Setting the Record Straight

October 10, 2008

Deregulation = Meltdown

Republicans’ Baby 

     The financial meltdown and the presidential campaign have dovetailed to give the American voter a valuable lesson in the key differences between traditional Republicans and traditional Democrats. Besides temperament and judgment, two major differences stand out that independents might want to keep in mind Nov. 4.
     All of John McCain’s proposals would spend tax dollars on programs by filtering them through private industry so businesses and Wall Street can take a cut and have an ownership interest in the programs. Barack Obama’s would do some of the same, but he is not shy about having the federal government deliver tax dollars directly to programs, without a private industry middleman. Republican philosophy versus Democratic philosophy.
     Because of the Republican belief that government should be as involved as little as possible in American’s lives, its adherents believe there should be as little regulation of private industry as possible. Democrats are not shy about imposing regulations on private industry when they feel private industry has or will not practice self-restraint and regulate itself.
     The problem with non-regulation is the same one as parents deciding to let junior be junior, and anyone who has been in a supermarkets knows the result of that. Humans have certain genetic traits that may have helped the race evolve, but are no longer very attractive. One of them is greed. If there ever was a human trait that needed to be regulated, it is greed.
     The financial meltdown, the effects of which are going to be felt by the American public (and pretty much the rest of the world in this era of globalization) for years to come, had its beginnings in two huge political deregulation moves, one when Congress was under Democratic control, the other when it was controlled by Republicans. The driving force that got it to the meltdown stage was greed.
     Two major deregulations brought an ages-old government philosophy of “too big to fail” up from little more than a policy-wonk concern to today when it is a linchpin of the government’s attempts to deal with the meltdown.
     At the tail end of a generation of Democratic control of Congress, Congress passed the Riegel-Neal Interstate Bank Branching Act of 1994. The legislation was introduced by Rep. Stephen Neal, a North Carolina Democrat, former banker and 20-year member of Congress serving in his final year. At the time, Neal was second-ranking Democrat on the committee headed by Henry Gonzalez, a Texan not considered high on the list of intellectuals.
     The Senate Banking Committee, chaired by Don Riegle, a Michigan Democrat who had begun service in Congress as a Republican, took up the House-passed bill, passed it and sent it to the White House where President Bill Clinton signed it into law. Riegle became one the savings and loan scandal’s “Keating Five,” a group including John McCain.
     Banks were prohibited by from operating beyond their own state borders. The Bank Branching Act lifted those restrictions on all commercial banks, giving the states the option (almost universally exercised) to allow their state-chartered banks to operate across the state lines.
     Neal’s state of North Carolina included First Union National Bank. Across the state border was Wachovia of South Carolina. They wasted no time in merging and spreading their banks through several states. Allied but separate institutions First Union Corp. and Wachovia Bank Holding could still not merge their various financial services with their banks.
     Today’s financial meltdown has been called the most serious one since the Great Depression, a situation expected to be prevented by government entities, programs and regulations Republicans largely fought against creating.

Next: Part II on Phil Gramm’s regulation bailout bill 



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