from truthdig:
The Big Guy’s On Our SidePosted on Sep 28, 2010
By Robert Scheer
Paul Volcker, or the “big guy,” as President Barack Obama refers to the former Federal Reserve chair who heads his Economic Recovery Advisory Board, nailed it in a series of blistering remarks on the sorry state of our economy. But what he said was even tougher than was indicated by the media’s scattergun reporting on his speech last Thursday to the Chicago Fed. Thanks to Reuters, which posted the video coverage online, it is possible to take the full measure of his concern over where we are and how we got here.
Volcker warned that “the financial system is broken. ... We know that parts of it are absolutely broken, like the mortgage market, which only happens to be the most important part of our capital markets (and has) become a subsidiary of the U.S. government.” That sentence was quoted in brief mentions of the speech in The New York Times and other leading news outlets but not so his explanation of how this was allowed to happen: “I don’t think anybody doubts that the underlying problem in the markets is this too-big-to-fail syndrome, bailout and all the rest.”
Volcker is right that those too-big-to-fail banks were at the heart of the problem, but the folks who pushed through the legislation allowing the creation of those unwieldy financial monsters still feign innocence. They include Bill Clinton; his treasury secretaries, Robert Rubin and Lawrence Summers; former Sen. Phil Gramm, a Texas Republican; and former Federal Reserve Chair Alan Greenspan. Their success in smashing the wall between investment and commercial banking is the source of our current misery. As Volcker observed, the investment banks stopped investing in truly productive ventures and turned into “trading machines instead of investment banks,” resulting in “encroachment on the territory of commercial banks, and commercial banks encroached on the territory of others in a way that couldn’t easily be managed by the old supervisory system.”
That melding of Wall Street high rollers’ risky bets with the federally insured deposits of ordinary folks required the U.S. government to bail out the former to save the latter. That was just what a small band of eight senators predicted when they alone voted against the radical deregulation that Clinton signed into law in 1999. The urgency behind passage of that law was the temporary waiver of the Glass-Steagall Act by the Fed, an action that allowed the merger of the Travelers insurance company and Citibank to form Citigroup, creating the biggest of the too-big-to-fail banks. ...........(more)
The complete piece is at:
http://www.truthdig.com/report/item/the_big_guys_on_our_side_20100929/
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