Setting the Record Straight

October 11, 2008

Deregulation = Meltdown, Part II

Republicans’ Meltdown

     American voters have good reason to be angry with Republicans over the current financial meltdown. John McCain has good reason to try to keep the issue in the background of his campaign.

     Democrats facing their ouster from control of Congress because they were not Republican enough were responsible in their final days in 1994 for allowing banks to cross their state borders and become maxibanks, but they were still not megabanks. That would require additional legislation and Democrats were not ready to go that far.

     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 in those days fought against creating.
     Actually, today’s meltdown has exceeded that event in terms of scale. As part of the effort to get control of the depression meltdown, one of the New Deal reforms was the Glass-Steagall Act of 1935. It not only created today’s deposit insurance system, it barred commercial banks from engaging in investment banking and underwriting insurance. It also gave the Federal Reserve system more muscle, making it into today’s central bank.
     Republicans gained control of both houses of Congress in 1995. Jim Leach, an Iowa Republican, became chairman of House Banking and Phil Gramm, Texas Republican became chairman of Senate Banking. Together they maneuvered through both houses the Financial Modernization Act of 1999, which they named after themselves and Tom Bliley, a Virginia Republican, the Gramm-Leach-Bliley Act of 1999.
     The law repealed Glass-Steagall, allowed financial institutions, including banks, to create financial holding companies so one corporation such as today’s Wachovia could merge its various financial services into one gigantic corporation. And now Wachovia is being purchased in a fire sale by another megabank.
     Officials of the Federal Deposit Insurance Corp., a government institution affected by both of the acts, warned four years ago of the dangers of the widespread consolidation that occurred since the savings-and-loan crisis, creating megabanks concentrating assets and deposits in just a few places. They warned of the idea of “too big to fail” becoming a reality.
     They were ignored and now the government has decided some of the gigantic financial institutions are so big that allowing them to fail would have catastrophic repercussions through American society, and by extension in the globalization era, just about the entire world.
     Late into his campaign for the presidency, John McCain echoed the philosophy of his fellow Republicans and boasted of his stance against regulations, proudly calling himself “the deregulator.” He no longer does so, but failed to suggest or even endorse any return to regulation.
     In fact, at a campaign stop, a man with no understanding of what is going on angrily railed against growing socialism. McCain did not correct him. Barack Obama, has joined Democrats in moving to restore regulations.
     All but most libertarians in Congress signed onto the nub of the beginning of regulatory restoration when they finally voted for the bailout bill to begin an effort to restore some federal control of the nation’s financial system, an effort expected to dominate the term of the next president.
     Intellectual libertarians strangely endorse government actions to halt the meltdown with intervention, i.e., regulation and control, but hasten to call for an end to the cure once the patient is well again.
     And it should not be forgotten that the same Phil Gramm most responsible for the deregulation that allowed the current mess of greed served as the McCain campaign’s economics adviser until long after the low and middle classes already were living stagflation, that the nation was a bunch of whiners. So much for guilt by association.

(from www.straightrecord.com)

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