The House of Representative’s held a hearing today to address the need for regulations that will prevent future financial crises. Secretary of the Treasury, Timothy Geithner, has laid out a program that will give the Treasury, Fed, and FDIC, authority to place large, too-big-to-fail financial institutions in receivership to avoid systemic failure of the financial system and to prevent moral hazards.
Everyone agrees that the lack of regulation was at the very heart of the current financial meltdown. A more reasonable, almost docile, House Financial Services Committee asked Secretary Geithner serious, prescient questions with little posturing and grandstanding. Very uncommittee-like. This should serve as evidence of the seriousness of this matter.
They clearly understood the necessity to do something, something to address the pressing problem of a rapidly accelerating deterioration of the global economy. But, in typical government fashion, it is too-little-too-late.
The House and Senate have a long history of convening hearings to address problems that have already occurred. Their attempts to find the causes come as a result of a lack of vision forcing them into a position of putting out fires.
But there is an uncanny irony in this hearing that should not be lost. One has only to go back to 1999 and the repeal of many of the regulations the Secretary is begging for today to appreciate the irony.
The Glass-Steagall Act had protected the American people from the predatory capitalism that created this crisis for 68 years. Enacted after the banking crisis of the Great Depression it served to separate the depository and investment sides of banking. People that wanted to pursue a more conservative path with their hard earned money could feel that their money was being handled in a safe, protected manner. Those that were more inclined to risk could do so on the investment side of banking, understanding that there was a greater possibility of loss in the investment the investors chose.
With one stroke of the pen, President Clinton set the stage for this global financial collapse. The Republican sponsored Gramm/Leach/Bliley Bill wiped away 68 years of financial safety; replacing it with a free market capitalism ideology.
But, the crisis is not a partisan issue that we can blame wholly on a Republican controlled 106th Congress. Though controlled by a Republican majority, 343 Representatives and 90 members of the Senate, in essence, voted for this crisis.
But an even deeper irony exists. Of those Financial Services Committee members questioning the Secretary, 23 of the 29 who were members of the House in 1999 voted in favor of free market capitalism then; now, obviously, a vote for a perceptively failed experiment. Thirteen of the seventeen Democrats and ten of the twelve Republicans voted yes. And now they are searching for the best way to re-regulate
Just as the Commodities Futures Modernization Act, another Senator Gramm Bill, this one de-regulating the gas and telecommunications industries, created the largest bankruptcies in the history of our country, the Gramm/Leach/Bliley Bill unleashed greedy bankers to reek havoc on the global financial system. And clearly, our congressional members allowed Senator Gramm to sneak that bill into an omnibus bill that they hastily passed to meet a midnight deadline.
So it was their votes for deregulation that caused the mess for which they now scramble to re-regulate.
Maybe a little introspect has tempered the mood of a customarily narcissistic body. The humility apparent in the hearing may signal the potential of meaningful, affective, and well thought-out legislation that provides the balance necessary to stimulate growth at the same time it protects against greedy, predatory capitalism.
In other words, the American people need Congress to step up and, even though they may never admit complicity, at least correct their egregious mistake.
Asking them to become visionary may be asking too much. But, one can hope.
This article addresses the attempt by the House Financial Services Committee to identify needed regulations to protect the financial system from another crisis. Timothy Geithner was being questioned. It was submitted to the Los Angeles Times on March 26, 2009.