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In 1999 Congress passed and President Clinton signed the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933.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.
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.