Friday, February 8, 2008

The Republican Mess: Part 2 The Mortgage Crisis

In case you missed Part 1, it was The War.

Who recalls the Glass-Steagall Act? Don't worry, it was repealed. Democrats Senator Carter Glass of Virginia and Congressman Henry Steagall of Alabama introduced their bill to Congress in 1933, shortly after and because of the Great Depression. Glass, former Treasury Secretary, understood that the nation could not endure another Stock Market crash such as that which occurred 4 years earlier. He and Steagall introduced legislation which prohibited most banks in America from also dealing in security exchanges. Further, it guaranteed [FDIC] the deposits from bank foreclosures. Commercial banks were distinguished from investment banks.

Essentially, the act, also known as the Banking Act of 1933, kept banks from speculating with the depositors money; it was a 'safe' place to place one's savings and get a small return on that investment. These banks were the backbone of the American middle and lower classes for decades.

Unfortunately, this act was overturned in 1999 when Congress approved the Gramm-Leach-Bliley Act. President Clinton gladly signed the legislation. Republican senators Phil Gramm of Texas and Jim Leach of Iowa together with Republican Congressman Thomas Bliley co-sponsored the bill with essentially removed the barrier between commercial and investment banking. As a result, insurance, investing and banking were amalgamated.

Republican congressmen in the 90's undid what Democratic congressmen in the '30 had done. Safeguards were removed. Flexibility trumped trust. Security was sacrificed for speculation. And the current mortgage crisis is the result.

Interesting how the Republican Party guess wrong so many times, isn't it?

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