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September 12, 2015


When I was in college in the Truman years during New Deal and Fair Deal times we had a required course for political science majors and minors (I was a minor in political science majoring in economics before going to law school) called “Government Regulation of Business.” This was a day and age of a postwar booming economy based on Keynesian economics and regulation of business based upon the public interest and not that of the plutocrats. Result? Strong demand, good wages, good profits, high employment, a rapidly expanding economy, careful regulation of the securities market and a banking system subject to the Glass-Steagall Act (which prevented banks from banking and investing from the same pot). It was the best of all worlds for nearly all of us, but the regulated greedy were unhappy and chomping at the bit for a day of lower taxes and little regulation of their activities irrespective of the damage certain to be done to our economy by such irresponsible conduct. The greedy, predictably, were into higher net profits with little regard to the consequences to or interests of the rest of us.

Millions of returning veterans at the time were being paid to go to school as our profitable investment in higher education flourished with greater tax revenues coming into our treasury with better educated taxpayers who made more money on their jobs.  Eisenhower followed Truman and built the interstate highway system, and all of these wonderful things happened without deficits because we responsibly taxed and paid our bills on time, a lesson Reagan and George Bush the Younger never learned as our long term debt (and interest thereon) exploded under both their administrations (with Bush even pushing through a previously unheard of tax cut during wartime which we could not afford and was therefore added to our long term deficit which you and I and others are liable to pay in the years ahead – speaking of redistribution of the wealth).

The top rate of income tax those days hovered around 90 percent (at one point 94%) and neither Democrats nor Republicans seriously tinkered with it. The Reagan era put an end to that and we have been in and out of current account deficit but not long term debt ( which is apparently a permanent debit unless reversed due to Republican tax giveaways to the rich) ever since.

Clinton (on the advice of his treasury secretary Democrat Rubin and ex-Fed chief libertarian Greenspan, both former Wall Street bankers) tragically signed a repeal of the Glass-Steagall Act, which opened the floodgates of trading to the big banks and all of the chaos we have since endured and are still enduring with the banks’ insolvencies, bailouts, purchase of subpar paper at par by the Fed, mortgage frauds, millions who lost their homes to foreclosure, bribes of Chinese officials, money laundering of Mexican drug gang monies and prohibited financial deals with Iran etc. etc. etc. If there was ever a repealed statute that needed reinstatement as law, Glass-Steagall is it. How important is its reinstatement? We saw what happened without it, to wit: a brush with international depression a la 1929. Without its reinstatement or a reasonable facsimile of it, I am of the opinion that we risk an accelerated risk of Third World status, and that’s important in my book – very important!

The big banks have often behaved like common criminals but since they are “too big to fail” and have deep pockets available for campaign contributions to their congressional toadies ( nothing more than bribes contributed in the name of “free enterprise” and “smaller government” and other such myths spun by corporate hacks) and since their “companies” only pay chump change fines and their CEOs and board members don’t go to jail when apprehended, there is little reason to believe that their conduct will change. Why should it? The fines assessed by regulators are nowhere near the profits made, so just pay the fine and consider it a cost of doing business. This, of course, amounts to an admission by our regulators that the big banks are not only too big to fail but also too big to (effectively) regulate. That mindset needs to be reversed. Regulate we must, or risk deep economic decline or worse.

In view of the course description of one of the courses I took during my college days as set out in the foregoing thumbnail sketch of post-WW II history, I have since joked and blogged that I presume today’s corporate-influenced curricula probably now would not read “Government Regulation of Business,” but rather in this day and age of tea partiers and corporate control would read “Business Control of Government,” which would more aptly describe today’s situation.

Trouble is, it’s tragic, not funny, and neither was the day Wall Street crashed in 1929, when stock brokers and investors during the developing disaster were jumping out of windows to their deaths as they were financially ruined and apparently thought more of their money than their lives. Will Rogers, America’s great humorist of that day, was not funny either when at the time he joked that “In New York the clerks ask incoming guests ‘you wanna room for sleeping or for jumping? And you have to stand in line to get a window to jump out of.’” I love the humor of Will Rogers, but that was not funny and was insensitive to a fault, an observation he should have kept to himself.

At bottom, the reason we must have tight regulation of the securities markets and banks is found in one word, and the word is 1929, a terrible year for investors and everyone else in America and elsewhere. I think if we had had statutory authority for regulation of these areas and a law (a la Glass-Steagall) which would have prevented such trading excesses, that 1929 and the pain and suffering of The Great Depression would not have happened. I will discuss a rerun of 1929 due to our lack of regulatory authority today in more detail in Part II of this essay. Stay tuned.   GERALD    E

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