In his farewell address to the nation on January 17, 1961 President Eisenhower warned the country to be vigilant about the relationship between the government, the armed forces, and the industries and commercial interests they support–what he called the “military-industrial complex.”
Eisenhower spoke of what he called the “grave implications” of allowing the power and influence of that triad to get out of control:
“Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”
I would submit to you that if the words “financial industry” and “congressional” are substituted for “military-industrial” that is exactly what we have seen take place over the last decade and has led to our current economic situation.
We have the financial services industry and all it’s associated tentacles, Wall Street for short, motivated by greed, aided and abetted by policy makers in Washington, D.C. driven by their lust for campaign contributions and power, who have, in either their shortsightedness or outright corruption, sold us all out.
Speaking of sold out, here is an article in Wall Street Watch which summarizes a 231-page report by Essential Information and the Consumer Education Foundation with those words in the title.
“The report, “Sold Out: How Wall Street and Washington Betrayed America,” shows that, from 1998-2008, Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists, a financial juggernaut aimed at undercutting federal regulation.
Nearly 3,000 officially registered federal lobbyists worked for the industry in 2007 alone. The report documents a dozen distinct deregulatory moves that, together, led to the financial meltdown.
These include prohibitions on regulating financial derivatives; the repeal of regulatory barriers between commercial banks and investment banks; a voluntary regulation scheme for big investment banks; and federal refusal to act to stop predatory subprime lending.”
Here are some of the deregulatory steps taken between 1998 and 2008:
* In 1999, Congress repealed the Glass-Steagall Act, which had prohibited the merger of commercial banking and investment banking.
* Regulatory rules permitted off-balance sheet accounting — tricks that enabled banks to hide their liabilities.
* The Clinton administration blocked the Commodity Futures Trading Commission from regulating financial derivatives — which became the basis for massive speculation.
* Congress in 2000 prohibited regulation of financial derivatives when it passed the Commodity Futures Modernization Act.
* The Securities and Exchange Commission in 2004 adopted a voluntary regulation scheme for investment banks that enabled them to incur much higher levels of debt.
* Rules adopted by global regulators at the behest of the financial industry would enable commercial banks to determine their own capital reserve requirements, based on their internal “risk-assessment models.”
* Fannie Mae and Freddie Mac expanded beyond their traditional scope of business and entered the subprime market, ultimately costing taxpayers hundreds of billions of dollars.
* The abandonment of antitrust and related regulatory principles enabled the creation of too-big-to-fail megabanks, which engaged in much riskier practices than smaller banks.
* Beset by conflicts of interest, private credit rating companies incorrectly assessed the quality of mortgage-backed securities; a 2006 law handcuffed the SEC from properly regulating the firms.
Not so coincidentally, during the same period, 1998-2008:
* Commercial banks spent more than $154 million on campaign contributions, while investing $363 million in officially registered lobbying:
* Accounting firms spent $68 million on campaign contributions and $115 million on lobbying;
* Insurance companies donated more than $218 million and spent more than $1.1 billion on lobbying;
* Securities firms invested more than $504 million in campaign contributions, and an additional $576 million in lobbying. Included in this total: private equity firms contributed $56 million to federal candidates and spent $33 million on lobbying; and hedge funds spent $32 million on campaign contributions (about half in the 2008 election cycle).
And before any finger-pointing begins, Wall Street doesn’t care about party, they are willing to purchase whoever is in power at the time. .
“The betrayal was bipartisan: about 55 percent of the political donations went to Republicans and 45 percent to Democrats, primarily reflecting the balance of power over the decade. Democrats took just more than half of the financial sector’s 2008 election cycle contributions.
The financial sector buttressed its political strength by placing Wall Street expatriates in top regulatory positions, including the post of Treasury Secretary held by two former Goldman Sachs chairs, Robert Rubin and Henry Paulson.
These companies drew heavily from government in choosing their lobbyists. Surveying 20 leading financial firms, “Sold Out” finds 142 of the lobbyists they employed from 1998-2008 were previously high-ranking officials or employees in the Executive Branch or Congress.”
In a 3 word summation ladies and gentlemen of the jury, we’ve been had.