Joe Nocera’s New York Times op-ed of June 17, 2011, “The Banking Miracle”, makes me wonder why it’s so hard for some people to accept what history has to tell us?
America’s economic greatness is measured by its middle class, not the wealthy. We seem to be doomed without a vibrant, optimistic, and prospering middle class that has the money to spend on the goods and services that the economy produces. An irony in all of this is that we in the middle class are partly to blame. We are so caught up in striving to be wealthy – or at least occasionally feel like we can live a little of our lives as if we were – that we can be our own worst enemies when it comes to racking up personal debt. The difference between us and the bankers, however, is that our debts are our own and, as we should have learned from history and are so painfully learning again, so are Wall Street’s.
We also become our own worst enemies when we start believing and supporting the fallacy of trickle down economics. History proves that model doesn’t work. Correction. That model works perfectly well for the very wealthy. It’s a superb model for widening the wealth gap and concentrating wealth in fewer and fewer hands.
So I continuously wonder how many more times will it take before intelligent individuals look at history, do the math, and accept that the rich consider the rest of us to be little more than economic chattel; property, as it were, to be bought and sold for the benefit of the uber-rich and powerful? By supporting failed economic models and legislative policies that benefit the wealthy over the middle class, we are doing little more than engaging in wishful thinking while clinging to a blind faith that by prostrating ourselves at the feet of the wealthy we might some day be invited to a seat at their table. Even without such an invitation, some of us cling to an even more dangerous and failed belief that what’s needed now is to remove any last bit of regulation and to put our full faith and trust in the hands of wealthy capitalists and bankers. These are the very people who not only have caused the last two great economic collapses, they have mastered the art of duping an uninformed and blissfully ignorant portion of the population into believing that without them we will have even fewer opportunities to live a life that has any hope, dignity, or comfort at all.
IMHO, those of us in the middle class who believe these fairy tales do ourselves and our fellow citizens a grave injustice by thinking that the best a free market system has to offer is whatever scraps the richest among us care to share from their plates.
Economic collapses aren’t and never have been caused by unions, the middle class, the poor, or illegal immigrants. Men from places like Goldman Sachs, JP Morgan, and other big houses on Wall Street have been at the root of our economic collapses. They’ve never really been the catalyst of economic growth and prosperity, either. They’ve never built a single car, computer, or line of software code. They don’t build buildings and they don’t grow food. They don’t mine minerals and they don’t teach our kids in schools or deliver health care. To be sure, they play a role as middle men in making the financing possible to do those things. They ostensibly provide the supposed financial expertise to evaluate the risk-reward equation. They have the contacts to be able to put monied interests together with those who need the investment capital. So at the end of the day, what are they? They are the hosts of a multi-trillion dollar Match Game for which they are paid astronomical sums and for which we are supposed to be grateful for their parts in the “jobs creation” equation.
Here’s the rub. When their bets win, they reap the rewards in terms of massive personal wealth which never really trickles down very far, if at all. Good for them. Our system is supposed to reward intelligence and achievement, and I’m all for that. But what happens when there are no rules in place and their gambles go south? Who suffers? Who has to pay for those bad bets?
History cannot be denied. We know by looking back that when there are either too few or no borders, boundaries, or rules by which people – including capitalists – must play, bad things tend to happen. Call it a sad reality of human nature. Call it whatever you like. The reality cannot be denied. The concentration of wealth – and the unregulated power that goes with it – is what was at the root of the Great Depression and the Great Recession. And while the post-WWII prosperity this country enjoyed for the latter half of the 20th century is not completely the result of Glass-Steagall, the undeniable truths are that the bill existed until Reagan and Greenspan successfully vilified government and financial regulation, and Clinton signed a GOP piece of legislation into law that the Republicans had wanted since the 30s to reverse Glass-Steagall known as Gramm-Leach-Bliley.
And where do we find ourselves again and as a result? In an economy that widens the wealth gap, divides us on ideologies to the point where people stop talking to each other, and where, saddest of all, facts no longer matter.
Know what else cannot be denied? It’s who pays for the *unregulated* bets that Wall Street makes and loses. Bets that we’re now learning that Wall Street was making both ways by continuing to sell unregulated securities like mortgage backed securities and collateralized debt obligations even while they bet against them with credit default swaps? I can tell who didn’t pay for those bad bets; the Wall Streeters who made them and who, despite the collapse, continue to make historic bonuses instead of being fired or going to jail. Whatever happened to accountability? Whatever happened to paying for one’s mistakes? Whatever happened to business ethics?
So I have to ask, “Is the desire to regulate really socialism, and what is it called when an economic system privatizes all the gains and socializes all the losses?”
Are we witnessing a perversion of capitalism? Is the erosion of the middle class and vilification of the poor what happens when a wealthy and powerful oligarchy wields ever more unchecked and unregulated power, reaps all the rewards, and passes all of their losses onto us?
Is what we are witnessing really the truest expression of capitalism? Is the ultimate manifestation of our system really the plutocracy we are seeing now; a system where the rich few tell all the rest of us what to think and what’s good for us and, out of shear fear and panic, we believe them?
Are we really going to become a society in which social programs are seen as wasteful and frivolous; where the availability of medical science and technology that can improve and save lives is reduced to an economic ROI calculation; where average people who have played by the rules and worked hard all their lives become indigent in their old age; and where we gladly pursue and support economic and political policies that produce short term gains for a few with no regard for long term pains for the many?
Are we that blind? Are we that cold? Have we really lost our intelligence and our humanity at the same time?
What happens next? Do we continue to allow our system to devolve into a kleptocracy where government is replaced by capitalism, ruled completely by and for the exclusive and sole benefit of the richest among us, and where we finally and completely see them steal any lingering shreds of dignity and paltry wealth we have left?
It just seems to me that we are hurtling toward a doom that comes only from a completely unregulated capitalist system – at least as capitalism is being practiced today in America. IMHO, we have some people within the middle class who support the idea of less regulation, who refuse to learn from history, and who won’t face reality to partially thank for it.
If we were united in the middle class and in our demands for fairness, equality, and sensible rules to protect the economy as a whole, I could see us creating the environment for real recovery and prosperity just as was the case during that period in the 20th century when the wealth gap wasn’t so wide and legislation like Glass-Steagall kept people from making fortunes by knowingly making bets that only paid the dividends and never saddled them with the losses.
Rampell, Catherine. (June 17, 2011). For Want of a Word, Arizona’s Jobless Lose Checks. New York Times. Retrieved from http://www.nytimes.com/2011/06/18/business/18benefits.html
Howard, John. (June 2, 2011). Goldman Hit With Subpoena Over MBS Antics. Law360.com Retrieved from http://www.law360.com/topnews/articles/248863
The Daily Show: Exclusive – William Cohan Interview Parts 1 and 2 (April 28, 2011). Retrieved from
—– Original Message —–
Sent: Saturday, June 18, 2011 7:15:29 AM
Subject: The Banking Miracle
The president of the American Bankers Association was railing against excessive regulation in a speech at the Waldorf Astoria. The banking reform bill, he complained, “would destroy a substantial part of our bond-distributing machinery.” He added, “Can anyone expect that a step of this kind will improve the quality of our long-term investments?”
Modern echoes, for sure. But I read about the speech in a Jan. 27, 1933, article culled from the wonderful archives of The American Banker, the bankers’ bible now celebrating its 175th birthday. The speaker, one Francis H. Sisson, was complaining about an early version of the Glass-Steagall Act, the most famous of all Depression-era bank laws, and the one that, in retrospect, probably did the most good. Less than six months after Sisson’s speech, President Franklin Roosevelt signed it into law.
From my vantage point here in 2011, Glass-Steagall seems miraculous. It was amazingly radical, not just for its time, but for any time; it didn’t so much reform banking as upend it. Most notably, it ordered banks to get out of the securities business. As Sisson complained: “The effect of the proposed banking reform is to renounce investment banking rather than regulate it.” Because investment banking was then the chief activity of the big banks, this was a very big deal.
Glass-Steagall also created the Federal Deposit Insurance Corporation, which insured customer deposits for the first time, and outlawed branch banking by national banks, among other things. It is impossible to imagine anything like it passing today; although the modern reform bill, Dodd-Frank, surely does some good, it’s not even comparable.
I’d long wondered how Senator Carter Glass, the powerful Virginia Democrat, and his House counterpart, the Alabama congressman Henry Steagall, managed to get it passed. What were the politics like? What did they fight over? Why didn’t people like Sisson have better luck pushing back against it, the way bank lobbyists do today? So I asked the editors at American Banker if they would send me some articles from the era that would shed some light on the question. Happily, they obliged.
The first thing I realized is that all the horse-trading over the bill’s provision was done by Democrats. The Republicans, having been badly defeated in the 1932 election, had no ability to block it or even amend it. For instance, Republicans tended to view the creation of deposit insurance as “socialism.” (Sound familiar?) But it didn’t matter: Steagall cared deeply about deposit insurance. Many community bankers — as strong a force back then as today — also supported the idea because they believed it would renew customers’ faith in the banks, and bring back deposits. (This turned out to be true.) Glass, though skeptical, went along so he could get things he cared about, mainly a stronger Federal Reserve with more power over the banks.
The second thing I realized was that, the Sisson speech notwithstanding, there was surprisingly little controversy over what we now think of as the law’s primary achievement: splitting commercial and investment banking. The fights were all over issues that seem inconsequential by today’s lights. It’s as if the notion of breaking the banking business into two was always a foregone conclusion.
And, for the most part, it was. Partly, this was because, unlike today, bank failures in the 1930s were often ruinous to customers. So reform was more pressing. But it was also because, for the entire time the legislation was under consideration, the Pecora hearings were going on — in which Ferdinand Pecora, the flamboyant chief counsel of the Senate Banking Committee, dragged one well-known banker after another before the committee and grilled them mercilessly, exposing how they had abused their investment banking roles, sometimes to the point of criminality. The Pecora hearings serve as a steady drumbeat in the American Banker articles.
Those hearings infuriated the country, and made it unthinkable that banks would continue to be allowed to sell securities. In fact, some banks, seeing which way the wind was blowing, applauded: “The spirit of speculation should be eradicated from the management of commercial banks,” declared Winthrop Aldrich, the chairman of Chase National Bank, according to Michael Perino, Pecora’s biographer. Ironically, Glass loathed the Pecora hearings, deriding them as “a circus, and the only thing lacking now are peanuts and colored lemonade.” But the hearings made his bill — which had been filibustered by Huey Long just 18 months earlier — not just possible but inevitable.
How inevitable? Charles Geisst, a finance professor at Manhattan College and an expert on the law, says that the House and Senate didn’t even bother with a roll-call vote for final passage. This seminal piece of legislation, which helped keep the banks out of trouble for the next 70-plus years, flew through on a voice vote. On Friday, June 16, 1933, when Roosevelt signed it into law, The American Banker gave the news all of three paragraphs. There was nothing left to say.