I helped work on Gramm Leach Bliley (beginning when it would have been D’Amato Leach Bliley).
I met Rep Jim Leach at the 2000 Republican National Convention while a NY delegate for Senator John McCain. When I met Rep Leach (and I considered that a privilege), after I introduced myself, I asked why didn’t we allow the mix of commerce and banking in repealing Glass Steagall when we ‘passed’ GLB (I missed meeting Senator Phil Gramm and Senator Jessie Helms by the delay in USPS mailing the invitation to me for that function at that event venue in Philadelphia prior to the Convention’s major reason for convening).
Rep Leach said in effect, that if we’d allowed mixing commerce and banking, that large foreign industrial companies like Daimler would have wanted to buy our largest banks, LIKE THAT, A SNAP OF THE FINGERS. My eyes went wide as … and I felt some sort of shock through my system while I looked at him after what he’d said.
He said he didn’t want it, and I agreed I didn’t want that even though I’d researched and analyzed that matter while reviewing what would have breached the founders’ attempts to stop the abuse of power by limiting concentrations of power…
I thought I had it all figured out about what made Ford’s ownership of First Nationwide a marginal operating strategy, and like that, but as if that was OK. Regardless however, what he said had the appropriate shock effect on me.
It was a while before I’d come into a key understanding about what was a root problem of, and reason for the matter that he’d mentioned ie, domestic or large foreign commercial and/or industrial enterprises able to buy our banks. It isn’t only about concentrations of power by size, including Too Big to Fail. ALL DISCUSSION, CONTEMPLATION AND PLAN TO EMBRACE THE PROBLEM OF GOING BACK TO GLASS STEAGALL AND WORTH PUTTING THE TOOTHE PASTE BACK INTO THE TUBE MUST INCLUDE OUR DETERMINATION TO ADDRESS AND AVOID THE ***ABUSE OF POWER***.
But there’s more to it; it’s not that simple to repeal Gramm Leach Bliley and Commodity Futures Modernization Act both which were de-legislating while legitimizing combining banking with investment banking, and writing and trading credit swaps, and derivatives contracts (these obtaining the ‘financial innovation’ nick name, even though that originally meant developing and selling Mortgage and Asset Backed Securities) without any regulatory framework or oversight. Legitimization of writing and trading (making these instruments affected by the levels and direction of the financial markets, and thus enfragilating) credit default swaps (CDS) and derivatives gave balance sheet access to these instruments, as if they were legitimate assets belonging on a bank’s balance sheet, when they are not legitimate assets except that legitimization to trade them gave them access to sleaze into asset class. These as assets on banks’ balance sheets increase fragility on a bank’s balance sheet, while performing loans and other legitimate balance sheet worthy assets (those producing monthly cash flows regardless of the directions of the financial markets) tend to stabilize a bank’s balance sheet.
While I was researching my Public Due Process Comment Letter to the regulators about opposing Basel III, I began to understand another ROOT CAUSE, not only of our long time problems we’ve had in abuse of power and corporate personhood. My research brought me to know WHY THIS MAY HAVE BEEN THE CASE of large foreign commercial ‘national champions’ acquiring our largest banks, had Rep Leach and the others in Congress not taken some aggressive steps against mixing commerce and banking in GLB.
***We have to repeal US signatory status to the GHWB G8 Agreement to which that president committed the US to the germans, although other European countries are also signatories, but they sort of don’t matter. ***
This particular multilateralism by and since him over these 25 years, has been most of the root problem (s) we’ve been experiencing. In effect GHWB agreed to throw the US under the bus to suit german interests to ‘align’ US regulation, and in effect the US corporate pecking orders to suit the germans and the ‘national champions’ in Europe. This is their name for their largest companies that have their cozy interests and power with the countries in which they are domiciled. Like Daimler, or DB. In the case of the Grossbanken, these enjoy huge power over there. Think about DB is doing in Europe, now most of which is under the EU ‘free’ trade/euro currency zone umbrella to advantage Germany over all other sovereigns which have become EU members. This is the design of this multilateral framework.
The way that we could and if we should do a restoration of Glass Steagall is to repeal US signatory status to that which is a root foul of our society, economy and somewhat, our sovereignty. Repealing US signatory status to that G8Agreement gives us some traction against larger foreign companies wanting to buy our banks if we reduce their size, as well as some traction against Germany’s interests to obtain hegemon powers.
This interest and that Agreement are sort of what is a root of the ‘global competition’ concerns by senior management of our largest banks, although I am not certain if they understand what is the reason for why their banks would be vulnerable and also in part why they’ve blown up as well as inflated their balance sheets with these pathetic, gmo of the financial product world, swaps and derivatives.
Rather than go down the rabbit hole on ghwb (scherf) we need to understand what he did in that G8, and which no subsequent president seems to be willing to take on and repeal. That G8Agreement also is why rather than administering our own effective regulation that we had with Prompt Corrective Action from the 1991 FDICIA legislation, we’ve adopted the Basels….I liken basel agreements as in effect what comes out of the research department of the Federal Reserve Bank of NY or the Research division of the Board of Governors of the FRS in DC. BSCS was the research arm of the BIS. see?
On a related matter, another thing to which he agreed in that G8Agreement was to deindustrialize the US so as to not be a ‘trade competitor’ to the germans so that Germany could sort of ‘trade’ itself out of some of the cost of reunification, which he and helmut kohl schemed, and to which Thatcher and Mitterand vigorously opposed. In order to spur management to take production out of the US, it would go into ‘trade liberalization’ ie, with cheap labor, and usually Catholic countries, the US would knock down the Constitution’s Article 1 Section 8 tariff framework against the imports from those countries. This is what is commonly known as ‘free’ trade, but in reality, that is a double speak expression for US self immolation and economic treason.
The swaps and derivatives hide the deleterious impact of the increasingly souring loans/ credits in the weakened developed economies to do loans into scratch dirt/ underdeveloped foreign economies which often were former colonies of our allies. These financial items however and glowingly called ‘financial innovation’ which first was an expression used by people like McKinsey’s Lowell Bryon, to characterized asset backed securities, such as MBS and CLOs, but now is an expression used to pretend these contingent agreements deserve balance sheet access like loans, but not at all with the same properties as loans, which are the banks’ main investment business and are a well worn groove that can be regulated. Meanwhile the derivs and swaps were what were not what should have been legitimized and to TRADE, which Commodity Futures Modernization Act (derivatives) and Gramm Leach Bliley (CDS) both allowed.
These enfragilating items do not belong on the balance sheet and a smoking gun as to a real purpose is found here https://content.markitcdn.com/corporate/Company/Files/MagazineEntireIssue?CMSID=ba45fa8b0ec743eea8e05374bd1a74a0. Ms Fixler said, that in the early 90s, US banks were ‘enlisted’ into finding ways to help Germany deal with the cost of reunification. In knowing that Germany would not be able to obtain direct transfer payments from the US in order to reunify, bush – who had some roots on Wall Street with relatives at Brown Brothers Harriman, and anyway, president that was a part of reuniting a Germany that deserved to have been separated, and should have been left separated, but that the US banks which also operate in Europe as counterparties to large European banks that also would be affected by 1. german reunification and 2, the EU strategy that would be Germany taking over Europe using a ‘free’ trade zone, a same currency and a legal framework that eventually always would advantage Germany, except for the power of the ECB against Germany’s sovereign self interests. Draghi knows this and Germany too, and has to play along with the power of the ECB. Notwithstanding, our banks as counterparties and because from that time, the power of the bushs got the FDIC pushed back while the Fed and ‘financial innovation’ got glorious traction. Those instruments could not trade thank God, except when Ruben, Phil Gramm, Larry Sommers, greenspan and Clinton got the Commodity Futures Modernization Act CFMA2000, against Brooksley Born’s insights and experience – no regulatory framework nor institutional structure existed for these instruments, which were lying off balance sheet, but not in the hundreds of trillions notional they do today.
When that legislation got passed, by 2004, derivs and swaps plumed to more than $400 Trillion notional and without virtually any of the paperwork straightened out. It was while Tim Guithner was NY Fed president that he told banks in that district to get their paper work on those contracts in order. It was because my research on barter, and revenue recognition was somewhat of a spur to bring some attention to this huge looming problem of these contracts, how even when hedged, they’re what’s fragile, because they’re financial market connected, (whereas very little about banks’ balance sheets were financial market connected – before glb there weren’t the ‘margin accounts’ concept that had existed on banks’ balance sheets’ from after FDI Act 1933 to 1998. in 1929, when there were margin accounts on banks’ balance sheets, this was some of the reasons banks failed with the 1929 stock market correction.
This is why CFMA 2000 should be repealed and the part of GLB that legitimized the writing and trading of Credit Default Swaps, that part of GLB should be repealed. Don’t even need a Volcker ‘Act’, rule. Delegitimize instruments which make the balance sheets fragile which until CFMA and GLB weren’t on banks’ balance sheets and didn’t belong there anyway, and this will somewhat help diminish the financial crisis.
The financial crisis isn’t really over. Only because of nearly zero interest rates which has tended to spur action into the institutional financial markets, is there ‘stability’ and an illusion that the pus economy is Ok. Unemployment actually is quite high from deindustrialization and the contraction to which that has contributed. Banks don’t have a healthy economy here or in other developed countries into which to lend. This current admin has been aggressive to heist the ‘numbers’ and manipulate them for disingenuous public dissemination, but it’s in effect to keep eroded the US economy to ‘comply’ with that to which GHWB also agreed – to ‘align’ the US economy with that of in effect Germany, to have no net new job growth probably from when he was in the W/H, and facilitate the ability for foreign ‘national champions’ to have more traction here. that’s why foreign banks could operate in the US without being adequately capitalized, and through the 90s enjoyed a fair amount of Teflon from our regulators.
Repealing Glass Steagall isn’t a bad idea and it is possible to put the tooth paste back into the tube. It is better to repeal CFMA 2000 and unwind the huge books of swaps and derivs when these fragile instruments are delegitimized.
Please feel free to quote me, but do give me attribution.