Slick Willie’s Financial Wild West
If it was such an important measure for Roosevelt during the 30s Great Depression to insist on separating commercial and investment banking, how did it come to be considered not important by Bill Clinton? It’s not like our leaders don’t study history, apparently; or perhaps it’s all just managerialism now. It looks a lot like this banking separation was important, perhaps even more necessary than it was before. A lot of really significant advances for the banking world came about on Clinton’s watch.
There are plenty of voices that say that the repeal of Glass-Steagall is a huge part of why the world now lives in this enduring financial crisis, pointing to how investment bankers could gamble with money in their bank’s commercial deposits. And, of course, there’s voices that disagree with this analysis, including Clinton’s, of course. But surely, if the money lost was only money that people were consciously gambling with, and not ordinary people’s deposits, then it wouldn’t have been everybody else’s business, and the public wouldn’t have been obliged to take on decades of debt to save it.
But do we even care about Glass-Steagall anymore? Although it is clearly important. When we started looking at all this, the idea of Glass-Steagall was about the extent of our understanding, but we now wonder whether Glass-Steagall really is that big a point in the full context of what we’ve been hearing, just another detail in the state’s abdication of regulation and supervision of the money power.
We wrote a little earlier a little about a bonfire of regulation at the turn of the century. The banks had used their huge political influence in the years leading up to the recession to rip up the financial legislation book. Glass-Steagall went in 1999, but Clinton’s work was nowhere near finished, and in 2000 came the passing of the Commodity Futures Modernization Act. After careful consideration about who should regulate the derivatives market, Clinton’s administration came to the brave decision that nobody should.
This resulted in a financial Wild West. Now, bets could be taken against anyone else’s stocks, and it seems some people always knew where the junk was. Amongst an explosion of dire effects, this facilitated the largest corporate fraud in history as Enron fraudulently manipulated energy markets and caused huge losses around the world.
Different people would give different dates as the moment the American government gave up its stewardship of its Revolution, and became in imitation of the powers it had rebelled against, in thrall to the interests of the money power and imperialism. Maybe almost immediately, in 1781, with the establishment of the Bank of the North America, the first central bank in the USA. Or maybe 1847, in starting a war with Mexico to steal California, of which President Ulysses S Grant said:
The war was an instance of a republic following the bad example of European monarchies, in not considering justice in their desire to acquire additional territory.
Or in 1898, in the Philippines, when America went the whole nine yards and became an empire itself, and Mark Twain said:
We cannot maintain an empire in the Orient and maintain a republic in America.
For some the moment is 1913 with the Federal Reserve Act, or 1933 with the Great Gold Confiscation, and there will be other moments. For some, the final nail in the coffin of the Revolution is in 2000, with this Commodity Futures Modernization Act, which effectively gave away sovereignty over financial legislation to the banks.
The banks recognised that this was their moment and kept on pressing their case. In 2004, under George W Bush, the limits were lifted on what banks could borrow against their reserves, which brought an explosion of investment in financial products and insurance products on what they were buying, sometimes deliberately dealing in what they knew was junk stock and taking out insurance on them. All kinds of vehicles and behaviours were described as economy-wrecking by Allan Sloane in a famous article, House of Junk, in Fortune magazine in, 2007 (for which the link no longer works, which, of course, makes us wonder if someone has had it removed.)