Red Queen’s Race

I was amused this morning listening to the Market Report on NPR when I heard a commentator suggest that it “may be time to dust off the Glass-Steagall Act” to deal with the ongoing banking fiascoes which have caused us naught but grief since…

Well, this time around since 2008, but frankly since about 1982 when the first of a long series of financial sector deregulatory actions began under the misguided assumptions of Reaganomics and the hypnotic appeal of the Laffer Curve.

Don’t know what the Laffer Curve is?  Well, it was the brainchild of a man named Arthur Laffer, an economist, who came up with it and presented originally to President Ford.  Basically, he made a graph that showed a line of tax rates between 0 and 100 and how revenues would rise on the left side of the curve as tax rates were lowered in descending order toward zero and would likewise diminish on the right side as tax rates increased.  We’re talking tax revenue, now.  This was the basis for the whole “cut taxes and increase tax revenue” faith that has been the core of conservative policy ever since Reagan adopted it with a convert’s enthusiasm.  This is also what Reagan’s vice president, George H.W. Bush, called “Voodoo Economics.”

Bush Sr. was right.  There is a certain short term applicability to the Curve, but it fails to take into consideration many factors which have all subsequently made it, er, laughable.  After 32 years we can just look at the numbers and see that it flat out does not do what was promised and it has cost us.

But my word it was appealing!  What politician doesn’t want to be able to run on a lower taxes platform?  And to then assert that lowering taxes will automatically increase government revenues?  Why, that’s just icing on the cake!

Very simply, in combination with the fervor for deregulation, supply side has cost the working and middle class dearly.  Trickle down economics does not benefit those who cannot afford to play in the big leagues.

And frankly, I don’t think it works at the top level, either, because, clearly, if it did, the big banks would not have needed bailing out.

Glass-Steagall was a suite of four laws put in place in the 1930s that, among other things, separated the functions of banking and put a firewall between investment banking and regular, pedestrian commercial banking.  The reasoning was very simple.  Investment banking, no matter how you dress it up, is gambling.  It’s placing a bet on the success of markets and industries.  When things go well, the pay off is huge.  But when they don’t, the cost is equally large.  Glass-Steagall, among other things, said that a bank could gamble, but not with regular client money.  Namely, yours and mine, in a savings or checking account.  They can’t use our money to back their bets.

That’s how the great stock market crash of ’29 happened which ushered in the Great Depression.  Banks and other institutions gambled with everybody’s money, they had too little in reserve, and there was no safety net to stop their fall.  Everyone paid.

In the fever to increase profits in the 80s and 90s, Glass-Steagall was repealed, the firewall was taken down, and 2008 happened.

Except this time the federal government was there to catch the falling banks before they crashed on the pavement.  Everyone is bitching about Obama spending a lot of money, but this is where a lot of it went, and frankly if he had not, we’d be in a worse fix than we are.

Reinstating Glass-Steagall should have been the first thing Congress proposed.  Instead we have the rather awkward and not nearly as effective Dodd-Frank Bill.  The reason no one proposed reinstating Glass-Steagall is simple—big money doesn’t want it and they’ve spent a lot of money to make sure it doesn’t happen.

Why? Because they’re high-rollers and the only way for them to sustain themselves is by continuing to play.  Glass-Steagall would remove from their access a huge pool of capital with which to gamble.

Our capital.

It amazes me that so many people seem not to grasp this.  We have tried supply-side economics for three decades, both Republican and Democrat (Clinton signed the repeal of Glass-Steagall) and the result has been a tremendous boon to people with a lot of money and a slow disaster for everyone else.  We have somehow been convinced that reinstating regulations that worked very well for 60 years will result in people who have lost losing even more.  They’re willing to back the supposed “rights” of people who have been leaching off the common wealth of the United States for thirty years at the expense of workers, the middle class, and the common good, because they’ve been traumatized by slogans which explain nothing.

I was surprised to hear someone actually say the words, “reinstate Glass-Steagall.”  I agree, it should have been done in 2009 or 2010.  I doubt it will be, at least not in the near future.

I propose a new slogan.  Back in the 1960s and ’70s there was a popular phrase, a bumper sticker slogan, that declared “Federal Aid Hell, It’s Our Money!”  How about  “Private Capital Hell, It’s Our Money!”

The banks are too big.  They cannot sustain themselves.  The only way they can is by pillaging the general wealth.  They need to be broken up and the quite different functions of investment and commercial banking need to be separate again.  We’re running faster and faster in a Red Queen’s Race and soon our legs are going to give out.  Stop voting to give all our money to those who have shown repeatedly that they have no interest in the well-being of this country.  Looking out for the needs and desires of shareholders is not the same as looking out for the security of all the people.

One thought on “Red Queen’s Race

  1. This is an excellent blog post. I’ve been lamenting the repeal of Glass-Steagall for a while, and thought it quite obvious it needs to be reinstated. I watched in fascinated horror at the 2008 meltdown, thinking it a modern version of 1929. I was a double major in finance and economics in undergrad, and have always been intrigued with the events leading to the Crash. I think Bernanke said that if it wasn’t happening to the US, it would be fascinating to watch.

    But, as you say, big banking does not want Glass-Steagall reinstated…but I’m wondering if the scandal count will finally grow large enough to generate a force of public opinion and activity that will force the government into reinstatement. We shall see…

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