Banking American Style

Former Federal Reserve Chairman Alan Greesnspan (1987-2006) who was against financial regulation, said in October 2008 he didn’t know the financial markets couldn’t regulate themselves, and yet here we are in 2010 with Senator Mitch McConnell still against regulatory reforms.

Evidently, the Senator is against the fifty billion dollar pool the bill wants to enact so that in the future banks can be wound down slowly, saying it will only lead to more bailouts. It is the banks who would be paying into this fund, not the taxpayer. After the trillions the tax payer has given banks, 50 billion seems like a drop in the bucket so what’s the big deal other than to make another misleading talking point by the Senator.

The FDIC insurance was enacted by the New Deal and is an insurance pool which banks pay into, and where the FDIC obtains its funds. If the Senator wants to be against “bail out pools”, then why doesn’t he elaborate on the fact that the FDIC sold the failed bank it had to take over, IndyMac, to a hedge fund? A hedge fund is billionaires who pool their money to invest. A hedge fund is more interested in short term gains than it is in the welfare of a nation. This is more dangerous than banks coughing up some of the billions in profits they reap.

Larry Summers economic advisor to the president and who was all for the repeal of Glass Steagall which allowed banks to own insurance companies and oil companies, said we shouldn’t bust up the banks and take away these other profitable industries. If one industry isn’t doing well then another industry the bank owns could help to offset their losses. If this is true then why didn’t the banks use their other profitable industries to bail themselves out?

They didn’t have to, it’s become the American way to allow banks to have us cowered from cradle to coffin.

Restoring many of the financial regulations enacted by the New Deal is the place to start in financial regulation, but that’s not going to happen with the control the bankers have amassed over us and our politicians since the seventies.

American Dreamin'

There’s an ongoing crusade to blame the poor for the worldwide financial fiasco.

Just recently Goldman Sachs came out and said the problem with the mortgages was the mortgage companies. But who’s gonna believe that when Alan Greenspan testified that Fannie and Freddie were responsible for this sub prime mortgage fiasco? Actually, Fannie & Freddie got into the game late, after the major Banks had been profiting for years on the rule changes.

According to the book “It Takes a Pillage”, in July 2008 the Kansas City Federal Reserve calculated that nationally, in 2006 the sub prime loan origination alone was as high as 38 percent of the market.

This occurred in large part due to the to repeal in 1999 of financial rules like Glass Steagall (which deregulated separation of deposit banks and risk taking banks from merging). Six weeks later Treasury Secretary Robert Rubin went to work for Citigroup in the same industry he just helped to deregulate.

Henry Paulson championed to repeal the rules on how much banks could borrow against their capital before he became Treasury Secretary. This led to investment banks who over-leveraged themselves by 30 and 40 to one.

In 2001 former Senator Phil Gramm said “some people look at sub prime lending and see evil. I look at sub prime lending and I see the American dream in action.” Now the former Senator no longer sees us as a nation of dreamers but as a nation of whiners.

By singling out Freddie Mac and Fannie Mae as the sole proprietors for this sub prime mortgage failure, they’re letting the real crooks off the hook, the bankers who for decades hammered politicians to set up the conditions for the lawless financial times which enabled those same bankers to take advantage of the masses desire of achieving the “American dream“. After all, it wasn’t the poor or the “dead beats” who rewrote the banking rules.