gold man’s sacks…

Posted on Tuesday 27 April 2010

I think I might have a personal problem with aggression because every time I turn on the Goldman Sachs hearings, after only a brief time, I either turn them off, or go to another room. I’ve tried to refine what my problem is, but I can’t figure it out. It happens whether it’s a Senator, or one of the Executives is talking. Only one thing is clear. Whenever one of those Executive guys talks, I feel nauseated before I turn it off. With the Senators, I feel something different, like I might cry. Which is my way of saying that these people really need to go somewhere else, far away from Wall Street, and do something else – like maybe Dancing with the Stars or Lost.

The part that’s hard is believing that Goldman Sachs calls itself a Bank. The things these people are talking about bears no relationship to my understanding of what a Bank is, something gifted to us by the deregulation that dates from the arrival of the Cult of Ronald Reagan, though the deal was sealed by President Clinton’s signing of the last one on the list in the last month of his Presidency.
  1. Depository Institutions Deregulation and Monetary Control Act of 1980: This legislation expanded the Federal Reserve’s rules to all Banks, and raised the level of FDIC coverage from $40,000 to $100,000. But it also began the Derugulation of Banking Institutions and the erosion of the Glass-Stegall Act:
    • Banks were allowed to merge.
    • It removed the power of the Federal Reserve to set the interest rates of savings accounts.
    • It allowed credit unions and savings and loans to offer checkable accounts.
    • Allowed institutions to charge any interest rates they choose.
  2. Garn-St. Germain Depository Institutions Act of 1982: This Bill was passed to deregulate the Savings and Loans Industry. From the FDIC history:
    "This Reagan Administration initiative is designed to complete the process of giving expanded powers to federally chartered S&Ls and enables them to diversify their activities with the view of increasing profits. Major provisions include: elimination of deposit interest rate ceilings; elimination of the previous statutory limit on loan to value ratio; and expansion of the asset powers of federal S&Ls by permitting up to 40% of assets in commercial mortgages, up to 30% of assets in consumer loans, up to 10% of assets in commercial loans, and up to 10% of assets in commercial leases."
  3. Gramm-Leach-Bliley Act of 1999:
    The Gramm-Leach-Bliley Act … is an Act of the United States Congress which repealed part of the Glass-Steagall Act of 1933, opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services.

    The Gramm-Leach-Bliley Act (GLBA) allowed commercial and investment banks to consolidate. For example, Citibank merged with Travelers Group, an insurance company, and in 1998 formed the conglomerate Citigroup, a corporation combining banking and insurance underwriting services under brands including Smith-Barney, Shearson, Primerica and Travelers Insurance Corporation. This combination, announced in 1993 and finalized in 1994, would have violated the Glass-Steagall Act and the Bank Holding Company Act by combining insurance and securities companies, if not for a temporary waiver process. The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the financial services industry.

    This Bill essentially repealed the Glass-Stegall Act. Things were back to pre-1929-Crash conditions. Again, there was a blurring of Bank/Broker distinctions and megaBanks proliferated. Mortgages were packaged and sold or traded, often off the books. Complex and unregulatable "derivitives" transferred risk away from lending institutions, making the lenders much more likely to approve Mortgages. "Sub-Prime Mortgages," "Adjustable Rate Mortgages," and "Balloon Mortgages" flooded the markets. Corporate executives lived like the aristocracy of old with salaries and bonuses that would buy many small towns. As Mortgages became easy to get, the value of property skyrocketed creating a housing bubble [price much greater than value]. That bubble burst. Now it’s called the Subprime Mortgage Crisis, and it’s sucking the Stock Market down the tubes, aided by this next wonder.
  4. Commodity Futures Modernization Act of 2000: This Bill by Texas Senator Phil Gramm was the Hurricane Katrina of deregulation:
    The Commodity Futures Modernization Act of 2000 … is United States federal legislation which repealed the Shad-Johnson jurisdictional accord, which had banned single-stock futures in 1982. The legislation also provided certainty that products offered by banking institutions would not be regulated as futures contracts.

    This act was incorporated by reference into H.R. 4577, an omnibus spending bill. It was passed by the 106th United States Congress and signed by President Bill Clinton on December 21, 2000…

    The act has been cited as a public-policy decision significantly contributing to Enron’s bankruptcy in 2001 and the much broader liquidity crisis of September 2008 that led to the bankruptcy filing of Lehman Brothers and emergency Federal Reserve Bank loans to American International Groupand to the creation of the U.S. Emergency Economic Stabilization fund.

    The "Commodity Futures Modernization Act of 2000" was introduced in the House on Dec. 14, 2000 … and never debated in the House. The companion bill was introduced in the Senate on Dec. 15th, 2000 (The last day before Christmas holiday) … and never debated in the Senate.

    Given the above-stated chronology, it would appear that the House and Senate versions of the bill were introduced just prior to the Christmas holiday in December of 2000, following George W Bush’s (first) election (in November of 2000), while then-President Clinton was serving out his final days as President. The bill was never debated by the House or Senate. The bill by-passed the substantive policy committees in both the House and the Senate so that there were neither hearings nor opportunities for recorded committee votes. In substance, it appears that the leadership of the Republican-controlled Senate and House incorporated the deregulation of credit default swaps into an omnibus budget bill at a time when the outgoing president was in no position to veto anything. The following article suggests that Bill Clinton and Alan Greenspan endorsed this law The Bet That Blew Up Wall Street though Clinton’s position in 2000 is only suggested, not confirmed or made clear in the report…

    The Commodity Futures Modernization Act of 2000 has received criticism for the so-called "Enron loophole," which exempts most over-the-counter energy trades and trading on electronic energy commodity markets. The "loophole" was drafted by lobbyists for Enron working with senator Phil Gramm seeking a deregulated atmosphere for their new experiment, "Enron On-line."
I notice that I keep posting these things, every time there’s a Hearing, or a flurry of articles. Somehow, I think it might bring back what we had – two things. Banks that are banks. And gambling is illegal except in places like Nevada, Indian Reservations, or boats on the Mississippi River and Coast [that say things like "Casino," or "Gaming Parlor" instead of "Goldman Sachs" or "Lehman Brothers"].

Seriously, it is very hard to watch these people on television. The way they talk is so far off the mark, and they don’t seem to understand how absolutely silly they sound. They seem to actually think that selling products that were doomed to fail from the outset, products that were actually only bets on other things, then betting against their own products, was a perfectly legitimate thing for a Bank to do.

The front pages said Goldman Sachs won a round today because their stock didn’t tank. But I kind of doubt that as the real measure of what’s going to happen at Goldman Sachs. And the front page says that the Republicans have once more blocked the Financial Reform Bill from coming to the Senate floor. But that’s just today. The kind of stuff that was on television today cannot survive.

Yesterday, I had my yearly meeting with my retirement plan manager of 25 years. He’s a nice guy [for a Capitalist]. It  didn’t take too long to get him to understand earlier this year that we really did want him to move all of our investments from any company that advertises on Fox News. Yesterday, he seemed to already know that we would need to be reassured that none of our investments were included in any hedge fund or products handled or originated by Goldman Sachs, that we had no investments in anything that was a derivative, and that all commodity holdings were things that actually exist and are regulated by the CFTC [Commodity Futures Trading Commission].

It was our first meeting in 25 years that I actully engaged rather than muttering iconoclastic drivel while he and my wife talked. I did get in one comment that got to him when I said, "I’ll bet I’m your only client who wants my taxes to go up." By the look on his face, I am sure I was right about that. I was good though. When he said that Reaganism, "I don’t mind helping others learn how to fish, but I don’t want to keep giving them fish," I held my tongue. I only said, "that’s what you think, but that’s not what we think." I’ll have to admit, as we were walking out the door, I did say to my wife, "Let’s go home and give away some fish." I try to do my part…

But I do have a point. There may not be too many people who go to the lengths we do to keep our investments honest, but I’ll bet there are people all over America telling their retirement plan managers "nothing from Goldman Sachs." And more importantly, I doubt many retirement fund managers and hedge fund managers are eager to stock up on their products after their show today. They were pitiful…
    April 28, 2010 | 10:22 AM

    “This Bill by Texas Senator Phil Gramm was the Hurricane Katrina of deregulation:”

    Much has been said about John McCain’s utter disregard for good governance in his choice of Sarah Palin as VP. But his choice for Financial guru would have been Phil Gramm. I didn’t need any more reasons to vote against Johnny Mc, but this would surely have been another one.

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