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PRESS RELEASE


Repeal of Glass-Steagall Is Center-Stage
in Angelides Report; Wall Street Apologists Go Berserk, Lie

Feb. 8, 2011 (EIRNS)—This release was issued today by the Lyndon LaRouche Political Action Committee.

In assigning responsibility for the 2007-08 financial collapse. the Final Report of the Financial Crisis Inquiry Commission (FCIC) places crucial emphasis on banking deregulation, and particularly the erosion and repeal of Franklin Roosevelt's Glass-Steagall Act.

The Commission's mandate from Congress did not include making recommendations for resolving the current crisis and preventing a future one, but economist and statesman Lyndon LaRouche has identified the restoration of Glass-Steagall, which was repealed in 1999, as the critical and essential condition for halting the present collapse and beginning to rebuild our economy.

Chapter 2 of Part II of the FCIC report entitled "Setting the Stage," chronicles the rise of what it calls the "shadow banking system" of investment banks, money-market funds and "hot money," parallel to the commercial banking system, and shows indisputably how deregulation allowed the shadow banking system to grow and outstrip the regulated banks, to the point of their collapse in 2007-08.

The report cites as pivotal, the 1933 passage of the Glass-Steagall Act, with its establishment of the Federal Deposit Insurance Corporation, intended to protect depositors' monies, prevent bank panics and to discourage excessive risk-taking in the banking system. But as the shadow banking system grew in the 1970s and 1980s, the commercial banks argued they they had been trapped in a straight jacket since the 1930s by Glass-Steagall, which strictly limited their participation in the speculative securities markets.

The FCIC Report documents the step-by-step drive for deregulation in the 1980s and 1990s—justified by arguments for unlimited competition and "innovation," typified by the argument put forward by Fed chairman Alan Greenspan, that "unfettered markets create a degree of wealth that fosters a more civilized existence."

"Beginning in 1987," the FCIC report states, "the Federal Reserve accommodated a series of requests from the banks to undertake activities forbidden by Glass-Steagall." The movement continued to dismantle the regulations that restricted depository institutions' activities in the capital markets. "In 1991, the Treasury Department issued an extensive study calling for the elimination of the old regulatory framework for banks, including removal of all geographic restrictions on banking and repeal of the Glass-Steagall Act."

Chapter 4 recounts the events of the 1990s, when the parallel banking system was booming, commercial banks were acting more like investment banks, and the largest banks were pressing regulators, state legislators, and Congress to remove almost all remaining regulation, especially that which separated commercial banks from securities firms and insurance companies. In 1998, Citicorp forced the issue of Glass-Steagall repeal, with its merger with Travelers insurance company to form Citigroup; and the next year, Congress compliantly passed the Gramm-Leach-Bliley Act, lifting most of the remaining Glass-Steagall restrictions. The FCIC cites a New York Times report that Citigroup's Sandy Weill hung a plague in his office with his portrait and the caption, "Shatterer of Glass-Steagall."

"The biggest bank holding companies became major players in investment banking," says the Angelides Report. "The strategies of the largest commercial banks and their holding companies came to more resemble the strategies of investment banks."

And on it went—until it predictably blew up in 2007.

They Protest Too Much

Both of the dissenting FCIC reports, coming from the four Republican members of the 10-person commission, singled out the mention of Glass-Steagall, explicitly denying that the repeal of Glass-Steagall was a cause of the crisis.

Peter Wallison, who for years has been the leading Wall Street propagandist for deregulation, accuses the Commission's majority of only looking for facts to support their assumptions about deregulation, "greed and recklessness on Wall Street," etc., and he then declares, astoundingly, that: "No significant deregulation of financial institutions occurred in the last 30 years. The repeal of a portion of the Glass-Steagall Act, frequently cited as an example of deregulation, had no role in the financial crisis."

Wallison's entire tedious, lying, almost 100-page argument, is that the sole cause of the crisis was the federal government's housing policy which encouraged poor people to buy houses they couldn't afford, exemplified by the role of Fannie Mae and Freddie Mac, and the Community Reinvestment Act.

Wallison's argument was too much for even the other three Republicans on the Commission, who were not so sweeping in their dismissal of the majority's analysis, but who nonetheless assert that "Neither the Community Reinvestment Act nor removal of the Glass-Steagall firewall was a significant cause."

These arguments, dismissing the crucial role of the repeal of Glass-Steagall and other financial deregulation, have been repeated incessantly, and lyingly, by Wall Street apologists since the release of the truthful and irrefutable Angelides Report.