Thursday, December 8, 2016

Bait and switch is one of the oldest games in existence. Keep this in mind when you start hearing about regulatory relief in the financial industry during the coming months. Everyone engaged in any business that is regulated by a state or a federal agency will agree that there are a lot of nit-picking rules that are counter productive, rules that were promulgated in earlier times that are no longer applicable to today's world and should be discarded. These facts give air cover to Wall Street. Whenever Congress opens the dance to give regulatory relief to the banks, they completely ignore the outdated and burdensome regs and, at the bidding of the industry, focus on planting the seed of the next big meltdown. History has given us two glaring examples of how this works.

 

The Garn-St. Germain Depository Institutions Act of 1982 allowed the Saving and Loan Industry to make speculative investments with CD money, and led to the S & L failure and bailout in 1989 which cost the taxpayers $124 billion (low estimate). The original impetus for this was Ronald Reagan's efforts to ease regulation on private enterprise. The act passed Congress with widespread bipartisan support. This was the blueprint for bigger things to come.

 

In 1999 Congress passed the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999, to repeal Glass Stegall. Eight days later Bill Clinton signed it into law. With the lines between investment banks and commercial banks erased, Wall Street convinced regulators that they should be allowed to increase their leverage from 16:1 to 33:1, leading to the speculative frenzy that ended in the 2008 financial meltdown.


Please don't ignore the man behind the curtain. When Congress announces they are going to "fix" the Dodd-Frank bill, passed in response to the last crises, be afraid, be very afraid.

 

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