Shattering Glass-Steagall

Lehman's failure marks the end of an era.

By Daniel Gross | Newsweek Web Exclusive
Sep 15, 2008 | Updated: 3:45  p.m. ET Sep 15, 2008

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  • Posted By: melbee1971 @ 09/23/2008 11:04:26 PM

    "ABOVE ALL THINGS I hope that the education of the common people wil be attended to, convinced that on their good sense we may rely with the most security for the preservation of a due degree of liberty." Thomas Jefferson

  • Posted By: melbee1971 @ 09/23/2008 11:03:26 PM

    As a public high school teacher, the current state of our public institutions reflect our values as a society, from my point of view. We are bailing out these failing institutions with taxpayer dollars while the state of our public school system continues to decline. Good teachers are being laid off and class sizes are growing.

    Voters: Compare the SUPPORT (money) we're being asked to give private organizations to bail out these failures versus the kind of support our public schools need to effectively help all of our children. Where should our tax dollars go?

    No child left behind is a law that requires improvements without funding to implement these improvements. Schools are listed as "failing schools" and lose funding (no bailout here) because of unrealistic goals that are not funded by this mandate in the first place. What is left in our public schools is often a stressed out skeleton staff that does not have the ability to properly educate our students, who we hope will lead us and support us when we are old?

    Meanwhile, these corporate lobbyists have effectively secured deregulation, loopholes, and what they consider "optimal" conditions for their financial success. And a few well-connected people have lined their pockets with enormous amounts of money.

    This sort of short-term gain at the expense of long-term growth has infected our entire way of running our society.

    Unfortunately young people (the MAJORITY) of our future do not have the money or the resources to hire lobbyists. Their teachers and their schools have limited resources. And there are few organized efforts to effectively reform our schools to prepare our future. In every other developed and developing country we compare our students' progress with, there are serious efforts to improve, fund, and prioritize education.
    THIS IS INVESTMENT IN OUR MOST IMPORTANT RESOURCE: HUMAN CAPITAL!

    In America, we are starving our schools while bailing out reckless fat cats who've thrived on greed. Is this the American Way? Or have we lost our way?

    Hopefully (as we say in school) we will learn from all of this and use it to improve, grow, and succeed

  • Posted By: kristilady @ 09/19/2008 12:37:02 PM

    The name Phil Gramm the champion for these failed institutions sounds familiar. He is John McCain's chief Economic strategist, and maybe his Secretary of the Treasury. He helped get us into this mess. Like the fox watching the hen house.

  • Posted By: kristilady @ 09/19/2008 12:33:06 PM

    Very interesting how Phil Gramm comes up in a champion for repeal and allowing these institutions to do as they please. This is the same Phil Gramm that is a chief economic strategist for John McCain and possibly his designee for Secretary of the Treasury. Like the fox watching the hen house.

  • Posted By: cani77 @ 09/18/2008 8:47:19 PM

    In a few weeks we will make a choice that will decide our future.
    I follow a economist named bob proctor who has called the top and bottom of every market crash since the 70s correctly.
    He perfectly predicted the current real estate market meltdown ,and the picture he paints about what will happen in the next couple years
    Is terrifying. He thinks it could get worse then the great depression.
    Banks in the US are going under one after the other. Country wide the largest morgage bank in the world
    Bear Stearns and Lehman brothers , and Merrill Lynch which are 3 out of the top 5 wall street firms.
    And now Fanny and Freddy which hold 50 percent of the home loans in the United States.
    The goverment took them over because they are essentially bankrupt.
    If they didn't the entire financially system would virtually shut down, the stock market would crash
    And we would suffer beyond what any of us have seen before
    The future of these companies will fall into the hands of our next president
    Lehman, Merill Lynch, and Bear Sterns have survived for over 150 years and survived even the great depression
    They are important because the are the biggest engines of growth in america and
    they are connected to almost everything.
    The last time the real estate market numbers looked this bad was during
    The great depression and real estate often leads the way into major economic recessions.
    Bush just like Mcain doesn't understand the economy.
    That not just my opinion its his own words. Not only does he not understand how to fix itHe does not understand exactly what is broken.Its no surprise that he doesnt. The people that make up these securities use complex math models very few people understand.They are basically bundles of thousand of loans some good and some bad that are then given rules based on complex math. It will take the best and brightest minds in the world to get us out of this, and the same things bush and mcain have done for the last 8 years
    Have not worked so far and wont work in the future.
    if you do what you have always done then you will do get what you have always got
    90 percent of the time they have voted the same.
    Please don't just take my word for it Start to read up on some of this yourself. MSN money, elliot wave and, bloomberg Have tons of articles That prove we are in the heading into one of the worst economies any one has ever seen. So why are the polls even close then ?
    The chairman of mcains campaign recently said that people don't vote on issues
    they vote on a personality composite which means. He is trying to sell personality instead of results.He believes people will vote against there own self interests.
    Lets teach him we are smarter then that and elect the ticket that can
    bring us back from the brink of a economic abyss.Mcain admits in the year 2008 he cannot use a computer even to send email.It impossible then that he understands how to help us. its time to wake up now while it will still help

  • Posted By: rferri7816 @ 09/17/2008 8:54:51 AM

    THe American Public should be made aware that Phil Graham, McCains trusted financial advisor was the co sponser of the repeal of Glass Steagall. McCain has always been an advocate of less regulation and all of a sudden he is claiming that Corporate greed has caused this finanical mess. Remember that the Senate and House were GOP controlled even though Clinton was in the White House. By the way does anyone remember the S and L scandal or Keating 5.....Look it up

    • Posted By: Lee Holmes @ 09/17/2008 3:16:01 PM

      Uhh,Acts are signed by the Executive Branch. Not the Legislative.

      Who signed the GRAMM/LYNCH Act? What did it's chief sponsor do after it was signed?

  • Posted By: RiversideWarrior @ 09/17/2008 1:07:18 PM

    The 'voodoo' unregulated economics that has been the norm of the past 8 years has finally been exposed in a most resounding fashion given the latest announcements on AIG, Lehman, Merrill Lynch, Fannie Mae, Freddie mac, etc. Funny thing is, until less than 2 years ago, Sen. McCain was Chair of the Commerce committee that had oversight on the regulation of the banking and financial investment industries, he along with his buddy Sen. Phil Gramm (R-Texas) did everything they could to deregulate such protections designed to protect the American people in order to allow their supporters to steal and gamble. Farewell to Bush/McCain/Palin, it has not been so nice knowing you as the chickens finally come home to roost!

    • Posted By: Lee Holmes @ 09/17/2008 3:13:45 PM

      You need to do a better job ''checking''your facts. Explain this device. What did it seek to do? Why was the Democrat minority including Obama in opposition to it?

      The Federal Housing Enterprise Regulatory Reform Act of 2005

      Who was its author?

      Go here to find out.

      www.senate.gov The Senate of the United States.

      Check this while you are about it.

      The United States Senate,Feb.24,1999:''Testimony of Secretary of the Treasury Robert E.Rubin Before The Senate Banking Committee:Repeal of GLASS-STEAGALL''.

      On which presidential campaign does Robert Rubin serve?

  • Posted By: Lee Holmes @ 09/16/2008 5:43:13 PM

    You need to do a better job ''checking''your ''facts''. Gramm and Leach did not introduce their bill until after they were approached by Rubin.

    PBS FRONTLINE. May 03,2003.''The Long Demise Of GLASS-STEAGALL'' [Timeline]

    www.pbs.org

  • Posted By: Sylvie63 @ 09/16/2008 5:30:30 PM

    Thank you for putting this in layman's terms. When FDR removed the power of banks owing investment unit and commercial unit. It allowed for honest banking not speculation banking where staff got the most out of a promise and no results. It seems that after 8 years. We have almost destroyed ourselves again. When are we going to learn from history.

  • Posted By: TheFactChecker @ 09/16/2008 4:03:24 PM

    Don't just blame the Democrats because the Republicans are to blame as well! It was the Republicans who introduced the act. Republicans Phil Gramm and James Leach who's names are on the act introduced it. We all know that the Senate and House of Reps were Republican controlled at the time.

    It is sad that the US destroyed the Glass-Steagall Act which was created to protect the US from bank failures.

  • Posted By: Old Joe @ 09/16/2008 2:44:05 PM

    Posted By: A_Kansan @ 09/16/2008 2:31:38 PM: "the Democrats who caused all of this".

    Righto! Suggest you read the comment just below.

    • Posted By: Lee Holmes @ 09/16/2008 3:34:57 PM

      I did and you are in error. Did you not read where Clinton Treasury Sec.Robert Rubin advocated the repeal of GLASS-STEAGALL? Did you not see what he did when his lobbyist pals at CITIGROUP awarded him the Chairmanship of this company? Did you not observe that it was Democrats[still is],who benefit the most from FANNIE and FREDDIE due the the corrupt presence of other Democrats including Raines,Gorelick and Johnson? Did you take the time to check Joe Bidens relationship with Americas largest creditcard companies on the website of the most respected non-partisan political money watchdog in America,that of the Center for Responsive Politics,used even by FACTCHECK?[and that of Bidens son as well]? Did you realize that several economic experts laid the blame for the subprime mess and its impact on poorer households on a 2005 bankruptcy bill ''championed by Joe Biden''?[ABC NEWS]. Did you realize that Democrats Kent Conrad and Chris Dodd were the recipients of lower-than-subprime loans given these by lobbyist COUNTRYWIDE? What kind of financial mess has House Ways and Means Chairman Democrat Charlie Rangel gotton himself into? Herein lay knowlage. Neither ''Democrat'',nor ''Republican'':

      www.opensecrets.org

  • Posted By: A_Kansan @ 09/16/2008 2:31:38 PM

    The act was repealed by President Clinton, and the Democrats filled Fannie Mae and Freddie Mac with their cronies. Franklin Raines, Jamie Gorelick, and James A. Johnson looted Fannie Mae for $52 Million, $15 Million and $1.9 Million Respectively.

    Raines and Johnson were eventually outsted when their illegal donations to Democrats were revealed, along with their looting.

    In 2004, Democrat started pressing these institutions to make non-conforming loans to people who simply couldn't afford to pay them back. Of course, the banks sold these loans to Fannie Mae and Freddie Mac, and to quote Rev. Wright, "The chickens have come home too roost."

    The question is, whether the press is going to continue covering up for the Democrats who caused all of this. We all know the answer is YES!

  • Posted By: Old Joe @ 09/16/2008 1:51:18 PM

    When I was young, "credit" meant being able to go to a bank, and if you could make a very substantial down payment and your record was good, financing an auto purchase for two years, or a house for thirty. "Credit" also sometimes meant "90 days As Good As Cash!!!".

    Then "credit" became three years for an auto, and despite the naysayer's cries of doom, the sky did not fall.

    Then five years, then for longer than the auto would last... and STILL the sky did not fall!

    And then, sayeth Wall Street, "Let there be credit cards!" And truly the plastic did flourish and multiply, fruitfully (at least for the credit card industry).

    And Lo! Anyone could now have anything, any time, and put off payment... forever! And again Wall Street did gather the (low-hanging) fruit.

    And then, said the Republicans, let there be no more Glass-Steagall! For surely Wall Street knoweth what is Best For Our Country!!

    Yea, verily, said the Democrats: and let Everyman possesseth a Large House, procured on everlasting credit, for surely this is the right of Everyman.

    "With my Blessing" saith Lord of the Fed, the Honorable and Saintly Mr. Greenspan: "For truly the Marketplace Will Regulate Itself!" (as it is written on the Sacred Stones). Let us also now gather the Higher-Up Fruit!!

    And so it did come to pass that at a certain point in time, The Sky did in fact Fall, and that time is now upon us.

    And Everyman points to Someone Else, and proclaimith it to Be All Your Fault.

    And no one recalleth the Words of Kelly: "We have met the enemy, and He is Us!"

  • Posted By: JennaGA @ 09/16/2008 11:13:12 AM

    In reading these blogs, it only emphasizes that there is no such thing as an intelligent discussion with a die hard republican. As usual, their world is so narrow and shallow they won't even allow themselves to NOT be so easily led by fear and blinded patriotism. God help America if McSame and Samelin get in !

    • Posted By: olderwiser @ 09/16/2008 11:29:56 AM

      It is truly an imperfect world, JennaGA, and God made Republicans to keep us mindful of that flaw. Some of them are okay, but a great number of them are so narrow that they cannot walk down a sidewalk for fear of falling though the cracks. I would add righteousness to the narrowness as another quality that they possess in abundance. You have no chance to be as right as a Republican when in the same company with one. Your usual penalty for wrong thinking in such company is to burn in hell by the wrath of a Republican God. I will say, though, that if you ever get body lice, you need not go to a doctor to be rid of them. Just stand near a Republican and say the word, "Hillary", and the fumes from the Republican will kill all the body lice within a hundred feet, if the wrath of the Republican God doesn't get them first.
      I will now stand back while numerous retorts from you know whom will add "body lice" to the Democrats in our nation.

      • Posted By: JennaGA @ 09/16/2008 11:59:12 AM

        Being from rural southeast Georgia, I feel like a small fish in a big ocean all alone. So yes, biblical interpretations are overly abundant where I come from - almost akin to ......dare I say...... the radicalism we see in the middle east - just in a different form. And that is what the republicans will use and what will lead them first in their voting. To this I say....
        "Beware the leader who bangs the drums of war in order to whip the citizenry into a patriotic fervor, for patriotism is indeed a double-edged sword. It both emboldens the blood, just as it narrows the mind. And when the drums of war have reached a fever pitch and the blood boils with hate and the mind has closed, the leader will have no need in seizing the rights of the citizenry. Rather, the citizenry, infused with fear and blinded by patriotism, will offer up all of their rights unto the leader and gladly so. How do I know? For this is what I have done. And I am Caesar." (Julius Caesar)

        • Posted By: Lee Holmes @ 09/16/2008 12:28:38 PM

          Uhh,Jenna. You are quoting from an urban legend. These passages appear nowhere in Shakesperes ''Julius Caesar' 'nor do they appear in his ''Commentaries''[of which I am fortunate enough to own a 1888 edition]. Indeed,actress Barbara Streisand was hit on this very passage by Shakesperian scholars back in 2004 when she wrote a piece for HUFFINGTON POST.

          www.snopes.com The Urban Legends Reference Pages

          • Posted By: JennaGA @ 09/16/2008 1:33:46 PM

            Ok - so just replace the word Caesar with Republican Party- because that is how they try to win every single election!

  • Posted By: does not work @ 09/16/2008 12:52:36 PM

    Republicans push for deregulation starting with there God Reagan and that has brought us here today. Now they are pushing into a new type economic system called ???Socialized Capitalism??? by providing taxpayer monies to shore up corporate America. We are screwed.

  • Posted By: Sonny Crockett @ 09/16/2008 12:29:03 PM

    Oh, I'm sorry, name calling is what passes for intelligent discussion? Come on Jenna. You prove my point. And oldman, referring to fumes and body lice? Is that intelligent discussion? I posted a strong concurrence with your tennis ball analogy. Your last post was quite disappointing, again in the sewer with the yellers and name callers. Ok, lest my rhetorical questions confuse anyone, that is not intelligent discussion. Read the posts. My argument is very simple, that the fiscal crisis is not one that can be blamed on any one person or party. I haven't defended or attacked either party on anything. Just the childish name calling, enough already. Aren't you sick of throwing the same bombs over and over and over? This started as a thread about Lehman, and economics. Most of you folks (and you know who you are) morphed it into a boring rehash of all the insults and extremism that passes for "dialog" in this day and age. See ya around, I don't understand why so many enjoy wallowing in it, but clearly many do. You have my sympathy.. Feel free to flame me as I spend my time enjoying life elsewhere. Ciao.

    • Posted By: olderwiser @ 09/16/2008 12:34:08 PM

      As I say. Republicans are always right.

  • Posted By: Lee Holmes @ 09/16/2008 12:13:31 PM

    Dunno. What we find is that Obama is more wrapped up in this mess than McCain. Obama ,according the The Center for Responsive Politics [www.opensecrets.org],becomes the No.2 senator after Democrat Chris Dodd of Ct. to rake in FANNIE MAE loot.[John Kerry is No.3]. Further,his campaign adviser was Jim Johnson,former head of FANNIE MAE and forced to step down after it was found that COUNTRYWIDE loans gave him a cut-rate deal on his mortgage[same deal with Dodd,who should be subject to an ethics hearing as he is on the Senate Banking Committee]. According the the CFRP,Obama is also the top money maker from AIG,LEHMAN BROS,TRAVELERS,CITIGROUP,and other major Wall St. financial giants,and that his economics guru,Robert Rubin,was the very person who destroyed GLASS-STEAGALL to begin with back in 1999,with his own testimony before the Senate Banking Committee on Feb.24,1999,bearing witness to this fact. Gramm of Texas was a bit player. It would be Rubin,working with CITIGROUP lobbyists,who would wreck this decades-old New Deal device that prohibited that which Rubin did the first thing upon leaving his post at the Clinton Treasury Dept. and taking up with CITIGROUP as it's Chairman..

    Merging it with TRAVELERS Insurance,the very thing warned against by Steagall of Alabama way back in 1933. The heavier blame for the subprime mess rests with Rubin. Why he is on Team Obama is a mystery. Why former Clinton hacks are running the show at FANNIE and FREDDIE with absolutely no expertise in economics is another. What the blazes Jaime Gorelick [of 9/11 Commission infamy] is doing on FANNIE is beyond me,yet we are now able to connect dots between corporate lobbyists,those in positions at FANNIE and FREDDIE,and the ripoffs they have left pinned on the American people.

    The Senate of the United States www.senate.gov Feb.24,1999: ''Testimony By Robert E.Rubin To The Senate Banking Committee[Repeal of GLASS-STEAGALL].

  • Posted By: JennaGA @ 09/16/2008 11:07:06 AM

    Has Sonny Crockett said anything that is an intelligent discussion on the issues - NO! - same as all republicans. Just keep on voting with your narrow view of the world - if McSame and Samlin get in - God help America!

  • Posted By: Sonny Crockett @ 09/16/2008 9:29:59 AM

    Freddie and Fannie have been headed by democrats for decades, who pilfered each. That's a fact, but so what. Point is, everyone (just about) is greedy, and greed is what caused this current mess, not democrats or republicans. Here is the problem -- turning every issue into a "blame the party you don't like" game is beyond ridiculous. Come on people. We're talking economics and human behavior here, not "its Phil Gramm's fault!! or "It's Clinton's fault!! He didn't even take out Bin Laden when he should have! WAAAAA!!!" And "Darth Cheney"? "McPalin"? What is this, 4th grade? Try to stick to the issue at hand without the over the top silliness.

    • Posted By: olderwiser @ 09/16/2008 10:08:10 AM

      Sonny Crockett. You were so kind to give me some advice in a modest post that I made below. I just read the epistle above and thought that I would copy and paste that advice that you gave me below and share it with you. It is,
      " Here's a piece of advice -- constantly demonizing and overplaying one's hand does not lead to persuasive logic."

  • Posted By: olderwiser @ 09/15/2008 5:31:38 PM

    It all revolves around fake money. Pre-1929, banks lent money to people to buy stocks with ever rising values. The money that one felt was in the inflated stocks was fake money. When the stocks fell, the fake money disappeared, the banks didn't get paid on the loans and went broke. Came the big depression, induced by such folly.
    Recent events are caused again by fake money, the money that people borrowed against the ever rising equity in their owned homes. I distinctly recall Alan Greenspan's encouraging words three or four years ago when it looked like consumers might slow down their buying, "there is still a lot of homeowner equity out there", ie., fake money to borrow from oneself and buy junk. The mortgage crisis is one where very large sums of money were loaned to people to buy large homes when it was easy to determine that the borrowers would not be able to pay the mortgage. These mortgages were put into giant bundles and quickly sold to unwitting buyers overseas before it was discovered that they were made of fake money.
    These fake money schemes invade the country every few decades after the regulations that prevented the last schemes gradually disappear.
    One of our political parties is much in favor of absolutely no governmental regulation of these schemes and the other is in favor of regulation of them. We vote back and forth in favor of regulation and against it.
    It is a giant tennis game played with a giant tennis ball filled with fake money while we citizens watch it bound back and forth. It is America, a lovely place where money is sometimes real and sometimes not.

    • Posted By: Sonny Crockett @ 09/15/2008 5:44:20 PM

      Very well said! Couldn't agree more. The politics injection is such a red herring. We the people vote the tennis ball back and forth as you said. But to ascribe blame or credit to a period of bust or boom to a particular political party is childish and pointless. Some people want Obama to win, some want McCain. Ok, we get it. Everything is not "democrat versus republican". These guys would make the "paper or plastic" debate political. Here's a piece of advice -- constantly demonizing and overplaying one's hand does not lead to persuasive logic.

      • Posted By: olderwiser @ 09/16/2008 10:04:14 AM

        Thank you for the advice, though only a piece. I would rather have had the best part of the advice from which the very small piece was so vindictively torn.

      • Posted By: TheVigil @ 09/15/2008 6:05:27 PM

        Then why are you demonizing the posters you respond to on other threads with haughy, smug sarcasm? You're not any better than anyone else.

    • Posted By: TheVigil @ 09/15/2008 6:03:38 PM

      Yes. Any time you start pushing around pieces of paper with ever-larger numbers on them instead of doing real work - manufacturing, service, etc. - you're going to get a bubble that eventually bursts. Money only works when it serves as a lubricant for trade, goods, and services. When it starts to become the sole focus of an economy, that economy's goods and services are going to be neglected and the underlying *foundation* for the money - actual prosperity - goes to hell in a handbasket.

      The 1920s and the 2000s have a lot in common.

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