By Pam Martens and Russ Martens: September 8, 2017
President Franklin Delano Roosevelt Signing the Glass-Steagall Act on June 16, 1933 (Courtesy St. Louis Fed)
Wall Street On Parade is something of an historian when it comes to the shifting sands of the New York Times Editorial Board and its position on riding herd on one of its richest and serially corrupt hometown industries – Wall Street. The Times has vacillated over the decades between truculent finger wagging at Wall Street (typically after the public is already wielding pitchforks) to irrational indulgence of its excesses, to outright egging on of its wealth transfer schemes.
The Times is out with a new editorial today which is peculiarly titled: “Why the Return of Bigger Banks Means Bigger Risks for Everyone Else.” The title makes it seem like the Trump administration has had something to do with “the return of bigger banks.” In fact, it was the failure of the eight year Democratic administration of Barack Obama to enact reforms to break up these monster banking behemoths that has put us all at peril today. We’ll get to that in a moment, but first, some required background on the vacillations at the Times.
On March 12, 1988, the New York Times published an editorial titled: Dispel This Banking Myth. It was filled to the brim with whoppers. Consider the following paragraph:
“The Glass-Steagall Act of 1933 was intended to prevent another market crash by prohibiting banks from selling and underwriting securities. But in practice it merely built a wall around banking, a barrier that reduced competition and raised fees in the closely related securities industry without adding to financial stability.”
In fact, the Glass-Steagall Act kept the U.S. financial system safe for 66 years – from its passage in 1933 to its repeal in 1999. Just nine years after its repeal, Wall Street collapsed and brought down the U.S. economy in a repeat of 1929 and the economic crisis that followed. Glass-Steagall kept the U.S. financial system safe by preventing investment banks from sucking in insured deposits, backstopped by the taxpayer, and then churning the money into monster gambles and losses that could take down the entire mega bank and interconnected financial system.
Glass-Steagall did not result in “reduced competition” as the Times states. While Glass-Steagall was on the books, there was no Wall Street banking cartel of a handful of banks controlling 90 percent of all derivatives and almost half of all deposits in the United States, the situation we find ourselves in today.
In another editorial on September 22, 1990, the New York Times lauded “The Fed’s Sensible Bank Experiment.” It wrote:
“The Glass-Steagall Act was passed in part to settle a turf war between competing interests in U.S. financial markets. But it also reflected a belief, fueled by the 1929 crash on Wall Street and the subsequent cascade of bank failures, that banks and stocks were a dangerous mixture.
“Whether that belief made sense 50 years ago is a matter of dispute among economists. But it makes little sense now. In a recent study of Glass-Steagall, George Benston, a professor of finance at Emory University, provides compelling evidence that cutting off banks from stocks and bonds makes them more risky: a bank reduces risk by diversifying its investments.”
On April 8, 1998, the Times editorial writers effectively saluted John Reed and Sandy Weill for putting together a mega bank merger that was illegal at the time:
“Congress dithers, so John Reed of Citicorp and Sanford Weill of Travelers Group grandly propose to modernize financial markets on their own. They have announced a $70 billion merger — the biggest in history — that would create the largest financial services company in the world, worth more than $140 billion… In one stroke, Mr. Reed and Mr. Weill will have temporarily demolished the increasingly unnecessary walls built during the Depression to separate commercial banks from investment banks and insurance companies.”
The resulting behemoth that came out of this merger, Citigroup, forced the hand of Congress to repeal the Glass-Steagall Act the very next year. And the resulting Too-Big-to-Fail Citigroup was on secret life support from the Federal Reserve just eight years later. After playing an outsized role in the fraudulent practices and products that brought down Wall Street, the U.S. economy and housing market in 2008, this is what Citigroup was able to extort from the taxpayer under the Too-Big-to-Fail model: The U.S. Treasury infused $45 billion in capital into Citigroup to prevent its total collapse; the government guaranteed over $300 billion of Citigroup’s assets; the Federal Deposit Insurance Corporation (FDIC) guaranteed $5.75 billion of its senior unsecured debt and $26 billion of its commercial paper and interbank deposits; the Federal Reserve secretly funneled $2.5 trillion in almost zero-interest loans to units of Citigroup between 2007 and 2010. And that’s just what we know thus far.
It might be possible to write all of this off as just bad judgment on the part of the New York Times – but for this: it has steadfastly refused to correct well-documented errors in a grossly distorted article on the financial crash of 2008 that diminished the role that the repeal of Glass-Steagall played in that epic financial meltdown.
On May 21, 2012, the Times published a piece by business writer, Andrew Ross Sorkin, titled: “Reinstating an Old Rule Is Not a Cure for Crisis.” In the article, Sorkin writes:
“The first domino to nearly topple over in the financial crisis was Bear Stearns, an investment bank that had nothing to do with commercial banking. Glass-Steagall would have been irrelevant. Then came Lehman Brothers; it too was an investment bank with no commercial banking business and therefore wouldn’t have been covered by Glass-Steagall either. After them, Merrill Lynch was next — and yep, it too was an investment bank that had nothing to do with Glass-Steagall.
“Next in line was the American International Group, an insurance company that was also unrelated to Glass-Steagall.”
Sorkin was not just wrong but outrageously dead wrong on every single bank. As we wrote in 2012:
“There are four companies mentioned in those five sentences and in every case, the information is spectacularly false. Lehman Brothers owned two FDIC insured banks, Lehman Brothers Bank, FSB and Lehman Brothers Commercial Bank. Together, they held $17.2 billion in assets as of June 30, 2008, 75 days before Lehman went belly up…Merrill Lynch also owned three FDIC insured banks… Bear Stearns owned Bear Stearns Bank Ireland, which is now part of JPMorgan and called JPMorgan Bank (Dublin) PLC…AIG owned, in 2008 at the time of the crisis, the FDIC insured AIG Federal Savings Bank. On June 30, 2008, it held $1 billion in assets. AIG also owned 71 U.S.-based insurance entities and 176 other financial services companies throughout the world, including AIG Financial Products which blew up the whole company selling credit default derivatives. What this has to do with Glass-Steagall is that the same deregulation legislation, the Gramm-Leach-Bliley Act that gutted Glass-Steagall in 1999, also gutted the 1956 Bank Holding Company Act and allowed insurance companies and securities firms to be housed under the same umbrella in financial holding companies.”
We wrote to the New York Times Public Editor asking for a correction of the many gross errors in the article. Nothing happened. We wrote to the editor. Nothing happened. We wrote to the publisher. Nothing happened. The same errors that appeared in that article in 2012 are still in the article today, effectively serving as a grossly false narrative (read propaganda) on the role that the repeal of Glass-Steagall played in the second largest financial crash in U.S. history.
Today, the latest Times editorial is attempting to blame the Trump administration for putting the nation’s financial system at risk through rollbacks in the Dodd-Frank reform legislation signed into law under Obama in 2010. The editorial writers state: “The Republican-controlled Congress is too jammed up to move ahead with legislation to weaken Dodd-Frank. But that won’t be necessary, since the administration is doing a good job of dismantling the regulations on its own.”
What the New York Times knows it should be saying is that the Dodd-Frank legislation is an illusion of financial reform while it allows the New York Times’ hometown boys to become billionaires while running the largest wealth transfer system in U.S. history – fleecing the pockets of the 99 percent across America.
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