How The Wealthy Elites Stole Our Prosperity

Those seeking profits, were they given total freedom, would not be the ones to trust to keep government pure and our rights secure. Indeed, it has always been those seeking wealth who were the source of corruption in government. No other depositories of power have ever yet been found, which did not end in converting to their own profit the earnings of those committed to their change ~ Thomas Jefferson (4/13/1743 to 7/4/1826) 3rd President of the United States (3/4/1801 to 3/4/1809). He was the eponym of Jeffersonian democracy and the co-founder and leader of the Democratic-Republican Party, which dominated American politics for 25 years.

Alan Greenspan served as Chairman of the Federal Reserve of the United States from 1987 to 2006. This period of time covered the presidencies of Ronald Reagan, George H. W. Bush, Bill Clinton and George W. Bush. As Fed chairman, Greenspan worked to advance the interests of the upper-class at the expense of the interests of the rest of the nation.

During the Clinton years the economy boomed. Business did well and the real wages of workers began to rise. This worried the investor class. If wages continued to rise it would affect their profits. Sure, they'd still go up, but they deserved a BIGGER piece of the expanding pie. In early 1997, the sixth year of economic expansion, Alan Greenspan made a statement before the US Senate Committee on Banking, Housing, and Urban Affairs meant to reassure the business community that he knew how to keep wages low.

Greenspan said that, while "the performance of the U.S. economy over the past year has been quite favorable", there was nothing to worry about because "workers fear of losing their jobs restrains them from seeking the pay raises that usually crop up when employers have trouble finding people to hire" (Wall Street Journal 1/27/1997). And Greenspan saw one of his main responsibilities as Federal Reserve Board Chairman to be to maintain "a high-enough level of worker insecurity [so] employees wouldn't demand pay raises and benefit increases" ("Screwed: The Undeclared War Against the Middle Class" by Thom Hartmann, p.48-49).

Fed chairman is an influential and prestigious position. People listen to the top economist in the land, so when the Maestro advised that, in order to ensure continued good times, we needed to go after "wage inflation", the President and Congress listened. Under Greenspan the federal government abandoned previously held pro-labor positions. When businesses violated laws on illegal strikebreaking and hired permanent replacement workers, the agencies responsible for the enforcement of these laws declined to intervene (citations issued by the The International Labor Organization attest to this fact).

Immigration laws were inadequately enforced and people willing to work for less diluted the labor pool. Companies were encouraged to, and rewarded for, sending American jobs to low wage countries. Various "free trade" treaties were championed by both Republican and Democratic presidents and ratified by their respective Congresses. ("Power in The Global Arena", Lecture by Noam Chomsky, 5/1998).

The strategy worked. Profits soared (along with upper-class incomes) while pay for the middle class and the working poor remained flat (or went down). Throw the bush tax into the mix and it's easy to see why the economy is in the dumper. Economist Ravi Batra explains that, "a healthy economy requires that there is a balance between supply and demand. Here supply means the production of goods and services offered to entire society, and demand means society’s demand for such things. Thus, economic balance requires that [supply equals demand]. Without this balance, there is either high unemployment or high inflation".

In other words, Supply side economics and anti-wage inflationary policies lead to unemployment and recession. Because The average citizen (who is still employed) can no longer afford to purchase what is being produced (especially after they've mortgaged their home to the hilt and maxed out their credit cards).

I made this point on another message board in a recent discussion with an "Independent Moderate". I claimed that the solution to the problem we now face is for our elected officials to take steps to "ensure" wages rise. The Independent Moderate's incredulous response was to ask, "how do you ensure that people's wages increase? The government... not unless you're talking about the old East Germany... can't do that".

Does Willis Hart (the aforementioned Independent Moderate) think I was expressing my desire that the government step in and dictate to business what they pay their employees? If that is the case I'm surprised he didn't cite a Communist country as his example. The reason I wrote this post was to explain how, while remaining a democracy, our government can take steps to ensure that wages rise. Just as the adherents of "Greenspan-nomics" enacted policies ensuring wages remained low, polices can (and should) be enacted to ensure the exact opposite.

Progressive radio talk show host Thom Hartmann agrees that it is possible. According to Mr. Hartmann, "Government can set the rules of the game of business in such a way that working people must receive a living wage, that labor has the power to organize into unions just as capital can organize into corporations, and that domestic industries can be protected from overseas competition. When these rules are combined with a democratic form of government, a strong middle class will emerge. The middle class vanishes and we return to the con's Dickens-era form of economics, where the rich get richer and the working poor are kept in a constant state of fear and anxiety so the cost of their labor will always be cheap" (Screwed, p.50).

The cure for our economic ills is to re-adopt pro-labor, pro-middleclass policies and dump the Conservative policies that favor the wealthy. Repealing NAFTA, raising tariffs and penalizing corporations for shipping jobs overseas will encourage corporations who want to sell goods in America to hire Americans. This will bring jobs back to our country.

Passing comprehensive immigration reform backed up by a program like E-verify will drastically reduce unemployment. That and the passage of the Employee Free Choice Act will cause "worker insecurity" to evaporate and allow more workers to negotiate for higher pay. Throw in health care for all - by way of a public option - and the result will be increased prosperity for a majority of Americans instead of a select few.

For 40 years and counting the economic elites have been inflating their pay by depressing worker compensation. It's a transfer of wealth that has left 20% of the population holding 85% of the nation's wealth. This was not an accident. It was by design, and in my mind amounts to nothing less than thievery.

During the previously mentioned discussion with the Moderate Independent I asserted that the wealthy are "overpaid". The Hartster's response was to claim that I was "casually foisting" my value judgments on everyone else (Republicans and other Moderates like him, presumably). Willis conclusion was that was "ballsy" of me. No Willis, there is nothing "casual" about my conclusions.

I've done my homework on the matter and come to my conclusions based on an investigation of the facts. Actually I think you're the one who is "pretty ballsy" to suggest Liberals have reached their conclusions based on jealously and class envy... instead of a love of country and a desire to do what's in the best interest of a majority of it's citizens.

SWTD #57

Republican Lies About Fannie, Freddie, And Frank

It's very clear what the priorities are. The Republicans are looking after the financial interests of the wealthiest individuals in this country ~ Ted Kennedy (2/22/1932 to 8/25/2009) United States Senator from Massachusetts and a member of the Democratic Party. Serving almost 47 years, he was the second most senior member of the Senate when he died and is the 4th-longest-serving senator in US history (11/7/1962 to 8/25/2009).

I was recently made aware of the fact that the Democratic Representative from Massachusetts Barney Frank "admitted that Fannie and Freddie were largely responsible for the economic downturn". I read about this shocking admission on Lisa's brand new Conservative blog.

The post, titled "The Problem with Leftists" contained a link to a 8/19/2010 article on the "RealClearPolitics" website (RealClearPolitics is a political news and polling data aggregator). (Note: see update below regarding Lisa's blog.)

According to Wikipedia RealClearPolitics (RCP) claims to be "non-partisan" and that "their goal is to give readers ideological diversity". I'm not buying it considering they also describe themselves "as frustrated with what they perceive as anti-conservative, anti-Christian media bias". Playing the victim is a typical Con diversionary tactic. They claim they're being discriminated against when the actual bias is in their favor.

For instance - on the 8/22/2010 edition of "Meet the Press", when Mitch McConnell remarked that President Obama "says he's a Christian, and I take him at his word", host David Gregory offered no pushback.

What Gregory should have objected to was McConnell's use of weasel words to suggest that President Obama MIGHT be a Muslim, but Mitch McConnel isn't sure... all he can do is "take him at his word". President Obama is suspected of being a Muslim - even though he attended a Christian church for 20 years - because he spoke out in favor of upholding the Constitutional rights of all Americans; regardless of what religion they practice? The corporate media (in this case "Meet the Press" and David Gregory) is lending credence to Republican talking points by allowing them to frame the debate.

The biased RCP article, "Barney Frank: Fannie & Freddie Must Go" accuses Congressman Frank of "dissembling and denial", and the Left of "blaming heartless Republicans and Wall Street for the crisis caused by Fannie Mae and Freddie Mac". Unfortunately for RPC these lies have been thoroughly debunked. Nobel prize winning Economist Paul Krugman, in a 5/31/2009 article titled "Reagan Did It", points out that "Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending - restrictions that... limited the ability of families to buy homes without putting a significant amount of money down".

Further deregulation shepherded through Congress by former Republican Congressman and McCain Campaign financial advisor Phil Gramm blew away the remaining FDR era protections. Republican deregulation caused the financial crisis, not Fannie and Freddie.

The problem with Lisa's claim that (according to the RCP article), Barney Frank "admitted that Fannie and Freddie were largely responsible for the economic downturn" - is that it's not true. RCP never states that Rep. Frank "admits" THEIR claim that "the crisis [was] caused by Fannie Mae and Freddie Mac" is accurate. The RCP article does contain several quotes from Rep. Frank, but none of them amount to an admission by Congressman Frank that Fannie and Freddie were responsible. This "admission" is one that Lisa either invented or imagined.

The RCP article quotes Rep. Frank as saying, "There were people in this society who for economic [reasons can't] be homeowners". If you apply for a loan but your income and/or savings suggest you won't be able to pay off the loan, clearly it is not wise for a bank to make the loan. This is simply stating what should have been obvious. Remember it was former President bush's "ownership society" that encouraged home ownership with new policies like the zero-down-payment initiative, "a government-sponsored program that allowed people to get mortgages without a down payment".

In another quote from the article Congressman Frank says he now believes that the two secondary mortgage market government-sponsored enterprises (GSEs) "should be abolished". RCP's response is, "better late than never", and concludes that it is "refreshing to hear a member of the Democratic Party admit his mistakes". The mistake RPC thinks Rep. Frank made was "stopping GSE reform in the early 2000s, at a time when such a move might have prevented the financial meltdown".

This claim is utter nonsense, as the Republicans controlled Congress during this time (1/4/1995 to 1/3/2007). The Speaker of the House sets the the legislative agenda, and during this period both Speakers, Newt Gingrich and Dennis Hastert, were Republicans. According to Rep. Frank, "I did not try to stop them from passing legislation to control subprime lending or to regulate Fannie Mae and Freddie Mac". In his book "Financial Shock" economist Mark Zandi reveals that it was President Bush who "readily took up the homeownership baton... [and it was the] Bush administration [who] put substantial pressure on Fannie Mae and Freddie Mac to increase their funding of mortgage loans to lower-income groups".

Rep. Frank says he "sought directly to regulate subprime lending", but the legislation he and Michael Oxley (R-OH) worked on, the Finance Reform Act of 2005, was "defeated because, in the words of Mr. Oxley, the Bush administration gave his efforts the one-finger salute". According to Media Matters, when the Democrats regained control of the House in 2007 Rep. Frank (who became the new chairman of the House Financial Services Committee), "sponsored HR 1427, a bill to create the Federal Housing Finance Agency (FHFA), granting that agency general supervisory and regulatory authority over Fannie and Freddie and directing it to reform the companies...".

President bush signed the bill on 7/30/2008, but only because it was clear by that time that there was a problem (the housing market peaked in 2006). Five weeks later FHFA seized temporary control of Fannie and Freddie.

bush's excuse was that "Wall Street got drunk", but according to Portfolio.com "bush neglected to add that he was behind the bar, pouring the tequila shots for most of the night, and refusing to cut off the drunks before they'd reached their limits".

The Republicans have some nerve thinking the American people will believe the Democrats were responsible for the housing bubble when they weren't in the majority when the Republicans, as part of the bush administration's "aggressive housing agenda", passed legislation like the American Dream Downpayment Assistance Act, the "Minority Homeownership Initiative", and (the previously mentioned) "Zero Down Payment Initiative".

Rep. Frank warned of the potential danger of a deregulated subprime lending market, but "House Republicans blocked any efforts to legislate against it" and "Alan Greenspan refused to use congressional authority he'd been given in 1994 to regulate it". The reason was because gouging lower-income minorities (and non-minorities) was very profitable for the fat-cat bankers pulling the administration's strings. Republicans looking out for the interests of the upper-class lead directly to the economic downturn - any other assertion is revisionist propaganda.

Instead of "admitting" Fannie and Freddie are to blame, Congressman Frank defended the two GSEs by pointing out that "private companies sold Fannie and Freddie loans or securities based on fraudulent documents", and that "these transactions created private profits at public expense". In other words, Fannie and Freddie are the VICTIMS of fraud, and the federal government should go after the banks that sold them the bad loans and attempt to recover some of the money they lost.

The reason why Rep. Frank is now in favor of abolishing the GSEs is because he believes there should be "no more hybrid private-public", and because "if we want to subsidize housing then we [should] do it upfront and let the budget be clear about that".

I agree completely. Fannie and Freddie suffered such huge losses because of the bush initiatives which were designed to increase the profits of their banker buddies, and because the GSEs had been partly privatized. If they had been acting in the public interest using a not-for-profit model - I think it is highly unlikely they would have been swept up in the derivative fever.

But because the GSE CEOs were seeking to increase their profits (and their bonuses) Fannie and Freddie didn't do their due diligence in researching the soundness of the loans they purchased. They were blinded by the profit motive in exactly the same manner as the other financial institutions that we bailed out. And let us not forget the fraud that Rep. Frank mentioned, which wouldn't have occurred either if not for Republican deregulation.

I agree with Rep. Frank that Fannie and Freddie should be abolished and REPLACED. Let the shareholders suffer some of the losses while the federal government puts a new, not-for-profit 100% public agency in charge of providing financial support to the secondary mortgage market. Homeownership is a good thing, and should be encouraged, but (obviously) should only be an option for people who can afford it. And we can do our best to make it more affordable by returning to the not-for-profit model Fannie Mae operated under after it's founding in 1938 until it "was converted into a private shareholder-owned corporation" in 1968 (by Democratic President LBJ, although for non-ideological reasons).

Unfortunately Fannie and Freddie being "partially private" allowed the Republicans to corrupt the institutions from within. If the Cons can't get rid of a popular government program they hate they will attempt to convert it into a money making vehicle for the wealthy elites. Which is exactly what the bush administration did - the wealthy bankers profited (and collected record bonuses) while the American taxpayer got shafted to the tune of (approximately) $248 billion.

When the hell are the voters going to wake up and realize that Republican thieves are robbing us blind? Their campaign to extend the bush tax cuts is just the latest example of their continuing reverse-Robin Hood master plan to destroy the middle class and create a land of gentry. Perhaps I'm being a wee bit hyperbolic, but significantly less so than Righties who claim the Obama Administration is plotting a Marxist "fundamental transformation" of our country.

1/13/2011 Update: Lisa deleted her blog and started over, creating a new blog with the same name... Originally I updated the link to her post with a link to the page as cached by Google, but the Google cache has since expired. Fortunately I copied down the text and have posted it in my comments section. You'll just have to take my word for it that I didn't make any alterations.

See also: America Without A Middle Class by Elizabeth Warren, The Huffington Post 12/3/2009.

SWTD #51

The Ideology That Screwed The World, Part 2

There was no record keeping requirement imposed on participants in the market. There was no reporting. We had no information ~ Brooksley Born, chairperson of the Commodity Futures Trading Commission (8/26/1996 to 6/1/1999) referring to the over the counter derivatives market, as quoted from the 10/20/2009 Frontline Documentary, "The Warning".

In my previous article I examined the Financial Services Modernization Act of 1999, a piece of deregulatory legislation which contributed to the housing bubble, which lead to the collapse of our financial system. That, however was the only the first of two free market anti-regulation bills that we can blame for the crisis.

To recap: The first bill was The Financial Services Modernization Act of 1999 (also known as the Gramm-Leach-Bliley Act or GLBA) repealed the portion of the Glass-Steagall Act which prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and/or an insurance company. Bill Clinton signed GLBA, even though every Senate Democrat (save one) voted against it.

The second piece of anti-regulatory legislation was the Commodity Futures Modernization Act of 2000 (CFMA). It continued an exemption of OTC derivatives from regulation that began with the passage of the Futures Trading Practices Act of 1992 (signed by George H.W. Bush).

Additionally, CFMA settled a 1998-1999 dispute wherein the Commodity Futures Trading Commission (or CFTC; then chaired by Brooksley Born) attempted to regulate the OTC derivatives market - and was thwarted by Alan Greenspan and Robert Rubin (see Frontline's excellent Documentary, "The Warning" for more information regarding the dispute). The act also exempted credit default swaps from regulation.

Initially CFMA passed in the House, but later died in the Senate, which did not vote on the measure. Later, then-Senator Phil Gramm took the bill, cosponsored by Senator Richard Lugar (R-IN) and written with the help of financial industry lobbyists, and slipped it into a $384-billion omnibus spending bill, which passed the Senate and was signed into law by President Clinton on 12/21/2000.

The July/August issue of Mother Jones reveals that "few lawmakers had either the opportunity or inclination to read [Gramm's] version of the bill", and that "nobody in either chamber had any knowledge of what was going on or what was in it".

In addition to exempting them from regulation by the CFTC, CFMA overrode any state legislature from treating OTC derivative transactions as gambling or otherwise illegal, even though they are and should be.

Definition, Derivative: A derivative is a financial instrument that is derived from some other asset, index, event, value or condition (known as the underlying asset). Rather than trade or exchange the underlying asset itself, derivative traders enter into an agreement to exchange cash or assets over time based on the underlying asset.

Definition, Over-the-counter: OTC, or off-exchange trading is to trade financial instruments such as stocks, bonds, commodities or derivatives directly between two parties. It is contrasted with exchange trading, which occurs via facilities constructed for the purpose of trading (i.e., exchanges).

University of Maryland Law School Professor Michael Greenberger explains the role OTC derivatives played in the financial crisis...

MG: ...discipline in the market has disappeared because what banks do with their loans now is they make the loan, and then they sell the loan to third parties. Third parties essentially buy stock in the loan. The loans are bundled into a basket, offered to the world, they buy stock in it. Owning that stock is not a derivative because you're an actual owner of the loan. What happened in our situation, especially when the mortgage lenders wanted to take risks with subprime loans - that is, people who did not have the likelihood to pay them off - is that people were so excited about the possibility of making money off this, that they ran out of the actual mortgages and securities in the mortgages. So what the banks decided to do was to create bets on whether or not the mortgages would be paid off. They were synthetic securities. That is to say, you didn't own anything, but you were betting that the borrower would pay the mortgage off".

(Mr. Greenberg teaches a course at UMD entitled "Futures, Options and Derivatives". This quote is excerpted from a 9 minute You-Tube video which can be viewed here).

If you purchase a Mortgage Backed Security you have a actual asset backing up your investment. The value of the asset may go down and you may end up losing a lot of money, but you won't lose all your money. If, on the other hand, you purchase a "synthetic" security and the mortgage isn't paid off, the security you purchased is worth absolutely nothing (a "toxic asset" valued at zero).

Wall Street was betting big that the subprime mortgage holders would pay off their loans, which they knew was a risky proposition. In order to hedge their bets Goldman Sachs (and the other financial houses that wanted to buy these things) purchased credit default swaps from AIG (and other large insurers).

A credit default swap (CDS) can be thought of as a kind of insurance because it is a "contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if the credit instrument (typically a bond or loan) goes into default (fails to pay)". Although, unlike with ordinary insurance, the "buyer of a CDS does not need to own the underlying security or other form of credit exposure".

According to Wikipedia "the modern Credit Default Swaps were invented in 1997 by a team working for JPMorgan Chase", and they "became largely exempt from regulation by the U.S. Securities and Exchange Commission (SEC) with the Commodity Futures Modernization Act of 2000".

AIG agreed to issue the swaps, viewing the proposition as a license to print money. The securities Goldman wanted to "insure" were rated AAA, which means they were as safe as US government bonds (Wikipedia says "In practice, government bonds are treated as risk-free bonds, as governments can raise taxes or print money to repay their domestic currency debt").

Only after the crash did the SEC say something about the conflict of interest which arises when the issuer of the security pays to have it rated (The "issuer pays" model). An 8/27/2009 article from Law.com explains, "rating agencies have a financial interest in generating business from the firms that seek the rating. A low rating might affect future business". I guess that never occurred to AIG. Whether or not it occurred to Goldman Sachs they had succeeded in eliminating most of their risk.

And, because the Mortgage Backed Securities and the derivatives based on those securities paid a return of five to nine percent while Governmental bonds were currently at a worldwide historical low of one percent or less, the banksters decided to purchase as many as they could as fast as possible. Whether the securities were real or synthetic, it didn't matter because all they had to is pay an "insurance premium" and some other dupe assumed all the risk.

Michael Greenberger: It's one thing for us to have an economic problem because people can't pay their mortgages, and money is lost to the lenders or the whole economy for real problems here, but, I believe three times as much money is being lost not because people really lost their mortgages. Because three times the value of the loss of the mortgage is a bet that's been placed by wealthy institutions or wealthy individuals.

In other words, three times as many synthetic securities were created as real asset backed securities. Goldman Sachs didn't see the problem though, it wasn't as if they were operating without a safety net - all their securities were insured! However, when it came time for AIG to pay up - they didn't have the money. AIG's equity at the time of the collapse was 200 billion, but they owed 400 billion! (The quote from the preceding paragraph and this figure are both excerpted from the same YouTube video I linked to earlier.)

Goldman Sachs was not, however, that worried about not getting paid. Because they were "to big to fail", and because their ex CEO (and current Fed chairman) was in position to ensure they were "bailed out". Ben Bernanke let Goldman Sachs competitor Lehman Brothers go under, while he deigned to save AIG who just happened to owe Goldman 14 billion dollars.

Treasury Secretary Timothy Geithner claims that the bailouts weren't designed to to help Goldman Sachs, but I'm not buying it. It was because of Tim Geithner that Goldman Sachs received the full amount they were owed, instead of the 40 cents on the dollar that had been previously negotiated.

I think what this shows is that it wasn't the collapse of the housing market that that crashed the financial sector so much as all the unregulated gambling the banksters were engaging in, made possible by two major pieces of "free market" deregulation legislation. Near the height of the market the value of all the subprime mortgages in the US was estimated to be 1.3 trillion (and obviously not everyone with a subprime mortgage defaulted), so why has our government committed us to forking over 12.2 trillion of our (or our grandchildren's) dollars to the banksters?

The Community Reinvestment Act, which is a federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities (by discouraging a discriminatory practice known as "redlining"), played no part in the financial crisis. Conservatives like to point to this act and assign it (and it's Democratic sponsors) some, or even all the blame for the housing bubble, but that is a myth - and exemplifies the blame-the-victim class warfare that the Cons love to engage in.

The crisis was caused by the anti-regulation ideology championed by greedy free market a-holes like Alan Greenspan, Robert Rubin, Lawrence Summers, Congressional Republicans and large financial institutions like Goldman Sachs. Although Bill Clinton signed these acts, they are both Conservative in nature, and completely antithetical to what progressives stand for. Progressives don't subscribe to Ayn Rand's laissez-faire free market tall tale, we believe in rules and regulations that protect "we the people" from the greedy a-holes who only operate in their own self-interest.

Further Reading
[1] Thom talks to Michael Kirk about "The Warning". Will the markets crash again? (Transcript), The Thom Hartman Radio Program 10/19/2009.
[2] Inside The Great American Bubble Machine: How Goldman Sachs has engineered every major market manipulation since the Great Depression by Matt Taibbi. Rolling Stone, 7/2/2009.
[3] The Giant Pool of Money (Transcript), Hosted by Ira Glass. This American Life, 5/9/2008 (download mp3).
[4] Testimony of Brooksley Born, Chairperson Commodity Futures Trading Commission Concerning The Over-The-Counter Derivatives Market Before the US House of Representatives Committee on Banking and Financial Services. 7/24/1998.

9/8/2010 Update: Initially I reported that George W. Bush signed the CFMA into law. I was wrong. President Clinton signed the bill that included the CFMA (the $384-billion omnibus spending bill previously mentioned) on 12/21/2000. I apologize for the error, however, the fact that Clinton, a New Democrat, signed both bills does not change my conclusion - which is that the 2008 financial crisis was caused by the Conservative ideology of deregulation (or "neoliberal fiscal values"... whatever the hell you call them deregulatory economic policies spell economic disaster).

SWTD #37

The Ideology That Screwed The World, Part 1

I am opposed to all forms of control. I am for an absolute laissez-faire, free, unregulated economy. Let me put it briefly - I am for the separation of state and economics ~ Ayn Rand (2/2/1905 to 3/6/1982) a Russian-American novelist, philosopher, playwright, and screenwriter. She is known for her two best-selling novels and for developing a philosophical system she called Objectivism.

Ayn Rand became a stabilizing force in my life. It hadn't taken long for us to have a meeting of the minds - mostly my mind meeting hers ~ Alan Greenspan (DOB 3/6/1926) an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006, quoted from his autobiography, "The Age of Turbulence"

Everyone knows that the recent financial meltdown, which began in 2008, came about as the result of another housing bubble. But what caused this bubble? And whom can we blame? Did McCain lose the election simply due to the fact that the Republicans were in charge at the time? That, plus the fact that he looked incredibly foolish when he suspended his campaign to rush back to Washington to fix the mess, stopping first to be interviewed by Wolf Blitzer in his "Situation Room", and snubbing David Letterman in the process?

Fortunately the American public correctly assigned blame for the financial crisis to John McCain, the Republican Party and deregulation. In the days immediately following McCain suspending his campaign, visiting Wolf's situation room, and apologizing to David Letterman because he "screwed up", McCain was asked (in a "CBS Today" interview) if he regretted championing deregulation in 1999. McCain replied, "I think the deregulation was probably helpful to the growth of our economy" (a definite "no").

And this occurred only shortly after McCain was forced to fire his financial advisor, Phil Gramm, who called the recession "mental", and declared that "America is a nation of whiners". Unsurprisingly, McCain lost the election.

The deregulation McCain championed in 1999, along with his financial advisor Phil Gramm, was the Financial Services Modernization Act of 1999 (also known as the Gramm-Leach-Bliley Act). It repealed part of the Glass-Steagall Act of 1933, which "prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and/or an insurance company". In other words, retail banks and investment banks were required to remain separate entities, so as to discourage speculation (which can also be described as gambling).

Freed from these prohibitions, investment banks purchased retail banks, bundled their customer's mortgages and resold them as "mortgage backed securities". But because the banksters made their money upfront they didn't really care if the mortgage holders defaulted. Certainly there was a strong incentive from them not to care, as their profit margin would be negatively impacted if they did. Naturally this led to a bubble (and bubbles eventually burst). But for the time being there was loads of cash to be made.

Gramm, Leach, and Bliley were Republicans. Conservative economic philosophy calls for deregulation. Ayn Rand believed in it, and so did her acolyte Alan Greenspan, who began his tenure with the Federal Reserve in 1987 when he was appointed its chairman by President Ronald Reagan. Reagan, the President who declared, "Government is not the solution to our problem, government is the problem" (sounds anti-regulation to me).

It is the Democratic Party that is supposed to champion protection of the consumer through strict regulation, yet they got snookered by the Ayn Rand laissez-faire fairy tale! Greenspan kept his Fed chair position for the next 18 years, whether the President was a Republican or a Democrat. According to the Frontline special, The Warning, "by the time Bill Clinton took the White House, the anti-government rhetoric had become so fashionable that even some Democrats embraced it".

In addition to not firing Greenspan as he should have, Clinton brought on board ex-Goldman Sachs employee Robert Rubin to head up the Treasury department. Greenspan and Rubin, along with advisors Lawrence Summers and Timothy Geithner formed a "pro-business anti-regulation support group". The 2/15/1999 edition of Time Magazine dubbed Greenspan, Rubin and Summers, "The Committee to Save the World". I think a more apt honorific would have been "The three horsemen of the coming financial apocalypse".

And so, President Clinton, following the Randian advice of his free market advisors, signed a bill sponsored by three Republicans and championed by a future Republican Presidential contender. That was after Gramm-Leach-Bliley passed the Senate with 53 Republican "yeas", one Democratic "yea", and 44 Democratic "nays" (there was also one "present" and one "absent", but those were Repubicans).

Update 9/26/2014: The vote I reference above was NOT the final vote. After conferencing with the House the bill came up for a vote again and this time it passed with 38 Democratic "yea" votes and only 7 Democratic "nay votes... unfortunately. Also, I've known about this post being wrong for quite some time and did nothing about it.

That is something that I ALWAYS try to avoid (wrong information being presented here). But this was back during my early days of blogging. I think that currently I am doing a much better job in making sure no erroneous information slips through. I apologize for taking so long to correct this post.

Correctly voting "nay" on this terrible piece of legislation in the Senate were Democrats Barbara Boxer (CA 1993-present), Richard Bryan (NV 1989-2001), Byron Dorgan (ND 1992-2011), Russell Feingold (WI 1993-2011), Tom Harkin (IA 1985-present), Barbara Mikulski (MD 1987-present), Paul Wellstone (MN), and Republican Richard Shelby (AL 1987-present).

Final Vote Tallies on S. 900, 106th Congress: Gramm-Leach-Bliley Act (On the Conference Report) 11/4/1999. (Yea/Nay/Not Voting or Present)... Senate Vote #354: Republicans (52/1/2), Democrats (38/7/0). House Vote #570: Republicans (207/5/11), Democrats (154/51/4).

SWTD #36