The law that created this mess ... The Gramm-Leach-Bliley Act

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    Mar 26, 2009 12:25 PM GMT
    ALL REPUBLICANS: "The bills were introduced in the U.S. Senate by Phil Gramm (R-Texas) and in the U.S. House of Representatives by Jim Leach (R-Iowa). The third lawmaker associated with the bill was Rep. Thomas J. Bliley, Jr. (R-Virginia), Chairman of the House Commerce Committee from 1995 to 2001".

    "The Gramm-Leach-Bliley Act, also known as the Gramm-Leach-Bliley Financial Services Modernization Act, Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999, is an Act of the 106th United States Congress which repealed part of the Glass-Steagall Act of 1933, opening up competition among banks, securities companies and insurance companies.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.[1] The law was passed to legalize these mergers on a permanent basis. Historically, the combined industry has been known as the financial services industry.

    President Barack Obama believes that the Act directly helped cause the 2007 subprime mortgage financial crisis.[15] Economists Robert Ekelund and Mark Thornton have also criticized the Act as contributing to the crisis. They state that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly".[16]

    "Nobel Prize-winning economist Paul Krugman has called Senator Phil Gramm "the father of the financial crisis" due to his sponsorship of the Act.[17] Nobel Prize-winning economist Joseph Stiglitz has also argued that the Act helped to create the crisis.[18] An article in The Nation has made the same argument.[19]"

    http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act
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    Mar 26, 2009 12:58 PM GMT
    This is the number one thing I'm watching for in all this bullshit. If they don't re-separate the two types of finance then we are going to repeat this over and over again.

    Fuck you Phil Gramm for introducing it and fuck you Clinton icon_sad.gif for signing it.

    Too big to fail means too big to exist.
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    Mar 26, 2009 1:12 PM GMT
    Caslon, thanks for this!
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    Mar 26, 2009 1:14 PM GMT
    Extra frosting:

    Essay in New York Times, April 1998 (William Safire)

    (re: the merger of Citibank and Travelers)

    "They think they can count on Republicans in Congress who say that the 1933 Glass-Steagall Act is a Depression-era relic. Fears that a market collapse could affect banks are old hat, these descendants of Dr. Pangloss insist. Break down the fire wall and let the Federal Reserve keep a benign eye on everything financial; we don't even have to fear fear itself.
    ---
    "No private enterprise should be allowed to think of itself as ''too big to fail.'' Federal deposit insurance, protecting a bank's depositors, should not become a subsidy protecting the risks taken by non-banking affiliates. If a huge ''group'' runs into trouble, it should take the bank down with it; no taxpayer bailouts should allow executives or stockholders to relax.
    ---
    http://www.nytimes.com/1998/04/16/opinion/essay-don-t-bank-on-it.html
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    Mar 26, 2009 1:23 PM GMT
    "The Gramm-Leach-Bliley Act (GLBA) "

    Now, you just know that there are rightwing nutbags out there who are going to say it's because the initials really stand for "The Gay Lesbian Bisexual Agenda" and that it angered God who destroyed the economy. You know it's coming. Fred Phelps where are you?
  • coolarmydude

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    Mar 26, 2009 2:04 PM GMT
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    Mar 26, 2009 2:21 PM GMT
    Here is something I heard on NPR yesterday that explains the role of derivatives in the collapse .. that act is mentioned .. there is audio you can listen to on the page .. very interesting:
    http://www.npr.org/templates/story/story.php?storyId=102325715In his 1997 book FIASCO: Blood in the Water on Wall Street, Partnoy detailed how derivatives — financial instruments whose value is determined by another security — were being used and abused by big financial firms. Partnoy used his experiences as a derivatives trader at Morgan Stanley to give the book an insider's perspective. In the preface to FIASCO, Partnoy wrote about the growing influence of derivatives:

    "Derivatives have become the largest market in the world. The size of the derivatives market, estimated at $55 trillion in 1996, is double the value of all U.S. stocks and more than 10 times the entire U.S. national debt. Meanwhile, derivatives losses continue to multiply." icon_eek.gif

    Partnoy is a professor at the University of San Diego law school. In addition to FIASCO, he's the author of Infectious Greed: How Deceit and Risk Corrupted the Financial Markets.

    Partnoy joins Fresh Air to explain derivatives, credit default swaps and how they led to the current financial crisis.

    There is a nice excerpt from his book
    http://www.npr.org/templates/story/story.php?storyId=102325715
  • kaccioto

    Posts: 284

    Mar 26, 2009 2:29 PM GMT
    mehh, they bat for the same team

    repubs get a cut from execs to allow oligopolies and bleed middle market

    dems get a cut from execs to allow mergers (lehman and barclays) at expense of taxpayers

    either pick your poison, or smarten up and realize that party talk is a glass pony and follow the cow to the bank
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    Mar 26, 2009 2:29 PM GMT
    Wow. Interesting. And all this time I was blaming the Jews.
  • CuriousJockAZ

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    Mar 26, 2009 2:30 PM GMT
    Plenty of blame to go around -- and WE the American people share part of it due to our "Living beyond our means" spending habits
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    Mar 26, 2009 2:39 PM GMT
    Caslon9000 saidALL REPUBLICANS:

    Bill signed it, grant it George perpetuated it as shown in your Rachel Maddows clip.
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    Mar 26, 2009 3:00 PM GMT
    So how come Phil Gramm and his daughter are not held accountable
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    Mar 26, 2009 3:09 PM GMT
    mikes39 saidWow. Interesting. And all this time I was blaming the Jews.


    It's OK, Jews are Republicans too!

    My opinion: Was there any question of who was responsible?
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    Mar 26, 2009 3:33 PM GMT
    Plenty of blame to go around -- and WE the American people share part of it due to our "Living beyond our means" spending habits

    There's excess household debt that is an individual's responsibility - and then there's systemic fuck-everybody greed that brings down the global system. I think they are too separate things. The current crisis is not because of household debt or poor people trying to buy houses.
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    Mar 26, 2009 4:27 PM GMT
    Interestingly, Partnoy claims that Phil Grahm added the provision into the 11,000 page omnibus budget bill in the evening, a few hours before the Christmas break. The bill was never even debated in the house or senate, but the full package was unanimously voted in and subsequently signed by Bill Clinton. No one knew it was part of the package.

    If this is true, I think it is insane that we allow this type of activity to continue. Bills should not be allowed to "snuck" into a large package without anyone ever discussing it.

    Pinny said
    Caslon9000 saidALL REPUBLICANS:

    Bill signed it, grant it George perpetuated it as shown in your Rachel Maddows clip.
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    Mar 26, 2009 4:33 PM GMT
    Quite interesting. A shame this is not more widely distributed

    Thanks for posting the info
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    Mar 26, 2009 4:36 PM GMT
    ack! too much writing
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    Mar 26, 2009 4:42 PM GMT
    czarodziej saidack! too much writing


    How about this....

    The Gramm-Leach-Bliley Act undid the Glass-Steagall Act of 1933 which was enacted to correct the financial dealings that caused the Great Depression. So those same unsound financial dealings were allowed to occur again and 10 years later, history repeated itself!

    And we have the money-grubbing, business-first, to hell with the people and the country Republicans to thank for it....and of course, all the rubes who vote Republican. And the Republicans still haven't learned the lesson after having the financial system collapse twice!....and apparently some rubes havent either.
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    Mar 26, 2009 4:43 PM GMT
    Certainly that was part of the problem. As kaccioto indicated though both parties can shoulder some of the blame. After all both parties kept Alan Greenspan in as Federal Reserve Chairman, and they were only too happy to put up with the dot-com and housing bubbles. Only when they burst did the politicians get panicky.
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    Mar 26, 2009 4:43 PM GMT
    I guess I'm dumb because I don't get it?

    So banks were allowed to get big and hold so many assets that failure would impact countless millions? Big deal. They've would have run into troubles today regardless and we'd still have dems & repubs out to socialize the losses to avoid voters retaliation at the booths.

    Wake me up when we hold the average American accountable for being the real F*cktard for spending & financing themselves into debt.
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    Mar 26, 2009 4:48 PM GMT
    Caslon9000 said
    czarodziej saidack! too much writing


    How about this....

    The Gramm-Leach-Bliley Act undid the Glass-Steagall Act of 1933 which was enacted to correct the financial dealings that caused the Great Depression. So those same unsound financial dealings were allowed to occur again and 10 years later, history repeated itself!

    And we have the money-grubbing, business-first, to hell with the people and the country Republicans to thank for it....and of course, all the rubes who vote Republican. And the Republicans still haven't learned the lesson after having the financial system collapse twice!....and apparently some rubes havent either.


    much better icon_smile.gif makes sense too- im not surprised.... i've been saying on my own since i learnt about the depression in middle school that we're on the track to another one- the over spending, the lack of investing and saving by the common man, the crooked corporations, the national debt- it was all so obvious. at least now we know why it was allowed to happen the same way all over again
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    Mar 26, 2009 4:50 PM GMT
    This crisis has pointed out the woeful lack of basic financial knowledge that many people have (and not just in the USA).

    Maybe a course should be taught in High School about the basics? After all we expect people to manage a mortgage, their retirement savings, paying the bills day to day, yet they often have the financial IQ of a nine year old.

    Would we expect to drive a car without any lessons? I think not (although I sometimes wonder the way some people drive).
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    Mar 26, 2009 4:50 PM GMT
    Trance24 saidI guess I'm dumb because I don't get it?

    So banks were allowed to get big and hold so many assets that failure would impact countless millions? Big deal. They've would have run into troubles today regardless and we'd still have dems & repubs out to socialize the losses to avoid voters retaliation at the booths.

    Wake me up when we hold the average American accountable for being the real F*cktard for spending & financing themselves into debt.


    The problem is that commecial banks, investment banks, and insurance institutions were all allowed to merge into one. Which causes such an interdependence that if such an institution fails it brings down so much of the financial market that it endangers the whole financial system. That is what happened to cause the Great Depression and it was forbidden by the Glass-Steagall Act of 1933. The Republicans brushed aside the lessons of history and undid that act with the Gramm-Leach-Bliley Act of 1999 and caused the same problem all over again.
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    Mar 26, 2009 4:59 PM GMT
    Yup. The reason the Glass-Steagall act was put in place was after the Depression people said: "Wow that really sucked. Let's try and keep that bullshit from happening again." And so it didn't happen again - for a while.

    Wake me up when we hold the average American accountable for being the real F*cktard for spending & financing themselves into debt.

    Household/consumer debt is a small part of this puzzle - and not the reason we've had the difficulties we've had. Further the deregulation of individual lending rules has led to consumer being allowed to take on more debt than they should - and yes we should all be fully financially educated adults - but there's a reason most cultures stigmatize usury. The deregulation and lack of transparency that led to this rampant speculation is the culprit.

    The most expensive words in the English language are:

    This time it's different.
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    Mar 26, 2009 5:08 PM GMT
    I'm a little confused myself with how people think that the average American's spending habits are the cause of the downfall of multiple banking institutions.

    I can see where living beyond their means could cause the individuals problems and indeed have some effect on the economy, but how does this cause the banks to fail?

    I happen to agree that many people need to look hard and long about how they manage their finances for their own benefit, but I'm just not seeing how this has caused the fall of so many institutions and our economy.

    Trance24 saidI guess I'm dumb because I don't get it?

    So banks were allowed to get big and hold so many assets that failure would impact countless millions? Big deal. They've would have run into troubles today regardless and we'd still have dems & repubs out to socialize the losses to avoid voters retaliation at the booths.

    Wake me up when we hold the average American accountable for being the real F*cktard for spending & financing themselves into debt.