They Had It Coming

by Kiko Matsing

Just found this on the Web: Representative John D. Dingell’s (D, 15th District, Michigan) speeches on the Conference Report on S. 900 or the Gramm-Leach-Bliley Act that deregulated the banking industry in 1999.

From Congressional Record, House, 4 Nov 1999, p. H11542

Madam Speaker and my colleagues, I think we ought to look at what we are doing here tonight. We are passing a bill which is going to have very little consideration, written in the dark of night, without any real awareness on the part of most of what it contains.

I just want to remind my colleagues about what happened the last time the Committee on Banking brought a bill on the floor which deregulated the savings and loans. It wound up imposing upon the taxpayers of this Nation about a $500 billion liability. That is what it cost to clean up that mess.

Now, at the same time, the banks by engaging in questionable practices wound up in a situation where the Fed and the Treasury Department had to bail them out also at the taxpayers’ expense. But it did not show.

Having said that, what we are creating now is a group of institutions which are too big to fail. Not only are they going to be big banks, but they are going to be big everything, because they are going to be in securities and insurance, in issuance of stocks and bonds and underwriting, and they are also going to be in banks. And under this legislation, the whole of the regulatory structure is so obfuscated and so confused that liability in one area is going to fall over into liability in the next. Taxpayers are going to be called upon to cure the failures we are creating tonight, and it is going to cost a lot of money, and it is coming. Just be prepared for those events.

You are going to find that they are too big to fail, so the Fed is going to be in and other Federal agencies are going to be in to bail them out. Just expect that.

From Congressional Record, Extension of Remarks, 8 Nov 1999, p. E2302

Now, I can tell that some of my colleagues are bracing themselves for a speech about the Crash of 1929 and the Great Depression that followed it. I am not giving that speech today. I am not opposing S. 900 because I am stuck in the past. I am opposing S. 900 because it’s a bad bill today and for the future. About the past, I will only observe that he who does not learn from it, is doomed to repeat it. This bill bears dangerous seeds.

First, S. 900 facilitates affiliations between banks, brokerages, and insurance companies, creating institutions that are ‘‘too big to fail’’. However, it does not reform deposit insurance or antitrust implementation and enforcement. The bill’s supporters tout all the benefits to consumers, but woe to the American people when they have to pick up the tab for one of these failures or when competition disappears and prices shoot up.

….

Title I of S. 900 also waters down the prudential limitations that the House had imposed on merchant banking. S. 900 clearly ignores the warning of then Treasury Secretary Rubin to Congress in May of this year: ‘‘We have serious concerns about mixing banking and commercial activities under any circumstances, and these concerns are heightened as we reflect on the financial crisis that has affected so many countries around the world over the past two years.’’

….

[O]ur capital markets are the envy of the world and their success rests on the high level of public confidence in their integrity, fairness, transparency, and liquidity. While S. 900 pays lip service to the functional regulation of securities by the SEC, it, in fact, creates too many loopholes in securities regulation—too many products are carved out, and too many activities are exempted—thus preventing the SEC from effectively monitoring and protecting U.S. markets and investors.

Wow. 343 out of 429 Representatives (including Nancy Pelosi, by the way) failed to connect the dots in 1999, and look where we are now. That at least one man saw it coming gives somewhat of a belated comfort that there is at least one voice of reason in the babbling crowd.

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