Rachel Maddow Show: Deregulation for Dummies
By Heather Sunday Mar 22, 2009 8:30am
You Tube (entire segment)
Rachel Maddow reminds all of us just what got us to where we are in the first place with this financial crisis. Deregulation.
For anyone who would care enough to know (and be completely disgusted with) just how big of a mess we're actually in, go read Matt Taibbi's latest article for Rolling Stone: "The Big Takeover: The global economic crisis isn't about money - it's about power. How Wall Street insiders are using the bailout to stage a revolution".
Maddow: There would be no outrage about AIG's bonuses if AIG hadn't needed bailing out, right? I mean sure people get mad at fat cats with high salaries when everyone else is broke. But it's the fact that this company was using our money, taxpayers money to pay those bonuses that caused the entire country to grind our teeth down their nub ends to rage at these guys.
So there would be no outrage about AIG turning taxpayer bailout dollars into executive bonuses if there hadn't been a bailout. AIG wouldn't have needed bailing out if it weren't too big to fail, too integral to all these other parts of the financial industries. AIG wouldn't have become too big to fail if they hadn't become a big hybrid complicated uber-financial everything company that made all sorts of arcane financially engineered moves that got them squirreled into every kind of financial related business that you can think of.
AIG wouldn't have become a big hybrid complicated uber-financial everything company if there hadn't been, and this is key, deregulation of Wall Street that allowed firms to get like that. And massive deregulation of Wall Street wouldn't have happened without the rise of a political movement that preached that regulation was inherntly evil and deregulation was inherently wise and virtuous and would make everyone rich and it would be free well behaved puppies for every family.
Do you want an example of how this deregulation thing worked? You can totally use this at the high school dance or a bar or whatever to try to impress someone. Somebody starts complaining about the bailout. Complaining about AIG. You tell them actually the real villain here is Gramm-Leach-Bliley. Just say it with total confidence. Watch. You will get dates.
Here's how to explain it. The Gramm-Leach-Bliley Act of 1999 was introduced by three Republicans, Gramm, Leach and Bliley. It repealed the wall that had been put up in the Great Depression. A wall that kept investment banks separate from commercial banks, separate from insurance firms and so on. When that wall got torn down we ended up with big hybrid complicated uber-financial everything companies that we couldn't have had before. That's how Citibank ended up eating Travelers Group Insurance to change from Citibank into Citigroup which just happened to be completely impossible to regulate. All of the sudden these new uber-giant complicated hybrid firms the Wall Street cops, the regulators, they were essentially still on horse back while the robbers, the guys trying to get away with anything to make a buck, they were in space ships. So we had robbers in space ships and cops on horse back.
Alright so if talking about Gramm-Leach-Bliley doesn't get you a date or at least admiring glances from your peers, drop one of these on them. The Commodity Futures Modernization Act of 2000. That one said that certain things that financial companies do to spread their risk around, to keep their balance sheets looking good even when they're making hugely risky deals. These are things like credit default swaps and collateralized debt obligations. You've heard these terms right?
This legislation decided that those things, those risk hiding things would be completely exempt from regulation. Completely exempt. They would not be regulated. So from a cops and robbers perspective that's like saying okay now it's legal to wear a ski mask and carry a gun inside a bank. Oh and driving a get-away car is legal now too. How'd you like to be a cop in that town? Deregulation laws like Gramm-Leach-Bliley and The Commodities Futures Modernization Act, these were pushed as great ideas to get the horrible burden of government regulation off of Wall Street. The horrible burden of regulation was lifted off of Wall Street and then Wall Street proceeded to self destruct. Now it's time to start over. And maybe this time avoid the same mistakes.
She goes on to talk to David Cay Johnston, author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With the Bill. The one thing this segment was missing was any discussion of Enron and the damage done to the economy when yet another wonderful Republican idea came to fruition. Deregulate those utility industries and everything will be just grand. Well we see how that worked out.
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Just to put this conservative argument out to pasture ONCE AND FOR ALL, show me PROOF that this financial crisis had nothing to do with Barney Frank demanding mortgages for poor black people who could not afford them.
I don't think that is why we are in this mess but MANY people do.
And to be honest, this whole thing is over my head and my level of understanding.
While I don't have the actual numbers, the suggestion that the mortgage market was SO top-heavy with mortgages to "poor" people with inadequate incomes is primarily (or even greatly) responsible for the collapse of the mortgage industry shows a lack of understanding of the scope of the failure too vast to explain.
And in layman's terms?
To break it down:
During the 2000 election campaign, candidates Bush & Cheney talked the economy into a recession. We were already struggling before 9/11.
Then, when 9/11 happened, the Bush Administration tried to promote spending and revive the economy by cutting interest rates to a DANGEROUSLY low level (0.25%). Interest rates are a delicate balancing act because you need to keep them low enough to promote spending, yet high enough to attract foreign countries into loaning us money to make up for the shortfall in tax revenue needed to run the government. And Bush's massive tax cuts for the rich made the problem worse.
So, with these low interest rates and deregulation, banks starting giving out loans like candy. Mostly to the middle-class, not "poor".
But, as I note above, we need higher interest rates to attract funding to run the government. They raised rates when the economy was still weak, peoples mortgages went up and started defaulting. Banks losing money stopped lending to businesses, that then laid people off, creating unemployment that mean more bankruptcies, etc.
Search my blog for a more detailed explanation.
In addition, as per Bill Moyer's Journal, the rich boys discovered that although the poor lack money individually, as a group there was a lot to be made. So there was a explosion of check cashing businesses, rent to own (where they end up paying more than the item is worth), and of course sub-prime loan mortgages.
The problem was middle-class homeowners, stretched by stagnant wages, increasing costs of tuition and health care, borrowed money on these terms too by using their houses as collateral, and are now losing their houses to forclosure (thanks in part to bankruptcy "reform.")
It's easy to sell a mortgage to someone who you KNOW cannot pay it when you are going to lump that bad mortgage in with thousands of others and sell them to another bank.
And Joe Biden was one of the main sponsors of the bankruptcy reform bill of 2005.
Here in a report from Elizabeth Laderman and Carolina Reid, both holding PHDs and researching for the Federal Reserve Bank of San Francisco.
Here from 12/03/08 Federal Reserve Governor Randall S. Kroszner:
That's always extra-difficult to do. Shouldn't the burden of proof instead be on the people who assert that mortgages for poor people caused the mess?
for breaking it down for us. And I simply cannot stand to look at a picture of Phil Gramm, than man is made all the more ugly by calling American's "whiners" after we suffered from his decision making. I hope he and his friends rot in Hell (a special debtor's wing).
When I see great simple explanations like this, I wonder why I even bother to do a weekly blog. :)
Re: AIG Sues Feds For Return of Tax Payments
Fri, 03/20/2009 - 12:31 — Truth_Critic
Do ya think a similar scheme was envisioned with regard to the historical Citicorp - Travelers Group partnership?
Re: "Citigroup was formed on October 8, 1998, following the $140 billion merger of Citicorp and Travelers Group to create the world's largest financial services organization."
>>> http://en.wikipedia.org/wiki/Citigroup
It's funny how...
Fri, 03/20/2009 - 21:40 — Truth_Critic
The "Rachel Maddow Show" talked about this same issue tonight. :-)
http://crooksandliars.com/susie-madrak/aig-su...
Easily the best thing to come out of Castro Valley Ca.
I think Ronnie Ray-gun needs to bear about 99% of the burden for most deregulation in government, course both Bushboys and Clinton didn't help at all.
If you have ever heard Tom Hartman on de radio, he had most of all the dates and people involved that lead to deregulation, and he repeats it offten, perhaps maybe too often, but he lays it onto the man from Bedtime for bonzo.
I remember a Tommy Maddox, he played QB at UCLA and was drafted by the Broncos but ended up a bust
He did have one decent year at Pittsburgh IIRC.
A little off-topic though(!)
I was living in Colorado when he was drafted. He should have stayed in school. And here is a great trivia question:
Q: Who was the only MVP of the XFL in its lone season?
A: Tommy Maddox
According to Ex COP Mike Rupert: You deposit $10,001 then you are automatically investigated by the FBI, but IF you own a WALL STREET COMPANY, you are free to deposit as much as you like. No question asked.
So at least during the 90s they were some wall street- Drug Money Laundered because of this:
http://www.youtube.com/watch?v=4t3pl5Wxgyg
The question is. Are they still doing it?
I think that we need to recognize that these kinds of abuses and excesses are a feature, not a bug, of unregulated capitalism. Any reading of 19th and early 20th century economic history shows they were routine. The relatively strict regulatory framework established in the early 20th century, and aggressively dismantled by conservatives since 1980, were designed to keep capitalism functioning after it had repeatedly strangled on its own fetid excesses.
Boy, those clips sum up the matter quite nicely. I think I'll download and save these clips.
Now, to see if data driven policy will ensue, or whether we're going to still get ideology driven policy. The data certainly points to repealing the Commodity Futures Modernization Act and the Gramm-Leach-Bliley Act and reinstating the depression era laws that kept our financial system out of trouble. I gotta say, I hear a little too much financial ideology out of Geithner. I hope I'm wrong, but I wonder if Obama has hitched his wagon to the wrong horse.
Democracy now.
"Perp Walks Instead of Bonuses”: Veteran Journalist Robert Scheer on AIG Bonuses, the “Backdoor Bailout” and Why Obama Should Fire Geithner, Summers
http://www.democracynow.org/shows/2009/3/19
Blodget on Geithner.
Just watched the Democracy Now clip, and it does seem that Geithner is part of the problem. To sum it up, we're leaving to Wall Street to clean up the problem that Wall Street created, and they want this clean up to happen with their ideological financial policies intact.
But Obama himself is somewhat a corporate Democrat. Doesn't want national health care even though the data points out that it's substantially cheaper. He doesn't want to end America's empire on his watch, even as the data shows we spend 50¢ of every dollar spent in the world on military expenses.
The one big area that the ideologues cling to their theory is in free trade. What policies has turned America from being the world's largest creditor nation into the world's largest debtor nation and has produced trade deficit after trade deficit since its inception. Yep, this NAFTA and WTO business. Like deregulation, the data indicates the policy isn't working, and moreover is helping the middle class to disintegrate. You don't have to be a Rhodes scholar to realize that if America wants to compete with the 3rd world, we need to give up our health care and start living in tents. But free trade has its short term benefits - our corporate masters can record greater profits.
We don't need people clinging to their ideologies making policy - instead, we need data driven policy. This deregulation has been a disaster. And I agree with the Democracy Now clip, AIG should be allowed to fail. I never supported bailing out the derivatives - I only support bailing out the collateralized mortgages. However, it seems the policy of the Fed is to print money to pay off the derivative based ponzi scheme.
I wish Rachel would have Dennis Kucinich on, he is the head of Tarp fund oversight. I wish C&L would use some of them Kucinich videos and write stories about things like 8 billion behind loaned to China, even tho we do owe them.
http://kucinich.us/index.php
I wasn't a fan of Kucinich for President as I know many here were, but I respect him highly as a congressman and I do recall that he was on the forefront of this whole issue perhaps more than anyone else during the 2008 campaign, even before the financial meltdown occurred in the fall. I didn't even know he was the head of TARP oversight. Why don't I know that? Probably because I have not seen nor heard any mention of him in the MSM for months. He deserves to be heard on this issue!
Maddow does a great job of simplifying the mess.
The Taibbi article brings us up to date how we got into this mess, with considerably more detail than the Maddow clip.
Now read Paul Krugman: Despair Over Financial Policy. He explains why Obama's financial policy won't work.
The ONLY solution is Receivership by the US Government, also known as Temporary Nationalization, to break these mega-firms into their component parts, re-regulate each of them, and then spin them off as private entities when they are healthy again. That is the Swedish Solution Krugman advocates.
I recommend James K. Galbraith's book 'Predator State' as a more expansive but similar thread to Matt Taibbi.
As Maddow points out, AIG bonuses aren't the problem, just a symptom. Unfortunately, derivative swaps are too complicated, so the media focus on the bonuses, which are easy to understand. But the Republican messaging machine is taking advantage of this. Without having seen the Sunday talk shows, I'm sure the GOP message was, "who is to blame for this whole mess, Geithner or Dodd?" And the media lap it up.
the responsible ones, and partially exonerates--or at least deflects attention from--the totally, wholly, thoroughly, rottenly, filthily, abysmally, irredeemably CORRUPT SYSTEM...
On its own assumptions, capitalism cannot help but be a fetid, oozing sump of corruption and venality.
But if you can find scapegoats--AIG bonus babies, e.g.--and toss a few bones to the proles (that meaningless, illegal, farcical tax bill?) to make 'em think the Elite are actually doing something, then you can proceed with the wholesale looting on that far vaster scale.
I got an old pal, usta be the mayor of santa fe, sez there's never any reason to retire from politics broke...
Phil Gramm's Ugly Mug - I'm reminded of how much fun we would have had dealing with this whole stinkin' mess if Mr. "McGoo" McCain was actually the president.....???!!
I'm not convinced Obama and his team are exactly doing all the right things for us, but I'm sure as hell glad I don't have to hear McGoo stuttering through economic explanations, or listen to slimy Phil's solutions....to make UBS richer....YUK!
Reagan , the Republican's God was a nightmare , his trickle down ( piss on you ) economics , deregulation and " government is thee problem " ideology was the beginning and a sure path right to where we are today , others including Clinton and the Dems contributed alright but Reagan and the Repugs were the seed . There's plenty of blame to go round , absolute corruption on both sides but it's the greed party who really did us in , but even now the administration and the whores in DC are more concerned about the bankers and Wall Street than the country and and the people , all they are doing is pouring money into a virtual sieve at our own peril , in other words it's the same old shit . I fear Krugman will be proven absolutely correct.
The architects of this economic collapse were Bill Clinton and Al Gore. They were the chief advocates of NAFTA and the repeal of Glass-Steagall - i.e., the direct sources of the collapse - and they deserve to be called out on that. While it might be true that a Republican President also would've signed these bills into law, it's dishonest to act as if they were actually signed by a Republican President.
The problem we have now of course is that we have a Democrat in the WH who sees himself as Bill Clinton, Part 2. Not only does he refuse to accept the failures of the Clinton administration, he's surrounded himself with the very neo-liberal elitists who came up with these inane de-regulation schemes.
That freequark is just another delusional republiscum who does not know that then Senator Phil Graham was responsibel for the deregulation of banks in the republiscum controlled congress in 1999.
I've never voted for a Republican and there is virtually no aspect of the GOP agenda that I support. My criticism of Dems is in fact due to the Democratic Party's adoption of Republican economics. If you recall, Bill Clinton and Al Gore were the founders of the *New Democrat* movement, the goal of which was to make the Democratic Party closer to the GOP on economic issues. Are you suggesting then we should just ignore that these de-regulation schemes were promoted and signed into law by a Democratic administration?
It is in German, but it has English subtitles, its extremely illuminating.
http://www.youtube.com/watch?v=bNmcf4Y3lGM
Go to ushomeauction.com enter ZIP code 90042 [my Zip] and see what has happened.
No one speaks of real estate agents/companies who have been driving prices up over the years with nothing else to go on that similar homes have recently sold for $x thousands, therefore for this one we'll ask for $x thousands more.
That's hilarious.
to pay the bonuses. That may be true, but there is more to the story.
I have said it before, and I say it again: "Greed is the father of Capitalism".
Not that I am against capitalism. It is good and serves a purpose, but not in areas that are essential to the well-being of the population.
We already have Social Security and Medicare. Post office, Military and Law Enforcement, and others. To this we need to add Healthcare and Banking.
It is not that only bonuses are getting paid by the taxpayer [I have no idea when that would happen, considering this debt is piggy-backed to an already $10T national debt - so what difference does it make?], those outrageous salaries and perks these creeps enjoyed are also extracted from 'We the People'.
Finance and Healthcare should be non-profit entities, run by the government, and the claim that the government can't run anything is just plain wrong. The government already runs the Post Office, the most efficient in the world and also one of the least expensive. They run the military, law enforcement, Medicare, Social Security {The idiot Michael Steele said that the government has NEVER created a single job] and even though there are occasional problems - in a work force of millions - I have never heard the government-employer causing what the financial sector has caused. And AIG and 'them' claim that they have to pay out millions to retain competent people? Competent at what? If the goal was 'sinking the economy' they were spectacularly effective.
by David Corn on Gramm's shenanigans. Gramm moved on to peddle his wares at UBS and things didn't work out so well for them either.
"Hey, you forgot Enron!"
freequark,
Congress would have overridden Clinton's veto. He knew it. But he's still an accompliss, yet not the architect.
Both Houses of Congress are controlled by the Democrats, but there's no way NAFTA will be overturned, and probably not even GLB. Obama won't even support taxing the AIG bonuses. Of course the Ivy League liberal intelligentsia are burning the midnight oil trying to find ways to blame the GOP for what is essentially a failure of the *New Democrat* movement.
The analogy to traffic laws is flawed.
Traffic laws don't make us safer, they tell us who to blame when something goes wrong.
If you took all the traffic lights and stop signs down tomorrow, roads would be as safe or safer (people would be more cautious because now they are responsible for their own safety.)
The problems would arise when some idiot(s) started blasting through intersections without looking. Since there were no laws specifically prohibiting that behavior, there would be no legal basis to assign blame to him (or his insurance company).
Also, people would moderate their driving behavior if they knew that they alone were responsible for their own safety.
Translated to finance, it's not that these "TLTF" companies needed regulation, per se, it's that the lack of regulation COUPLED WITH THE FACT THAT THEY KNEW THEY COULD EXPECT A BAILOUT that caused them to take such big risks. If there were REAL (not crony) capitalism in this country, there would be no need for regulation, as any company that took on excessive risk (ie DEBT -- another four-letter word) would not have anything to fall back on if it failed.
So the problem isn't the lack of regulation (they just weasel around that anyway), it's the lack of regulation PLUS the expectation of bailouts and "stimulus" and "quantitive easing" when things go wrong.
Also, I am not against regulation -- I think honest businessmen feel it makes the playing field level -- I just think that we also need to make it clear that we are NOT going to bail people out when they fail, and um, really mean it this time. Really.
“I just think that we also need to make it clear that we are NOT going to bail people out when they fail, and um, really mean it this time. Really.”
I think that would require regulation so that no institution becomes "too big to fail". Prior to Gramm-Leach-Bliley Act, insurance, banks and investment firms were kept separate by regulation.
In any event, we had a model that worked for decades, and would have continued working. I got this thing about when something isn't broke, don't fix it.
In resolving the problem, I got this thing where, if it is known what does work, then adapt that approach. In this case, it means getting rid of the Gramm-Leach-Bliley Act and perhaps the Commodity Futures Modernization Act of 2000. We definitely need to get rid of this "too big to fail" malarkey.
Nobody would get "TBTF" if they all feared real consequences for failure (like Hari Kari, per Sen Grassley:-). Under real capitalism, nimble smaller players would be able to outflank or out-innovate any entrenched entity who approached that kind of hegemony. And if a large institution ever did get "TBTF", and they DID fail, then their failure would bring joy to their smaller competitors, who would happily step into the void to fill the roles once performed by the former behemoth.
But in the absence of "real" capitalism, bringing back Glass-Steagall is a not bad idea.
Did anyone, Barney Frank included, ever suggest that any people, regardless of color, be given mortgages they could not afford? Those who granted the mortgages made money on them, regardless of whether or not they were paid back ever. There is the simplified truth about that false argument.
the brokers did just that. Scammed the unsophisticated (regardless of their skin-color or financial condition)into signing up for new-fangled, complicated, "debt instruments," then they ran off with their commissions, not caring what happens when the folks can't pay.
Then the rest of the crimes continued when the mortgages were bundled, sold off, re-rated by con-artists at the rating companies, and sold again, then bet on by the crooks with their CDOs and CDSs and what-not.
But no, all we hear about is how the poor people brought down this economy. What a load of Crap!
Another truth on that false argument is, if the obligation to lend was foisted on the banks by Barney Frank and the democrats, and no one in their right mind would lend, absent the legal obligation to do so, then how did the securities containing these bundled mortgages get the grade of "AAA" from the rating agencies?
That rating is the reason mortgage originators couldn't lend fast enough. That "AAA" rating allowed the securities to be sold to investors for more than they were worth. There used to be a law, "defrauding investors" which now becomes "fooling investors". Kinda like tourture isn't torture anymore if it is retitled "enhanced interrogation techniques".
There may be no laws against the derivatives, but last I knew, conspiracy to defraud was still on the books, which would cover the "AAA" rating given to the mortgage backed securities.
Let's rename one of the ringleader of this mess, the prick who helped write the laws:
Phil Smash-And-Gramm, because he and others broke the rules and tried to get away with as much as they could without getting caught.
No one forced Democrats to vote for GLB or NAFTA, and no one forced Bill Clinton to sign these bills.
We've always known Republicans were greedy old businessmen, but the Democrats betrayed their own consitutents, and to me, treachery is worse than simple greed.
We've been voting for the lesser of the two evils, and the Democrats have been the lesser evil. Doesn't change the fact that they're corporate owned. At least, in the Democratic primary, we had the choice of non-corporate owned candidates, such as Kucinich.
The Dems went all business friendly in an attempt to regain power, and the lobbyists were only too happy to help them out, and in the process cover all the bases.
In Bill's defense, he didn't have an opportunity to VETO the GLB Act because Congress had VETO-PROOF numbers. He was already a lame duck by then, if you recall, having been impeached over lying about sexual relations with an intern. Grave matters, indeed.
I'm not certain how many Dems voted for it or against it, but the House and Senate were both soundly controlled by Republicans at the time. I'm certain you're right, though. A good number of Dems must have approved it.
With Obama getting much of his financing from the public, why not pass serious campaign finance reform. I'm sure he'll be fought tooth and nail, but if he takes his case to the public, he will not fail.
Obama can't even bring himself to support taxing the AIG bonuses, you really believe he's going to support serious campaign finance reform, single payer healthcare, etc.?
Look at the people in his administration. They're the same Ivy League corporatists who 10 years ago were out there advocating GLB, NAFTA, and other de-regulation schemes. They obviously haven't changed their minds on economics, and given that Obama brought these people in and is fully supportive of their ideas, the *change we need* slogan now seems like nothing but a cruel joke.
Some people are calling for Obama to bring in Paul Krugman, who sounds somewhat progressive, but is in actuality just another Ivy League elitist and supporter of NAFTA. It says a lot I think that Obama thinks someone like Paul Krugman is too far to the left to be part of his administration.
The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more "business-friendly." Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for. In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn't going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?
In 1997 and 1998, the years leading up to the passage of Phil Gramm's fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone — then the chairman of the Senate Banking Committee — collected $2.6 million in only five years. The law passed 90-8 in the Senate, with the support of 38 Democrats, including some names that might surprise you: Joe Biden, John Kerry, Tom Daschle, Dick Durbin, even John Edwards.
These two passages from the Taibbi article pretty well show the corruption that is american politics; a road paved by republicans. If the dems hadn't gotten in the game then they would have been steam rolled and the shit would have still been shoveled down our throats at an accelerated pace. And when it blew up the republicans and the corporate media would still figure a way out to asign blame to the dems.
... how those contracts were worded that gave these people their bonus. If all the contracts stated that if the execs stayed on until a certain date, and they did in fact stay on until then, they would be entitled to their bonus assuming that they had the money. If there were other requirements that they did not complet, then no bonus.
But then there is a requirement that both, or all parties to a contract benefit from it. My question would be if just being there for a year [or whatever term] could be considered a benefit, since all employees are required to be there to just simply get paid. No quantitative nor qualitative requirements?
"Gramm-Leach-Bliley. Just say it with total confidence. Watch. You will get dates."
I don't know Rachel I tried using that line last year late summer/early fall at Crooks and Liars and on my members of Congress and all I got was silence.
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