In 1999, Congress passed legislation that removed restrictions on banks, brokerages and insurance companies that had been in place for 65 years.
These public protections dated to the 1930s and were put in place to prevent another disastrous economic meltdown like The Great Depression. The 1933 legislation was a primary foundation for the U.S. financial industry becoming the envy of and model for the world’s economic systems in the 20th century.
From 1933 until 1999, those protections assisted the public by smoothing out the inevitable ups and downs of business cycles. This was accomplished by requiring the financial industry to maintain levels of reserve capital adequate to carry them through the downturns.
That legislation also prevented financial companies from joining forces to sell products that bore excessive risk and from using the public’s deposits to roll the dice like in a casino.
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Not being able to sell financial products that bore excessive risk also prevented the top management of these companies from getting the multimillion-dollar bonuses that accompany such short-term shenanigans. Those bonuses became the norm between 2000 and 2008.
The final blow to these protections was dealt in 1999 with the repeal of the Banking Act of 1933, also known as the Glass-Steagall Act. Following the repeal, the financial industry, centered in New York, began to create products that came to be known by 2008 as toxic assets, and the companies in the financial sector became “too big to fail.”
The results were handing the taxpayers a bill to prop these companies up, the loss of about 10 million jobs, the reduction of accumulated personal wealth and untold human misery.
The 1999 legislation was accomplished with little fanfare or public knowledge, which is often the case in matters which are arcane and, frankly, too boring to gain public notice.
In 2010, as was done in 1933, legislation was passed intended to reinstitute some of the public protections that had been abandoned in 1999.
A recent Wall Street Journal article pointed out that the same folks who brought us the repeal of Glass-Steagall and the economic mayhem of 2008 and 2009 are at it again using the same rationale and the same slogans to repeal or weaken the 2010 legislation and, one more time, allow the financial industry to conduct itself in any way that it sees fit.
If that happens, within a few years U.S. taxpayers will again be handed a bill to avoid economic catastrophe.
Collectively, we let this happen in 1999 due to the complexity of the issue and benign neglect. If we allow it to happen again, it is on us.
We Kentuckians have a unique role to play in stopping these current efforts because our Sen. Mitch McConnell was one of the main proponents and architects of the repeal of Glass-Steagall in 1999.
Letters to McConnell and U.S. Rep. Andy Barr in opposition to the repeal or weakening of the 2010 Dodd-Frank Act might just matter this time around.
Calvin D. Cranfill of Lexington is a certified accountant.