_news_home

George H.W. Bush’s Eulogy for Gerald R. Ford

The New York Times
Published: January 2, 2007

Following is the transcript of the eulogy for former President Gerald R. Ford delivered today by former President George H.W. Bush in Washington, as recorded by The New York Times.

EXCERPT…

After a deluded gunman assassinated President Kennedy, our nation turned to Gerald Ford and a select handful of others to make sense of that madness. And the conspiracy theorists can say what they will, but the Warren Commission report will always have the final definitive say on this tragic matter. Why? Because Jerry Ford put his name on it and Jerry Ford’s word was always good.

A decade later, when scandal forced a vice president from office, President Nixon turned to the minority leader in the House to stabilize his administration because of Jerry Ford’s sterling reputation for integrity within the Congress. To political ally and adversary alike, Jerry Ford’s word was always good.

SOURCE:

http://www.nytimes.com/2007/01/02/washington/02cnd-ford-ghwb.html