Most of us realise the global credit crisis began with the U.S sub-prime mortgage dilemma, but how many of us know exactly how and why we got into this mess in the first place?
Well if we go back about 80 years…
After the 1930’s depression and the major banking collapse that resulted, a legislation known as the Glass – Steagall agreement was put into place to regulate and restrict what assets the banks and insurance companies could buy in order to ensure they never cross collaterised each other’s asset classes.
This meant that banks could not sell insurance and insurance companies could not offer banking facilities. Hmmmmmm
Fast forward to the 90’s and we see Asia suffering an economic crisis. As a result, in Australia, we tightened our banking regulations even further while the U.S created history and decided to relax their financial laws. So it was that on October 25th 1999 the Glass – Steagall agreement was massively compromised and the modern day financial supermarket was born!
The ironic thing is those companies who lobbied for these changes are the very same companies we’ve seen in major hot water over this last year. Seem a little odd to you?
Of the 8 members of congress who opposed the changes, Byron Dorgan was quoted as saying:
“I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that which is true in the 1930’s is true in 2010. I wasn’t around during the 1930’s or the debate over Glass-Steagall. But I was here in the early 1980’s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.”
Whoa!
And what of the victorious party? Well their spokesman was a man named Lawrance Summers, who was quoted in his victory speech as saying:
“Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century. This historic legislation will better enable American companies to compete in the new economy.”
So where is Mr Summers today?
Frighteningly, he is the Director of the White House’s National Economic Council and the army of 
lobbyists who helped him cause the mess are working for Bank of America, Merrill Lynch and Goldman Sachs…. all of whom were given a major lifeline thanks to the biggest government bailout yet with the AIG debacle.
Former New York Attorney General Eliot Spitzer has said:
“The appearance that this was all an inside job is overwhelming. AIG was nothing more than a conduit for huge capital flows to the same old suspects, with no reason or explanation.”
So those who got us into the poop are now in charge of getting us out of it, but are we to believe we are looking at a genius at the helm or a case of massive insider knowledge?
Source: James McMurtrie – Meridian Financial
Eliot Spitzer http://www.slate.com/id/2214407/?from=rss
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