Meaganoff and I were discussing our mutual loathing of Hillary last night and I found myself nearly screaming “and another thing. That son-of-a-bitch husband of hers signed the law that overturned Glass-Steagall”!!!!!
Poor Meaganoff was caught off-guard by my outburst. Not her fault, so let me explain…
The 2nd Glass-Steagall act of 1933 was passed to ease the depression and ideally, prevent something it from happening again. Among other things, the law separated banks by type (commercial & investment) and explicitly said “You there, Mr. Banker, you can be a commercial bank or an investment bank, but ya can’t be both.”
To oversimplify to an embarrassing degree, commercial banks are for the little guys (me and you) and investment banks are for the big guys (General Motors, Exxon-Mobile). If you want to buy a house, you used to go to a commercial bank. If you wanted to buy an entire company, you went to an investment bank.
The idea behind this separation was to (somewhat) insulate these two sectors of the economy from each other. Ya know, if there was say…a problem in the housing market it wouldn’t affect the ability of large companies to get credit for their acquisitions, mergers, operations and divestitures…oh wait…yeah… That’s kinda exactly what’s going on RIGHT NOW.
Why? Well, among many other reasons, our friend President Clinton I signed a law that removed this regulation. A bunch of banks bought each other up in a mad frenzy; lo and behold, we have a bunch of banks that won’t loan companies money because they’re scared shitless about all the bad mortgages they are holding. It’s called a credit crunch people. Fun, isn’t it?
(One caveat, TeemKuntz himself is a homeowner, and every month he watches his hard-earned equity disappear as the value of his house tanks. Again, salt and pepper this entry to taste.)
If the sub-prime mess had occurred under Glass-Steagall (and there’s good reason to think it might not have), the debacle would still be kicking the shit out of the commercial banks, home values would probably still be tanking, but the entire economy wouldn’t be at risk because of a credit crunch. The problem would be contained. If Citibank had remained an investment bank, they wouldn’t be flipping the hell out right now. They would be continuing with their normal business.
In the real world, Citibank has no idea how bad this credit crunch will get. Some observers are suggesting we are just at the beginning of the mess. (Witness TeemKuntz hyperventilate).
I am not a closet socialist. I generally support free market principles, but we have to remember there are market failures, and those failures must be addressed, or we risk the entire economy.
FDR was forced to look at a lot of those failures and try to fix them. A lot of those fixes worked remarkably well. It took another democrat to undo this particular piece of legislation.
Remember kids, Hillary has got experience from working in Bill’s Administration. Maybe we should be asking what kind of experience that was.
