Finally , this morning on CNBC’s Squawk Box, Sandy Weill former Chairman and CEO of Citigroup, said clearly that the big banks on Wall Street should be broken up. In other words we should bring back Glass Steagall. Part of his statement we completely agree with. Considering that Weill was also member of the Fed for five years and considering that the (Clinton) repeal of Glass Steagall, allowed and directly encouraged the big banks to buy up small community banks, with the Clinton promise of funding sub prime mortgages. The result was the creation of these financial instruments revolving around real estate loans, that caused the bubble , that finally busted due to a phony economic platform.
Glass Steagall until it was repealed. Prevented Commercial Banks large or small from investing depositors dollars on Wall Street. And Sandy Weill pushed for the repeal , and now he just wants to move on. He screwed up ,and he knows it, . Many investors, and depositors ,including myself, were raising holy hell , when the discussion began to repeal Glass Steagall. Now Mr. Weill says we need to bring it back. Weill says that it wasn’t the Repeal of Glass Steagall that brought down the nation’s economy. Well , what would you expect him to say , that he was wrong, that’s not going to happen. But remember it was directly after the repeal that Greenspan started artificially lowering interest rates, under the direction of Clinton. But no one ever holds these clowns accountable, in fact , they usually get some form of promotion.
We knew at the time, that if you allowed Investment Banks, like Goldman,Lehman,Morgan and others the ability to become a commercial bank, taking deposits and investing in stocks. That the bankers would go crazy with our deposits and that’s exactly what happened. What is seldom recognized is how the flood of money into the markets, sent the signal to the Real Estate industry, agents , brokers, state commissions. Wow! were going to be making billions , because every time a home sells we will be able to jack up the price,raise our commissions, due to the easy availability of mortgage funding. Home prices were jumping up to 20% between sales. Flipping became the word of the day. Homes became instant false equity and the HELOC business went crazy. But it all had no solid fiscal foundation and was doomed from the git-go. How soon people forgot, the eighties and the collapse of the commercial property industry after Reagan, screwed up the tax code with the depreciation issue.
Then along came the Counties, and the tax assessors. Wow, look at all these valuation gains. We can jack up property taxes, we can build monuments to our selves, put our pictures on the walls of these new buildings, paid for with bonds(borrowed money), based on these sales prices that keep going up and up. But whoops, the bubble popped,. The prices in many locations dropped 60%, foreclosures in the millions, mortgages bundled , documents lost in the shuffle, unemployment 15 plus percent some estimates as high as 25%. All this because a couple of people saw a bunch of money lying around in depositors CD accounts in community banks, and thinking , wow! just think of the money we could make if we had access to all that cash.
This mornings CNBC, was making Weill look like a hero , for coming out and stating the obvious, that the big banks must be broken up. Investment banks should be just that . If you to give your money to some guy on the phone , to invest in some, wild ass scheme. So they can make a commission on the sale, then continue charging you fees for managing those fund. Go for it, good luck. If your up to the risk, have at it.
Obama is criticizing Romney for being a Venture Capitalist. I developed several business. Just to test the water , in every case I went to my bank first. However,in every case, I used Venture Capital or personal savings to start . My business ventures were of considerable risk. My banker could make a quarter of a percent on my money held in deposit by loaning to the fed over night . Why should he take the risk of loaning me start-up capital.
Every time I wanted to buy another commercial building, I always went to my banker first. And every time he wanted me to put up my home as collateral. And every time, my response was the same. “Are you serious?” He was. This for a building that I was buying at 40-60cents on the dollar. Now he knew that, but he didn’t care. So what did I do. I went out and found Venture Capital, paid 2-3 percent over NY prime for the use, and made it work. People holler about interest rates. That is stupid ,if your going to grow. First business interest is a write off against income. While at the same time your building equity and net worth. Providing of course that your business model works.
Another issue that never gets talked about is, what was the result of artificially lowering interest rates. And there is not doubt that the U.S. Treasury and the Fed recognized this from the git go. Your AGI, Adjusted Gross Income went up, which meant you sent more of your earned income to the Internal Revenue Service. Now I ask you, who would you rather give your money to. Your banker, your venture capitalist, who by the way is going to loan you money, when ever you need it, as long as your paying off those loans in a timely fashion. Or the IRS,,, have you ever applied for a loan with the IRS. A lot of people bad mouth the tax code, but until the criminal started messing with it, if you used it properly, it forced you to grow. Having said that, I’m not a fan of the income tax model. I’m a consumption/fair tax supporter and eventually we will get there.
Commercial banks, the community bank down the street. Should be investing deposits, in loans in that local community, period. Loan officers, looking at loan request, basing the approval on a borrower that they know. Know him or her by their first name and knew their parents. We need our banks to make money. They need to maintain 25-30% reserves. CD deposit accounts from, depositors in the community. And depositors should be seeing a reasonable rate of return on those investment accounts. Until interest rates return to free market levels America will be in a stagnation economy.
Another issue that must be stopped is the overnight lending of depositors money to the fed. That action, taught Wall Street that billions of dollars could be made overnight, with OPM, other people’s money, while the depositor saw no gain whatsoever.
The remedy is simple. States must step up. Look at North Dakota for example. North Dakota has a State Chartered Bank. You must live in North Dakota to have an account there. I know I tried to open an account. We’ve seen an enormous growth in Local Credit Unions and for good reasons many of which Ive previously states.
Arizona and all states west of the 100 meridian should overhaul their banking system. They should establish State Chartered Commercial Banks, backed by deposits and state assets, guaranteed deposits. Move away from the FDIC. If some group want to develop an Investment Company, fine, Charter it that way, but investors, would not have check writing ability at those institutions. They would not be deposit accounts. The reason I mentioned west of the 100 meridian is for another discussion.
The question then arises what would happen to the Big Banks currently operating in the states. Well they could make up their mind. Do we want to operate as a Commercial Bank or an Investment Company, they would be required to apply for a state banking license for one or the other. Or go away.
Will this happen. Probably later than sooner. But like Sandy Weill, eventually we recognize our mistakes and try to correct them.
The repeal of Glass Steagall cost this country trillions of dollars. The Bush administration cost this country Trillions of dollars. The obama administration has cost this country Trillions of dollars. Does anyone see a trend here????
If we are going to save this country, the jurisdiction in almost every issue must be returned to the states. Governors are going to have to start earning their keep. We must return our States to Republic Sovereign Nation States. Governments, countries , economies have always failed for two reasons, greed and corruption. We must return jurisdiction to the states. The problems are then isolated, they show up sooner and remedies can be instituted before disaster occurs.
These catastrophic wild fires which are destroying billions of our nations wealth is one more example of the need for local jurisdiction!
Source post formerly/http://thearizonasentinel.com/2012/07/25/bringing-back-glass-steagall/
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