Clinton, Republicans agree to deregulation of US financial system

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Submitted by Ex-SD on September 19, 2008 - 11:04am

A piece of history for those who want to blame all of this mess on Bush. I'm no Bush lover but facts are facts and here's an article from 1999.

Clinton, Republicans agree to deregulation of US financial system

By Martin McLaughlin
1 November 1999

An agreement between the Clinton administration and congressional Republicans, reached during all-night negotiations which concluded in the early hours of October 22, sets the stage for passage of the most sweeping banking deregulation bill in American history, lifting virtually all restraints on the operation of the giant monopolies which dominate the financial system.

The proposed Financial Services Modernization Act of 1999 would do away with restrictions on the integration of banking, insurance and stock trading imposed by the Glass-Steagall Act of 1933, one of the central pillars of Roosevelt's New Deal. Under the old law, banks, brokerages and insurance companies were effectively barred from entering each others' industries, and investment banking and commercial banking were separated.

The certain result of repeal of Glass-Steagall will be a wave of mergers surpassing even the colossal combinations of the past several years. The Wall Street Journal wrote, "With the stroke of the president's pen, investment firms like Merrill Lynch & Co. and banks like Bank of America Corp., are expected to be on the prowl for acquisitions." The financial press predicted that the most likely mergers would come from big banks acquiring insurance companies, with John Hancock, Prudential and The Hartford all expected to be targeted.

Kenneth Guenther, executive vice president of Independent Community Bankers of America, an association of small rural banks which opposed the bill, warned, "This is going to begin a wave of major mergers and acquisitions in the financial-services industry. We're moving to an oligopolistic situation."

One such merger was already carried out well before the passage of the legislation, the $72 billion deal which brought together Citibank, the biggest New York bank, and Travelers Group Inc., the huge insurance and financial services conglomerate, which owns Salomon Smith Barney, a major brokerage. That merger was negotiated despite the fact that the merged company, Citigroup, was in violation of the Glass-Steagall Act, because billionaire Travelers boss Sanford Weill and Citibank CEO John Reed were confident of bipartisan support for repeal of the 60-year-old law.

Campaign of influence-buying

They had good reason, to be sure. The banking, insurance and brokerage industry lobbyists have combined their forces over the last five years to mount the best-financed campaign of influence-buying ever seen in Washington. In 1997 and 1998 alone, the three industries spent over $300 million on the effort: $58 million in campaign contributions to Democratic and Republican candidates, $87 million in "soft money" contributions to the Democratic and Republican parties, and $163 million on lobbying of elected officials.

The chairman of the Senate Banking Committee, Texas Republican Phil Gramm, himself collected more than $1.5 million in cash from the three industries during the last five years: $496,610 from the insurance industry, $760,404 from the securities industry and $407,956 from banks.

During the final hours of negotiations between the House-Senate conference committee and White House and Treasury officials, dozens of well-heeled lobbyists crowded the corridors outside the room where the final deal-making was going on. Edward Yingling, chief lobbyist for the American Bankers Association, told the New York Times, "If I had to guess, I would say it's probably the most heavily lobbied, most expensive issue" in a generation.

While Democratic and Republican congressmen and industry lobbyists claimed that deregulation would spark competition and improve services to consumers, the same claims have proven bogus in the case of telecommunications, airlines and other industries freed from federal regulations. Consumer groups noted that since the passage of a 1994 banking deregulation bill which permitted bank holding companies to operate in more than one state, both checking fees and ATM fees have risen sharply.

Differing versions of financial services deregulation passed the House and Senate earlier this year, and the conference committee was called to work out a consensus bill and avert a White House veto. The principal bone of contention in the last few days before the agreement had nothing to do with the central thrust of the bill, on which there was near-unanimous bipartisan support.

The sticking point was the effort by Gramm to gut the Community Reinvestment Act, a 1977 anti-redlining law which requires that banks make a certain proportion of their loans in minority and poor neighborhoods. Gramm blocked passage of a similar deregulation bill last year over demands to cripple the CRA, and bank lobbyists were in a panic, during the week before the deal was made, that the dispute would once again prevent any bill from being adopted.

Gramm and other extreme-right Republicans saw the opportunity to damage their political opponents among minority businessmen and community groups, who generally support the Democratic Party. Gramm succeeded in inserting two provisions to weaken the CRA, one reducing the frequency of examinations for CRA compliance to once every five years for smaller banks, the other compelling public disclosure of loans made under the program.

The latter provision was particularly offensive to black and other minority business and community groups, who have used the CRA provisions as a lever by threatening to challenge mergers and other bank operations which require government approval. In most such cases, the banks have offered loans to businessmen or outright grants to community groups in return for dropping their legal actions. These petty-bourgeois elements have been able to posture as defenders of the black or Hispanic community, while pocketing what are essentially payoffs from finance capital and concealing from the public the details of this relationship.

The banks and other financial institutions did not themselves oppose continuation of the CRA, which they have treated as nothing more than a cost of doing a highly profitable business in minority areas. Loans tied to the CRA average a 20 percent rate of return. Financial industry lobbyists complained that they were being caught in a crossfire between the Republicans and Democrats which was unrelated to the main purpose of the bill.

The Clinton White House threatened to veto the bill if CRA provisions were substantially weakened, in response to heavy pressure from the Congressional Black Caucus and the Reverend Jesse Jackson, whose Operation PUSH has made extensive use of CRA in its campaigns to pressure corporations and banks for more opportunities for black businessmen. But eventually the White House caved in to Gramm, accepting his amendments so long as the program remained formally in place.

The White House similarly retreated on pledges that consumer privacy would be protected in the legislation. Consumer groups pointed to the potential for abuse of financial information once giant conglomerates were created which would handle loans, investments and insurance at the same time. For example: a bank could refuse to give a 30-year mortgage to a customer whose medical records, filed with the bank's insurance subsidiary, revealed a fatal disease.

The final draft of the bill contains a consumer privacy protection clause, but it is extremely weak, applying only to the transfer of information outside of a financial conglomerate, not within it. Thus Citigroup will be able to pass on financial information about its bank depositors to Travelers Insurance, but not to an outside company like Prudential. Even that limitation would be breached if there was a contractual relationship with the outside company, as in the case of a telemarketer which did work for Citigroup and was given private information about Citigroup depositors to aid in its telephone solicitations.

Threat to financial stability

The proposed deregulation will increase the degree of monopolization in finance and worsen the position of consumers in relation to creditors. Even more significant is its impact on the overall stability of US and world capitalism. The bill ties the banking system and the insurance industry even more directly to the volatile US stock market, virtually guaranteeing that any significant plunge on Wall Street will have an immediate and catastrophic impact throughout the US financial system.

The Glass-Steagall Act of 1933, which the deregulation bill would repeal, was not adopted to protect consumers, although one of its most celebrated provisions was the establishment of the Federal Deposit Insurance Corporation, which guarantees bank deposits of up to $100,000. The law was enacted during the first 100 days of the Roosevelt administration to rescue a banking system which had collapsed, wiping out the life savings of millions of working people, and threatening to bring the profit system to a complete standstill.

As a recent history of that era notes: "The more than five thousand bank failures between the Crash and the New Deal's rescue operation in March 1933 wiped out some $7 billion in depositors' money. Accelerating foreclosures on defaulted home mortgages—150,000 homeowners lost their property in 1930, 200,000 in 1931, 250,000 in 1932—stripped millions of people of both shelter and life savings at a single stroke and menaced the balance sheets of thousands of surviving banks" (David Kennedy, Freedom from Fear, Oxford University Press, 1999, pp. 162-63).

The separation of banking and the stock exchange was ordered in response to revelations of the gross corruption and manipulation of the market by giant banking houses, above all the House of Morgan, which organized huge corporate mergers for its own profit and awarded preferential access to share issues to favored politicians and businessmen. Such insider trading played a major role in the speculative boom which preceded the 1929 crash.

Over the past 20 years the restrictions imposed by Glass-Steagall have been gradually relaxed under pressure from the banks, which sought more profitable outlets for their capital, especially in the booming stock market, and which complained that foreign competitors suffered no such limitations to their financial operations. In 1990 the Federal Reserve Board first permitted a bank (J.P. Morgan) to sell stock through a subsidiary, although stock market operations were limited to 10 percent of the company's total revenue. In 1996 this ceiling was lifted to 25 percent. Now it will be abolished.

The Wall Street Journal celebrated the agreement to end such restrictions with an editorial declaring that the banks had been unfairly scapegoated for the Great Depression. The headline of one Journal article detailing the impact of the proposed law declared, "Finally, 1929 Begins to Fade."

This comment underscores the greatest irony in the banking deregulation bill. Legislation first adopted to save American capitalism from the consequences of the 1929 Wall Street Crash is being abolished just at the point where the conditions are emerging for an even greater speculative financial collapse. The enormous volatility in the stock exchange in recent months has been accompanied by repeated warnings that stocks are grossly overvalued, with some computer and Internet stocks selling at prices 100 times earnings or even greater.

And there is a much more recent experience than 1929 to serve as a cautionary tale. A financial deregulation bill was passed in the early 1980s under the Reagan administration, lifting many restrictions on the activities of savings and loan associations, which had previously been limited primarily to the home-loan market. The result was an orgy of speculation, profiteering and outright plundering of assets, culminating in collapse and the biggest financial bailout in US history, costing the federal government more than $500 billion. The repetition of such events in the much larger banking and securities markets would be beyond the scope of any federal bailout.

Submitted by Wickedheart on September 19, 2008 - 11:23am.

The Republicans had the majority and the vote was split clearly by party lines. Only 1 democrat voted for the bill.

The Gramm-Leach-Bliley bill passed 54-44. [S. 900, Vote #105, 5/6/99]

Voted Yes

McCain (R-AZ)
Gramm (R-TX)
Santorum (R-PA)
Specter (R-PA)
Kyl (R-AZ)
Craig (R-ID)
Hutchinson (R-AR)
Lott (R-MS)
Cochran (R-MS)
Lugar (R-IN)
Helms (R-NC)
Sessions (R-AL)
Thurmond (R-SC)
Hutchison (R-TX)
Bennett (R-UT)
Hollings (D-SC)

Voted No

Biden (D-DE)
Reid (D-NV)
Boxer (D-CA)
Feinstein (D-CA)
Edwards (D-NC)
Kennedy (D-MA)
Feingold (D-WI)
Breaux (D-LA)
Landrieu (D-LA)
Kerry (D-MA)
Lieberman (D-CT)
Moynihan (D-NY)
Schumer (D-NY)

Submitted by Arraya on September 19, 2008 - 11:30am.

This goes to show what happens with bipartisn agreement is met. Just look at Iraq.

Submitted by seattle-relo on September 19, 2008 - 11:33am.

It just sickens me that this bill was passed only 9 years ago and that the level of greed was so great and moved so quickly the result is the possible collapse or at least severe damage to our national economy. Nine years is such a short time. Unbelieveable.

Submitted by patientlywaiting on September 19, 2008 - 12:06pm.

Ex-SD, so if the Gramm bill was so bad, why didn't Bush undo it like his has undone many of Clinton's other doings?

It seems to me like Phil Gramm had more to do with it than Bill Clinton.

Submitted by BKinLA on September 19, 2008 - 12:26pm.

"...The repetition of such events in the much larger banking and securities markets would be beyond the scope of any federal bailout."

Until today, that is.

Submitted by Ex-SD on September 19, 2008 - 12:37pm.

patientlywaiting: I wasn't making a case for Bush. I was simply pointing out the facts that seemed to have been trampled on quite often on this forum (and others) surrounding how this whole thing got a big boost back in 1999. And as the facts state, good ole Slick Willie, Bill Clinton, was in lockstep with the evil Republicans, wasn't he? Facts are facts...............that was the point and it had nothing to do with GWB, Bush has been a terrible President and he's certainly not on my hit parade of good politicians but he's NOT the creator of this out of control economic situation that I like to call, "The Big Mess".

Submitted by precix on September 19, 2008 - 12:50pm.

...not to mention that the power brokers inside the GSEs Fannie & Freddie were either friends of the Clinton's or democratic party operatives

Submitted by patientlywaiting on September 19, 2008 - 1:10pm.

Ex-SD wrote:
Bush has been a terrible President and he's certainly not on my hit parade of good politicians but he's NOT the creator of this out of control economic situation that I like to call, "The Big Mess".

I agree. But Bush could have prevented The Big Mess.

Rich started Piggington in 2004. Thornburg and Roubini saw it coming. Somebody in government must have seen it coming.

Submitted by patientlywaiting on September 19, 2008 - 1:13pm.

precix wrote:
...not to mention that the power brokers inside the GSEs Fannie & Freddie were either friends of the Clinton's or democratic party operatives

True but the GSEs got in trouble only after the banks started to eat away at their market share. So the GSEs took undue risk to keep shareholders' return high.

Bush should have required the GSE to shrink, not allowed them to expand.

Submitted by cr on September 19, 2008 - 1:41pm.

It wasn't Bush, it was the OFHEO.

http://www.washingtonpost.com/wp-dyn/con...

Bush is a scapegoat for Obamanation.

The fact is everyone was making money hand over fist so long as RE prices rose. No one stopped to think about the ramifications if prices eveen stopped going up, much less declined. And if they did, they were probably bought out.

Conspiracy or not it was short-sighted, irresponsible, and reckless.

The governments response is more of the same, and today's rally only makes the true correction needed worse.

Submitted by patientlywaiting on September 19, 2008 - 1:59pm.

James B. Lockhart III, was nominated by Bush. Isn't the OFHEO part of the Bush Administration?

What is Bush responsible for if not for his administration?

Submitted by Veritas on September 19, 2008 - 2:24pm.

Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence.
John Adams, 'Argument in Defense of the Soldiers in the Boston Massacre Trials,' December 1770
US diplomat & politician (1735 - 1826)

Submitted by temeculaguy on September 19, 2008 - 2:35pm.

Veritas, kudos on the Adams quote, most forget what an fantastic litigator he was, a lawyer with principles, novel idea today.

All politicians are the same, I can't wait for the election to be over so we can knock down the fence that has crippled this site for the past few months, stiffling our collective creativity. Then we can get back to the real reason most of visit this site. Not to blame or change the system, but to understand it, how it is changing and how we can safely manuever within it.

Submitted by Arraya on September 19, 2008 - 3:00pm.

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802) 3rd president of US (1743 - 1826)

Slightly pertinent....

Submitted by larrylujack on September 19, 2008 - 8:28pm.

Given the massive bailout of the financial institutions toxic debt by the American taxpayer that will soon commence behind closed doors and will be negotiated by and for the wealthy, is there really any doubt anymore that we live in a corporate welfare state that has bipartisan support from neo-liberal democrats and so called free market republicans?
As both Demos and Repos suck from the wall street teet, I am not surprised in the least that both parties support this bailout of the ass..les that got us into the mess, and I predict that this is the tip of the iceburg and the worst is yet to come.

Submitted by greekfire on September 19, 2008 - 9:34pm.

cooprider wrote:

The fact is everyone was making money hand over fist so long as RE prices rose. No one stopped to think about the ramifications if prices even stopped going up, much less declined. And if they did, they were probably bought out.

I and many others like me don't have half the information and contacts that the monetary/political scientist jerks have and we could all see this coming. Of course they saw it coming! And of course they knew the end result. Why would they slow up their efforts? They knew that they were unsustainable and would eventually come to a crashing halt. I'll tell you why: BAILOUT!

Like the touchdown is to football, the name of the monetary/political game is BAILOUT!

The sooner we all realize this the sooner we'll turn off CNN, Fox, Rush Limbaugh, Sean Hannity, Air America and all the other mainstream news outlets that are in cahoots; and throw the politicians out of office.

Submitted by jonnycsd on September 19, 2008 - 9:36pm.

The OP insinuates that repealing Glass Stegal and allowing banks, insurance co's and securities dealers to be owned by the same parent company caused the housing bubble / mortgage mess.

Can anyone explain how these two things are even remotely related?

Thanks!

Submitted by al_coda on September 19, 2008 - 10:03pm.

The final vote for this bill was 90-8 in the Senate for and about 350 voted yea in the house.

You can look it up on the Senate Banking Committee website.

It received overwhelming bipartisan support and was worked on by Larry Summers of the Clinton Treasury and Clinton himself appealed to Democrats to support the compromise bill.

Bush had nothing to do with this bill. He wasn't even elected when it passed.

Submitted by CA renter on September 19, 2008 - 10:07pm.

Look who was behind repealing the Glass-Steagall Act (bold emphasis is mine):

With lobbying led by Roger Levy, the "finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, according to the Center for Responsive Politics..." These industries succeeded in their two decades long effort to repeal the act.[12]

http://en.wikipedia.org/wiki/Glass-Steag...

------------------
Please tell me again...exactly **who** is asking for a bailout now????

Submitted by svelte on September 20, 2008 - 10:17am.

jonnycsd wrote:
The OP insinuates that repealing Glass Stegal and allowing banks, insurance co's and securities dealers to be owned by the same parent company caused the housing bubble / mortgage mess.

Can anyone explain how these two things are even remotely related?

Thanks!

Jonny,

I agree with you.

The point of the article, written in 1999, is that repealing the Glass Stegal could lead to this:

The separation of banking and the stock exchange was ordered in response to revelations of the gross corruption and manipulation of the market by giant banking houses, above all the House of Morgan, which organized huge corporate mergers for its own profit and awarded preferential access to share issues to favored politicians and businessmen. Such insider trading played a major role in the speculative boom which preceded the 1929 crash.

Unless someone can explain it to me, I don't see in any way how this type of a situation (which the author predicted could occur with the repeal of the Glass Stegal act) caused the problem we are now experiencing.

I thought this board had been in general agreement that it was the separation of mortgage lending and the stock market that caused the situation we are in, not the merging of institutions.

i.e., separating mortgage lending from the holders of the loans on Wall Street caused the lenders not to care one iota if the loans could be repaid.

Submitted by Casca on September 20, 2008 - 12:42pm.

temeculaguy wrote:
All politicians are the same...

TG, you're obviously a very bright guy, but this sort of comment is at best intellectually lazy, and at worst simply ignorant. We live in a country where one party is entirely owned by identity politics, and totally incorrigible. The other is dominated by opportunists, but there are many good people there trying to do what is best for the Republic. That the polity as a whole is too indolent to participate meaningfully in the course we steer is the fault, and the pity.

Submitted by Veritas on September 20, 2008 - 2:22pm.

Adams was brilliant. No one like him in Washington today. Here is a link to follow the money to see why the bail out is happening. The politicians on both sides are taking care of their own money. Caesar was whacked for a lot less. Here is the link:

http://www.opensecrets.org/pres08/index.php

Banking on Becoming President

For the first time ever in U.S. history, the candidates for president have raised more than $1 billion. To find out where all this money is coming from, click on the candidates' names below and explore the options to the left. The candidates now file campaign finance reports monthly. The reports for August are due September 20th.

Submitted by RepublicanForObama on September 20, 2008 - 7:08pm.

Thanks for the information. I knew it was a veto proof bill. I was about to research how how McCain voted.
The press will still blame it on Clinton.

Submitted by temeculaguy on September 20, 2008 - 8:23pm.

Casca, you assume a great deal by deeming me bright, but you are on point with my intellectual lethagry when it comes to politics. I have made peace with my disdain for both parties, yet no third party fits my views. I have come to the realization that the campaign financing/lobby system is the root of the problem. I am also frustrated with the fact that there is no political party that is socially liberal while being fiscally conservative, why am I forced to choose, I hate it. I want law and order, but I want religion away from politics, I want abortion, gay marriage, racial equality, but I want no bail outs, minimal social programs, protection of the borders and interior enforcement and most of all I want the entire population drugged with birth control in the water supply and only by proving financial responsibility can the antidote be given for them to have children, people that cannot afford children should be prohibited from having them. You tell me where I get that from a political candidate and I'll become involved again, until then, it's all B.S. to me and I feel no guilt in lumping them together as equally worthless.

Veritas, another point for the Julius Ceasar reference, Adams and Julius in the same thread, you are o.k. in my book. If you weren't already aware, both men have had HBO series based on their lives (Adams and Rome), both were well done and primarily accurate. Since HBO cancelled both "the wire" and "inside the nfl" I feel a little dirty for giving them a plug since I'm mad at them.

Submitted by Wickedheart on September 20, 2008 - 10:39pm.

patientlywaiting wrote:
Ex-SD, so if the Gramm bill was so bad, why didn't Bush undo it like his has undone many of Clinton's other doings?

It seems to me like Phil Gramm had more to do with it than Bill Clinton.

Of yeah. He wasn't content with the repeal of Glass-Steagal. You can thank him for the lack of oversight of Wallstreet, the Enron mess and the Commodities Futures Moderization Act.

Foreclosure Phil

http://tinyurl.com/5a6y9p

Phil Gramm as Treasury Secretary if McCain wins, what a great idea!

Phil Gramm calls us "a nation of whiners"

http://tinyurl.com/4o4e5u

Submitted by tvzz on September 22, 2008 - 2:03pm.

you posted the vote that didn't make it.
The bills were introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA). The bills were passed by a 54-44 vote along party lines with Republican support in the Senate and by a 343-86 vote in the House of Representatives. Nov 4, 1999: After passing both the Senate and House the bill was moved to a conference committee to work out the differences between the Senate and House versions. Democrats agreed to support the bill only after Republicans agreed to strengthen provisions of the Community Reinvestment Act and address certain privacy concerns. The final bipartisan bill resolving the differences was passed in the Senate 90-8-1 and in the House: 362-57-15. Without forcing a veto vote, this bipartisan, veto proof legislation was signed into law by President Bill Clinton on November 12, 1999.

Submitted by Veritas on September 22, 2008 - 4:49pm.

temeculaguy,

Some of us are just classic thinkers or maybe we are just in the wrong century.

“I Pray Heaven to Bestow The Best of Blessing on THIS HOUSE, and on ALL that shall hereafter Inhabit it. May none but Honest and Wise Men ever rule under This Roof"
- John Adams

Submitted by ltokuda on September 22, 2008 - 3:35pm.

So basically, the facts are that this whole thread is a red herring and the Glass-Steagall act has nothing to do with the current mess we're in. It seems like another pathetic attempt to pass the blame.

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