The Arrogance and the Elite

So here we are in the middle of another Wall Street financial meltdown, Congress is pointing fingers, economists are┬ hypothesizing about it’s length and cause, and pretty much everyone’s a bit worried about their own financial future. As we learn more details surrounding the triggers of the crisis, I can’t help but think back to my college finance and economic classes and the lessons on the causes of the Great Depression. Seems to me that the commonality between them is that lawmakers and regulators allowed our banking and financial institutions to get “too big to fail” without the necessary checks and balances to ensure solvency.

In the case of the Great Depression, the fact that banks controlled everything from insurance, to mortgages, to deposits lead to a very rapid economic crisis once their┬ liquidity┬ evaporated and the paper profit balloon deflated. ┬ To address it, Congress enacted┬ Glass-Steagall to limit the potential size of the┬ financial┬ institutions and the limit the breadth of future market liquidity crisis. It did a lot of other things as well, like create the FDIC, but I focus on this one aspect because it was repealed in 1999, again allowing greed to creap from the banking industry to other industries. The elite economists, arrogant lawmakers, and butter┬ tongued┬ lobbyists convinced the American┬ people┬ that these protections, created by our grand parents whom had suffered┬ through┬ a depression and wanted to prevent future generations from having to relive it, were so 1933. Regulators were way smarter now, and the industry had learned it’s lessons and could regulate itself.

What a dangerous concept to allow a group that holds everyone’s money to gamble with it without strong┬ oversight┬ and a willingness to accept that gamble from the depositor. Congress opened the door for these institutions to take risks in one part of their business knowing the government will catch them if they fall because of the link to the banking portion. I can’t understand how Congress forgot to see this when they repealed Glass-Steagall. In terms of industry stability, market focussed financial institutions are safer to the system as a whole.┬ ┬ There’s a reason that smaller regional banks staved off this crisis.

If Congress really wants to fix the problems of the financial sector, they’ll act fast to fix the fundamental problem in our banking system,┬ reenact┬ legislation that will limit and separate the sizes of banks and what they can invest in. This way future meltdowns will be easier to contain, regulators will be able to focus on┬ specific┬ aspects of the industry, and┬ ┬ you and I will be able to trust putting our money into banks. We won’t get the “Their too big to fail” line again in 15 years. But, if Congress doesn’t act, than maybe there is something to the words of Thomas Jefferson…

3 Responses to “The Arrogance and the Elite”

  1. Camron Says:

    I think this is right on point. I always get a kick outta stock brokers that get huge bonus payments on a yearly basis…it totally incentivizes them to take risks with others money they wouldn’t take with their own…and if in year 2 things tank, oh well…it’s not their money.

  2. Original Author Says:

    Spoken like a true Democrat……..Lets limit business and regulate!

    The repell of the Glass-Stegal act did not cause this problem. In fact the banks that took action by diversifying their assets have been doing better than those than just grew; that was the intent of repelling the law.

    The problem resides with the fact that cretain Government agencies did not do their job in the regulating that was left in place; corrupt politicians feeding their need for wealth and Government forcing banks to lend to those who shold not have gotten a loan. The common theme, GOVERNMENT REGULATION!!!

    The unfortunate victims, the world economy and the world people. What needs to happen going forward is the people of the world need to take part in their government. They need to stop trusting that the government knows best. And they need to voice their opinions when Government is not going in the Direction they want. Imagine that, you need to be involved to make a difference in your life.

  3. Carl C Says:

    Really nice post. I don’t post on blogs, but this post really forced me to do so!

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