Dismantlement of Fair Play Rules

Time Frame 1913:  The Federal Reserve Act established the national banking system, and in 1914, when Democrat Woodrow Wilson was President, the Federal Trade Commission Act outlawed unfair or deceptive business practices.  In the closing months of 1929 when Republican Herbert Hoover was President, the stock marked crashed, leading to the 1933 Glass-Steagal Act that set apart the “commercial banks” dealing primarily with checking and savings from the “investment banks” that dabbled in speculative trading and mergers.

In the decade after World War II years, prosperity, optimism and jitters over the threat of Communism kept the national financial climate fairly free of gross extortion for a while.  By 1968, when Democrat Lydon Johnson was President, it became necessary to enact the Truth in Lending Act, which required banks to disclose their loan terms and fees.  Greed hates restrictions and so the money-worshipers engineered a means of weakening the Glass-Steagal Act and getting installed the Bank Holding Company Act in 1970.  The clever finagling allowed the “commercial banks,” limited to checking and savings, a means of sidestepping via holding companies so the commercial banks could accept not only deposits but could also make commercial loans.  The next step in loosening banking activities occurred in 1978 when the Supreme Court approved giving the right to banks to make loans in states other than where the banks wer headquartered.  Naturally, that set off a stampede to states such as South Dakota and Delaware where consumer protections were not strong. 

Interest rates climbed after 1978, and a measure was pushed through Congress by Republican Jake Garn of  Utah that pulled off usury caps for mortgages.  By the next year Senator Garn was the chair of the Senate Banking, Housing and Urban Affairs Committee.  His fellow deregulation advocate, M. Danny Wall, of the Office of Thrift Supervision, was made the majority staff director, and the lobbyists were ecstatic.  Thus set in power, Senator Garn then coauthored the Garn-St. Germain Depository Institutions Act, which deregulated the savings and loan businesses.  By 1984, when Republican Ronald Reagan acted as President, the S&Ls began to crash in Texas, and throughout the next decade over 1000 trifts failed nationwide, which cause the loss of $124 billion of taxpayer money.

Time Frame 1988:  Republican George H. W. Bush was president.  The collapse of the Silverado S&L, whose board members included Neil Bush, left a taxpayers’ liability of around $1.3 billion.  The federal Office of Thrift Supervision determined that Neil Bush’s engineering of loans constituted “multiple conflicts of interest.”  Interestingly, early in the next year President G. H. W. Bush move quickly to bail out S&L industries. And curiously the government then took over most of a $5 million second mortgage on the President’s son Jeb’s Miami office building.

Some six years later, 1995, when Democrat William J. Clinton was  President, the Republican dominated Congress jockeyed the Truth in Lending Act into law, a reform that greatly eased the regulations on creditors.  In late December of ’95, the jockeying continued; this time by Republican Newt Gingrich’s involvement and a measure that made it more difficult to sue companies for securities fraud was enacted!  This was followed eight months later with the Office of Thrift Supervision issuing a rule that preëmpted nearly all state laws that had regulated S&L dealings.

 Through 1997-1998 heavy lobbying or the Republican Congress, financed by $200 million from FIRE sector (Finance, Insurance and Real Estate) and $150 million from political donations, pushed agenda items that included the repeal of the Glass-Steagall Act to facilitate mergers.   This opened the means for Citicorp and Travelers to merge into a $70 billion corporation—which had been technically illegal under the Glass-Steagall Act. And Conseco was then free to purchase powerhouse Green Tree in a $5 billion deal.  In 1999 the Gramm-Leach-Biley Act was the coup de grâce for the Glass-Steagall Act, and it was not a mercy killing; its passage flung open the door for a wave of megamergers among banks, insurance and securities companies.  The driving force behind this insult to fairness ws Republican Senator Phil Gramm from Texas aided by Republican Representative Jim Leach of Iowa and Thomas J. Biley of Virginia. 

Gramm was not through though.  Just when Congress was anxious to close up shop for the Christmas recess, Senator Gramm cunningly attached a 262 page amendment to an omnibus appropriations bill, the Commodity Futures Modernization Act.  The attachment served to deregulate derivatives trading, which allowed an eruption in new unregulated securities as well as the Enron disaster.  Among the flock of vultures wer the lobbyists for the National Association of Realtors, fat with $13 million, that persuaded Congress to approve the American Homeownership and Economic Opportunity Act, which really made it harder for consumers to get our of lender-required insurance.

Needless to say, abuses in subprime activities exploded.  For example, in 2001 the Federal Trade Commission then had to sue the nation’s second largest subprime originator, Citigroup and its subsidiary Associates, for abusive lending practices that had involve over two million borrowers.  For Citigroup the suit was but a mosquito bite which was brushed off with a trifling $250 million settlement.

 Time Frame, entry into the 21st century:  The Republican machine was in full control, and Congress was urged to roll back subprime regulation by Stephen W. Prough, chairman of Ameriquest.  In self-defense the state of Georgia enacted an anti-predatory law designed to protect its citizens from subprime abuses and Ameriquest campaign against it, getting Standard and Poor, a division of McGraw-Hill to refuse to rate Georgia’s mortgage securities.  That effectively choked off credit supply to the state’s homebuyers, and the protective law was soon gutted.

Meanwhile, good old Phil Gramm was still wheeling and dealing.  This good buddy of Republican John McCain joined up with the Swiss investment bank UBS to “advise clients on corporation finance issues and strategy.”  He would also lobby Congress, the Treasury and the Fed on mortgage and banking issues.  Of course there was a great industry push to eliminate predatory lending rules.  By 2003 HSBC could buy pu Household finance, the nation’s fourth largest subprime lender.  Ameriquest succeeded in having New Jersey’s anti-predatory law gutted through intimidation tactics.  Happy with their lucrative activities Ameriquest then shelled out $200 million to the Bush campaign. 

In 2004, with Bush still saddled-up in the Oval Office, the Federal Office of the Comptroller of the Currency issued a final ruling which preëmpted states from applying most of their credit laws to national banks and their subsidiaries.  In 2005, what some called the Loan Shark Protection Act (officially known as the Responsible Lending Act) was deceptively billed by its promoter as an anti-predatory lending measure, but which actually preëmpted stronger state laws.  Its sponsor was Republican Representative Robert Ney of Ohio–who would later go to prison for his involvement in the Abramoff scandal.

The Bush-Cheney years would afford the nation such things as the Bankruptcy Abuse Prevention Act (2005), sponsored by Republican Senator Charles Grassley of Iowa, which actually made it still harder for consumers to discharge debts: businesses, of course, were not affected.  By March of 2007 Republican Senator John McCain announced that Senator Phil Gramm (yes, that Gramm) would join his presidential campaign as its co-chair and economic policy adviser.  But the nation’s financial crisis was already underway, thanks in part to Gramm.  There would follow the virtual meltdown of such outfits as the subprime giant New Century Financial, Dillon Read Capital Management, General Motors finance unit, American Home Mortgage, Countrywide Mortgage lender, and even Wall Street.  Ameriquest simply blew away.

But former bosses of such outfits as Citigroup, Merrill Lynch, and Countrywide were being questioned by Congress about the $40 million they had received throughout the five-year primetime boom.  Monopoly practices, once outlawed, continued with Bear Stearns taking over J. P. Morgan Chase in a Fed-engineered bailout—an action passed without the number of votes that are required by law.  Senator McCain knew how to ease the nation’s problems: just remove regulatory, accounting, and tax impediments to raising capital, he said!  And G. W. Bush said that he would veto legislation that sought to provide $300 billion for struggling homeowners, declaring it would be a “burdensome bailout” and the lenders would have to renegotiate some mortgages.  He would leave office with these words, “In terms of the economy, look, I inherited a recession, I am ending on a recession.”  Records show that there was a surplus in reserve when he swore to serve the people.  Maybe it would look better on his record if he hadn’t immediately given that away to the already-rich.

 

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5 Responses to “Dismantlement of Fair Play Rules”

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