Credit crisis long time coming

Houses must be built on solid foundations. The same is true for housing markets. Unfortunately, the cornerstone of the foundation for the American housing market was slyly removed in 1999.

In 1999 Congress passed and President Clinton signed the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. This change allowed our banks to speculate in securities rather than forcing them to focus on managing risks.

While some will argue that no one forced banks to speculate, human nature and competitive pressures prevailed over common sense.

This speculation hit a fevered pitch in 2003 and 2004 when Federal Reserve Chairman Alan Greenspan held the discount rate far below realistic levels, which shoveled money into the banking system and planted the seeds for the credit crisis we’re seeing today.

This is not a Republican or Democratic problem. It is a total failure on both sides to do what is best for the people of America.

Paul McWilliams
Overland Park

AIG failed because of its investment banking activities, something it wasn’t allowed to do before 1999 under the Glass-Steagall act. Under that act, insurance companies could deal only in insurance, and banks could only be banks. For some $200 million, the banking interests purchased its repeal from our federal legislators.

The Star would doing a great public service by listing prominently the Kansas and Missouri congressman and senators still in office who prostituted themselves back in ’99 — an action our country is paying dearly for now.

Michael Stone
Leawood

Comments

[GCYL]

“Speaking of partisan hacks, Rush Limbo…” - whispering_to_kc

So true. Personally I have serious doubts that he’s intelligent enough to assume waaaaaaay to much of anything.

“He was serious.”

All party hacks are so I’m not surprised by this observation.

[whispering_to_kc]

Speaking of partisan hacks, Rush Limbo declared to the world this morning that Hank Paulson is a Democrat.

He was serious.

If true, Paulson would be the only Dem living in Barrington Hills.

[Stifled Freedom]

"Houses must be built on solid foundations"

Aside from the mortgage bank problems, most houses in KC were not even built upon that. Look in the yellow pages and see how many foundation repair companies are out there.

Most houses built today are thrown up in shoddy construction and use foundation designs that have proven to be inadequate . And yet they continue to use the the old methods.

This legislation and repeal process is continual and has been for decades. Today's bank meltdown will spur new tough regulations that politicians will put on thier resumes. Then, as soon as the law hits the books, the lobbyists will begin chipping away at them every year until there is nothing left. Then banks will overextend and the whole process will repeat itself.

[Casady]

Re the Fox News commentary on the youtube link below: Fannie and Freddie are creations of a democratic congress and the Clinton Whitehouse??? What is that statement all about? Sounds real balanced to me. Statements like that only serve to invalidate the entire commentary.

[pmcw]

It's interesting in this election year to see most posters here want to turn this into a partisan issue. The simple fact is there was WIDE support for the Gramm-Leach-Bliley Act on both sides. In the Senate it got 90% yes votes and in the house 83%; it was also very strongly pushed by Jessie Jackson and Al Sharpton. The message here is that both parties suck and in an effort to avoid you looking too closely at the one you prefer, both parties do all they can to get their supporters to focus on the short-comings of the other side. If you do that and don't look at the whole you're a chump.

Now, while I've got your attention, let's go back a few more years and see where this all started.

In 1977 congress passed and president Carter signed into law the Community Reinvestment Act. This act compelled banks to loan money to prospective borrowers who, under normal evaluations would be turned down. If banks didn't show they were making an obvious effort to back sub-prime loans every quarter, they were attacked by activists and threatened by the government when they next sought regulatory approval.

Now, here's an interesting bit of trivia for you. Phil Gramm tried to get the Community Reinvestment Act repealed in the 1990's, but instead the Democratic controlled congress of 1995 broadened the act to where lending institutions were all but obligated to take on sub-prime lenders.

Sadly, that was not enough. In 1999, as a precondition to supporting the Gramm-Leach-Bliley Act, Democrats insisted the the Community Reinvestment Act be broadened again.

Moving fast forward to 2003, president Bush, which was being pushed by John McCain, tried to initiate legislation to more tightly regulate Fannie and Freddie (McCain was particularly vocal about the potential for future problems if this didn't happen). However, this proposal was blocked by the Democrats in congress.

The bottom line here is there is MUCH more than enough dirt on both sides of the aisle to point fingers very effectively and that's exactly what both sides want their backers to do - "don't look at the man behind the curtain," they cry, "just look at the other guy doing you wrong."

I'm smart enough not to fall for that, are you?

[viet-vet1970]

As usual it didn't take long for the rant wingers to say, "I'm not the father."

Wasn't Congress controlled by the Republicants in 1999? Wasn't it controlled by the GOP up until two years ago? In their decade of control, why didn't THEY revive Glass-Steagall? Simple, the free market was being worshipped like a false god by both Dems and Repubs.

This country has been ruled by unfettered greed before and Teddy Roosevelt had to bust the predatory trusts that resulted.

The secret to success lies in providing enough -- but not TOO much -- regulation of the economy. The failure of the "I've-got-mine" party lies in its knee-jerk devotion to "free" markets where there are no rules to restrain greed and crime.

[Rogue]

http://www.youtube.com/watch?v=usvG-s_Ssb0&feature=email

[whispering_to_kc]

Friday, November 12, 1999.

Sen. Phil Gramm, chairman of the Senate Committee on Banking, Housing and Urban Affairs, made the following statement today in a ceremony at the Eisenhower Executive Office Building, where President Clinton signed the Gramm-Leach-Bliley Act into law:

"The world changes, and Congress and the laws have to change with it.

"Abraham Lincoln used to like to use the analogy that old and outmoded laws need to be changed because it made about as much sense to continue to impose them on people as it did to ask a man to wear the same clothes he did when he was a child.

"In the 1930s, at the trough of the Depression, when Glass-Steagall became law, it was believed that government was the answer. It was believed that stability and growth came from government overriding the functioning of free markets.

"We are here today to repeal Glass-Steagall because we have learned that government is not the answer. We have learned that freedom and competition are the answers. We have learned that we promote economic growth and we promote stability by having competition and freedom.

"I am proud to be here because this is an important bill; it is a deregulatory bill. I believe that that is the wave of the future, and I am awfully proud to have been a part of making it a reality."

[whispering_to_kc]

The "Gramm-Leach-Bliley Act" repealed the "Glass-Steagall Act of 1933" and was signed into law on November 12, 1999.

Senate 90-8-1, House 362-57-15.

http://banking.senate.gov/conf/

Pick yer poison:

http://clerk.house.gov/evs/1999/roll570.xml

http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=106&session=1&vote=00354

Karen McCarthy (in what would become Cleaver's seat) and Ike Skelton voted for it.

Dennis Kucinich stands out as one of the few representatives who voted against it.

Kit Bond, John Ashcroft, Sam Brownback and Pat Roberts all voted for it.

Barbara Boxer, Tom Harkin, Russ Feingold and Paul Wellstone stand out as some of the few senators who voted against it.

Russ Feingold seems to be on the "right" side of every issue.

Strange, but John McCain was the only senator who didn't show up to vote. He must have had "other priorities".

And of course Phil Gramm (long time friend, current McCain economic advisor and one of the bill sponsors) voted "yea". The creature was, after all, Gramm's baby.