The Bi-Partisan Origins of the Financial Crisis

[midcan5]

Shattering the Glass-Steagall Act By William Kaufman

"If you're looking for a major cause of the current banking meltdown, you need seek no farther than the 1999 repeal of the Glass-Steagall Act.

The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation. It worked fine for fifty years until the banking industry began lobbying for its repeal during the 1980s, the go-go years of Reaganesque market fundamentalism, an outlook embraced wholeheartedly by mainstream Democrats under the rubric "neoliberalism."

The main cheerleader for the repeal was Phil Gramm, the fulsome reactionary who, until he recently shoved his foot even farther into his mouth than usual, was McCain's chief economic advisor.

But wait . . . as usual, the Democrats were eager to pile on to this reversal of New Deal regulatory progressivism -- fully 38 of 45 Senate Democrats voted for the repeal (which passed 90-8), including some famous names commonly associated with "progressive" politics by the easily gulled: Dodd, Kennedy, Kerry, Reid, and Schumer. And, of course, there was the inevitable shout of "yea" from the ever-servile corporate factotum Joseph Biden, Barack Obama's idea of a tribune of "change"--if by change one means erasing any lingering obstacle to corporate domination of the polity.

This disgraceful bow to the banking industry, eagerly signed into law by Bill Clinton in 1999, bears a major share of responsibility for the current banking crisis. Here's the complete roll call of shame:"

http://www.counterpunch.org/kaufman09192008.html

[uscitizen]

Hmm was the bill stand alone or was there sweetners in it ?

An no I am not trying to deflect the demoncrats share of the blame either.
Both sides have been on the corporate teat for years.

[Good Luck]

The crisis has been in the making longer than that. The Community Reinvestment Act of 1977 started it, along with artificially depressed mortgage rates. Other bills chipped away at the Glass-Steagall Act before it was finally laid to rest in 1999.

The entire adventure started with the democratic party focusing on the idea of making home ownership more available to minorities. But making it illegal to refuse a mortgage based on race was not going to do the job alone. Large numbers of minorities would never qualify for a mortgage under the market constraints of Glass-Steagall even if racism were to be completely eradicated, because of the numbers of minorities caught in the trap of race-based assistance programs. So they pushed at the lending market to force it to open to lower income levels than real market forces would otherwise allow.

Both parties were in a fight for the votes of lower middle class, and the battle ground was the oft parodied promise of a "car in every garage, and chicken in every pot." Both were trying to prove their methods - government aided programs like Fannie & Freddie, or "opening" free market forces would do the most in allowing more people to "own" their home. They also pushed for more personal credit available to lower income brackets, allowing them to buy their cars and chickens to put in their newly acquired homes.

But having so many people who could not previously own a home put in the buying market also had its own impact on the housing market. In short, demand went way up, construction could not keep up, land in areas available for development fell rapidly, so prices of houses rocketed. That put even MORE pressure on lending institutions, and they received even more pressure (and incentives) from government to continue to write mortgages to those who could not truly afford it.

THEN, rocketing housing market suddenly changed the aspect of home ownership from wanting a home to wanting an "investment". (There was also the added factor that people in general were not staying in one place as they used to, adding to the outlook on home purchases as an investment instead of a family home.) People started looking to larger homes than they needed, not only out of a misplaced materialist movement, but also in looking to future values.

All those factors produced instabilities in the economy, with unsecured and secured debt piling up in record amounts. In less than a decade personal debt had shot through the roof and personal bankruptcies had more than tripled. To combat the instabilities, republicans brought market forces into play that were previously forbidden - so they removed the barriers created by the Glass-Steagall Act, thus enabling investment banking to shore up commercial lending.

But propping up a house of cards with soda straws will not last long, as recent events have proven.

[FUCK THE POLICE]

Large numbers of minorities would never qualify for a mortgage under the market constraints of Glass-Steagall even if racism were to be completely eradicated, because of the numbers of minorities caught in the trap of race-based assistance programs.

Christ. Republicans know no bounds of decency.

[uscitizen]

Christ. Republicans know no bounds of decency.

well they are consistant and predictable.

[FUCK THE POLICE]

The only thing that lead to this was deregulation. The attempt by the Republicans to smear a groundbreaking piece of anti-racist legislation from fourty years ago is not only idiotic and racist, it's impossible, because if fair lending would have lead to it it would have happened decades ago. This was no a bipartisan failure, this was a partisan failue, and let's kick out the bums who are SOLEY RESPONSIBLE FOR THIS MESS. CONSERVATIVES.

[NOVA]

Poor Water...just can't accept any truth at all in this matter....what a hack....

So Middi....from what I gather, the present problem is (mortgages and housing market)and not a problem with risky investment and speculation in business, thats what the Glass-Steagall Act was concerned with, risky business investment.....

The present problem was created by Democrats insisting that banks were racially bias because they asked minorities about credit ratings, income, etc....

The Community Reinvestment Act of 1977 started it.

Government aided programs like Fannie & Freddie, pushing the fantacy for more people to "own" their home ignoring the fact they couldn't afford one. They loved banks not requiring minorities to have that 20% down payment....
no banks wanted to labeled a racist bank with racist lending practices....

Several R's tried to warn Congress, including Bush about Fred and Fannie...

[FUCK THE POLICE]

Poor Water...just can't accept any truth at all in this matter....what a hack....

So Middi....from what I gather, the present problem is (mortgages and housing market)and not a problem with risky investment and speculation in business, thats what the Glass-Steagall Act was concerned with, risky business investment.....

The present problem was created by Democrats insisting that banks were racially bias because they asked minorities about credit ratings, income, etc....

The Community Reinvestment Act of 1977 started it.

Government aided programs like Fannie & Freddie, pushing the fantacy for more people to "own" their home ignoring the fact they couldn't afford one. They loved banks not requiring minorities to have that 20% down payment....
no banks wanted to labeled a racist bank with racist lending practices....

Several R's tried to warn Congress, including Bush about Fred and Fannie...

Well I dunno, let's just blame something that happened in 1977 instead of something that happened just recently on the current problems.

Republican logic in action.

[Good Luck]

What is so difficult about understanding the fact that this whole crisis was precipitated by people buying houses (and using other forms of credit) who could not afford them? If F&F had not gone about pushing mortgages into markets they never should have gone to, none of this would have happened. The BASE cause of the entire mess was not banks, it was not risky investment practices. It was a government creating an economic environment that pushed people into debt they were unable to handle. It was the defaulted loans that caused the banks to fail, not the successful loans. Between the democrats and their call for racial equality in lending (even when it means creating a false economy to do so) and the republicans rewriting laws that allowed lenders to take on high risk loans, the defaulted loans grew exponentially.

Loans people were paying had nothing to do with it. Investments in loans to people able to handle their debt made both the banks and the investors money. It was the loans to people who never should have qualified for those loans that poisoned the stew. And it was our federal government, through the Community Reinvestment Act and similar laws that pushed lending into the market that ended up defaulting in droves, thus initiating the whole fiasco we see now.

The only ones who cannot see this basic truth are either imbeciles incapable of reading "See Spot run.", or blind mindless partisans.

[FUCK THE POLICE]

Like pseudo-nonpartisans who pretend to shove the blame off on everyone just so that the ones responsible can continue on their destructive path.

[reverendlionelblair]

"It was the loans to people who never should have qualified for those loans that poisoned the stew. And it was our federal government, through the Community Reinvestment Act and similar laws that pushed lending into the market that ended up defaulting in droves, thus initiating the whole fiasco we see now."

This is somewhat disingenuous, the banks went into these markets as a source of potential profits, which is what lending at 10% p/a when the fed funds rate is 2% is, potentially very rewarding. And for several years it was very rewarding. This is nothing about race, this is about lax monetary policy from Alan Greenspan, innovative financing facilitated by technology and ignorance and the rise of the 'all-in-one' investment bank.

The government legislation that allowed them to gain the financing through the investment banks, the reason the investment banks were allowed to get involved in this as a participant in a straight through process was the repeal of Glass-Steagall. The repeal of the Glass-Steagall act was the single largest legislative step towards the current crisis.

[uscitizen]

The repeal of the Glass-Steagall act was the single largest legislative step towards the current crisis.

Yepper.

[Blackwater Lunchbreak]

What is so difficult about understanding the fact that this whole crisis was precipitated by people buying houses (and using other forms of credit) who could not afford them? If F&F had not gone about pushing mortgages into markets they never should have gone to, none of this would have happened. The BASE cause of the entire mess was not banks, it was not risky investment practices. It was a government creating an economic environment that pushed people into debt they were unable to handle. It was the defaulted loans that caused the banks to fail, not the successful loans. Between the democrats and their call for racial equality in lending (even when it means creating a false economy to do so) and the republicans rewriting laws that allowed lenders to take on high risk loans, the defaulted loans grew exponentially.

Loans people were paying had nothing to do with it. Investments in loans to people able to handle their debt made both the banks and the investors money. It was the loans to people who never should have qualified for those loans that poisoned the stew. And it was our federal government, through the Community Reinvestment Act and similar laws that pushed lending into the market that ended up defaulting in droves, thus initiating the whole fiasco we see now.

The only ones who cannot see this basic truth are either imbeciles incapable of reading "See Spot run.", or blind mindless partisans.

What's difficult about it is it's a bunch of disingenuous bullshit, you hack.

[ironhead]

The current "crisis" is simply the result of the government intervention in the money supply. When the Federal Reserve artificially lowers interest rates, it sends the wrong signal to investors. Investments are misallocated, as they are not connected to market (actual) generated interest rates, and the business cycle is created. Boom turns to bust as the economy shrinks (really adjusts) to the misallocated investments. In this case, lenders provided billions and billions (perhaps trillions?) of dollars to people who were not able to afford such high purchases in actuality, but were able to qualify for the loans due to artificially low interest rates. Witness the result.

Culpability rests with the Federal Reserve and with irresponsible lenders and those who bet on the solvency of irresponsible lenders.

[Cancel 2016.2]

The only thing that lead to this was deregulation. The attempt by the Republicans to smear a groundbreaking piece of anti-racist legislation from fourty years ago is not only idiotic and racist, it's impossible, because if fair lending would have lead to it it would have happened decades ago. This was no a bipartisan failure, this was a partisan failue, and let's kick out the bums who are SOLEY RESPONSIBLE FOR THIS MESS. CONSERVATIVES.

I can understand your reasoning in stating the above. But the reason it did not happen sooner is due to the one factor that you are forgetting.... interest rates.

Note: the problems ALSO did not occur immediately after GLB was put in place.

It was during the period from 2001-2004 when interest rates were kept artificially low that people began using I-only and ARMs to buy more home than they could otherwise afford.

For all those that wish to avoid this happening again in the future. One simple rule need be put in place. If you do not qualify for a 30 yr fixed rate on the property you want.... NO LOAN. If you do qualify for the 30... THEN you can have the option of an ARM or I-only.