Byron Dorgan deserves great credit for predicting the disaster; OTOH, Phil Gramm deserves a trip to the woodshead;
and Lawerence Summers' legacy is in the balance. Thanks for the posting. --- In FairfieldLife@yahoogroups.com, "do.rflex" <do.rf...@...> wrote: > > > > "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 that > which is true in the 1930's is true in 2010," said Senator Byron L. Dorgan, > Democrat of North Dakota. > > "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." > > ~~ Senator Byron L. Dorgan (D-ND) in 1999 on the repeal of the > Glass-Steagall Act of 1933 > > > 1999 Story: CONGRESS PASSES WIDE-RANGING BILL EASING BANK LAWS > > By STEPHEN LABATON > New York Times - November 5, 1999 - http://snipurl.com/emjmc > > > Congress approved landmark legislation today that opens the door for a new > era on Wall Street in which commercial banks, securities houses and insurers > will find it easier and cheaper to enter one another's businesses. > > The measure, considered by many the most important banking legislation in 66 > years, was approved in the Senate by a vote of 90 to 8 and in the House > tonight by 362 to 57. The bill will now be sent to the president, who is > expected to sign it, aides said. It would become one of the most significant > achievements this year by the White House and the Republicans leading the > 106th Congress. > > "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," Treasury Secretary Lawrence H. Summers said. "This historic > legislation will better enable American companies to compete in the new > economy." > > The decision to repeal the Glass-Steagall Act of 1933 > provoked dire warnings from a handful of dissenters that > the deregulation of Wall Street would someday wreak > havoc on the nation's financial system. > > The original idea behind Glass-Steagall was that separation between bankers > and brokers would reduce the potential conflicts of interest that were > thought to have contributed to the speculative stock frenzy before the > Depression. > > Today's action followed a rich Congressional debate about the history of > finance in America in this century, the causes of the banking crisis of the > 1930's, the globalization of banking and the future of the nation's economy. > > Administration officials and many Republicans and Democrats said the measure > would save consumers billions of dollars and was necessary to keep up with > trends in both domestic and international banking. > > Some institutions, like Citigroup, already have banking, insurance and > securities arms but could have been forced to divest their insurance > underwriting under existing law. Many foreign banks already enjoy the ability > to enter the securities and insurance industries. > > The world changes, and we have to change with it," said Senator Phil Gramm of > Texas, who wrote the law that will bear his name along with the two other > main Republican sponsors, Representative Jim Leach of Iowa and Representative > Thomas J. Bliley Jr. of Virginia. > > "We have a new century coming, and we have an opportunity to dominate that > century the same way we dominated this century. Glass-Steagall, in the midst > of the Great Depression, came at a time when the thinking was that the > government was the answer. In this era of economic prosperity, we have > decided that freedom is the answer." > > In the House debate, Mr. Leach said, "This is a historic day. The landscape > for delivery of financial services will now surely shift." > > But consumer groups and civil rights advocates > criticized the legislation for being a sop to > the nation's biggest financial institutions. > They say that it fails to protect the privacy > interests of consumers and community lending > standards for the disadvantaged and that it > will create more problems than it solves. > > The opponents of the measure gloomily predicted > that by unshackling banks and enabling them to > move more freely into new kinds of financial > activities, the new law could lead to an economic > crisis down the road when the marketplace is no > longer growing briskly. > > "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 that > which is true in the 1930's is true in 2010," said Senator Byron L. Dorgan, > Democrat of North Dakota. > > "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." > > Senator Paul Wellstone, Democrat of Minnesota, said that Congress had "seemed > determined to unlearn the lessons from our past mistakes." > > "Scores of banks failed in the Great Depression as a > result of unsound banking practices, and their failure > only deepened the crisis," Mr. Wellstone said. > > Glass-Steagall was intended to protect our financial > system by insulating commercial banking from other > forms of risk. It was one of several stabilizers > designed to keep a similar tragedy from recurring. > Now Congress is about to repeal that economic stabilizer without putting any > comparable safeguard in its place." > > Supporters of the legislation rejected those arguments. They responded that > historians and economists have concluded that the Glass-Steagall Act was not > the correct response to the banking crisis because it was the failure of the > Federal Reserve in carrying out monetary policy, not speculation in the stock > market, that caused the collapse of 11,000 banks. > > If anything, the supporters said, the new law will give financial companies > the ability to diversify and therefore reduce their risks. The new law, they > said, will also give regulators new tools to supervise shaky institutions. > > "The concerns that we will have a meltdown like 1929 are dramatically > overblown," said Senator Bob Kerrey, Democrat of Nebraska. > > Others said the legislation was essential for the future leadership of the > American banking system. > > "If we don't pass this bill, we could find London or Frankfurt or years down > the road Shanghai becoming the financial capital of the world," said Senator > Charles E. Schumer, Democrat of New York. "There are many reasons for this > bill, but first and foremost is to ensure that U.S. financial firms remain > competitive." > > But other lawmakers criticized the provisions of the legislation aimed at > discouraging community groups from pressing banks to make more loans to the > disadvantaged. Representative Maxine Waters, Democrat of California, said > during the House debate that the legislation was "mean-spirited in the way it > had tried to undermine the Community Reinvestment Act." > > And Representative Barney Frank, Democrat of Massachusetts, said it was > ironic that while the legislation was deregulating financial services, it had > begun a new system of onerous regulation on community advocates. > > Many experts predict that, even though the legislation has been trailing > market trends that have begun to see the cross-ownership of banks, securities > firms and insurers, the new law is certain to lead to a wave of large > financial mergers. > > The White House has estimated the legislation could save consumers as much as > $18 billion a year as new financial conglomerates gain economies of scale and > cut costs. > > Other experts have disputed those estimates as overly optimistic, and said > that the bulk of any profits seen from the deregulation of financial services > would be returned not to customers but to shareholders. > > These are some of the key provisions of the legislation: > > *Banks will be able to affiliate with insurance companies and securities > concerns with far fewer restrictions than in the past. > > *The legislation preserves the regulatory structure in Washington and gives > the Federal Reserve and the Office of Comptroller of the Currency roles in > regulating new financial conglomerates. The Securities and Exchange > Commission will oversee securities operations at any bank, and the states > will continue to regulate insurance. > > *It will be more difficult for industrial companies to control a bank. The > measure closes a loophole that had permitted a number of commercial > enterprises to open savings associations known as unitary thrifts. > > One Republican Senator, Richard C. Shelby of Alabama, voted against the > legislation. He was joined by seven Democrats: Barbara Boxer of California, > Richard H. Bryan of Nevada, Russell D. Feingold of Wisconsin, Tom Harkin of > Iowa, Barbara A. Mikulski of Maryland, Mr. Dorgan and Mr. Wellstone. > > In the House, 155 Democrats and 207 Republicans voted for the measure, while > 51 Democrats, 5 Republicans and 1 independent opposed it. Fifteen members did > not vote. > > Tucked away in the legislation is a provision that some experts today warned > could cost insurance policyholders as much as $50 billion. The provision > would allow mutual insurance companies to move to other states to avoid > payments they would otherwise owe policyholders as they reorganize their > corporate structure. Many states, including New York and New Jersey, do not > allow such relocations without the consent of the insurer's domicile state. > But the legislation before Congress would pre-empt the states. > > Both the Metropolitan Life Insurance Company and the Prudential Life > Insurance Company are in the midst of reorganizing into stock-based > corporations that are requiring them to pay billions of dollars to > policyholders from years of accumulated surplus. In exchange, the > policyholders give up their ownership in the mutual insurance company. > > The legislation would permit any mutual insurance company to avoid making > surplus payments to policyholders by simply moving to states with more > permissive laws and setting up a hybrid corporate structure known as a mutual > holding company. > > The provision was inserted by Representative Bliley at the urging of a trade > association. It attracted little opposition because it was attached to a > provision that forbids insurers from discriminating against domestic-violence > victims. > > In a letter sent to Congress this week, Mr. Summers said that the provision > ''could allow insurance companies to avoid state law protecting > policyholders, enriching insiders at the expense of consumers." >
