Many of the citizens of south east and south central Missouri, as well as the rest of the nation, were outraged by, and rightly so, the Bailout of Wall Street and the big banks when the housing bubble, intentionally created, burst in the fall of 2007. “Too big to fail” became the mantra for the mainstream media and our elected officials instead of self reliance and personal responsibility our nation was built upon. The Wall Street bailout that followed after the big banks and private investment firms effectively destroyed our monetary system was directly responsible for the birth of both the Tea Party and Occupy Wall Street movements. It didn’t take long for the regular folks out there, regardless of their political or ideological leanings to realize that they were being financially led to the slaughterhouse. Average citizens around the country were all left wondering how this was allowed to transpire? Who was responsible? And, how do we fix it? Reasonable questions all, and questions the media and our elected officials have monumentally failed, to date, to provide adequate answers to the people.
The highly overlooked and main factor that contributed to the financial collapse was the repeal of a not too well known act that was put in place after the Great Depression. That act was the Banking Act passed by Congress and signed by then President, Franklin Roosevelt in 1933. The Banking Act was meant to provide solutions to what the expert panelists of the Pecora Commission determined to be the causes that led up to our Great Depression. It contained four provisions within its pages that are more commonly known as the Glass-Steagall Act.
The Glass-Steagall Act was meant to, and did, act as a firewall between the well known dangers of allowing the aspects of investment banking (Wall-Street) to mix in any way with the necessary functioning of the commercial aspects of community banking, such as business payrolls, pension funds, mortgages, small business loans, etc. It was realized then, and has proven to be true today, that when investment banks are allowed to meddle with commercial banking interests there are only two results that inevitably occur. First, that the private interests allowed to engage in this behavior will make tremendous profits in the short term. Secondly, the economic bubble that is created will undoubtedly burst and devastate the economy at some predictable point. Both of which occurred in this case on a scale unimaginable in our nation’s past.
What does all this mean? Well, in 1999 legislation was put forward to remove the barrier that the Glass-Steagall Act provided between these two very distinct and for over half a century, separate, aspects of banking. That legislation was the Gramm-Leach-Bliley Act 1999 passed by Congress and signed by President Bill Clinton. This legislation, as one can imagine, was highly contested in both houses of Congress and voted on in various versions at least three times, just barely passing in one round of the House to move forward to the Senate. After numerous revisions the final Act was passed by Congress, with bipartisan support of 90-8 in the Senate, and 362-57 in the House November 4th, 1999. Why is this important to south east and south central Missourians and how does this relate to Representative Jo Ann Emerson you may ask?
Ms. Emerson, at one point during the various stages of this Act that would repeal the Glass-Steagall Act, was a “swing” vote (as was every Representative) on whether this damaging legislation would pass the House. Had Ms. Emerson or any other Representative, done the right thing at that point and voted against this Act to repeal the provisions that had well protected our commercial banking system since 1933, the Wall Street jackals, insurance companies, and big banks would have been prevented from looting our economy. Like many of her colleagues in Congress, Ms. Emerson failed to heed the volumes of testimony from experts that warned of the effects of the repeal of this legislation. Representative John Dingell is even on the Congressional record stating at the time that should the repeal be passed into law,
the bill would result in banks becoming “too big to fail’ and this would necessarily result in a bailout by the Federal Government.
The claims by the corporate owned media and our elected officials that “no one could have predicted this [complete economic collapse] or could have seen it coming” are patently false. Many did in fact predict this fiasco and saw it coming and managed to put it into the Congressional record as representative Dingell and others. To put this in proper perspective, the repeal of the Glass-Steagall Act, which Ms. Emerson voted in favor of, allowed for the largest theft of real assets to occur in known human history.
Professor William K. Black, currently teaches as an associate professor of economics and law at the University of Missouri-Kansas city. He is the author of The Best Way to Rob a Bank is to Own One and the former government regulator that was able to catch the savings and loan crisis in the 1980s before that scandal completely wrecked our economy. Professor Black, in an interview with Bill Moyers provides the best summary explanation of how this crisis was knowingly engineered and allowed to occur with the complete cooperation of the CEOs of the large banking/insurance interests and those in government like representative Jo Ann Emerson. This interview was recorded in April of 2010 and since then the cooperation and cover-up of the largest scandal and fraud ever perpetrated on the American people continues.
As just witnessed in the interview above, this economic depression was the highly predictable and inevitable outcome of the repeal of the Glass-Steagall provisions. That repeal allowed for the creation of the new exotic financial instruments like the mortgaged backed securities, derivatives, and insurance instruments that still plague our recovery to this day and remain on our books. To add insult to injury after the investment banks and insurance companies, like AIG, were allowed to privatize trillions of dollars in record profits with the complete compliance and assistance of our elected officials once they had completely looted and destroyed our economy they sought and won a highly controversial bailout, as predicted, from our taxpayers. Ms. Emerson actually voted for the bailout twice after it initially failed in the House the first time. In essence for years profits were privatized and losses socialized. This could only happen when a sufficient number of leaders in areas of industry and government both have lost nearly all semblance of personal integrity.
Is it fair to say that Ms. Emerson is completely responsible for our economic collapse? That would be giving her way too much credit in my opinion. It is however fair to say that she and all the members of the House and Senate that knowingly voted for the repeal of Glass-Steagall collectively are responsible. Had any member of the House, during the second phase of revision had the integrity to vote against the adoption of the repeal it is likely the economic meltdown that occurred in the fall of 2007 never would have happened. It is evident that many members of Congress, like Ms. Emerson have completely lost touch with those whom they are supposed to represent and act in what they perceive to be their own best interest and clearly, not that of the People.
That said, what do we do now? To date, every action that has been taken by those entrusted to right our economic ship, have only produced the effect of prolonging our crisis. The Federal Reserve’s policies of negative and artificially low interest rates combined with our government’s solutions of throwing good money after bad via bailouts, stimulus, and the nationalizing of private corporations will not work. Inflating the money supply massively as Fed Chairman Benrnake is fond of with quantitative easing will not work in any form. It never has in human history and it surely won’t in this case. These policies only increase the severity and duration of the crisis and it gets worse every passing day. There is only one correct solution to this problem, which will work. The Federal Reserve and our government consistently refuse to do what is right because to do so is equivalent of giving a child a dose of nasty medicine, but it’s the only way to cure our ills and eventually it must be done whether they or we like it or not.
That solution is to liquidate the bad debt. Congress attempted to sell the bailout to the American people by saying they would use the funds provided to do just that, IE buy up the bad debt. Once the bailout passed however, they did the complete opposite. They used our money to buy up the smaller competition of the big banks. Our money was in essence used to make the banks and investment firms that caused the problem stronger and more powerful. What is still being kept from the American people is that the debt outstanding in the derivative markets and that remains on our books can never and will never be paid. As nearly any business owner can tell you, when an asset ceases to have value, it becomes a liability. The toxic assets in the form of derivatives that we have listed on our books as assets are in the factor of quadrillions of dollars. We did not incur this debt, nor should the people be held responsible for it. It is fake debt accrued through private gambling losses. This is of course separate from our National Debt which is fast approaching 16 trillion dollars on its own.
When faced with a similar situation, but by no means as severe as our own, the country of Iceland did exactly what needed to be done. First, they fired every single elected official, arrested those directly involved, and liquidated the bad debt the banks had amassed without their consent. The people of Iceland struggled for a couple of years and are now back on their feet economically. The story of Iceland is largely ignored by our media, government officials, and large corporations because they were successful. This whole crisis has been and remains to be purposefully engineered in an effort to stifle and subjugate the American people. Those responsible like our representative, Jo Ann Emerson need to be held accountable for their actions if we ever wish to return to any semblance of economic prosperity and stability. To keep the same bad actors in power, whether it is in the big banks, Wall Street firms, or the hallowed halls of Congress, will only serve to perpetuate the crisis they initially engineered and will produce the same results.