Since Louis Brandeis published Other People’s Money in 1914 in support of Woodrow Wilson’s New Freedom domestic program, there’s been extensive and well-argued documentation on the dangers of collusion between banks and corporations, especially stock manipulation, to ordinary Americans on Main Street. Those people got whacked in 2008-09 when the big banks got caught gambling with “other people’s money” and speculating with it in the booming housing market which went bust.
That pulled the entire nation into its worst depression since the Great Depression of the 1930’s. Middle Class Americans whose greatest source of economic security, the equity in their homes, saw much of that disappear.
The most important issue next to creating consumer demand and more jobs is preventing another such meltdown. The Dodd-Frank Law which has yet to be fully implemented due to Republicans cutting off the funding for its enforcement and forcing regulators to make needless regulations to strangle its enforceability, needs the clearest possible line to be drawn between “our money” on Main Street and that of the high risk speculators in Wall Street investment banks. The problem is the same banks that make that routine auto loan or homeowner’s loan to you, or hold your savings and oversee your bill payment activity are also using and risking that money in high risk speculative investments designed to make a lot of money fast for them. This is not shared with you but all of the risk is passed along to you.
Before any of you bail since economics, the dismal science, bores you like watching four straight State of the Union messages by a president of either party, stay with us.
In 1933, during Franklin D. Roosevelt’s New Deal, it was necessary to regulate banks, investments firms, and the stock market to promote greater economic stability when the inevitable high-risk investments went south and bit people in their hind quarters. One key law was the Glass-Stagall Act of 1933, which put up a clear emergency firewall between banking activities that most impacted on Main Street and more transparently isolated speculation on Wall Street where people could lose their shirt in an afternoon.
In 1999, the Clinton Administration and Congress, riding the last year of an eight year economic boom cycle sought to sweeten the pot for Wall Street by repealing Glass-Stagall with the Gramm Leach Billey Act. Essentially, what the new law did was allow traditional old-style banks to merge with the most high risk investment companies. The up side was that now the new firms had a lot more money to leverage in the world economy and open a whole new world of instant money-making at previously unseen levels. The down side is that a lot of the cash that was used to leverage those big deals you’ve heard of as derivatives and swaps was money from the assets of the old banking system. That money was and remains guaranteed by the Federal Deposit Insurance Corporation (FDIC) and the Federal Savings and Loan Corporation (FSLIC).
Translation: billions of consumer dollars were lost in 2008-09, and to add insult to injusry, taxpayer dollars via the Federal Reserve and the United States Treasury bailed the big banks out. Too big to fail became the most common phrase you heard from Wall Street in those tense last months of the second George W. Bush Administration.
The ability to trade or swap millions of Americans home mortgages back and forth until the traders literally knew not who owned what was greatly aided by the repeal of Glass-Stagall and the disappearance of the fire wall protecting ordinary consumers. Effectively, the big banks used your money in high risk investments after the repeal of the law to make a lot of money and then used it again to bail themselves out via Federally insured money and that of the government which belongs to us all. The worst part of the deal is this: ask yourself how much of the profits made on derivative swaps of home mortgages did you get from the shenanigans on Wall Street before the big housing bubble burst in 2008? If you are like most readers of Struggles for Justice, not one red cent! Nor even a browning old penny either.
Who is foolish enough to let somebody else take your equity in your home, and even your bank accounts and the burdens of debt assumed by your government and go to the 21st century’s greatest gambling casino ever constructed known as Wall Street, risk and actually lose it, and then not share earlier profits nor the burden imposed by their poor decisions with you. Why should the ordinary consumer pay for Wall Street’s misbehavior at all?
The fire wall that separates the slow, but sure and steady profits of traditional Federally insured banking from outright casino stock manipulation like Louis Brandeis argued for and we eventually got in 1933, then lost in 1999 has brought us full circle. Brandeis was right; the money used by the big banks and hedge fund moguls is “Other People’s Money.” It is our own.