Remember the good old days when customers knew their bankers and property owners knew who held their mortgages?
Remember the good old days when banks were in banking and insurance companies were in insurance and investment firms were in securities?
Insurance agents tried to keep it that way, fighting as long as they could in courtrooms and legislative halls against big banks and investment firms encroaching on the insurance business. Agents did help preserve state regulation and other features of the good old days but in the end the well-heeled Wall Street forces— and their political donations — were just too powerful for the insurance agents lobby and Main Street.
The U.S. Senate voted 90-8 on Nov. 4, 1999 to approve S. 900, the Gramm-Leach-Bliley Act, which repealed many of the Depression-era barriers that separated banking, insurance underwriting and securities. President Clinton signed it into law, giving birth to what is today’s financial services industry.
Sen. Phil Gramm, R.-Texas, who was chairman of the Senate Committee on Banking, Housing and Urban Affairs, expressed great pride in passage of the bill bearing his name. “This is a deregulatory bill. I believe that is going to be the wave of the future,” he said.
He was right about the coming wave, but he and the bill’s bipartisan majority could not foresee everything that wave would bring.
Fortunately, back in 1999, Gramm set out a test for determining whether his deregulation bill was a success or failure:
“The test that I believe we should use– the test I will use, the test I hope people looking at this bill years in the future will use– is, ‘Did it produce a greater diversity of products and services for American consumers? Were those products better? And did they sell at a lower price?’ I think if the answer to those three questions is yes, then this bill will have succeeded.”
It’s at least debatable whether the answer today is yes as Gramm and supporters hoped.
A proud Gramm continued:
“Ultimately, the final judge of the bill is history. Ultimately, as you look at the bill, you have to ask yourself, ‘Will people in the future be trying to repeal it, as we are here today trying to repeal–and hopefully repealing–Glass-Steagall?’ I think the answer will be no. I think it will be no because we are doing something very different from Glass-Steagall. Glass-Steagall, in the midst of the Great Depression, thought government was the answer. In this period of economic growth and prosperity, we believe freedom is the answer.”
The good old days may not have been perfect and returning to them may be out of the question. But there is a new reality. Many believe Gramm Leach Bliley is at least partly responsible for the biggest economic collapse since the Great Depression. While government is not the only answer, neither is unbridled freedom for giant financial services corporations. Defenders suggest the meltdown would have been worse without the financial creations and flexibility of Gramm Leach Bliley.
Sen. Gramm himself provided a test. It’s time to revisit his pride and joy.
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