Democratic North Dakota Senator Byron Dorgan Saw What Was Coming (and no one listened!)

Richard Metzger is Boing Boing's current guest blogger

From Fishbowl LA:

This is from the NYTimes from November, 1999. The article is titled, "Congress Passes Wide-Ranging Bill Easing Bank Laws" about the repeal of Glass-Steagall a Depression-Era law to separate bankers and brokers:

"'I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010,'' said Senator Byron L. Dorgan, Democrat of North Dakota. "'I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980's when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.'"

Read the whole article. Go ahead. We're in the fetal position hoping the pills kick in sooner rather than later.

Via FBLA, via Reddit



  1. Who didn’t see it coming?

    I remember thinking “hunh. they’ve repealed the protections that have kept us out of a depression for the last several decades. We’re all fucked and they’re all richer.”

    actually, that might have been the final nail in my naive belief that we live in a two-party democracy.

  2. From the article:

    If anything, the supporters said, the new law will give financial companies the ability to diversify and therefore reduce their risks. The new law, they said, will also give regulators new tools to supervise shaky institutions.

    ”The concerns that we will have a meltdown like 1929 are dramatically overblown,” said Senator Bob Kerrey, Democrat of Nebraska.

    Others said the legislation was essential for the future leadership of the American banking system.

    It’s funny because we’re all doomed!

  3. Did anyone happen to notice Larry Summers’ quote?

    ”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. ”This historic legislation will better enable American companies to compete in the new economy.”

    Now, I’m a major supporter of President Obama, but doesn’t he have a wolf guarding the henhouse?

  4. @1 – “Who didn’t see it coming?”
    Gramm, Leach, and Bliley.
    Also known as; Dewey, Cheatem, and Howe.

  5. So what legislation is being proposed to reinstall safeguards? Does anyone in Congress care or are they tripping over themselves to blame each other? I haven’t heard if anyone has proposed similar legislation to erect similar safeguards, so if they have, please let me know.

  6. Congress approved landmark legislation today that opens the door for a new era on Wall Street in which commercial banks, securities houses and insurers will find it easier and cheaper to enter one another’s businesses.

    1995-2007 How quickly that new era on Wallstreet lasted.

    RIP 2009

    My Grandfather lived through the Great Depression, my father was a child of the Great Depression. I remember at the time, having listened to my Grandfather’s discussion of banking negligence and buying stocks on margin, thinking, “Oh no, here we go again” when this was going through.

    So, Financial Sector, How’s the “system for the 21st century” workin’? Dear consumers, have you been saved “billions of dollars”? Thank you Senator Phil Gramm, Representative Jim Leachand Representative Thomas J. Bliley Jr., does “We have a new century coming, and we have an opportunity to dominate that century the same way we dominated this century” still hold water?

    The US has the dollar, the Europeans have their Euro, and now the Chinese are clamoring for a universal “IMFO”, “Chino” or whatever they want to call the result of their request to the IMF to get a currency base not attached to a wobbly thing know as the US Dollar.

    We have been lit on “FIRE”, thank the premier election contributors in the (F)inancial, (I)nsurance and (RE)al Estate sectors that got their full money’s worth as the “law of unintended consequences” turned all their bought legislation into detonation cords for their “Economic Weapons of Mass Distruction”.

    “If we don’t pass this bill, we could find London or Frankfurt or years down the road Shanghai becoming the financial capital of the world,” said Senator Charles E. Schumer, Democrat of New York. ”There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive.”

    Dear Senator Charles, I think in retrospect, you enabled this scenario. Thank you.

  7. Now, I’m a major supporter of President Obama, but doesn’t he have a wolf guarding the henhouse?

    How serendipitous. Even as we run out of money for other forms of entertainment, watching cognitive dissonance is free.

  8. the problem with the anti-Glass Steagal argument is that the primary issues have been investments by the ‘shadow banking system’ ie entities that aren’t actually banks, such as Bear Sterns, Lehman Brothers, etc. My understanding is that Glass-Steagal would not have prevented them in any way from taking the risks that they did that got us
    into this mess.

    Don’t get me wrong, I think the government did lots of stuff to get us into this crisis, from keeping interest rates way too long for way too long, to implicitly guaranteeing Fannie Mae and Freddie Mac while they started making riskier and riskier loans, to letting banks counting on FDIC insurance (ie Citigroup) get sufficiently large so that they are ‘too big to fail’. (I never really understood why bigger banks were the solution to anything except for growing earnings via combining entities.) But it’s not clear that repealing Glass-Steagal really had anything to do with the current situation.

  9. Will the Glass-Steagall legistlation be put back in place?

    As if.

    They got Uncle Sam and Joe Q Nobody to pay for all the damages from their big drunken orgy.

    Let the hangovers settle a couple of Alka Seltzer and they’ll be fucking your dog in no time like none of this ever happened.

  10. The Free Market Capitalist system hasn’t failed, it’s just been undone by the failures of its participants…just like the Communist system.

  11. @#13, one thing Glass-Steagall did was insure a robust regional banking infrastructure. There were limits put in place that preserved local banks and limited large banks from encroaching/buying up local or regional banks. There was also a complete separation of investment bank activity from commercial banking. This meant that in case of another major financial collapse, regional (redundant) banks would most likely withstand a deflationary onslaught. So, regarding your thoughts on the shadow banking system; in fact, the commercial banks would have survived quite well, not being exposed to the losses that we are lucky enough to see now…

    The repeal of Glass-Steagall meant that regional banks would be bought, consolidating the banking industry, and the end of limits on the separation of investment banking (including a proprietary desk) from commercial banks would become the norm, and this could/did leave FDIC insured deposits at moral hazard risk as they could be used to prop up bad investments or worse, be used as leverage against the U.S. government’s unwillingness to let FDIC insured “too big to fail” institutes implode.

    The take-away being that Glass-Steagall would likely have prevented “Main Street” from bearing the brunt of a collapse of Wall Street.

    Now, I remember quite well when it was repealed and I also, honestly, had a throw-up in the mouth moment. In fact, I damned near cried. It was one of those rare (now less rare) moments in life when I felt absolutely light-headed, as if in a swoon. I simply could not believe Congress had done it.

    There was this guy in the thirties, named Smedley Butler, who had a weird story I had always wondered the veracity of. He claimed that after FDR was elected, representatives of the major banking institutions approached him about heading a Fascist takeover of the U.S. government. His claim was actually entered into the Congressional record. I always thought that it was just too fanciful to be true, but given the details of Tim Geithner’s latest proposal to reward the remaining failed banks/bankers and hedge funds, I have to wonder if the same sort of people are at work and there’s no Smedley Butler to blow the whistle.

  12. The problem that has caused the current financial catastrophe is, there is absolutely no regulation on speculation and high leverage investment derivatives. Capitalism isn’t the problem, it’s treating ‘investing’ as if it were nickel slots in Las Vegas. A little money ‘may’ get you a big payoff. The only problem with that thinking in the ‘real’ world -as opposed to ‘Vegas- is that the in the real world, the casino (world economy) burns down when you run out of nickels (idiot investors) or the slot machine (market for your risky derivatives) breaks.

  13. Time magazine had a similar article around the same time. I can’t list the issue number but the premise that the Glass-Steagal act was just as useful at the end of the 20th century as it was in the middle of the depression. After all one of the primary creators of the Federal Reserve system(Glass) might have known a thing or two about the banking system.

    The Time article also quotes several people against the repeal who question what we will do with companies that are too big to fail.

    Do a bit of reading about Glass and you will find he was one of the few who warned in the mid 1920s of the coming collapse of the markets.

  14. @seamusandrewmurphy

    Smedley Butler wasn’t just “some guy in the thirties.” Marine major general, TWO time recipient of the Medal of Honor, widely assumed to be in line to the Commandant of the Marine Corps but was in the end deemed too outspoken, and wrote “War Is A Racket”:

    “I spent 33 years and four months in active military service and during that period I spent most of my time as a high class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism. I helped make Mexico and especially Tampico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. I helped purify Nicaragua for the International Banking House of Brown Brothers in 1902-1912. I brought light to the Dominican Republic for the American sugar interests in 1916. I helped make Honduras right for the American fruit companies in 1903. In China in 1927 I helped see to it that Standard Oil went on its way unmolested. Looking back on it, I might have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on three continents.”

  15. Not so sure I agree with the assumption that ALL of this can be blamed on the repeal. In fact without the insurance provided by AIG, which moved overseas to avoid U.S. laws and regulation, these derivatives would have been too risky for most institutions and investors. After all, only American institutions were covered under Glass-Steagall.

    Also, the problem was not bank holding companies owning other financial companies, but the free flowing capital looking for a home. There was a sea of cheap money. The selling of loans removed responsibility and along the way the knowledge of the loans true risks. This lack of knowledge was hidden by insurance, which gave a false sense of security.

    The idea was to not be caught holding the paper when the bubble burst.

  16. As a Minnesota resident, I couldn’t help noticing that the late Paul Wellstone was one of the eight Senate opponents.

  17. #20, Indeed, it’s the combination. The easy money was the whiskey, the lack of regulation was the car keys.

  18. The Laboratoire européen d’Anticipation Politique forecast it too. In great detail:

    Get a hold of various GEABs (GlobalEurope Anticipation Bulletins) (the summary versions are available free of charge a few weeks after they’re released).

    For example, take a gander at the first paragraph from GEAB #23 – released March 16, 2008:
    “Global systemic crisis – End of 2008: Pension funds go off the rails
    By the end of 2008, a formidable debacle will affect pension funds all over the world, endangering the entire system of capital-based pensions. This financial calamity will bear a particularly dramatic human dimension because it will come at the precise moment when the first wave of baby-boomers phase out of the labour force in the US, EU and Japan…”

    Googling “GEAB nn” gets you the various bulletin at the top of the list. They’re fascinating and scary reading.

    Any politician/journalist/economist/dog who says that they didn’t see this coming needs to lose their job. Immediately.

  19. The insurance division operated from London. This avoided U.S. oversight and regulation. Obviously, AIG presumably conformed to U.S. laws and regulations when selling insurance in this country, but the oversight that would have prevented them taking on 1.6 trillion USD in risk was non-existent in London. My guess is AIG, the biggest enabler in this mess was not covered under Glass-Steagall anyway.

    I suggested a link a few weeks ago, for whatever reason it was not used. Unfortunately, I failed to bookmark the page. Maybe Antinous can find the link for us, it was an interesting article.

    P.S. We saw this coming as well and moved all of our funds into guaranteed accounts in late 2007. Not only have we not lost a penny, but we’re actually up 5% or so. Not enough to keep up with inflation or the devaluation of the dollar, but it is better than losing 40 or 50%. When this turns around, and it will, we could gain as much as 30% adjusted.

  20. Ron Paul’s been saying it for decades. Gerald Celente. Alex Jones. There’s no shortage of people who saw it coming that ‘they’ didn’t listen to.

    Hell that one guy outted Madoff like, 5 times to the SEC and no one did shit.

    Remind anyone of another instance where pertinent information was seemingly ignored, at the great peril of the american people, which led inevitably to the expansion of governments power?

    Yeah, that day.

    It’s not a fucking coincidence.

  21. @ Nutbastard #27:

    Yeah, but Ron Paul has also been screaming his head off for years about an international conspiracy to replace the governments of the U.S., Canada and Mexico with a “North American Union” (as if the Canadians would have us). So you can imagine why some people might have ignored him.

    Of course we’ll feel all the more sheepish when we have to pay our rent in beaver-emblazoned pesos.

  22. This article is filled with more juicy, ironic quotes then you can shake a stick at:

    “The White House has estimated the legislation could save consumers as much as $18 billion a year as new financial conglomerates gain economies of scale and cut costs.”

    And how much did the bailouts cost us?

    The United State’s Congress should thank their lucky stars that the average American is purely ignorant of the facts on how thoroughly they all screwed us over, otherwise, they would have been lucky to get out of Washington not covered in tar.

  23. Repealing Glass-Steagall was not the problem. Deregulating derivatives (also a Phil Gramm special) was.

  24. Well, as long as we’re on a trip down memory lane back to 1999 NY Times articles…

    “In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.”

    “In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

    ”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.””

    Read the whole thing.

  25. How ironic the legislation was passed on Guy Fawkes Day. Remember, remember the Fifth of November….Boom!

  26. I hope Senator Drogan remembers this in context of Smoot-Hawley, when the Democratic Congress lurches towards full bore protectionism (it has already started cf NAFTA provisions regarding Mexican trucks)

  27. @26:

    AIG’s London operations were under the supervision of the Office of Thrift Supervision, a US agency. AIG convinced British authorities that the OTS was sufficient oversight, thus getting them out of much stricter oversight in London.

    Never heard of the OTS? Neither had I, but it turns out to have had rather lax oversight. AIG was permitted to reorganize itself as a Thrift to take advantage of that laxity by the repeal of Glass-Steagall.

  28. Thanks Anon! I finally got around to reading Takuan’s link that was latter blogged by Richard Metzger. Take Care

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