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The
Budget Enforcement Act of
1990
(PAYGO) required all increases in direct
spending or revenue decreases to be offset by other spending decreases
or revenue increases. These rules were in effect from 1991-2002.
In 1991 the Federal deficit was 4.5% of GDP, by FY 2000 the Federal
surplus was 2.4%.
Financial Services Modernization Act of 1999-
End to "unfair" restrictions imposed on banks during the Great
Depression, Treasury Secretary Robert Rubin, always a good friend to
Wall Street, finally brokered a deal between the administration and
Congress that allowed banking deregulation to move forward.
In 1979, a Supreme court
decision began the unwinding usury laws.
Traditionally, the Chairman
of the Board and appointed Directors were the watchdogs of the CEO and
company management and had separate responsibilities. During the
80's, the CEO took over the office and responsibility of the Chairman
and appointed his own directors. Oversight ceased to exist and
compensation skyrocketed.
The
Gramm-Leach-Bliley Act of 1999
(introduced by Senator Phil Gramm)
repealed the provisions of the
Glass-Steagall Act of 1933
that prohibit a bank holding
company from owning other financial companies.
The Commodity
Futures Modernization Act of 2000
("Enron
Loophole")
repealed the Shad-Johnson
Jurisdictional Accord
and
exempted Credit Default Swaps from regulation. They were designed to shift the risk of default to a
third-party. U.S. Sen. Phil Gramm (Sen.
Lugar, Fitzgerald, Phil Gramm, Chuck Hagel, Thomas Harkin, Tim Johnson)
introduced the Act on behalf of financial
industry lobbyists and was rushed through Congress as
a companion bill to the omnibus spending bill, the last day before the
Christmas holiday. President Clinton signed the bill into Public Law on
December 21, 2000.
The
Economic Growth and Tax
Relief Reconciliation Act of 2001
allowed PAYGO rules to lapse in the House and be watered down in the
Senate, which made it easier for lawmakers to approve President George
W. Bush's tax cuts and a Medicare prescription drug plan.
The
SEC in
2004 made the decision to allow Goldman, Merrill,
Lehman, Bear Stearns, and Morgan
Stanley to legally violate existing net capital rules
from 12:1 to 40:1. Since the net capital rule is
applied at the end of each month, it is possible that several of the
financial institutions exceeded 60:1.
The
Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005
made sweeping changes to
American bankruptcy laws, affecting both consumer and business
bankruptcies. Many of the bill's provisions were explicitly designed to
make it "more difficult for people to file for bankruptcy. Although the
law was intended to make it more difficult for debtors to file a
Chapter 7 Bankruptcy, it instead forced debtors to file Chapter 13,
under which debts are discharged only after the debtor has repaid some
portion of these debts. Unintended consequence: In
2008 a million + homeowners paid off their credit cards with their home
equity line and then walked on their mortgage when they couldn't afford
it.
The
SEC eliminated the uptick
rule in 2007. The
SEC's Office of Economic Analysis and academic researchers provided the
SEC with analysis that concluded that the uptick rule modestly reduced
liquidity and did not appear to prevent manipulation.
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Enter Bear Stearns-.
In addition, the merging of commercial and investment banking helped
enable high-risk mortgage lending to make its way into the mutual funds
and 401Ks of millions of Americans in the form of mortgage-backed
securities.
Enter the subprime crisis.
Welcome back, 1929. Increased regulation will never come willingly
from the Federal Reserve, an "independent entity" that has always
operated largely in the interests of the big banks that make up its
membership and provide its funding.
Under
two decades of leadership by the notorious anti-regulator Alan
Greenspan, the Fed took a hands-off approach, preferring to set
"guidelines" for the financial industry rather than enforce rules.
The
Financial Services Risk Regulator proposed by Barnie Frank
last week would have the power to demand "timely market information from
market players, inspect institutions, report to Congress on the health
of the entire financial sector, and act when necessary to limit risky
practices or protect the integrity of the financial system." Barney
Frank's modest proposal simply says that if the government is going to
back loans to billionaire investment firms at rates that middle-class
credit card holders can only dream about, the companies are going to
have to submit to a little oversight in return.
In the
end, the real question is what kind of regulation of these industries
can come from a Democratic Party that now relies on Wall Street to
fund its campaigns.
With his
speech in New York, Obama is clearly trying to show himself to be
a man who isn't afraid to bite the hand that's feeding him. He denounced
both "Republican and Democratic administrations" for regulatory failures
leading to the current crisis, and, as the New York Times,
"handouts supporting the speech" noted that "the banking and insurance
industries spent more than $300 million on a successful campaign to
repeal the 1933 Glass-Steagall Act in 1999."
Once the campaign rhetoric fades, the only thing that might bring change
on Wall Street is a revolt on
Main Street,
from Americans who finally cast blame for their lost homes and depleted
retirement accounts on its rightful source.
This act was incorporated in an omnibus spending bill signed by
President
Bill Clinton on December 21, 2000;
The act has been cited as a public-policy decision significantly
contributing to Enron's bankruptcy in 2001 and the much broader
liquidity crisis of September 2008 that led to the bankruptcy filing of
Lehman Brothers and emergency Federal Reserve Bank loans to American
International Group[1] and to the creation of the U.S.
Emergency Economic Stabilization fund.
The bill was never debated by the House or Senate. The bill by-passed
the substantive policy committees in both the House and the Senate so
that there were neither hearings nor opportunities for recorded
committee votes. In substance, it appears that the leadership of the
Republican-controlled Senate and House incorporated the deregulation of
credit default swaps into an omnibus budget bill at a time when
the outgoing president was in no position to veto anything.
The following article suggests that Bill Clinton and Alan Greenspan
endorsed this law The Bet That Blew Up Wall Street though Clinton's
position in 2000 is only suggested, not confirmed or made clear in the
report.
In September 2007, Senator Carl Levin introduced Senate Bill S.2058
specifically to close the "Enron Loophole" This bill was later attached
The 2008 Farm Bill". President Bush vetoed the bill, but was
overridden by both the House and Senate, and on June 18, 2008. One
specific reason behind its introduction was to address the record high
oil prices of the 2000s energy crisis.
The prohibition on single-stock futures and narrow-based indices that
had been in effect until the passage of this act was known as the
Shad-Johnson Accord because it was first announced in 1982, as part
of a jurisdictional pact between John S.R. Shad, then chairman of the
U.S. Securities and Exchange Commission and Phil Johnson, then chairman
of the Commodity Futures Trading Commission.
1945-1979All states adopt special loan
laws that cap interest at higher than the general usury rate—at 36%—but
cap it nevertheless.
1977 The federal government passes the
“Community Reinvestment Act” (CRA) which requires banks to invest in
their communities.
1978 The US Supreme Court decides that
national banks may export the state interest rate law of their home
state into any state where they do business. In response, South Dakota
eliminates its interest rate caps. Several credit card issuing banks
move to South Dakota and operate nationally with no interest rate cap.
1980 Congress preempts state interest
rate controls on all first lien mortgages. This enables predatory
mortgage lenders to make seemingly affordable loans, like adjustable
rate and interest-only loans, that lead to foreclosure for many.
1994 Congress adopts the Home Ownership
and Equity Protection Act of 1994, which provides some substantive
protections to home mortgage borrowers with interest rates or points
that are extraordinarily expensive, but sets no limits on what can be
charged for these loans.
1994-2005 Many states and cities try to
protect their citizens by adopting state statutes and local ordinances
to curb predatory lending, but preemption claims by the federal
government impede their efforts. Numerous bills are introduced in
Congress to protect consumers in a wide range of transactions, including
rent-to-own, credit cards, payday lending, and predatory mortgage
lending, but none of these bills makes it to a hearing.
2001-2007 Predatory and mainly subprime
lenders make home loans to people who cannot afford them, boosting their
own profits in the short term. Many of these loans are packaged and
sold to Wall Street.
2005 After extensive pressure from the
industry, the federal government changes bankruptcy laws, making it
harder for consumers to discharge debts and get a clean start in
bankruptcy.
2006 Congress passes the “Talent
Amendment” which to caps interest on loans made to active military
personnel and their families at 36%, reacting to findings that high-cost
payday lenders had been targeting the military.
2007 Foreclosure rates begin to increase
dramatically as a result of predatory mortgage lending.
The launch of Americans for Fairness in
Lending (AFFIL), a national multi-organization collaborative message and
action campaign designed to raise public awareness and generate outrage
about predatory lending.
2008 Unpaid mortgages cause
mortgage-backed securities on Wall Street to continue to "go bad,"
triggering widespread economic downturn in both the United States and
around the world. Some commercial and investment banks go bankrupt, and
some are the object of government "bailouts." |