The Banksters are Back!
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By: Ellis Goodman
After the 1929 Wall Street Crash, the Senate Committee on Banking and Currency was established to identify the actions and causes that led to the Depression. This Commission in their hearings humiliated many of the leading bankers of the era, coining the phrase “Banksters” in describing their gangster like behavior. The Commission led to a number of Wall Street reforms, including the creation of the SEC, which was followed by the Federal Deposit Insurance Corporation, and the Glass-Steagall Act, which separated investment banking from regular commercial banking. These reforms kept Wall Street bankers and financial institutions under control for over sixty years.
However many of the 1930’s reforms were gradually undermined. Perhaps the most disastrous, was the repeal of the Glass- Steagall Act in 1990, allowing traditional banks to become investment bankers, traders, brokers, and insurers. In the first decade of this Century, a lack of fiscal policy, deregulation, and deliberate weakening of the SEC, coupled with Wall Street greed and an explosion of new high-risk financial instruments brought this country to the brink of bankruptcy.
A new effort at reform and constraint of the excesses of Wall Street has now worked its tortuous way through Congress, and a Bill focusing on giving existing regulators additional powers has been passed. However if these regulations and new agencies become “toothless,” as the SEC became during the Bush administration, we will see a repeat of the excesses that led to the 2008 financial crises. It is disturbing that the Securities and Exchange Commissions’ allegations of fraud against the global-banking group – Goldman Sachs – which we’re informed may be followed by other similar charges against other big Wall Street operators, has been settled by the payment of a fine of $550 million, a tiny fraction of Goldman Sachs profits. If they choose to continue these dubious practices in the future, it seems that the penalties would not be too burdensome.
Bankers and their lobbyists and well-funded campaign-financed recipients in Congress have been fighting vigorously against the proposed legislation. It is reported that Goldman Sachs alone had forty-six lobbyists from more than a dozen firms working hard to kill the legislation. Now they are focused on working around the new regulations. The new watered-down Bill opposed by all but three Republicans, leaves much of the work to be completed over two or more years. A future Republican administration could easily negate the Bill’s effects by changing the senior regulators.
When the Committees’ leading Republican member of the Senate Banking Committee, receives checks totaling more than $34,000 from Goldman Sachs employees, and the Senate Minority Leader, Mitch McConnell, receives over a number of years, more than one-million dollars of campaign donations from Wall Street, we should not be surprised at the level of obstruction and posturing there is against any financial reform.
Our leading bankers today have no interest in being in the banking business. If so, how will the private sector be able to pull us out of this recession? More than three-quarters of the profits of our major banks now come from “trading.” These profits are gleaned through fees and trading in derivatives and other complicated financial instruments. These are high-risk-bets, so much so, that one of the complaints against Goldman Sachs in the fraud charges was that it even “bet” against the instruments that they were selling to investors.
Are our bankers really bankers anymore, or has Wall Street become one giant casino in a “win-win” situation –bailed out by the U.S. tax payer for their bad bets and benefitting from their Vegas style activities, where the “house” always wins? Perhaps we will see a reemergence of the 1930s popular description of the leading bankers who created the Great Depression – the new 21th Century “Banksters.”
Ellis M. Goodman, author of Bear Any Burden: www.bearanyburden.com
Tags: 1929 Wall Street Crash, FDIC, Goldman Sachs, SEC, The Great Depression
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