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Fundamental and pragmatic banking regulations (which arose from the devastating financial collapses of the Great Depression) for decades strengthened U.S. banks and capital markets, making them the twin engines of American growth and the envy of the world.
The systematic dismantling of those same regulations by greedy bankers began in earnest in 1980, peaked in 1999, and finally climaxed with an insane Securities and Exchange Commission ruling in April 2004, a final decision that paved the way for the implosion of everything regulation was designed to protect.
Wall Street bankers, their exorbitantly well-paid lobbying army of former congressmen and former regulators, sitting legislators systematically eviscerated the muscle and bones from the regulatory bodies charged with protecting us from banks' self-destructive greed.
An inordinately powerful group of executive insiders from the once-deeply respected House of Goldman Sachs ( GS ) served as U.S. Treasury secretaries and in innumerable other administrative capacities.
The Depository Institutions Deregulation and Monetary Control Act of 1980 , signed into law by President Jimmy Carter , was the first major reform of the U.S. banking system since the Great Depression.
While touted as a boon to consumers, the law was actually a gold mine for bankers.
The 1980 Act's provisions:
In 1980, in a virtual landslide, Ronald Reagan was elected and grabbed the conservative mantle.
A year later, the shock troops of the heralded Reagan Revolution launched their attack and embarked on a massive, systematic de-regulatory campaign.
President Reagan's first treasury secretary, former Merrill Lynch & Co. Chief Executive Officer Donald T. Regan , became chairman of the Depository Institutions Deregulation Committee.
In a burst of deregulatory bravado in 1982, Treasury Secretary Regan ushered through the Garn-St. Germain Depository Institutions Act .
Key provisions of the Act ultimately coalesced with Treasury Secretary Regan's protection of the lucrative “ brokered deposits ” business, in which Merrill was a major player, and paved the way for the future collapse of the savings and loan industry.
Some of the provisions in that 1982 Act would later be blamed for thousands of bank failures.
The provisions permitted the following:
The ultimate prize was to be the undoing of the Glass-Steagall Act of 1933 .
Glass-Steagall, officially known as the Banking Act of 1933, mandated the separation of banks according to the types of business they conducted.
Investment banks, whose securities related activities resulted in relatively large risks, were to be separate from commercial banks, whose depositors needed greater protection.
The Act created deposit insurance and the government wasn't about to allow taxpayer-backed insurance of commercial bank deposits to be exposed to securities related risks.
It was a prudent and sensible separation.
Bankers tried for years to undermine and overturn Glass-Steagall, but it took time.
In 1987, Alan Greenspan replaced Paul A. Volcker - the stalwart Federal Reserve Board chairman.
In its twilight days, the Reagan administration was determined to further fertilize the seeds of deregulation and Greenspan's Ayn Rand -inspired “objectivist,” free-market philosophies would be the perfect embodiment of the deregulatory movement.
On April 28, 2004, in a fitting and perhaps flagrant final act of eviscerating prudent regulation, the SEC ruled that investment banks may essentially determine their own net capital.
The insanity of that allowance is only surpassed by the fact that the SEC allowed the change because it was simultaneously demanding greater scrutiny of the books and records of what were the holding companies of investment banks and all their affiliates.
The tragedy is that the SEC never used its new powers to examine the banks.
The idea was that Consolidated Supervised Entities (CSEs) could use internal models to determine risk and compliance with net capital requirements.
In reality, what the investment banks did was essentially re-cast hybrid capital instruments, subordinated debt, deferred tax returns and securities with no ready market into “healthy” capital assets against which they reduced reserve requirements for net capital calculations and increased their leverage to as much as 30:1.
http://www.marketoracle.co.uk/Article8210.html
The systematic dismantling of those same regulations by greedy bankers began in earnest in 1980, peaked in 1999, and finally climaxed with an insane Securities and Exchange Commission ruling in April 2004, a final decision that paved the way for the implosion of everything regulation was designed to protect.
Wall Street bankers, their exorbitantly well-paid lobbying army of former congressmen and former regulators, sitting legislators systematically eviscerated the muscle and bones from the regulatory bodies charged with protecting us from banks' self-destructive greed.
An inordinately powerful group of executive insiders from the once-deeply respected House of Goldman Sachs ( GS ) served as U.S. Treasury secretaries and in innumerable other administrative capacities.
The Depository Institutions Deregulation and Monetary Control Act of 1980 , signed into law by President Jimmy Carter , was the first major reform of the U.S. banking system since the Great Depression.
While touted as a boon to consumers, the law was actually a gold mine for bankers.
The 1980 Act's provisions:
- Lowered the mandatory reserve requirements banks keep in non-interest bearing accounts at U.S. Federal Reserve banks.
- Established a five-member committee, the Depository Institutions Deregulation Committee , to phase out federal interest rate ceilings on deposit accounts over a six-year period.
- Increased Federal Deposit Insurance Corp . (FDIC) coverage from $40,000 to $100,000.
- Allowed depository institutions, including savings and loans and other thrift institutions, access to the Federal Reserve Discount Window for credit advances.
- Pre-empted state usury laws that limited the rates lenders could charge on residential mortgage loans.
In 1980, in a virtual landslide, Ronald Reagan was elected and grabbed the conservative mantle.
A year later, the shock troops of the heralded Reagan Revolution launched their attack and embarked on a massive, systematic de-regulatory campaign.
President Reagan's first treasury secretary, former Merrill Lynch & Co. Chief Executive Officer Donald T. Regan , became chairman of the Depository Institutions Deregulation Committee.
In a burst of deregulatory bravado in 1982, Treasury Secretary Regan ushered through the Garn-St. Germain Depository Institutions Act .
Key provisions of the Act ultimately coalesced with Treasury Secretary Regan's protection of the lucrative “ brokered deposits ” business, in which Merrill was a major player, and paved the way for the future collapse of the savings and loan industry.
Some of the provisions in that 1982 Act would later be blamed for thousands of bank failures.
The provisions permitted the following:
- Allowed savings and loans to make commercial, corporate, business or agricultural loans of up to 10% of their assets.
- Authorized a capital assistance program - the “Net Worth Certificate Program” - for dangerously undercapitalized banks, under which the Federal Savings and Loan Insurance Corp . (FSLIC) and the FDIC would purchase capital instruments called “Net Worth Certificates” from savings institutions with net worth/asset ratios of less than 3.0%, and would theoretically later redeem the certificates as these shaky banks regained financial health.
- And, most frighteningly, raised the allowable ceiling on direct investments by savings institutions in nonresidential real estate from 20% to 40% of assets.
The ultimate prize was to be the undoing of the Glass-Steagall Act of 1933 .
Glass-Steagall, officially known as the Banking Act of 1933, mandated the separation of banks according to the types of business they conducted.
Investment banks, whose securities related activities resulted in relatively large risks, were to be separate from commercial banks, whose depositors needed greater protection.
The Act created deposit insurance and the government wasn't about to allow taxpayer-backed insurance of commercial bank deposits to be exposed to securities related risks.
It was a prudent and sensible separation.
Bankers tried for years to undermine and overturn Glass-Steagall, but it took time.
In 1987, Alan Greenspan replaced Paul A. Volcker - the stalwart Federal Reserve Board chairman.
In its twilight days, the Reagan administration was determined to further fertilize the seeds of deregulation and Greenspan's Ayn Rand -inspired “objectivist,” free-market philosophies would be the perfect embodiment of the deregulatory movement.
On April 28, 2004, in a fitting and perhaps flagrant final act of eviscerating prudent regulation, the SEC ruled that investment banks may essentially determine their own net capital.
The insanity of that allowance is only surpassed by the fact that the SEC allowed the change because it was simultaneously demanding greater scrutiny of the books and records of what were the holding companies of investment banks and all their affiliates.
The tragedy is that the SEC never used its new powers to examine the banks.
The idea was that Consolidated Supervised Entities (CSEs) could use internal models to determine risk and compliance with net capital requirements.
In reality, what the investment banks did was essentially re-cast hybrid capital instruments, subordinated debt, deferred tax returns and securities with no ready market into “healthy” capital assets against which they reduced reserve requirements for net capital calculations and increased their leverage to as much as 30:1.
http://www.marketoracle.co.uk/Article8210.html