Ah, Glass-Steagall Act, we miss you so much
Dear Mr. Berko:
I was listening to a TV journalist interview several prominent economists and fund managers, all of whom indicated that one of the causes of our financial crisis was the Glass-Steagall Act. I have heard similar comments on other occasions since then. What is this act, and how can it contribute to a financial crisis that is this serious?
R.P., Fort Walton Beach, Fla.
Dear R.P.:
Some of us hear but don’t listen, while, sadly, some of the few who do listen don’t hear.
The Glass-Steagall Act (GSA) was passed by Congress in 1933 in the wake of the 1929 stock market crash and in the midst of a nationwide banking collapse and the Great Depression. The GSA erected a “firewall” between investment banking and commercial banking. It ensured that commercial banks like Wells Fargo, JPMorgan Chase, Morgan Stanley, Bank of America and Citigroup stayed out of the investment banking business, while Goldman Sachs, Merrill Lynch, Bear Stearns, Smith Barney and Dean Witter stayed out of the commercial banking business.
Commercial banking activities before GSA were aggressively and destructively speculative. Banks took huge risks aiming for even bigger returns. Their activities became slipshod, and bankers couldn’t care less that they were speculating with their depositors’ funds, which at that time were not insured. They made unsound loans to unsound public companies, purchased their stock and encouraged depositors to buy the same shares. They took enormous risks and failed, creating a run on a banking system that couldn’t pay its depositors. Basically, these banksters aided and abetted the Great Depression.
Sound familiar? But what you heard was that the REPEAL of GSA in 1999 by Congress was the catalyst and continuing fuel that scorched the U.S. economy. Wall Street’s naked greed, its perverted dishonesty, unspeakable hubris and contemptuous management vacuumed trillions of dollars from the pockets of 300 million Americans. Wall Street’s new billionaire and trillionaire banksters should be the candidates for federal prison, not little Martha Stewart, who was jailed in 2004 for making $200,000 on inside information.
In an April 2010 article in Rolling Stone magazine, Matt Taibbi compared Goldman Sachs to a “great vampire squid, wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells of money” – an apt description that also applies to Bank of America, J.P. Morgan and Citigroup.
These Wall Street banksters colluded among themselves and with lesser squids (Wells Fargo, PNC, U.S. Bancorp, Bank of New York Mellon, etc.) to drive up the price of industrial and farm commodities such as oil, wheat, copper, soybeans, aluminum, corn, etc. The trading desks at Goldman, Citigroup, Bank of America and J.P. Morgan made huge profits.
In the process, the real increase in the cost of living (not the government’s risible and wimpy numbers) for the first six months of 2011 averaged 13.7 percent.
Allowing these Wall Street banks to continue feeding their greed is destroying our democracy, our economy, our retirement plans and our freedoms.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or email him at malber@adelphia.net. ©2011 Creators.com
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