All right folks, if I can please get your attention for one minute away from the HRC puppet show against what Obama said about the general mood of the country. Taxes as you know are due this week. And, since we are wondering what our collective economic future holds, I would like to give my two cents on what I believe is the primary problem with the economy that is not being address and frankly avoided by the candidates.
I post this as an effort to understand the oft contradictory truthiness of political cycles and the very real effects on people who take what the candidates are telling them at face value. The MSM media voice horns are continually bloviating about the war in Iraq and the "economy" as the top voter issues this cycle. The "economy" is by far the more abstract of the two. I have chosen to devote some attempt to understand what the fuck happened to something that was sold to the public as solid as a pre-Katrina levee. The entire situation has become as confusing as a bad opera. As in any opera (yes I am an elitist-noveau, so what) it serves me well to understand what I am watching by reading the playbill beforehand. I submit to you (post-events unfortunately) a summary in three acts of "The Economia: its the Banco Stupido."
Orchestra intro....
ACT I
1929- Great Depression Crash takes everyone by surprise (including McCain only 768 years young at the time), 1 in 5 banks fail, there is an immediate shortage in dry items goods especially the much sought after Bootstrap pulley. President Hoover (as McCain was known back then) tells everyone to walk it off like he did with the Spanish-flu pandemic of 1918.
1933- Glass-Steagall Act was passed by Senator Glass (D-Va.) and Senator Steagall (D-Ala.). The purpose was to separate Banks into two separate entities Commercial Banks "your corner bank where you deposit your labor slave wages" and Investment Banks "where GW Bush's grandfather kept his (German venture) monies." Here to fore, Banks were able to run up their value by virtue of cheap credit that allowed short term investments with quick turnover and profits on overvalued products, ie stocks. Essentially, these gentlemen realized that the Stock market crash and subsequent Great Depression were not merely a simultaneous comical failure Wall Street stock brokers' bootstraps and suspenders. As a result, banks were forced to become one or the other, i.e. Commercial or Investment Specialty, as a method of risk "bubble" control by separating conflicted interest. From then on they could not use your hard earned salary deposits in whilly-nilly bee's knee investments, like say the "roaring" stock market or the up n' coming wooden nickel craze. The FDIC was also created to further incentivize folks to not use their cash for mattress stuffing and instead return to depositing their money in banks.
ACTII
Fast Forward...
1960's- Commercial Banks show up at Congress blitzed after a Hendrix concert and begin to say "Hey man, lets us buy some municipal bonds. Don't worry, I learned my lesson and I ain't going to fuck-up again. Be cool, I can control it. Anybody want a toke?." These banks begin to hang out in DC street corners. This leads to the grooviest bank lobby ever seen to that point in congress.
December 1986- FED decides to reinterpret Glass-Steagall after a serious cocaine binge at Gordon Gekko's Hampton estate. Now they allow your commercial bank to have up to 5% of its gross revenues derived from the type of shit the Specialized Investment banks are doing, mostly Colombian exotic agriculture ventures and Miami waterfront construction. Sock industry is now in the tank, job textile losses in the thousands.
Spring 1987- FED discovers "speedballing" and votes 3-2 in favor easing more of Glass-Steagall, Chairman Paul Volcker thinks its a bad idea and says he will stick with only coke lines. Commercial Banks now want to manipulate more than just bonds. They start dabbling in commercial paper, municipal bonds and mortgage securities. They are also allowed to increase up to 10% of gross revenue from these new products.
August 1987- Alan Greenspan is unfrozen from his cryogenic suspended animation storage at JP Morgan. He is quickly delivered to the FED where after a brief incubation assumes control of the board. He also teaches the board breakdancing and Just to Say No.
January 1990- FED and Greenspan approve further deregulation and allow banks to dabble in debt and equities securities previously prohibited. This is in addition to all the other forementioned products but still only up to a total 10% of gross revenue. JP Morgan (previously known as Greenspan Cryogenics Inc) doubles down and easily gets approval from the Greenspan led FED, Hmmmm.
December 1996- While everyone is distracted downloading porn on the internet and developing half-baked dotcom schemes, the FED with the support of Greenspan votes to allow your Commercial bank to derive up to 25% of gross revenues from underwriting securities. A pesky law known as the Bank Holding Act still prevents them from owning insurance-underwriting companies outright. Hillary was also venerated for her valiant diplomatic special forces venture in Bosnia. Way to go Hill-dawg. Her platoon all get tattoos.
1998- Sandy Weill of Travelers investments and John Reed of Citicorp go on a blind date. They quickly fall in love and decide to elope. Soon they are pregnant with Citigroup Inc., the largest corporate merger in history and the worlds largest financial services company. The only catch is they have to let the parents (Congress) know what is going on between the two them. They go see Uncle Greenspan and he approves this super merger that creates the "Wal-Mart of Banks," i.e. one stop shop. The catch: this is not legally kosher but they bend the law by granting the condition that the product of their union conform to Glass-Steagall and the Banks Holding Act (what is left of it anyway) lets say in ....2 years.
1998-1999- Weill and Reed are now on the clock. They begin to solicit and lobby banking regulators and government officials only like a DC hooker can. They need the final vestiges of the Glass-Steagall bill repealed. Treasury Secretary Robert Rubin and President Clinton receive several 3 AM phone calls with updates on Congressional progress. Weill calls President Clinton, early evening Oct 21st, after Congress stalls. Clinton then places a call to then Senator Phil Gramm (R-Tx), "PimpDaddy" Chairman of the Senate Banking Committee. A resolution to the congressional impasse is reached and a final deal is announced at 2:45 AM (Bill usually sets the White House clocks fifteen minutes early) on October 22, 1999.
November 12, 1999 - President William Jefferson Clinton finally signed the Gramm-Leach-Bliley Financial Modernization Act effectively repealing the remnants of the Glass-Steagall Act. Everyones too busy wondering what kind of cigars he "smokes" and who does the dry-cleaning to notice what the fuck just happened. Bankers everywhere celebrate, its the 1920's all over. The Gilded age has returned and there is no banking regulation.
Intermission....
ACT III
In direct thanks to Clinton, Rubin, Greenspan, Gramm and their cronies,
Banks were now free to participate in a financial orgy of bohemian proportions by a bill that was all but directly written by the Banking Lobby. Thank you fucking very much Bill. Previous securities such as bonds and equities that were traded on straightforward basis were now slice, diced, and repackaged into a new products called "mortgage backed securities, MBS" and "Collateralized Debt Obligation, CDO." The MBS and CDO 's were further finely mashed into a fine puree that tasted good but no one knew what was in it. They received a risk score by agencies such as Moody's and were traded as securities. This process of financial engineering is known as Securitization and everyone got into it. It has fed the Subprime bubble and infected every part of the financial markets like a bad case of herpes with the evident effect of paralyzing the economy and not knowing when its going to show up again. This is where we stand now. The question is how do we get out of this financial quagmire.
A brief review of the candidates plans becomes clearer from the perspective I have presented.
Hillary's web site posts this statement:
In 2005, all income gains went to the top 10% of households, while the bottom 90% saw their incomes decline. The wealthiest 1% held 22% of America's income - as compared to only 9% in 1970 - the highest level since 1929.
Ironic choice of dates I would say. The crux of her plan deals with cracking down on unscrupulous mortgage brokers and a temporary freeze on foreclosures which while commendable does not address the root cause by a long a shot. As the effects of subprime meltdown have expanded, i.e. Bear-Stearns, her new great idea idea is to convene an emergency presidential panel of experts including Alan Greenspan, Robert Rubin and Paul Volcker to help find a solution to the problem. Hey great idea. How about we also bring back Rumsfeld and Wolfowitz to solve Iraq.
McCain, while at first averse to the idea of doing anything, has recently been told to think different by his advisors. He admitted during a recent debate that the economy is not his strongest suit. Not to worry though. He has recently announced that he will assist the average American by providing a $10 billion foreclosure buyout plan to those deemed worthy. No mention of banks. The true puppet master behind his election year epiphany is none other than Senator Phil Gramm who is an early nominee for Secretary of Treasury in a McCain administration. Two years after spearheading the Gramm-Leach-Bliley Act of 1999, the senator went on to become the Vice Chairman of Swiss banking giant UBS. He has had a very successful career as a banking lobbyist particularly in 2005 and 2006 when his efforts on behalf of the mortgage industry involved getting Congress to rollback state laws preventing predatory lending tactics. McCain and Gramm friendship ties are deep. McCain was chairman for Gramm's 1996 presidential bid. They worked together on 1993 to defeat HRC health initiative. Gramm's wife was on the Trading Commission from 1983-1993 and subsequently joined the corporate board of Enron. There is no doubt Gramm will be an instrumental member of a McCain Presidency as a financial sage and wizard behind the curtain.
Obama is the only candidate that has made any serious mention of establishing new banking regulation. This is his six point economic plan with specific respect to bank oversight. I will not post the bullet items for the sake of brevity but suffice it to say that he is the only candidate who addresses this exact issue.
http://www.nytimes.com/2008/03/27/us/politics/27text-obama.html?_r=1&oref=slogin&pagewanted=all
This is certainly a much more serious proposal than the other two candidates and honest attempt at addressing the core problem that led to this economic meltdown. Rhetoric about stimulus packages galore, the merits of bailing out Wall Street firms, the possibility of government directed refinancing of homes near foreclosure may treat the symptoms of what ails the economy but does not address the real culprit that created this problem.
This is the result of thirty years of sustained lobbying efforts. It led to the eventual breakdown of laws that prevented Banks from participating in mergers that created financial products with hidden and intrinsic conflicted values that artificially accelerated the economy. Bush got us into Iraq but Clinton, Greenspan, Rubin and Gramm are directly responsible for this financial quagmire. Money knows no political party or loyalty. I ask you to keep this in mind as you file your taxes and worry about your economic futures. I hope it is now obvious who's interest each of the candidates represents.
Thanks and sorry about the length.
Source:
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html
