Since Clinton and her operatives have become aggressive in trying to discredit Bernie Sanders on issues where he both has a better track record and better proposals, it’s time for a wee reality check, in this case, on Sanders’ financial reform package.
There’s a lot to like, for instance his insistence that executives be prosecuted for serious misconduct and his backing of a Post Office Bank. There are also some things that need to be reworked, like his usury ceiling proposal. Classical economists like Adam Smith were keen supporters of usury ceilings because they could see the consequences of letting lenders charge whatever interest rate they could get. Creditors targeted wealthy gamblers first and foremost, and the rates they were willing to pay was punitively high compared to what productive enterprises could support. Thus Smith and his colleagues saw usury limits as key to forcing lenders to find the best targets at a reasonable rate of interest, rather than search out the most reckless, who tended also not to be socially beneficial users of funds either. The failing with the Sanders proposal is that he sets as fixed limit of 15.9%; it should be set in relationship to prevailing interest rates, as well as the length of the loan.
Larry Summers, acting as a proxy for Team Clinton, took a swipe at the Sanders’ views in a Washington Post op-ed at year end. Admittedly this was a case of dueling op-eds; Summers was responding to a Sanders article in the New York Times which outlined his reform priorities.
However, one of Summers arguments, and one that Clinton has taken up now that Sanders has set forth his plan in more detail, is that Sanders’ “Glass Steagall” reform idea is all wet.
Clinton has brazenly mischaracterized Sanders’ proposal. She makes it sound as if it is a straight-up revival of the 1933 law, and asserts that it misses “shadow banking” and her reform proposals are much better on that front. We’ll discuss this issue in greater detail in a later post. The short version is that Sanders did not propose restoring the original Glass Steagall. He intends to implement the bill devised by former FDIC chairman Tom Hoenig and Elizabeth Warren which is informally described as the 21st century Glass Steagall Act. And yes, sports fans, it includes provisions to curb shadow banking.
Summers made the same mischaracterization, but took another angle of attack: Glass Steagall had nothing to do with the crisis, ergo restoring it wouldn’t stop future crises.
This line of argument is also bogus, but because most members of the public don’t understand how Glass Steagall contributed to the crisis, they make arguments that can easily be swatted down. So let’s give a little history so that you can better appreciate how Summers distorts the record, and then we’ll turn to his argument, such as it is.
How Glass Steagall Was Dismantled
Too many commentators focus on the formal repeal of Glass Steagall in 1999, as if that were a meaningful event. In fact, by then Glass Steagall was a dead letter. The only reason for dismantling it was to allow for the merger of Citigroup and Travelers.
By then, US banks were allowed to do a great deal of investment banking business through subsidiaries, which were subject to revenues as a percent of total revenue limits that were seen as a nuisance rather than a constraint (as in a bank could book high revenue, low profit trading activities that had always been permissible to engage in, like foreign exchange and Treasuries, so that the non-investment banking operations would show high enough revenues as to not be a hindrance).
It took well over a decade to get to this point. The then-Citibank had been pushing to get into investment banking since the early 1980s, and JP Morgan soon joined them. One could argue that Mike Milken did an Uber-like end run of Glass Steagall, since he famously, and illegally, controlled the investing of the capitve, um cooperative savings and loans in his network. Milken cronies would all be directed to raise more money than they needed through Drexel, typically 15% more. They were then expected to invest the excess funds in new Milken deals. In the case of the savings and loans, they were faxed a sheet at the end of the day telling them what they owned. Milken was effectively trading on their behalf.
But Glass Steagall was undeniably breached by 1990. Commercial bank Credit Suisse acquired a 44% stake in First Boston in 1988, and obtained control in 1990. And First Boston was no small fry. It was one of five “bulge bracket” investment banks and with Salomon Brothers, one of the two biggest bond dealers. As Wikipedia drily notes:
In 1989, the junk bond market collapsed, leaving First Boston unable to redeem hundreds of millions it had lent for the leveraged buyout of Ohio Mattress Company, maker of Sealy mattresses, a deal that became known as “the burning bed”.* Credit Suisse bailed them out and acquired a controlling stake in 1990. Although such an arrangement was arguably illegal under the Glass–Steagall Act, the Federal Reserve, the U.S. bank regulator, concluded that the integrity of the financial markets was better served by avoiding the bankruptcy of a significant investment bank like First Boston even though it meant a de facto merger of a commercial bank with an investment bank.
Astute readers will note it as as failed LBO deal that led to this precedent.
Mind you, other banks didn’t get such big waivers quickly. But over the next few years, Glass Steagall was shot full of holes. Banking regulators accepted the premise that McKinsey was pushing at the time: traditional banks were facing a profit squeeze, hence they needed to be allowed to pursue higher margin activities like investment banking. The other excuse was that US banks were at a disadvantage relative to Eurobanks, which were universal banks (it was hard to take that seriously, since the Eurobanks were also-rans in the US, and once you backed out the profits of private banking, not terribly profitable either, but US regulators weren’t inclined to scrutinize the argument).
So by the late 1990s, even though there were parts of the business due to historical reasons, such as geographical footprints, reputation, relationships, or the time it took to build sufficient bench depth, where particularly players still had strong or even dominant positions, the various big capital markets firms, which meant Eurobanks like Deutsche, Credit Suisse, and UBS, big US commercial banks like Citigroup, and the old investment banks were all competing in many of each other’s markets. More important all were pursuing the same general strategy: originate, trade and sell the full suite of capital markets instruments (debt, equity, FX, and related derivatives) and related pure advisory services in all the major financial centers in the world. Pretty much all firms were also pursuing asset management too, even though that was not quite as integral.
Now what was the big danger here?
This approach had huge fixed costs: a really big international IT operation and back office, including all those trader stations and data feeds (which were constantly updated, since better risk management tools and trader decision support were one axis of competition), office space in the best part of town in financial centers all over the world, and most important, all those highly-paid and high-maintenance professionals, as in “talent”. Even though management tried to lower how much was fixed costs via performance bonuses, this was often undermined by the practice of poaching senior individuals and even full teams with hefty 2-3 year pay guarantees (pervasive at also-rans seeking to catch up with the leaders).
So what this meant in practice was that a top firm, say a Goldman, would have 100% of a certain cost level. We’ll index their revenues as 100. Its close competitors might have pretty much the same costs but only 90% of the revenues. The next tier players would have only 70-90% of the costs but 50-60% of the revenues.
It was perceived to be imperative to get to at least a perceived-to-be-comeptiive footprint, which for practical purposes would entail something like 85% of the costs of the capital markets leaders. But there was great leverage on that cost base. So getting to the minimum level of geographic and product coverage was merely the very big cost of entry in the capital markets game.
With that as background, let’s turn to Summers.
Summers’ Disingenuous Arguments
Even though this is the warm-up to Summers’ Glass Steagall section, it merits comment:
On regulatory policy, no one is for gambling with insured deposits. But Sanders fails to recognize some of the tensions that make regulatory policy so difficult. Loans to small businesses — which he likes — are far riskier than holdings of securities that are marked-to-market on a daily basis. So if banks focused on traditional lending, they would be riskier than they are today. Indeed the majority of the world’s banking crises — over the past three centuries and over the past quarter-century — have come from traditional lending, especially against real estate. Making banks safer means reducing their dependence on traditional lending activities. Balances must be struck.
Let’s stop with “no one is in favor for gambling with insured deposits.” The major banks all book derivatives in their depositaries, so they most assuredly like and want to continue this practice, Moreover, in 2011, the FDIC sat pat as Bank of America moved Merrill Lynch derivative exposures into its depositary. And as was reported at the time, the Merrill positions were considerably riskier than those of JP Morgan.
And what is Summers talking about regarding risk? Securities inventories can make very large moves in short period of time. That is considered risky, period. And if you are talking about loans, I’d hazard that loans to frackers will fare a lot worse, in terms of credit losses, than a diversified book of small business loans. The real issue with small business loans, as we’ve discussed repeatedly, is that banks no longer have the skills to make loans that require assessment of character and the local market. They disbanded credit officer training programs over two decades ago.
And as for real estate loans being the main cause of financial crises, that’s all wet too. In the 2008 debacle, real estate lending losses would have produced an nasty savings & loan level crisis. What metastasized that crisis into a global financial melt-down was derivatives, specifically credit default swaps written on risky subprime exposures. The synthetic exposures were somewhere between 4 and 6 times the value of real economy subprime risk. And a high percent of the CDS exposures (whose risk was masked by packing them into collateralized debt obligations, see ECONNED for a long-form discussion) wound up at under-capitlized, systemically important financial firms.
It’s also incorrect to say that historically, financial crises were real estate driven. Summers had a front seat at the Asian crisis of 1997, which had nada to do with real estate. The LTCM meltdown, which was a systemic crisis in the making, resulted from LTCM taking an insanely large position in the interest rate swaps market, making a bet that went bad, and having the rest of the market recognize that there was a drowning whale and trade against them. It had zippo to do with real estate.
Similarly, a derivatives crisis in 1994-1995 produced greater losses than the 1987 stock market crash. It also led the US to use the Exchange Stabilization fund, which was intended to support the US currency, instead to prop up Mexico, which was a back-door way to bail out dealers like Morgan Stanley and Merrill, who had made bad derivative bets. The Latin American crisis of the late 1970s was not a real estate crisis. Nor was the Great Depression; the US leg was the result of losses on very leveraged stock market speculation; the international component was the breakdown of the effort to go back on the gold standard (see Peter Temin; I find his thesis most persuasive of all of the prevailing theories).
Now we get to the Glass Steagall part:
Sanders asserts, as many do, that Glass Stegall’s repeal contributed to the crisis. I may not be objective, as I supported this measure as Treasury Secretary, but I do not see a basis for this assertion. Virtually everything that contributed to the crisis was not affected by Glass Steagall even in its purest form. Think of pure investment banks Bear Stearns and Lehman Brothers, or the government-sponsored enterprises Fannie Mae and Freddie Mac, or the banks Washington Mutual and Wachovia or American International Group or the growth of the shadow banking system. Nor were the principle lending activities that got Citi and Bank of America in trouble implicated by Glass Stegall.
I wonder where the Washington Post copy editors were on the spelling of Glass Steagall; was that a wee bit of sabotage?
To the substance: let’s first consider that Sanders is not making a very strong claim. He is merely saying the slow motion death of Glass Steagall contributed to the crisis, not caused it.
Now go back to the strategic picture I painted above, that the erosion of Glass Steagall led major financial firms, namely universal banks, big US commercial banks, and traditional investment banks, all to pursue the same capital markets strategy. Given that they all traded with each other, it had the bad side effect of making them what Richard Bookstaber called “tightly coupled” or overly connected, so that if Something Bad happened, the domino effect could move through the system before anyone could stop it. Now Glass Steagall’s fall wasn’t the sole cause of the overconnectedness, but it led to far more firms being tied up in what amounted to a single electrical grid.
We pointed out the danger of being a subscale player. You were already under pressure to increase your infrastructure (products depth and range, as well as geographic footprint) when you didn’t have the revenue of the top players. If you were subscale and had any pockets of strength, you were in constant danger of having those teams raided by firms that had a bigger platform. Odds were high they’d do no worse and would probably be more productive if they jumped ship. And once you had teams being picked off, you were on your way to losing your independence. The businesses were tightly integrated enough that losing a team would damage your standing in related businesses, making those professionals less productive (as in lowering their bonus prospects) and increasing the odds they’d leave or be recruited away.
It was thus imperative for a subscale player to work like mad to climb his way up the food chain. He had to to have any realistic chance of long-term survival.
Since these firms couldn’t match the raw revenue generation power of their bigger peers, they had to focus their resources on higher potential profit businesses. They’d wind up making bigger bets on what they thought were the best opportunities. And since the profit model in the late 1990s and early 2000s, thanks to falling and ultimately negative real interest rates, shifted the business model away from lower-risk fee businesses to higher risk trading businesses, it also entailed taking more balance sheet risk.
Who were the most subscale players? Bear Stearns and Lehman. And what was their big strategic bet? Real estate, particularly the seemingly high profit subprime sector. And for Bear, that also meant becoming a big player in credit default swaps (recall that Bear was one of the few players that John Paulson approached early on to create CDOs that were designed to fail).
So Summers is dead wrong in his simple-minded version of “Glass Steagall had nothing to do with Bear and Lehman.”
AIG, Fannie and Freddie were among the biggest customers of the Wall Street subprime bonds and CDO factory. AIG had accidentally created a firm within a firm and had gotten rid of its real risk managers, leaving Joe Cassanno, a bully who didn’t understand the downside until way too late, in charge. Fannie and Freddie both talked themselves into the foolish practice of using the fees they got for insuring mortgage bonds and investing that dough in subprime bonds and loans. Freddie and Fannie (as we discussed in 2007) were already thinly capitalized; they could not afford a bone-headed bet like that. So AIG, Fannie and Freddie were all insurers that made terrible investment decisions by virtue of falling for Wall Street’s latest apparent high return opportunity. AIG was systemically important by virtue of its CDS serving effectively as synthetic equity to the banks, since it allowed them to greatly understate the capital needed to support their CDS and/or credit default swaps. Again, had banks been separated from investment banks, AIG would have been the counterparty to far fewer institutions with much smaller balance sheets (ie, under a traditional banking regime, it would be less likely that US and UK banks would have been allowed to play in the CDS casino, but you would have seen similar casualty levels among the Eurobanks).
Oh, and who else disagrees with the Summers argument? Both of the UK banking regulators, the Bank of England and what was then the FSA. Bank of England governor Mervyn King, Executive Director of Financial Stability Andy Haldane (widely seen as one of the most creative economists of our day, and whose understanding of the financial crisis runs rings around Summers’) and Adair Turner all pushed hard for a breakup of the banks in the UK along Glass Steagall lines. They were bitterly opposed by the bank-cronyistic UK Treasury, with the result that the UK has moved to internal balkanization of the investment banking businesses, as opposed to a full split.
One of the Haldane’s insights that led him to support breaking up the banks was the analogy of financial systems to biological systems. Biological systems dominated by a few or one species are less stable than more diverse ones. As we illustrated in our history of how banking changed as Glass Steagall was torn down, financial firms that had once had different regulatory charters and resulting differences in product and customer focuses increasingly converged as the regulatory barriers were torn down. Haldane argued that a world of more specialized players would produce more diversity, and would also lead to less concentrated economic and political power (smaller, more varied firms would often wind up on different sides of pending regulatory issues).
So Summers has played his typical role, a defender of bad orthodox thinking, and in this case, as he admits, of his own dubious track record. It’s remarkable anyone still listens to him. Failing upward, or at worst, sideways, is apparently even more common in the Beltway than it is in Corporate America.
* In one of the few times in my life I’ve gotten to play Zelig, I was sitting in Steve Benson’s office in 1989 when he burst into the room and said, “We just won the bid on Ohio Mattress.”
seems wordpress cut off part of your post?
It launched prematurely. All here now!
Karl Rove believed in attacking his opponent’s strength; so he would be pleased that Clinton has adopted his tactics, by swiftboating Sanders on Glass-Steagall (and single payer). I just wonder what will happen when Clinton starts playng really dirty…
Ads showing Sanders with murky suicide bombers in the background? I think it’s surprising that the news media are giving Bernie a little space to compete. Maybe they really don’t have Hillary’s back.
A high bar was set with Fiorina’s electric demon sheep.
Yes, Hillary learned from the Harry and Louise ads. Lies and fear-mongering can work. She and Chelsea are saying that Bernie wants to take away your health insurance.
I think you could produce a daily newspaper with the headline ‘why Larry Summers is Wrong’ on every page for every day for a year and still not cover everything he says.
But it does still amaze me that someone so prominent can get away with saying so many transparently false things and still hold his reputation. Its one thing to accept a politician evading the truth, its another for someone who is supposedly an independent expert to do it. And he is of course, far too smart not to know exactly what he is doing.
It shows, among other things I think, the poor quality of so much journalism that there are limited numbers of journalists with the ability and desire to actually challenge him on his evasions and falsehoods. But it seems that half the economics writers in the US are hustling to get on Team Hilary, so who cares about proper analysis.
Very well said, that is one talking head economist I absolutely despise. Summers belongs in the dustbin of history, but sadly no one will put him there.
I wish he would rocket back to his lair on Tantooine,…..and leave the humons alone…..
To borrow verse from Douglas Adams: Larry Summers should be first against the wall when the revolution comes.
His reputation as the mouthpiece of a powerful financial/ideological faction is intact. Being right or wrong is immaterial to his function. That, I surmise, is why he is given credence and coverage.
Believing that tightly coupled risk probabilities can be even be computed (using oversimplifications) leads many “too big to fail” banks to support the Summers view since they have the US Treasury to bail them out when their risky bets go bad. Enough, already!
Larry and Hillary are attacking a straw man, not Sanders. That’s politics as usual, and the public usually falls for it.
It was most enlightening to hear the many ways the original Glass-Steagal firewall was eroded away. Like the Mosul Dam about to collapse in Iraq, the pressure of greed on the wall between investment banking and traditional banking would not relent. Then came the Flood.
hard to get into a sound bite, though. Yves usually is.
Larry Summers is highly regarded solely because when he’s asked what time it is, his first response is what time do you want it to be? I agree with that the repeal of Glass Steagall was only part of the cause of the financial crisis but I will continue to maintain that it was virtually the sole cause of TBTF. We could have absorbed the losses, but the adverse consequences to our payments system while all was sorted out would have been catastrophic. At the risk of simplifying the issue, the choice is to separate our payments system from investment banking or be resigned that TBTF will live on regardless of claims to the contrary.
Isn’t the true power of the commercial banks (including credit unions, I suppose) that they have accounts at the central bank (eg Federal Reserve in the case of the USA) and the population can’t? Why shouldn’t every US citizen, for example, have a risk-free account at the Fed and be able to deal peer-to-peer with commercial banks and each other? Instead of having to deal though the privileged commercial banks?
Why the distinction between commercial banks and all other fiat users? Who ordered that?
So which Hillary! admin job is Summers auditioning for ? That’s the big question.
He still wants to be chairman of the Fed but he’d settle for running the World Bank.
This kind of sums it up without the detail:
“crisis into a global financial melt-down was derivatives, specifically credit default swaps written on risky subprime exposures. The synthetic exposures were somewhere between 4 and 6 times the value of real economy subprime risk. And a high percent of the CDS exposures (whose risk was masked by packing them into collateralized debt obligations, see ECONNED for a long-form discussion) wound up at under-capitlized, systemically important financial firms.”
No mention of Greenspan? My opinion is he started the demise of Glass – Steagall by allowing big banks to cross over to the dark side with investments resulting from the easing of the restrictions enumerated in Section 20 (bars commercial banks from being “engaged principally” in the securities business). It was gradual since the eighties and started in 87 when the Fed approved the change to 5% investment in a 3-2 vote as led by Greenspan and overruling Volcker . I always looked to Greenspan as someone who should have known better.
Maybe something else may have happened to have caused the near fatal collapse of a Wall Street and TBTF vortex sucking Main Street into it’s failure.
Thank you for all of your reality exposing efforts. I can never understand why AIG’s owners and senior managers avoided life sentences. They created garbageo supreme pseudo insurance policies which supposedly insured obvious garbage derivative notes which were then promoted to less knowledgeable buyers like Euro banks, pension funds, and smaller investment groups etc. The AIG exec’s knew full well that AIG had only around 2 billion usd in liquid assets with which to pay off in case of default on many trillions of deadbeat debt instruments – a debt pyramid standing on it’s head; very little backing up a huge huge number of sure to default mortgages. These guys did as much to facilitate the financial disaster and associated enormous personal loss to millions of American families and historically unprecedented risk to the world’s banking/financial systems as are the Wall Street gang of criminals who were deemed untouchable due to the self interested notion of TBTF promulgated by the corporate media hacks who whipped up a huge smoke screen of BS behind which the largest theft in the sordid history of criminal banking was executed.
AIG got quietly tidied up and the culprits, like the TBTF bangsters (not a typo) who escaped intact and with FED rescue money now are not only not in jail, they are financially shielded and grossly rewarded for their theft and debt shifting onto the backs of American families and taxpayers (largely middle class). Criminals everywhere are in awe of the kahoonas and mind bending greed it took to perpetrate this gargantuan fraud and theft. Minor criminals serve long jail sentences for their misdemeanors while the Wall Street hyper-criminals laugh all the way to the bank.
Did you know AIG was the insurer in Iraq for US government agency contracts. Always wondered why AIG wanted to play in that particular sand box.
If you did not notice, I am not Yves. She is far more attractive than this old Marine is. run75441 has been around for almost two decades now writing in various places and is now a writer at Angry Bear.
I am sure this was a mistake and you know it to be so. JIC.
I suspect Yves would be quite flattered to be mistaken for a Marine.
Well put. A very concise and accurate description.
I would just like to add that the rise of ICT accelerated this process and allowed the creation of complex financial structure and trading velocities that were unthinkable in the 80’s. And along with that the illusion (hubris) that Marking to Market and other risk management fantasies actually work in a tight non-linear feedback environment.
What’s ICT? It’s probably something that I should know, but I don’t.
Information and Communications Technology.
ITC……..for a moment there, I thought you were referring to the purveyor of quantum teleportation*……..boy, am I relieved !!! Timeline — by Micheal Crichton
Just referring to the fact that the technical infrastructure underlying modern banking, market, etc. has changed dramatically as well. Including regulation starting with the SEC allowing ECN’s in 1997 and various other regulations around SRO’s, trade through rules, clearing and settling, etc.
So the point is simply that when you have a hyper-connected world-wide network of products, firms and trading activity, dark liquidity pools, and leviathan like off-balance sheet structures, Information technology and communications accelerates the problems that Yves pointed out, beyond human understanding.
Besides isolating what is euphemistically described as “investment banking”, downsizing and deconstructing the financial sector by an order or magnitude is called for.
Just a dumb question from a non economist like myself: Does the securitization PROCESS for mortgages or other loans actually breech the would be Glass Steagall firewall because at the bottom of the food chain is retail lending and at the top of the food chain is securities, Wall Street, Fannie and Freddie, CDS’s etc. In between there is too long a food chain with too many predators resulting in a very high “overhead” cost for every loan and a very tangled mess of interconnectedness resulting in contagion if things go wrong, and making it nearly impossible to untangle the mess to refinance anything?
I’m not certain about your question, however I do like to chime in re: securitization and mortgages.
If you look up the term Securitization in Black’s, it means to convert an addet into a security. Did you or anyone give written permission to convert your note into a security?
Might be wise to read the fine print.
The FDIC is not the primary financial regulator (PFR) for the big banks, the OCC has that honor, and the Fed is the PFR for the bank parents, the bank holding companies.
How does that make any sense?
The OCC is a notoriously useless regulator – no wonder we’re in so much trouble.
Great post. Thanks.
“So if banks focused on traditional lending, they would be riskier than they are today.”
If banks still had credit/loan officers/depts that did actual due diligence (“traditional lending”) the banks would be much safer than they are today, as you point out.
Risk? Why should we care if commercial banks fail IF we all had what they have, inherently risk-free accounts at the central bank of our own?
The commercial banks hold the economy hostage because the payment system depends on them, ie. the economy functions via sub-accounts at commercial banks – the only fiat users allowed to have direct central bank accounts.
If everyone, including individuals and businesses, could have accounts at their respective central banks then peer-to-peer transactions, including payments and loans could bypass the commercial banks and thus commercial banks would no longer hold the economy hostage.
The would-be central bank abolishers have it wrong; the solution is not to abolish central banks but to make them 100% inclusive of all fiat users, if they so desire, and free all of us from the tyranny of commercial banks.
Wouldn’t they then be government-operated commercial banks? The only way this is an objection is that it’s much higher overhead – dealing with the public is expensive.
And as commercial banks they couldn’t have their regulatory function, as the conflict of interest would become too obvious.
I think I’ve talked myself into your idea.
With an account at the central bank, anyone could function as a commercial bank – if he/she can find depositors for his/her bank. But without government deposit insurance (it would no longer be needed since accounts at a central bank are risk-free by nature) then who would dare deposit at a sub-account (eg. checking account at a commercial bank) except sophisticated investors who willingly take risk in exchange for interest?
I think you could produce a daily newspaper with the headline ‘why Larry Summers is Wrong’ on every page for every day for a year and still not cover everything he says.
But it does still amaze me that someone so prominent can get away with saying so many transparently false things and still hold his reputation. Its one thing to accept a politician evading the truth, its another for someone who is supposedly an independent expert to do it. And he is of course, far too smart not to know exactly what he is doing.
it’s always better to be wrong for the right reasons, than right for the wrong reasons…
the really instructive episode is the time he was allowed to manage a hedge fund (which fronts as a private research and teaching university) and almost bankrupted it betting on interest rates. his exit was back into government and it was not “failing upward.” it illustrates, crucially, just how “finance” views government and, in particular, policy discussions.
One additional points:
The whole tri-party repo market (at least to the degree that securities other than treasuries serve as collateral) was explicitly prohibited by Glass-Steagall. In fact, there is still a law on the books, 12 USC s. 374a that reads: “No [Federal Reserve] member bank shall act as the medium or agent of any nonbanking corporation, partnership, association, business trust, or individual in making loans on the security of stocks, bonds, and other investment securities to brokers or dealers in stocks, bonds, and other investment securities.” (All banks regulated by the OCC must be Federal Reserve members.)
Only due to the absurd fiction that repos are not loans, but sales and repurchases can JPM and BNY play the role they do in this market.
That’s a very helpful point, thanks. And I recall that the tri-party repo system was allowed to grow, indeed almost fostered, because the officialdom thought it would reduce risk.
Having money market funds involved in tri-party repo also seems problematic. They seem to take the main risk with the primary dealers as JPM and BNY can pull the plug at any time they think a deal is going south.
The problem seems to be how well the Fed can support these money market funds if the securities and derivatives they get involved with turn south.
The Fed stepped in during the last crisis but are they going to be willing or able to shore up money market funds in the next one.
“”in a quite unconventional move, the Federal Reserve decided, effective on Tuesday, March 11, 2008, to offer primary dealers an amount of $200 bn in Treasury bonds and bills in exchange for mortgage-backed securities after spreads for the latter instruments widened dramatically. This was directly beneficial for the banking sector to the extent that illiquidity of collateral assets impairs the functioning of the repo market.””
” And yes, sports fans, it includes provisions to curb shadow banking.”
Jumping off from this, a suggestion I hope someone will critique: it should be illegal to sell unregulated financial products. I would base this on the government’s fundamental role as enforcer of contracts, so if it isn’t regulated, it isn’t a valid contract and isn’t enforceable.
This is responding to the base issue of shadow banking, that it’s a way to dodge regulation. That was a huge factor in the 2008 meltdown. Of course, a lot of that was a conscious political decision not to regulate. That should never be a thing. In general, innovation and complexity in finance are bad things, vehicles for fraud – a major lesson of the Great Financial Collapse, and one that has not been applied in policy, apparently at all.
“Although such an arrangement was arguably illegal under the Glass–Steagall Act, the Federal Reserve, ”
Isn’t there a conflict of interest in the Fed being the chief regulator? How is that compatible with their other roles?
This is hardly a new idea, it’s implicit in the criticisms of Geithner’s role at the New York Fed, but the Fed’s role in rendering Glass-Steagall a dead letter makes it even more obvious.
Yves is a great litigator, so clear/concise/complete, like Glen Greenwald.
One thing… the politeness is a mistake. Why ‘debate’ Summers (and Clinton) when, clearly, he should be ‘indicted’ (Clinton for her glaring war crimes)? We all know, Summers’ article is written to deceive, with obvious criminal intent. Why not demand Summers be indicted/prosecuted/punished for his obvious involvement in HUGE organized crimes against the public interest.
BTW… I’m shocked what little influence Dr. William Black had on the IM community. Over and over Dr. Black proved 1) if you let criminals thrive they WILL take control of entire markets/systems and 2) the ONLY way to fix corrupted markets/systems is to enforce the laws (i.e. demand the government – repeat, GOVERNMENT – enable whistle blowers, respond with specialized civil-servant-regulator investigations, coordinate with FBI to further investigate, supply evidence and coordinate with DOJ prosecutors to prepare and execute public trials, get convictions, and, finally, severely punish criminals, particularly the criminals like Larry Summers involved in the large-scale organized white-collar crimes which are now destroying whole economies).
Wonderful post. Nice work.
Haldane’s very good, unfortunately it seems he was sidelined under Carney a bit (could not be entirely, but I believe his views had more weight in decision making under King than they do now).
That said, I’m not entirely sure whether GS in its original form (I didn’t read the actual law, so may be wrong) would have made a difference.
Would GS prevent the marks in commercial banks loading up on CDOs? I don’t think so, as long as they were “investment grade” by *gasp* a rating agency – at least that’s my understanding what Comptroller of the Currency allowed as “permitted national bank investments” (PNBI). I could be wrong here and happy to be corrected.
From that perspective, having the PNBIs defined by CoC was not that much different from todays regulators allowing/disallowing investments (or rather making them uneconomical via high RWA), so not really GS issue IMO. No GS repeal necessary, captured CoC would do just as well, thank you very much.
Would it prevent insurance companies (monolines + AIG) selling “safe” CDSes? I don’t think these fell under GS, so again, I don’t think so.
I don’t believe that GS would prevent banks originating crappy loans and selling them to the investment banks to securitize – IBs were restricted only on taking deposits.
Sure, commercial banks having large trading desks didn’t help, but majority of the losses weren’t in the vanilla flow swap desks, or even flow corporate credit (there were losses, and they didn’t help, but compared to the securitization losses they were small IIRC). And, importantly, I don’t believe derivatives came under GS (again, I could be wrong here and happy to be corrected), as say IR swaps are not technically securities. They would not even be out of the repo market as long as the securities were govvies or (because it was sale/purchase) PNBI as above.
I agree with your point on scale and team poaching, and I agree it most likely lead to banks taking higher risks than they would if they couldn’t even think of doing it directly. But I have seen so many times the sophisticated to figure out how to sell to unsophisticated (while bypassing the restrictions and regulations) that I have my doubts on whether the end game would be different even if there was a separation. If I am correct in assuming that derivatives were on (including derivatives with underlying being PNBI), I can see how a GS commercial bank could easily lever via CDSes or TRSes or similar synthetic instruments just as well as any IB. Again, happy to be corrected here.
In other words, once you started creating these products, could you really separate the ecosystems (unless you had a good regulator, but then you’d not necessarily need GS)? Was GS really an ecosystem separator or were there “creative” ways to tightly couple the two halves regardless (with an accommodating regulator) ? Was it that one half of the ecosystem invented something the other half wanted badly, in turn tying them together and creating a relationship which looked (and initially maybe even worked) as symbiotic but ultimately turned parasitic?
One point I heard from someone was that more than a few people knew high rated ABSes were crap – and resisted buying them for a long time. But because nothing happened for years, and the fact they weren’t buying them meant less profitability etc., they were eventually forced to get into the game. Which then of course blew up.
I’d argue here that GS was so outdated (and there was no incentive to update it, quite opposite), it was comatose in late 1960s and dead in early 1980s with the spread of derivative markets. I know you make this argument as well, although you put the moment of death a decade or so later.
You make a point that Summers actually uses that to misinterpret Sanders, and I agree. But I also believe that in taking this argument with Summers, one is playing into his hands. I think a better argument would be to say that GS served ok at its time, and didn’t later on, simply because few laws can if the enviroment changes so rapidly as finance did. But that doesn’t mean the we should not have a son-of-G-S in the same spirit (of creating ecosystem), and with more knowledge we can hopefully do better in terms of longevity than GS did.
Such as, for example, instead of restricting operations (and missing what happens in future), restricting balance sheet. Which restricts resources, forces specialisation, and at the same time means that more players can live in the same space.
The banks that loaded up on CDOs were eating their own cooking. They were originating them as a way of disposing of RMBS tranches they could not sell otherwise. Had they not been allowed to underwrite bonds (and they weren’t under Glass Steagall), yes, they never would have had any reason to do so.
And the banks that did load up for other reasons were (as we discuss long form in ECONNED) were Eurobanks where the the traders were engaging in the so-called “negative basis trade” which was allowed under Basel II rules, which US and UK regulators had yet to adopt. A bank that bought an AAA rated instrument and hedged it with an AAA counterparty (and some banks let this trade fiy wit only an A rated counterparty hedge) got treated as having a zero capital weighting. The accounting astonishingly allowed traders to book all future profits on the hedged position now. It created millions of dollars of phony profits and big big bonuses.
Glass Steagall comatose in the 1960s? Seriously, are you mad?
Do you even understand what Wall Street was in the 1960s? It was almost entirely stock brokerage. Credit was provided almost entirely by banks. Retail brokerages also sold muni bonds. There were few corporate bond issuers, mainly banks, utilities, and the financing arms of retailers and industrial lenders like GE. Those bonds pretty much never traded, bonds were a buy and hold business. Syndicates were led by blue chip firms like Morgan Stanley and Kuhn Loeb who didn’t even sell securities! The roles were far more fragmented than you appear even remotely to understand. The big retail “wire houses” like Merrill Lynch and Paine Webber were completely different animals than Goldman Sachs, which had institutional equity distribution and was also a commercial paper dealer (and was NOT an elite syndicate leader).
I worked for Goldman in the early 1980s and advised Citibank in the early 1980s in its quite honestly pathetic investment banking efforts. Citibank spent a huge amount of money getting regulatory waivers, and its focus then was on interstate banking. It wan’t pushing hard on investment banking (reg wise) because there was very little receptivity at the Fed (and the OCC did not become an important venue for letting banks get meaningful waivers until ex Covington & Burling attorney and Clinton appointee Gene Ludwig was mace Controller of the Currency). You forget that Volcker was head of the Fed and was perfectly willing and able to stare down banks and did not give a rat’s ass about bank profits as long as they weren’t at risk of failure. He would have pushed his super-high interest rate experiment even further (and banks were losing boatloads at the time) but it was making the Latin American debt crisis even worse, so he relented).
At Goldman I also had some commercial banks as clients. The short story was banks could do very little and were nowhere on the league tables. The could not underwrite stocks or bonds, and if you didn’t underwrite them (actually, lead manage deals, unless you were a retail stock broker with a good clientele), you could not make money. There was no point in trying to trade corporate bonds on a stand-alone basis. Banks couldn’t be members of stock exchanges! Banks were unable to much at all in investment banking. They were third tier players even in the businesses they were allowed to participate in, mergers and acquisitions and private placements.
This comment in your piece:
“… traditional banks were facing a profit squeeze …”
Which seen before both on NC and elsewhere has always struck me as odd since the reasons for this squeeze are never made clear (*)? We’ve been repeatedly told by the Very Serious People that the Fed’s I-rate raise is needed to improve banks’ profitability but as I recall – painfully – I-rates were hugely higher back then, in the 80s.
Was this “squeeze” anything to do with those accounting control frauds called the Savings & Loans taking away a large chunk of the bank’s traditional loan business – esp. commercial mortgages ? We all know how that ended with the S&L debacle, etc.
(*) Maybe the explanation is in ECONNED but I haven’t got my copy handy at the moment.
someone correct me if I’m wrong:
Interest rates were raised in rapid steps in the 80’s as part of the Feds effort to quash inflation. That meant banks, especially Main Street banks, that had loaned long at the start of the rate rise were squeezed when rates went way up in a short space of time because their loaned income was lower than the cost of new money to loan out. The banks had to pay more for money in interest than they could earn in interest from their loan portfolio for a significant (in the banking world) stretch of time. That was the earnings squeeze.
As least that’s how this non-banker remembers the situation.
I have a book by Lowell Bryan of McKinsey on my bookshelf called Bankrupt, written in 1989, all about the banking profit squeeze. I never bothered reading it closely, but he makes clear that regulators already bought his argument and were working to give banks regulatory breaks so they could make more dough.
My guess is that the argument was that more and more safe and high quality lending was moving into the capital markets, leaving banks with large infrastructures, less revenue, and risky and hard to administer loans. In other words, the investment banks were skimming their best business.
Thank you for this analysis. :)
Here’s another question: Why should Social Security checks (or direct deposits) and other spending by the US Treasury GIFT the commercial banks with huge amounts of reserves (aka fiat balances at the central bank for us non-bankers)? Why shouldn’t the commercial banks have to borrow (or buy, via assets sales) those reserves from, say, Social Security recipients, US Government employees, the US Military, and all other recipients of spending by the US Treasury? Why must all such spending by the monetary sovereign of the United States be directed to commercial bank accounts instead of to individual, business and organizational accounts at the Federal Reserve?
One plausible explanation to think on: if entities had direct bank accounts at the Federal Reserve and that was the default method for distributing sovereign money, then it would open up the national security state specifically and the government more generally to potential whistleblower, FOIA, error, and other types of actions that could lead to a fair amount of embarrassment.
The big banks are tools of government policy (although a lot of Democrats will try and switch the power relationship and blame everything on the banks themselves), handsomely rewarded with various subsidies and protections in exchange for quietly handling the various money laundering and sundry payments required to keep the operational details of the American empire as reasonably secret as possible in the midst of the collapse of the post-Bretton Woods arrangement on how the international monetary system would work in a fiat world (that arrangement – US Hegemony – lasted roughly from the collapse of the London Gold Pool in the late 1960s to Gulf War 1.0 in the early 1990s, but these are processes not specific events). The problem that our fearless leaders are running into today is that the post post-BW arrangement (ie, financial fraud and regime change) is also breaking down. Iraq and Libya aren’t going according to plan, Ukraine and Syria are looking like outright failures for the Serious People crowd, Franco-German Europe is dangerously close to abandoning the vigor of Anglo-American domination, and Russia and China have proven unbreakable so far. Meanwhile at home, the two tiered justice system generally and the drug war in particular that is the heart of maintaining our whole social order in a state that tolerates extreme concentration of wealth and power is under sustained assault by young people who grew up in the DARE generation and find the authoritarianism of those in power beyond hypocritical bordering on nonsensical.
The neoconliberals need financial intermediaries in the private sector operating (supposedly) at arms length from the formal apparatus of public institutions to maintain plausible deniability. We can’t have drug dealers, terrorists, mercenaries, warlords, dictators, and other agents of American policy cashing checks from their Federal Reserve Basic Checking Account.
The accounts at the central bank, being risk-free, at least nominally, should pay no* interest so there would still be room for interest-paying, risky** commercial bank sub-accounts (eg. a checking account at a commercial bank).
*Unless we believe in welfare proportional to central bank account balance rather than welfare proportional to need.
**Since government provided deposit insurance would no longer be justifiable.
Agreed, I’m definitely on board with a plan to have direct accounts at the Fed and remove FDIC insurance from private commercial banking completely. Make it explicitly clear that putting large sums of money in ‘the bank’ is a loan, not a government backed guarantee.
There’s more: With individual accounts at the Fed, for example (of a central bank), then a metered* reduction in government-provided deposit insurance coverage could be combined with a metered, equal fiat distribution (similar to Steve Keen’s “A Modern Jubilee”) to the accounts of all adult citizens at the Fed to provide the fiat balances (aka “reserves” in the case of banks) needed for the transfer of now-at-risk deposits from the commercial banks to deposits into risk-free individual, business, etc. accounts at the Fed. Of course, the commercial banks should have to borrow those new reserves from all other fiat accounts, now including individual accounts, at the Fed and not receive cheap loans from the Fed itself.
Of course this presupposes that the commercial banks are not already awash in reserves due to expansion of the Fed balance sheet, so the sale of private** assets by the Fed should also be coordinated with the distribution of new fiat and abolition of government provided deposit insurance.
*eg reducing the current coverage from $250,000 per account to $0 per account over, say, 2 years.
** The Fed should not resell interest paying sovereign debt since that would constitute “corporate welfare” as Professor Bill Mitchell (billy blog) has noted.
Hunh? They are.
The money may be sent to the reserve accounts of banks, BUT it is for onward-forwarding to the account holder AT THAT BANK.
There are no “individual, business and organizational accounts” at the Fed.
The only entities allowed to bank at the US Federal Reserve are:
(1) US government
(2) US banks
(3) Foreign governments
(4) Foreign banks
“There are no “individual, business and organizational accounts” at the Fed.” MRW
And that’s the problem since it leaves the economy hostage to commercial banks who then must be pampered lest the check clearing system fail. It’s also a huge subsidy of free reserves (aka fiat balances at the central bank for us non-bankers) to the commercial banks.
“BUT it is for onward-forwarding to the account holder AT THAT BANK.” MRW
Not really since the only way to get those “onward-forwarded” reserves outside of commercial bank accounts at the Fed (besides paying taxes to the Federal Government or buying assets from the Fed) is to have them converted to physical cash. But physical cash and the mattress or a safety deposit box should not be the only way the citizens get to deal with their country’s fiat when central bank accounts of their own would allow them to deal peer-to-peer with each other and the commercial banks too.
What are you talking about, aka?
When the federal government buys annual office supplies for its agencies in DC, it ‘writes its cheque” to, say, Office Depot. [This is a hypothetical because I doubt the federal government buys from Office Depot or Staples; it buys from wholesalers. But the familiar makes it easier to understand.]
So the US Treasury authorizes the Federal Reserve to ‘write a cheque’ to Office Depot. Let’s make it $20 million to buy paper pads and pens for a year.
The actual procedure is that the Federal Reserve wires $20 million out of the US Treasury’s General Account at the NY Fed to Office Depot’s bank. Let’s say it’s the Big Poobah Bank of Delaware. The Federal Reserve uses “Fedwire’.
The $20 million goes into Big Poobah Bank of Delaware’s reserve account at the Fed for onward forwarding to whatever account Office Depot authorizes.
What Office Depot does with it is Office Depot’s business. Maybe it wants to shower its employees with a cash bonus (which it would do by check or wire transfer). Maybe it wants to buy corporate bonds. Maybe it wants to use it to pay suppliers in China. Who knows.
But Office Depot has access to that dough the moment it lands in its bank account.
You don’t understand the A-B-C of how all this works. You’re confused about it.
In other words, the commercial banks (including credit unions, I suppose) are a government-privileged cartel of gatekeepers to a nation’s fiat since fiat exists in only two forms: unwieldy, unsafe physical cash* and convenient, 100% safe (nominally that is) account balances at the central bank. Why then is the general population limited to only the former? Why should commercial banks enjoy central bank accounts and the rest of us can’t? Who ordered that?
* including sovereign bearer bonds, I suppose.
You need to do your homework. You are not understanding how this works.
Mate its hard yacka trying get around barter minds and the incongruity of sovereignty wrt to money types…
Those who think that Glass-Steagall (and its slow or fast repeal) was an important factor in the crisis need to face the fact that many other countries, which never had a Glass Steagall act to repeal, had the same decades free of systemic crises, and then had one in 2007-08. Some think that those other crises were ’caused’ by the US crisis, but Iceland, Ireland the UK and Spain all had their own explosions of credit growth and all concluded that the failure of Lehman was merely the trigger; their crises were inevitable. And it takes two to support the boom in securitization, a buyer and a seller, and the European countries were prominent as buyers.
Instead it is useful to look at the merger boom in finance and the change in incentives that occurred with it. US investment banks went public, not just to address competition from commercial banks but also from global banks. There was a merger boom in the US and in the Euro area, and banks reward employees who contributed to their growth. Euro countries were moving to a single market in banking. Note Australia and Canada did not share in this crisis and they prevent their banks from merging. So the crisis was much more about the change in incentives and the choice of many regulatory authorities not to enforce regulations that existed in the runup to the crisis. For me see Barth, Caprio and Levine, Guardians of Finance: Making Regulators Work for Us, MIT Press, 2012.
What you miss is that the US forced the rest of the world to accept US style investment banking. Investment bankers started colonizing other markets and changing it to the US model. And most of those markets did not have Glass Steagall restrictions, so the export of the US model meant big banks started adopting the US investment banking model, since the US investment banks were poaching their very best clients.
The UK, which was the other dominant banking center in the world, also tore down its walls between banking and securities in the 1980s (its “Big Bang”). To try to say that the actions of the two dominant financial centers (which had colonized other markets didn’t play a role seems like a stretch. No one is saying Glass Steagall was the sole cause, merely that it contributed.
Iceland is a country with 300,000 people, a small open economy with a very unsophisticated banking system that deregulated rapidly. It’s not generalizable to other countries, well save maybe to Japan, where the US forced similarly unsophisticated banks to deregulate rapidly, with similar results.
Excellent work, Yves. Thank you for the enlightening analysis.
Good post, Yves.
I don’t follow you when you say that the Asia Crisis was not a real estate crisis. The unfinished buildings in places like Thailand or Malaysia, some still standing unfinished close to 20 years late tell a different story. The Japanese bubble also had an extremely strong component in Real Estate (remember when the Imperial Palace Grounds in Tokyo where worth more than California ?).
One of the most salient feature of the Great Depression were short maturity mortgages that put strong duration risk on the borrower, who was forced to liquidate and default on his loan when he could not find a new loan.
The famous, and multiple, “railroad crisis” of the 19th Century were actually real estate crisis, as the main business model for railroads was real estate development along the newly created line.
Of course, repealing the Glass-Steagall Act doesn’t solve the problem of real estate crisis. Creating specific mortgage banks, with very stringent requirement for matched duration refinancing does. Before trying to get into investment banking, commercial banks were very keen, and quite successful, to break the separation with mortgage banks, so that they could perform lucrative maturity transformation on their balance sheet.
I thought the Asia crisis was a hot money crisis. Isn’t there a difference between real estate as cause and real estate as object?
Another statement I have an issue with is that Universal Euro-banks were “also ran”.
Because of their comparatively big and strong balance sheet, with the corresponding rating, they had a competitive advantage in trading derivatives. In the 80’s many euro banks were world leaders in FX, Interest rates and even Equity Derivatives, and big money was made. The big balance sheet envy of American banks was no small cause for the repeal of the Glass Steagall Act.
If you mean Swiss Bank, later UBS, it had to acquire O’Connor & Associates, a US proprietary derivatives trading firm, to get there. And it took the erosion of Glass Steagall for that to happen. SBC initially could only buy 3/8 of O’Connor and had a buyout option which it executed once the regs moved to allow a full takeover. So the SBC, later UBS story, like that of Credit Suisse First Boston, depended on Glass Steagall being relaxed.
The leaders in derivatives as of the early to mid 1990s were far and away Swiss Bank and Bankers Trust. A huge gap between them and everyone else. Paribas became a big player later.
And the Eurobanks were also rans in every other business save low-profit Eurobonds in the 1990s. The were no where in the US, the UK, or Asia in any of the major capital markets products. Look who was called to the table at the LTCM rescue, when LTCM was so big it traded with everyone. This is as of 1998 . Credit Suisse does not count by virtue of it having bought First Boston:
$300 million: Bankers Trust, Barclays, Chase, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, Merrill Lynch, J.P.Morgan, Morgan Stanley, Salomon Smith Barney, UBS
$125 million: Société Générale
$100 million: Paribas, Credit Agricole
Bear Stearns and Lehman Brothers refused to participate.
You’ve got Deutsche as the only first tier bona fide Eurobank, and it might have been there as much by being a major prime broker, a business it targeted to move up the food chain. UBS, which as I mentioned, got where it got by acquiring a US firm. Even the supposed Eurobank derivatives powerhouses like SocGen were second-tier trading players overall. And they were even further down the food chain in “investment banking” meaning stock and bond underwriting and M&A.
principAl lending activities
Those copy editors need a good talking to….
This is an interesting post, though perhaps a bit long-winded, but I don’t find it entirely persuasive. I accept the argument that the repeal of Glass-Steagall was part of a pattern of activity that led to the crisis. Lots of things that happened in the run-up to the crisis were part of that pattern. However, the question now is what’s the best way to prevent a reoccurrence going forward. Your main argument for a 21st-century Glass-Steagall is that it would keep banks and other financial firms smaller and more specialized. If the goal is to keep them smaller, then it seems to me the best solution is a straightforward tax on size, through punitive capital requirements for example. As I understand it, Clinton has made this very idea a centerpiece of her reform agenda. So I’d score that one for Clinton, not Sanders.
As to the question of specialization, I’m not sure that’s something best handled by legislation. I’d be happy with the private market making that decision (subject to the penalty on size we’ve already discussed). I think the definition of what is appropriate specialization is something that needs to be more flexible and fluid as markets change than can be dealt with efficiently through legislation. If the market feels a certain combination of services is not adding value, it will punish the share prices of these combinations appropriately. By enshrining these divisions in law, I feel we’ll have lots of arbitrary and burdensome rules that will just lead to lots of regulatory arbitrage. I think we should punish risk and size rather than defining what specific businesses can be combined. Reasonable people can disagree, but I think the “gotcha” tone of this post sheds more heat than light, especially when Clinton’s proposals are more sensible than Sanders’ in some respects.
I’m still looking for a summary paragraph (or comment) such as this…
Remember, most generally, Glass Steagall was a ‘system’ designed purposefully to direct the nation’s money supply (i.e. loans) into the ‘bottom’ levels of the (real) economy. It was no coincidence that Commercial banks were widely distributed and not allowed to combine/mingle, so that the funding/support of working people and productive enterprise were (by far) the nation’s highest priority. GS was ‘trickle up economics’ by design, providing glaringly obvious and well understood advantages to ‘the nation as a whole’ (i.e. the people, the working class, the real economy). Compared to today’s ‘trickle down economics’, where a small group of massively over-privileged, incompetent/corrupt morons/criminals ‘spend’ our money supply into the economy, the GS system was patently and infinitely superior. There can be absolutely no doubt that the individuals involved in redirecting the nations money supply from bottom-up to top-down knew exactly what they were doing, every step of the way, and that their single ‘conscious’ motivation was to create massive privilege, inequality and injustice, a system of masters and serfs. These people (e.g. all the smiling people standing around Bill Clinton as he signed away GS) knew exactly what they were doing and they are therefore clearly ‘enemies of the state’, they are an organized crime syndicate, criminals by definition and of the highest order.
Our corrupt/criminal elites rule by relentless violence, constantly directing vicious violent threats toward “the people, the working class, the real economy”. Bernie Sanders and Elizabeth Warren seem to be the only force actually pushing back… while the pundits and commenters continue to be paralyzed with fear (or foolishly too polite?) to call out the criminals for what they are and what they’ve done. Very sad. Chris Hedges and Noam Chomsky have been screaming for years (paraphrasing)… “Only if tens of millions of citizens educate themselves, identify real leaders, and follow those leaders into the streets and internet and scream ‘NO MORE… STOP THE BANKER AND WAR CRIMINALS… PUT THEM IN JAIL NOW’ can we get back to a civilized system/society.