1 Boring Old Man

^{… in the 1920s, American consumers and businesses relied on cheap credit, the former to purchase consumer goods such as automobiles and furniture, and the latter for capital investment to increase production. This fueled strong short-term growth but created consumer and commercial debt. People and businesses who were deeply in debt when price deflation occurred or demand for their product decreased often risked default. Many drastically cut current spending to keep up time payments, thus lowering demand for new products. Businesses began to fail as construction work and factory orders plunged.}

^{Massive layoffs occurred, resulting in US unemployment rates of over 25% by 1933. Banks which had financed this debt began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en mass, triggering multiple bank runs. Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or not used. Bank failures led to the loss of billions of dollars in assets. Outstanding debts became heavier, because prices and incomes fell by 20–50% but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By 1933, depositors had lost $140 billion in deposits.}

^{Bank failures snowballed as desperate bankers called in loans which the borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending. Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A vicious cycle developed and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930 recession into a 1933 great depression.}

^{Thank you all very much, and thank you for joining us to sign this historic reform. This bill is the most important legislation for financial institutions in the last 50 years. It provides a long-term solution for troubled thrift institutions…}

^{Now, this bill also represents the first step in our administration’s comprehensive program of financial deregulation…}

^{What this legislation does is expand the powers of thrift institutions by permitting the industry to make commercial loans and increase their consumer lending. It reduces their exposure to changes in the housing market and in interest rate levels. This in turn will make the thrift industry a stronger, more effective force in financing housing for millions of Americans in the years to come…}

Glass-Steagall was put in place in 1933 to control the rampant speculation that had helped cause the collapse of banking at the outset of the depression, and to prevent such consolidation of the banks that the nation had all its eggs in one fiscal basket. Flash forward to 1999 and the Gramm-Leach-Bliley Financial Services Modernization Act [as in Senator Phil Gramm, John McCain’s Financial Advisor] reversed those rules, allowing not only more bank mergers, but for banks to become directly involved in the stock market, bonds, and insurance. The Savings and Loans failed because they didn’t have the regulations that protected banks. After Gramm-Leach-Bliley, banks didn’t have that protection either.

Then, Senator Gramm introduced the Commodity Futures Modernization Act of 2000 provided that products offered by banking institutions would not be regulated as futures contracts. It also contained the Enron Loophole, which exempted most over-the-counter energy trades and trading on electronic energy commodity markets, was drafted by Enron Lobbyists working with senator Phil Gramm seeking a deregulated atmosphere for their new experiment. Senator Gramm’s wife had been on the Enron Board, and he was the second largest recipient of their generous campaign contributions.

These two of Senator Gramm’s additions to the deregulation frenzy gave us the Enron Swindle and the current Mortgage Crisis estimated between $700 Billion and $1 Trillion in bailout potential if we can believe what we’re being told. It only took seven years for these deregulation bills, the Gramm-Leach-Bliley Financial Services Modernization Act and the Commodity Futures Modernization Act of 2000, to lead to two massive scandalous collapses in our financial markets, just like with Garn-St. Germain Depository Institutions Act in the 1980’s.

So, why didn’t we put the plug in the jug after the Savings and Loan debacle? Even more to the point, why didn’t we demand a balanced budget after Ronald Reagan‘s escalation of the National Debt? Why did we let George W. Bush run it up again? As this Mortgage Crisis escalated, why didn’t we put a stop to it? Particularly after the Enron Scandal?

There are lots of answers, but all of them contain the words "Republican," "Deregulation," "Congressional Corruption," and "Lobbyists." Unfortunately, the word "Democrat," pops up more than I’d like in there too. It took 50 years [a generation] to forget The Great Depression. I only know it from the scars it left on my parent’s and their generation’s collective psyche. I’ve heard the folk songs of Woody Guthrie and read John Steinbeck’s Opus, The Grapes of Wrath, but I don’t really know from experience what it feels like to live in a bankrupt country. None of us do.

But I do know that when I heard the cry for deregulation from the Reaganites and the BushCo crowd, I shuddered. And I do know when the paper companies of the tech/dot.com years were soaring, or when Enron and Worldcom were rocketing, I didn’t buy any stock in them. And I know that when I was offered A.R.M. Mortgages or Mortgages with a "balloon," I recoiled at the idea. And it wasn’t because I’m a financial guru. I know nothing about such things. It was because those things made no sense. They were only sensible in a market that was on the rise. Any fool could see that things would catch up with them down the line – they were obviously doomed. But, like the rest of us, it all felt to big to think about, too distant to have any effect on. And it made my head hurt.

When I think about it, the part that has gotten to me the most was the way people have said "you Liberals" and gone on to imply that "we Liberals" wanted to tax them to death and take their stuff – big spenders and big government. The truth has been the opposite. They’ve spent us bankrupt, piled on our debt, concentrated the wealth, and raped us in the marketplace.

The task ahead of us seems overwhelming. If we make it through this crisis intact, it’s clear that we have to regulate not only our Banking and Financial Markets again, but we also have to regulate Lobbyists and their effects on our Legislation – an even more daunting task. Free Market Capitalism is not a viable system without oversight and regulation, and we’re almost thirty years into an active, massive assault on both of these things. Compared to our current structural financial problems, dealing with Arab Terrorism is a piece of cake…