Innovation/Global Crisis Blog

Plus ça change…

By Shlomo Maital

  The more things change, say the French, the more they stay the same.  Plus ça change.  

  Wall St. bank chicanery helped cause the 1929 Crash which led to the Great Depression.   U.S. banks both issued stock on behalf of client companies (as investment banks) and peddled that stock to depositors (as commercial banks).  Conflict of interest?  How dumb we were to buy into this scam.

  In 1933, two Democrats drafted the Glass-Steagall Act that effectively separated commercial and investment banking.  But under President Clinton, it was repealed;  the  provisions of Glass-Steagall that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm–Leach–Bliley Act, named after its co-sponsors Phil Gramm (R, Texas), Rep. Jim Leach (R, Iowa), and Rep. Thomas J. Bliley, Jr. (R, Virginia).   Result:  Another Great Crash (it is three years exactly since Lehman Bros.’ bankruptcy).  This time, the worthless paper was mortgage-backed securities. 

   So, again, the U.S. has acted to force all big banks to become bank holding companies, subject to regulation as commercial banks, and has acted to limit “nostrum” (own-account) speculative trading.  Back to Glass-Steagall.   And Britain is following suit.  The British Vickers Commission has just reported, calling for ‘ring fencing’, which means separating British banks’ commercial lending and borrowing from its more risky operations, much like Glass-Steagall.   This proposal will be phased in very slowly, to avoid stressing British banks. 

    What are the odds that the next American President, likely a Republican, perhaps even conservative Texas Governor Rick Perry, again crushes the new version of Glass-Steagall, in 2012-3, when the moneyed interests retake the White House?  This is quite plausible. Obama’s approval ratings are as low as, or lower than, Bush’s.  His job-creation speech did not even cause the approval needle to quiver.  The Democrats lost a New York House seat to a Republican, first time in memory a Republican was chosen in this district. 

    As the global economy weakens and big banks plead poverty, what are the odds the Vickers Commission too will defer its recommendation – to, say, 2097? 

    Einstein said insanity is doing the same thing and expecting different results.  How can we ordinary folks be so dumb to allow this to go on, again and again, and elect the officials who let it happen? 

    Plus ca change….