As we progress (?) from one political party’s convention (Republican) to the next convention (Democratic), I saw a comment about the Republican Convention that got me to thinking about transparency. These conventions were designed to delineate policy for each of the party’s candidates, regardless of the political level. Candidates from the vaunted dog catcher of a local municipality to the presidential and congressional candidates, are defined by their adherence to these policies, called platforms, if they take on the “R” or “D” label.
So what does this have to do with transparency? First, I will present some background.
One area which has become very opaque is the financial sector. There is much deception, fraud and corruption, just like in politics.
The business relationship between commercial and investment banking and insurance, known as the financial industries, is a complex one. Early in another depression (yes we are currently also in a depression), the American leadership tried to clarify the relationship between and legislate these financial industries in 1933. A major piece of legislation, the Banking Act of 1933, became known as the Glass-Steagall Act. It is explained as follows:
“Congress saw the need for substantial reform of the banking system, which eventually came in the Banking Act of 1933, or the Glass-Steagall Act. The bill was designed “to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes.” The measure was sponsored by Sen. Carter Glass (D-VA) and Rep. Henry Steagall (D-AL). Glass, a former Treasury secretary, was the primary force behind the act. Steagall, then chairman of the House Banking and Currency Committee, agreed to support the act with Glass after an amendment was added to permit bank deposit insurance.1 On June 16, 1933, President Roosevelt signed the bill into law.” - Glass Steagall Act - http://www.u-s-history.com/pages/h1504.html, http://www.federalreservehistory.org/Events/DetailView/25,
It seems that during that previous financial crisis our country’s leadership were also “under extreme pressure” by their “constituency” to “do something.” Based on the nature of this Banking Act, increased public and regulatory transparency was deemed to be needed. It was manifested as a separation between traditional banking and more speculative commercial and investment banking.
I recently watched a documentary on YouTube about the use of technology in investing entitled Wall Street Code – https://m.youtube.com/watch?v=GEAGdwHXfLQ. The introduction to this video shows the “sleepy” very passive nature of mortgage banking prior to the leveraging of technology in investing. At that time, mortgages were thought to be the basis of our financial society and security. As such, they were “rock solid,” highly rated and very low risk. After all, people never defaulted on their homes because they were checked financially and could not get a mortgage if they didn’t “qualify.” Mortgage banking was presented as extremely boring, as nothing ever changed since the implementation of the 1933 legislation.
However, in the early years of the 21st century, these rock solid investments were modified to make them more “sexy” due to changes in this 1933 legislation. Yields increased and the investment community started making “big” bucks with very low risk. To fuel this massive “cash cow”, more and more people had to be able to get mortgages, regardless of financial qualifications. While the financial ratings of the mortgages stayed the same, increased risk was introduced via non-qualified buyers.
Part of this change was brought about by the Gramm-Leach-Bliley Act, signed into law by President Bill Clinton in 1999. The following history is noted by Dave Manuel on his website, dated July 23, 2016.
“On November 12th, 1999, Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed SOME of the provisions of the Glass-Steagall Act. … So, as a result of the Gramm-Leach-Bliley Act, a commercial bank would be able to buy an insurance company, or a commercial bank would be able to buy an investment bank, etc.
The three co-sponsors of the Gramm-Leach-Bliley Act were:
Sen. Phil Gramm - R
Rep. Jim Leach - R
Rep. Thomas J. Bliley, Jr. – RIn 1999, the Republicans held a majority in both the Senate and the House of Representatives.
The final version of the Gramm-Leach-Bliley Act passed the House by a vote of 362-57 and the Senate by a vote of 90-8. This made the bill "veto proof", meaning that if Clinton had decided to veto, the bill would have been passed anyways. Having said that, if Clinton truly didn't want the bill to become law, he could have vetoed the bill in a symbolic gesture, but this did not happen.
Many people point to the Gramm-Leach-Bliley Act as a major reason why the financial sector imploded in 2008.
When it comes to pointing fingers, both parties get the blame. The Gramm-Leach-Bliley Act was co-sponsored by three Republicans, signed into law by a Democratic president and had the overwhelming support of both parties when it was eventually passed.” - http://www.davemanuel.com/fact-check-did-bill-clinton-repeal-the-glass-steagall-act-120/
Both Republicans and Democrats in positons of leadership and power benefitted greatly from these changes in the financial system. Massive transfers of wealth from the bottom 99% to the top 1% took place due to this change in legislation. Anyone in management of a bank such as Goldman Sachs, or the financial system, such as Ted Cruz’s wife, obviously benefited immensely.
Two distinct positions have been taking form since the financial crisis of 2008. The pro-Republican position is that one of the main causes of the financial meltdown of 2008/2009 is reported to be the repeal that separated commercial banking from investment banking. A USA Today article by James Rickards entitled Repeal of Glass-Steagall Caused the Financial Crisis, dated August 27, 2012 notes:
“The big bank boosters and analysts who should know better are repeating the falsehood that repeal of Glass-Steagall had nothing to do with the Panic of 2008.
In fact, the financial crisis might not have happened at all but for the 1999 repeal of the Glass-Steagall law that separated commercial and investment banking for seven decades. If there is any hope of avoiding another meltdown, it's critical to understand why Glass-Steagall repeal helped to cause the crisis. Without a return to something like Glass-Steagall, another greater catastrophe is just a matter of time.” - http://www.usnews.com/opinion/blogs/economic-intelligence/2012/08/27/repeal-of-glass-steagall-caused-the-financial-crisis
Mr. Rickards states the cause of the financial meltdown in simple terms:
“It was Glass-Steagall that prevented the banks from using insured depositories to underwrite private securities and dump them on their own customers. This ability along with financing provided to all the other players was what kept the bubble-machine going for so long.”
A more liberal and moderate position is as follows. Aaron Klein of the Brookings Institute writes in his July 19, 2016 article entitled Why is Glass-Steagall so politically popular and what does it really mean?
“Glass-Steagall separated the commercial and investment banking and the business of insurance from each other. Firms had to specialize in one of those areas and could not cross business lines. Separating business lines was a response to the factors that caused the Great Depression.
The surprise last-minute addition of a plank in the Republican platform embracing Glass-Steagall Act mirrors a call in the Democratic platform inserted by Bernie Sanders’ supporters to do the same, in spite of the fact that Hillary Clinton has explicitly rejected it.
Including it in the GOP platform is surprising and is a major about-face for Republicans. It contradicts House Financial Services Chairman Jeb Hensarling (R-TX), who just weeks ago proposed an alternative financial regulatory system of increasing minimum bank capital in return for less regulation. Repealing Glass-Steagall in the Gramm-Leach-Bliley Act of 1999 was a signature victory of the conservative movement’s deregulatory agenda, which was also supported by President Bill Clinton. Why is Glass-Steagall now so politically popular and what does it really mean?
Bringing back Glass-Steagall is good politics and bad public policy, as is often the case. It is good politics because it taps into the belief by the American public that the Depression Era generation, faced with their financial crisis, made smart reforms that worked. Those changes did work and many of them still do, such as federal deposit insurance, the creation of the Securities and Exchange Commission to police Wall Street, and a series of investment laws designed to protect investors. At some point, the thinking goes, we strayed from the wisdom of our grandparents, and in our zest to harness the powers of markets we made critical mistakes, unleashing a tide of forces that created our own financial crisis. Almost a decade later after the Great Recession, the American public is still extremely angry at Wall Street and wants change.” - http://www.brookings.edu/research/opinions/2016/07/19-why-is-glass-steagall-so-politically-popular-what-does-it-really-mean-klein
However, along came the election cycle of 2016. With an increasingly “ingrown” political elite, distinctions between the candidates and political parties are required, whether they exist or not. As such, the financial system became one of those distinctions. Needless to say, the repeal of Glass-Steagall is a very politically charged issue in today’s political climate. Both political parties are jockeying for position on this economic issue in the election of 2016. The following quotations make this very apparent.
While I am not taking a position on the reinstitution of the Glass-Steagall Act issue, it is important to note the Republican “plank.” The following was noted about Donald Trump’s speech to the convention on July 22, 2016. It is as follows:
“No mention of efforts to cut financial regulation. Nothing about the Republican Party platform's new aim to break up the big banks. And not a word about Hillary Clinton's long-standing ties to Wall Street kingpins and the tens of millions she's accepted in donations from them.
Trump's failure to mention banks was all the more surprising considering that one of the few tidbits of actual policy news to come out of the Republican gathering in Cleveland was a plank in the party platform to reinstitute the Glass-Steagall Act. Since the Great Depression, that regulation had installed a firewall between commercial and investment banking, but its repeal in 1998 is often cited as helping cause the financial crisis.”
My perspective on this issue, as we go into the Democratic Convention is similar to that of my previous blog, entitled American Infrastructure – One of the Things Which Defies Logic, http://hcourtyoung.blogspot.com/2016/07/american-infrastructure-one-of-things.html. Regardless of the statements to the contrary made by the long standing politicians such as Hillary, Cruz, McCain, Romney, Christy and others, they have benefitted by keeping the status quo. They clearly are the problem, not the solution.
How and why is this so?
It is fairly simple, maybe even transparent. There have been very few “new” faces in leadership in Washington D.C. for a long time. Those that say they are new, typically come from the “political” or “economic” elite. Many, such as the Bush family, are from “political dynasties” formed from years in power and are accustomed to wealth. They, and their colleagues, Republican and Democrat, have had years to resolve the economic and political problems. However, the same problems remain with very little happening except those same people amassing immense wealth for themselves and their heirs. How can we continue to think about electing people like Hillary, Jeb, Ted or Chris, as well as, many of our candidates who currently reside as fixtures in Congress in Washington, D.C., when we truly need both fresh ideas and a different view of the world?
Candidates like Donald Trump, the current Republican nominee, and the deposed Democratic candidate Bernie Sanders, are truly fresh faces on the political scene. While you may not like their ideas, policy positions or personalities, either of these men would bring a different perspective to the office of President. Mr. Sanders was truly marginalized by the Democratic party, and they tried the same with Mr. Trump. These are not the only people this has happened to. One great example from previous elections was Ron Paul. He had the support of many of our youth in his campaign but was totally marginalized by the Republican party in favor of the candidate of the Bush dynasty.
As you watch the upcoming Democratic convention, take heed of the candidate’s statements and party positions. Ask yourself several questions. Where have you heard these statements before? How many times? For how many years? What has changed? If you are truly honest with yourself, you can’t escape the fact that the vast majority of politicians are saying the same things in 2016 that they were saying in past election cycles. For example, Hilary Clinton’s positions are very similar to that of her husband President Bill Clinton. You might counter that this is only “party politics” which she must adhere. But still, what really do you think will change with her in office?
You have a unique opportunity to change this political structure. Donald Trump, truly, is a new face in American politics. Is he the ideal solution? Probably not. I definitely don’t think he will accomplish anywhere as much as many people would like to see. However, the real opportunity is twofold and probably longer term.
First, he will bring new ideas and a new business perspective to the Washington beltway, and to the political and economic elite, which has been in power for these many years. While the changes may be slight, it doesn’t take much of a directional change in thinking to alter the course of leadership over a generation. Hopefully, he will bring a measure of transparency to our current political and economic (banking) systems.
Secondly, and maybe more importantly, his children, who are in business with him, seem to be very bright and well educated. With a Trump presidency, may come a completely new, more business oriented (as opposed to crony capitalistic) dynasty to the American political scene. American politics, just like the politics of Russia, China and all the other first world countries of the world, seem to require the development of dynasties in order to continue in leadership positions for more than a few years [note President Jimmy Carter]. I suggest it is time to introduce a new political dynasty to the American political scene. Who knows, it might be much more transparent than those we currently have.
Sincerely,
H. Court Young
Author, publisher, speaker and geologist
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