Remember the Old Boys' Club...? The boring, cranky, devious one that controls the banks, the economy and most of our wealth creation and money supply from behind the scenes? The one where nearly every key position in government is occupied by an Old Boy? Yes, that one.
Well, there are still a few lifetime members of the OBC firmly entrenched in the Federal Reserve (Grandpa Ben), and the Treasury (Timmy G and Larrykins) who continue to give all our money away to their ever-popular clubby friends.
These are the same old boy club members who along with ex-Goldman partner and Treasury Secretary Robert Rubin gave the store away to the big banks in 1999 with the repeal of the Glass-Steagall Act. Ordinary banks like Citigroup could now legally play roulette with government guaranteed deposits. OB Robert Rubin thought it was such a great idea he took a job with Citibank only weeks after leaving the Treasury.
Meanwhile back at the Securities and Exchange Commission, the agency that was supposed to be supervising the gladiator games, another group of old boys put the final nail in the coffin. In early 2004, Chairman of the SEC William Donaldson (former head of securities giant DLJ) got together with a few good friends, card-carrying OBC members and business colleagues, the heads of the five largest investment banks in the industry including soon-to-be Treasury Secretary Hank Paulson. Together the six
overturned a law that stood on the books for three decades limiting the amount of risky assets the nation's largest securities firms could hold. In a 45 minute meeting, the barrier between 12 to 1 capital to debt ratios and all hell breaking loose was removed.
Unlimited leverage became official: the biggest banks no longer had to follow "the net capital rule" and could use their "own judgment" for how much risk to take with other people's money. Within four short years, the five firms would triple and quadruple their risk levels to the point where three of the five firms collapsed along with the United States banking system.
Who benefited from under-the-radar derivative anarchy?
AIG, Goldman Sachs, Morgan Stanley, Deutsche Bank, UBS, big banks, the hedge fund and private equity community...
Who benefited from reversing the capital restrictions on risk for big banks?
Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers, Bear Stearns, JPMorgan Chase, Citibank, Bank of America, Wells Fargo...
I think you know how the roller-coaster fun ride ended.
It is clear who did NOT benefit from the free-for-all deregulation of banks and the refusal to create a derivatives exchange...The working public, small business, you and me. In fact it was the elimination of these three important legal statutes that pushed the American financial system to the brink of collapse in less than a decade. Are you getting the picture? In the words of Oliver Hardy, Old Boys' Club of America: Another fine mess you've gotten us into.
And now for something completely different. The All New Girls' Club.
Move over boys. The girls are back in town.
Democracy and Law
The recent nominee for Supreme Court Elena Kagan summed up the need for law in the preservation of freedom. "Law matters because it keeps us safe, because it protects our most fundamental rights and freedoms, and because it is the foundation of our democracy," she said. These words could be easily translated to the current debate on financial reform. Freedom only functions when the laws protect everyone. Keeping our nation's financial system safe from rape, plunder, and pillage is the ultimate goal for financial reform.
Out of Washington this past decade, little of our government's actions made rational sense. Economic anarchy was called "free-enterprise" and "reform" was equated with more war and less public safety. Same old story as the old boys kept their stranglehold on the gov and our economy.
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