There is no defense for the repeal of Glass-Steagall, it created the crisis

[ProSense]

Testimony of Robert Kuttner Before the Committee on Financial Services U.S. House of Representatives Washington, D.C. October 2, 2007 (PDF):

Since repeal of Glass Steagall in 1999, after more than a decade of de facto inroads, super-banks have been able to re-enact the same kinds of structural conflicts of interest that were endemic in the 1920s – lending to speculators, packaging and securitizing 2 credits and then selling them off, wholesale or retail, and extracting fees at every step along the way. And, much of this paper is even more opaque to bank examiners than its counterparts were in the 1920s. Much of it isn’t paper at all, and the whole process is supercharged by computers and automated formulas. An independent source of instability is that while these credit derivatives are said to increase liquidity and serve as shock absorbers, in fact their bets are often in the same direction – assuming perpetually rising asset prices – so in a credit crisis they can act as net de-stabilizers.

Two of Mr. Obama’s chief advisers for his speech served under President Clinton: Joseph E. Stiglitz was chairman of the president’s Council of Economic Advisers, and Robert B. Reich was secretary of labor.

Mr. Obama said the housing slump was a result of another of the bubbles that have distorted the economy in the past decade. Few doubted, he noted, that the nation needed to reform the 1930s-era law — the Glass-Steagall Act — that had erected a wall between commercial and investment banks. But, as Mr. Obama’s aides noted, the banking and insurance industries spent more than $300 million on a successful effort to repeal that act in 1999.

The resulting changes, Mr. Obama said, granted far greater freedom to investment houses without modernizing the regulatory regime and demanding transparency. The same pattern played out in regulation of home mortgages to bad effect, he said.

link

[ProSense]

1. No comment? n/t

[dionysus]

2. K&R

:thumbsup:

[depakid]

3. They were warned:

http://www.smirkingchimp.com/thread/13858

[redqueen]

4. The vote for the bill was split along party lines...

the vote on the conference report, before it was sent for Clinton's signature, was overwhelmingly supported.

I still don't understand the dichotomy there.

[blm]

5. Another reason why Obama's plan to put CAMERAS on congress' negotiations and

deliberations of legislation is a great step for open government. Let the citizen SEE and HEAR who is carrying the water for the powerful.

[redqueen]

6. Hell yes. So tired of them playing these games.

x(

[kirby]

14. How is the executive branch going to make another branch put CAMERAS? BS. n/t

[blm]

15. Pressure of the bully pulpit....encourage public to demand it of congress. He already has senate

allies and congressional ones who will take up this cause. There are SOME open government Democrats in DC, we just need to bring more to the light.

[kirby]

16. Will never happen. n/t

[blm]

17. We'll see. I think Durbin has a great shot at Majority leader and he and Kerry WILL push it through

and I expect Feingold to join them.

[kirby]

18. If they can do it from the inside, great! Same with the Supreme Court...

Supreme Court should be on C-SPAN.

[ProSense]

7. Conference Report is a

reconciliation of House and Senate versions and a negotiation process. The bill was passed by Republicans and formed the basis for the Conference Report.

[redqueen]

8. So but why would all the Dems who voted against the original bill

turn around and vote for the reconciled bill... it obviously wasn't changed substantially.

:shrug:

[ProSense]

9. They negotiated a CRA provision to try to protect consumers.

Maybe part of getting it included was that they vote for the bill. If they hadn't voted and that was stripped, the bill would have been passed by the Republican majority. Also, remember this was a bill Clinton really wanted.

[wyldwolf]

10. where do you get that this is what Bill Clinton really wanted?

Why don’t we go look at a and see what really happened? I turn not to a short AP-generated political piece, but to an in-depth write up by a New York Times financial reporter (the NYT being no particular friend of Bill Clinton), Agreement Reached on Overhaul of U.S. Financial System by Stephen Labaton. Here are key paragraphs:

The deal was announced about 2 A.M. after a compromise was reached over the measure's effect on lending rules for the disadvantaged, the source of months of partisan bickering between the White House and Senator Phil Gramm, the Texas Republican who heads the banking committee.

It concludes decades of attempts to rewrite banking laws to catch up with a marketplace that has already experienced broad consolidations and the rise of financial conglomerates offering bank and brokerage accounts as well as insurance. …

While the measure is likely to enjoy broad bipartisan support, it has also been criticized. Some lawmakers and privacy groups say the legislation does not adequately protect consumers and will allow financial companies to share and sell private information about customer accounts. Other critics worry about the further consolidation of the financial services industry. …

The breakthrough in Friday's legislation came in a backroom meeting at the Capitol soon after midnight, when a group of moderate Senate Democrats -- led by Christopher Dodd of Connecticut and Charles E. Schumer of New York -- forced a compromise between Gramm and the White House over the legislation's effect on the Community Reinvestment Act, a 1977 anti-discrimination law intended to encourage lending to minorities and others historically denied access to credit.

Dodd, whose state is home to the nation's largest insurance companies, and Schumer, with strong ties to Wall Street, have long sought legislation to repeal the Glass-Steagall Act. Both men said in interviews Friday that they moved to strike a compromise after it became apparent that the legislation might be killed, as it was last year by Gramm, over the debate about the Community Reinvestment Act. …

But the White House found that provision unacceptable and had its own ideas about community lending. It wanted the legislation to prevent any bank with an unsatisfactory record of making loans to the disadvantaged from expanding into new areas, like insurance or securities. …

When Gramm's measure was defeated by one vote, it quickly became clear that there would be no law unless Gramm could get some Democrats to break from the White House.

But Administration officials had spent all day making sure that the Democrats remained solidly against the measure until their concerns about the Community Reinvestment Act could be worked out.

So what do we see in this contemporaneous report? That the White House had been pushing back on this act for months. That certain Congressional Dems, Dodd and Schumer foremost, explicitly wanted to kill Glass-Steagall. That the White House fought them as well as Gramm on this issue. That the White House rallied Democrats to present a solid front to the measure, requiring that the CRA be protected, which some Congressional Dems were just as happy to toss out along with all other protections.

[ProSense]

11. His statement?

For Immediate Release Friday, November 12, 1999

REMARKS BY THE PRESIDENT AT FINANCIAL MODERNIZATION BILL SIGNING

Presidential Hall

1:37 P.M. EST

THE PRESIDENT: Thank you and good afternoon. I thank you all for coming to the formal ratification of a truly historic event -- Senator Gramm and Senator Sarbanes have actually agreed on an important issue. (Laughter.) Stay right there, John. (Laughter.) I asked Phil on the way out how bad it's going to hurt him in Texas to be walking out the door with me. (Laughter.) We decided it was all right today.

Like all those before me, I want to express my gratitude to those principally responsible for the success of this legislation. I thank Secretary Summers and the entire team at Treasury, but especially Under Secretary Gensler, for their work, and Assistant Secretary Linda Robertson. I thank you, Chairman Greenspan, for your constant advocacy of the modernization of our financial system. I thank you, Chairman Levitt, for your continuing concern for investor protections. And I thank the other regulators who are here.

I thank Senator Gramm and Senator Sarbanes, Chairman Leach and Congressman LaFalce, and all the members of Congress who are here. Senator Dodd told me the Sisyphus story, too, over and over again, but I've rolled so many rocks up so many hills, I had a hard time fully appreciating the significance of it. (Laughter.)

I do want to thank all the members here and all those who aren't here. And I'd like to thank two New Yorkers who aren't here who have been mentioned -- former Secretary of the Treasury Bob Rubin, who worked very hard on this; and former Chairman, Senator Al D'Amato, who talked to me about this often. So this is a day we can celebrate as an American day.

To try to give some meaning to the comments that the previous speakers have made about how we're making a fundamental and historic change in the way we operate our financial institutions, I think it might be worth pointing out that this morning we got some new evidence on the role of new technologies in our economy, which showed that over the past four years, productivity has increased by a truly remarkable 2.6 percent -- that's about twice the rate of productivity growth the United States experienced in the 1970s and the 1980s. In the last quarter alone, productivity grew at 4.2 percent.

This is not just some aloof statistic that matters only to the Federal Reserve, the Treasury, and Wall Street economists. It is the key to rising paychecks and greater security and opportunity for ordinary Americans. And the combination of rising productivity, more open borders and trade, working to keep down inflation, the dramatic reduction of the deficit and the accumulation of the surplus, and the continued commitment to the investment in the American people, research and development, and new productivity-inducing technologies has given us the most sustained real wage growth in more than two decades, with the lowest inflation in more than three decades.

I can tell you that back in December of 1992, when we were sitting around the table at the Governor's Mansion, trying to decide what had to be in this economic program, the economists that I had there, who are normally thought to be -- you know, you say, well, they're Democrats, they'll be more optimistic -- none of them believed that we could grow the economy for this long with an unemployment rate this low and an inflation rate this low. And it's a real tribute to the American people.

So what you see here, I think, is the most important recent example of our efforts here in Washington to maximize the possibilities of the new information age global economy, while preserving our responsibilities to protect ordinary citizens and to build one nation here. And there will always be competing interests. You heard Senator Gramm characterize this bill as a victory for freedom and free markets. And Congressman LaFalce characterized this bill as a victory for consumer protection. And both of them are right. And I have always believed that one required the other.

It is true that the Glass-Steagall law is no longer appropriate to the economy in which we lived. It worked pretty well for the industrial economy, which was highly organized, much more centralized and much more nationalized than the one in which we operate today. But the world is very different.

Now we have to figure out, well, what are still the individual and family and business equities that are still involved that need some protections. And the long, and often tortured story of this law can be seen as a very stunning specific example of the general challenge that will face lawmakers of both parties, that will face liberals and conservatives, that will face all Americans as we try to make sure that the 21st century economy really works for our country and works for the people who live in it.

So I think you should all be exceedingly proud of yourselves, including being proud of your differences and how you tried to reconcile them. Over the past seven years, we've tried to modernize the economy; and today what we're doing is modernizing the financial services industry, tearing down these antiquated walls and granting banks significant new authority.

This will, first of all, save consumers billions of dollars a year through enhanced competition. It will also protect the rights of consumers. It will guarantee that our financial system will continue to meet the needs of underserved communities -- something that the Vice President and I tried to do through the empowerment zones, the enterprise communities, the community development financial institutions, but something which has been largely done through the private sector and honoring the Community Reinvestment Act.

The legislation I signed today establishes the principles that as we expand the powers of banks, we will expand the reach of that act. In order to take advantage of the new opportunities created by the law, we must first show a satisfactory record of meeting the needs of all the communities the financial institution serves.

I want to thank Senator Sarbanes and Congressman LaFalce for their leadership on the CRA issue. I want to applaud literally hundreds of dedicated community groups all around our country that work so hard to make sure the CRA brings more hope and capital to hard-pressed areas.

The bill I signed today also does, as Congressman Leach says, take significant steps to protect the privacy of our financial transactions. It will give consumers, for the very first time, the right to know if their financial institution intends to share their financial data, and the right to stop private information from being shared with outside institutions.

Like the new medical privacy protections I announced two weeks ago, these financial privacy protections have teeth. We granted regulators full enforcement authority and created new penalties to punish abusive practices. But as others have said here, I do not believe that the privacy protections go far enough. I am pleased the act actually instructs the Treasury to study privacy practices in the financial services industry, and to recommend further legislative steps. Today, I'm directing the National Economic Council to work with Treasury and OMB to complete that study and give us a legislative proposal which the Congress can consider next year.

Without restraining the economic potential of new business arrangements, I want to make sure every family has meaningful choices about how their personal information will be shared within corporate conglomerates. We can't allow new opportunities to erode old and fundamental rights.

Despite this concern, I want to say again, this legislation is truly historic. And it indicates what can happen when Republicans and Democrats work together in a spirit of genuine cooperation -- when we understand we may not be able to agree on everything, but we can reconcile our differences once we know what the larger issue is -- how to maximize the opportunities of the American people in a global information age, and still preserve our sense of community and protection for individual rights.

In that same spirit, I hope we will soon complete work on the budget. I hope we will complete work on the Work Incentives Improvement Act, to allow disabled people to go to work -- and I know Senator Gramm has been working with Senator Roth and Senator Jeffords and Senator Moynihan and Senator Kennedy on that.

There are a lot of things we can do once we recognize we're dealing with a big issue over which we ought to have some disagreements, but where we can come together in constructive and honorable compromise to keep pushing our country into the possibilities of the future.

This is a very good day for the United States. Again, I thank all of you for making sure that we have done right by the American people and that we have increased the chances of making the next century an American century. I hope we can continue to focus on the economy and the big questions we will have to deal with revolving around that. I hope we will continue to pay down our debt. I still believe in a global economy. We will maximize the opportunities created by this law if the government is reducing its debt and its claim on available capital. So I hope very much that that will be part of our strategy in the future.

But today we prove that we could deal with the large issue facing our country and every other advanced economy in the world. If we keep dealing with it in other contexts, the future of our children will be very bright, indeed.

Thank you very much. I'd like to ask all the members of Congress to come up here while we sign the bill. Thank you. (Applause.)

[wyldwolf]

20. hmm.. no, not seeing it

[Blarch]

19. From wiki

Democrats agreed to support the bill only after Republicans agreed to strengthen provisions of the Community Reinvestment Act and address certain privacy concerns http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

[redqueen]

21. Pitiful.

Like trading a few beads for Manhattan.

[PufPuf23]

12. wiki on Glass - Steagall

Wiki provides a decent history and overview (for context):

The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) in the United States and included banking reforms, some of which were designed to control speculation. Some provisions such as Regulation Q that allowed the Federal Reserve to regulate interest rates in savings accounts were repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980. Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999 by a bipartisan, conference committee version of the Gramm-Leach-Bliley Act signed by President Bill Clinton.<1><2>

http://en.wikipedia.org/wiki/Glass-Steagall_Act

[kirby]

13. See this thread...

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=132&topic_id=7158049&mesg_id=7158049