You've got that right. I'd make one small revision to your post, though. You put all the blame on Obama. The GOP is largely responsible for gutting the FinReg bill and the Dems are responsible for letting it happen in their rush to get anything out the door. Remember that Gramm-Leach-Bliley was a Republican bill that revoked key parts of Glass-Steagall. Of course, Clinton signed it into law, so Dems are also culpable.
en.wikipedia.org
So at some point, the GOP needs to stop cozying up to Wall Street and do what's right for the American people. And Obama needs to veto bills that don't accomplish anything and send it right back to Congress. If I were a Dem or Obama, I'd highlight the fact the GOP won't let anything substantive pass. It would be a great campaign theme for November. But these Dems are cowards. I saw that in their battle over Health Care reform and in their battle to try to get a hearing on Energy. The minority GOP are bullies and have grande huevos, so they are able to have an outsized impact. Very impressive.
-------------------------------
en.wikipedia.org
Criticism
President Barack Obama believes that the Act directly helped cause the 2007 subprime mortgage financial crisis.[23] Economists Robert Ekelund and Mark Thornton have also criticized the Act as contributing to the crisis. They state that while "in a world regulated by a gold standard, 100% reserve banking, and no FDIC deposit insurance" the Financial Services Modernization Act would have made "perfect sense" as a legitimate act of deregulation, but under the present fiat monetary system it "amounts to corporate welfare for financial institutions and a moral hazard that will make taxpayers pay dearly."[24]
Nobel Prize-winning economist Paul Krugman has called Senator Phil Gramm "the father of the financial crisis" due to his sponsorship of the Act.[25] Nobel Prize-winning economist Joseph Stiglitz has also argued that the Act helped to create the crisis.[26] An article in The Nation has made the same argument.[27]
Contrary to Phil Gramm's claim that "GLB didn't deregulate anything" (see Defense), the GLB Act that he co-authored explicitly exempted security-based swap agreements (a derivative financial product based on another security's value or performance) from regulation by the SEC by amending the Securities Act of 1933, Section 2A, and similarly the Securities Exchange Act of 1934, Section 3A, to read, in part:[28] [29]
1. The definition of "security" in section 2(a)(1) does not include any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act [15 USCS § 78c note]).
2. The Commission is prohibited from registering, or requiring, recommending, or suggesting, the registration under this title of any security-based swap agreement[.] ...
3. The Commission is prohibited from ... promulgating, interpreting, or enforcing rules; or ... issuing orders of general applicability; ... as prophylactic measures against fraud, manipulation, or insider trading with respect to any security-based swap agreement[.]
On April 29, 2010, a conference entitled "Gramm-Leach-Bliley at Ten: Financial Reform or Fuel for the Crisis?" was held at Suffolk University Law School. A panel of legal scholars and economists discussed the first ten years of the Gramm-Leach-Bliley Act and debated its role in the Financial crisis of 2007–2010.[30]
Defense
Critics of the legislation feared that, with the allowance for mergers between investment and commercial banks, GLBA allowed the newly-merged banks to take on riskier investments while at the same time removing any requirements to maintain enough equity, exposing the assets of its banking customers. [31] Yet, prior to the passage of GLBA in 1999, investment banks were already capable of holding and trading the very financial assets claimed to be the cause of the mortgage crisis, and were also already able to keep their books as they had.[31] Also, greater access to investment capital as many investment banks went public on the market explains the shift in their holdings to trading portfolios.[31] After GLBA passed, most investment banks did not merge with depository commercial banks. In fact, the few banks that did merge weathered the crisis better than those that did not.[31]
In response to criticism of his signing the bill when President, Bill Clinton said in 2008:
"I don't see that signing that bill had anything to do with the current crisis. Indeed, one of the things that has helped stabilize the current situation as much as it has is the purchase of Merrill Lynch by Bank of America, which was much smoother than it would have been if I hadn't signed that bill.... On the Glass-Steagall thing, like I said, if you could demonstrate to me that it was a mistake, I'd be glad to look at the evidence." [32]
In February 2009, one of the act's co-authors, former Senator Phil Gramm, wrote in its defense that:
"...if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified.
" Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB." [33]
The economists Brad DeLong (of the University of California, Berkeley) and Tyler Cowen (of George Mason University in Virginia) have both argued that the Gramm-Leach-Bliley Act softened the impact of the crisis.[34] Atlantic Monthly columnist Megan McArdle has argued that if the act was "part of the problem, it would be the commercial banks, not the investment banks, that were in trouble" and repeal would not have helped the situation.[35] An article in National Review has made the same argument, calling liberal allegations about the Act “folk economics.”[36]
[edit]The Financial Reform Bill
A partial correction of this act's most controversial aspects, often called the Volcker Rule, has been dropped from the new legislation. |
