Saundra McDavid

Our Country learned a valuable lesson after the Great Depression; a lesson which the children of those leaders quickly forgot in their quest for power and greed. Now we find ourselves once again facing the collapse of our financial markets, the responsibility of which lies directly on the shoulders of our elected representatives.

After the fall of the stock markets in the 1930’s a new policy was implemented, the Glass-Steagall Act, which separated our mortgage institutions from our investment banks and thus separated our banks from the stock market.   It prevented a commercial bank from owing a brokerage and was an effort to eliminate the affects of speculation and conflicts of interest.

But we forgot.  We defined the “American Dream” as including owning your own home.  And we became enraged because banks were deemed too conservative with their money and everyone didn’t qualify for a home loan.  So in 1977 Congress passed and President Carter signed into law the Community Reinvestment Act, which eliminated “red-lining” and required banks to grant mortgages on all properties within their service area.  In 1995 Congress passed and President Clinton signed into law an amendment to the CRA, which  forced banks to grant loans to those who had previously not qualified due to their net worth, income and credit histories. And so became the “sub-prime” loan.

And it didn’t stop there.  Greed kicked in.  Those huge banking, insurance and brokerage institutions wanted to become colossal and they grouped together to purchase a repeal of the Glass-Steagall Act.  In 1997 and 1998 alone, the three industries spent over $300 million on the lobbying effort, contributing massive amounts to the campaigns of candidates of both parties.

In 1998 Citibank leader Sandy Weill merged his company with Travelers to form Citigroup.  This merger was a blatant violation of the Glass-Steagall Act, and an indication that our legislative and executive branch of government had been bought. 

Not surprisingly then, in 1999, President Clinton signed into law with the support of Alan Greenspan, Senator Phil Gramm and both sides of Congress the Gramm-Leach-Bliley Act, (also known as the Financial Services Modernization Act) which allowed the merger of financial, lending and insurance institutions.  Critics at the time warned that allowing the combination of commercial banking with other industries might result in costly Federal bailouts. 

In 2000 President Clinton signed into law the Commodity Futures Modernization Act.  This act was lobbied for by Enron and sponsored by Senator Phil Gramm, who slid in the 262 page Act during the last minute negotiations of a $384-billion omnibus spending bill. The Act excluded Enron’s energy futures contracts from government oversight.  In addition, it legalized mortgage swaps where the company writing a mortgage packaged it up and sold it to a third party.  This encouraged lending institutions to grant questionable mortgages, sell them, and laugh all the way to the bank.  Mortgage brokers became wealthy.  The real estate market became wealthy.  Banks used these sub-prime loan packages as collateral for other investments.  And it was all unregulated.

And guess what happened?

Robert Rubin left his role as Treasury Secretary under the Clinton Administration to take a multi-million dollar job at Citigroup.  Citigroup has since written off over $18 billion in sub-prime mortgages and is exposed to $33 billion.

Phil Gramm left the Senate to take a multi-million dollar job at Swiss bank UBS and is lobbying for even more deregulation.  Shortly after the passage of the Gramm-Leach-Bliley Act UBS purchased brokerage PaineWebber Group. It has since written off over $37 billion in sub-prime debt.  Wendy Gramm, the wife of Phil Gramm, served on the Enron board.

McCain has included Gramm as his economic advisor during the campaign however he is not listed on the Leadership Team on McCain’s website.  Rumors are that McCain intends to install Gramm as Treasury Secretary should McCain win the election, however McCain has denied this.  Among Obamma’s largest contributors is Swiss Bank UBS.  Both of candidates need to assure the American voters that they will fight the self interest that runs rampant in Washington.     

This week Congress will be tasked with creating a plan to bail out our financial institutions.  These institutions became too big and too greedy, and both sides of Congress have, over the last eight years, failed the people who elected them to office.  The $700 billion that President Bush has offered for the bail out is money taken from the American taxpayers.  It’s our money.  

As a Republican I agree with the principle of less government and thus less regulation.  However if the U.S. taxpayers are going to be forced to foot the bill for insuring deposits, or bailing out an industry that fails, that industry needs to be regulated.   To have repealed a law that was passed as a direct result of a previous financial disaster was irresponsible and an example of what is wrong with our elected representatives.