By now we should all be able to connect the dots between the current sub-prime mortgage implosion and the S&L debacle of the '80s. The two crises are linked in a long chain of scandals and catastrophes, all of which can be laid directly to the deregulation craze that began in the Reagan / Thatcher era and reached its climax during the Dubya years.
The common thread in all these shameful episodes is the freeing-up of clever and amoral profiteers -- of which every marketplace has at least a few -- to escape the consequences of their reckless risk-taking, leaving the aftermath for the government to fix using taxpayer dollars. It's called "internalizing the profits and externalizing the risk," and it's a classic characteristic of laissez-faire capitalism. It's as old as markets themselves.
-- few probably recall that Giuliani made his name as the prosecutor who sent Michael Milken to jail. Milken was the smart guy (an early prototype for the Enron "Smartest Guys in the Room") who figured out how to use investment funds from the newly liberated S&Ls -- which before Reagan had been prohibited from investing in securities -- to do leveraged buyouts of companies deemed undervalued. (1985-89)
These companies were then broken up and sold piecewise, their pension obligations replaced with 401(k)-type individual retirement accounts, many of which were entrusted to investment companies created specifically for this purpose -- thereby supplying a secondary source of investment capital for more leveraged buyouts. Many of these retirement firms subsequently failed, taking countless pensions along with them.
Milken made billions on these deals for himself and his
BCCI banking scandal (1991) -- BCCI was a British bank but did international business, including clandestine money-laundering for the CIA, DIA, DEA, the Israeli Mossad, Noriega, the Contras, and various terrorist organizations. It escaped regulation because of the state secrets involved. The Clinton Justice Dept. sat on its hands while the scandal unfolded. called BCCI "the largest corporate criminal enterprise ever, the biggest Ponzi scheme, the most pervasive money-laundering operation and financial supermarket ever created." Its collapse was a major factor in the global recession of 1991 which, ironically, led to the downfall of the Bush 41 presidency.
-- the world's oldest merchant bank was brought down by reckless currency trading by a 27-year-old "rising star" day trader, engaging in risk arbitrage made possible by the British deregulation of its banking industry in the '80s. (1991)
Enron (2001) -- Enron was born of natural-gas deregulation in and reached its pinnacle exploiting California's disastrous experiment in electric power deregulation. Another contributing factor in the Enron scandal was the relaxation of regulations requiring accounting firms to keep their watchdog and consulting roles separate. Arthur Andersen, one of the "Big Eight" accounting firms, went down with its client because it allowed its Enron watchdog account to be corrupted by its lucrative Enron tax-loophole consulting business. Many employees lost their life savings when Skilling and pals prevented them from selling their Enron stock, all the while dumping their own as the share price was collapsing.
Fraud scandals involving Tyco (2002), WorldCom (2002), Global Crossing (2002), -- Shareholders lost billions of dollars, and countless employees their pensions, to corporate fraud perpetrated by sleazy CEOs such as Richard Scrushy and Dennis Kozlowski as a consequence of the green light for greed and corruption provided by the deregulation craze. It would be an over-simplification to lay this all to one law, but one major factor was certainly the Private Securities Litigation Reform Act passed in 1995 by the Gingrich Congress over Clinton's veto, freeing corporations from "red tape" and stockholder litigation while making it more difficult to prove securities fraud. The details in these famous cases are all different, but share common roots in deregulation. There's tons of information available on the Internet; have a ball... (2003)
Canary Capital mutual fund scandal (2003) -- certain big hedge-fund customers were allowed to trade mutual-fund shares after hours, and more frequently than provided for in the funds' prospectuses, in violation of the law. Investigation revealed that many famous mutual-fund families (Putnam, , Strong, etc., etc.) had been gouging small investors for years, charging excessive fees, engaging in preferential trading, portfolio churning, etc. Attempts to fix this with new regulation have stalled in Congress. That's right, nothing has been done about it.
Sub-prime fiasco (2007) -- triggered by the Clinton-era repeal of the Glass-Steagall Act, a Depression-era measure that kept bank deposits safe by prohibiting banks from investing in speculative securites. As a result we have the multi-billion-dollar losses being reported by Morgan Stanley, Chase, Citicorp, and other huge and venerable banks, who were caught with portfolios loaded with shaky mortgage-base debt securities when the housing market went south. We've yet to see the end of the financial carnage and human suffering caused by this frenzy of greed.
I can't fathom how anyone could still claim to be shocked, shocked, by these amazingly consistent and totally predictable outcomes. The "shrink government" movement is a masquerade for the real theme or our times, which is the freeing of big international capital to have its way with the world and its people in pursuit of ever-increasing profits. The millions of libertarian Republicans who vote for the likes of Dubya thinking that they are thereby enhancing their personal "freedom and liberty" will learn the truth the hard way. Unfortunately we will all suffer the consequences along with them. Everyone will pay the piper for the financial panic we're witnessing right now -- except for the very rich and very shrewd, who have already made their billions and will find some equally clever way to profit from the collapse.