Wednesday, September 17, 2008

Gambling with Other People's Money

Gambling with Other People's Money
By Jerome Grossman

I am a Democrat. I support Barack Obama. I have made substantial contributions to the party and to Obama. I am dismayed that John McCain is actually leading Obama in the presidential race in the national polls and in the Electoral College. If the Democrats cannot win the presidency after eight years of Republican incompetence, President Bush's unpopularity, the foreign and military failures, the rising unemployment, then they ought to find another line of work, fold the party, and let another group take over.

Just imagine, the party of Franklin Delano Roosevelt hasn't been able to claim the economic issue in this time of crisis. Obama cites as his models for the current emergency the administrations of Theodore Roosevelt and John F. Kennedy when America is trembling over the memory of the1929 stock market crash and the ensuing depression. Republican President Herbert Hoover said that “prosperity was just around the corner” but President FDR instituted radical reforms to restrain the bankers and protect the depositors.

In many ways, the current banking collapse echoes the business and ethical practices of the 1920s when Wall Street and the banks operated under the slogan “anything goes”, especially when it came to gambling with depositors’ money.

After the big bust in 1929, after the 1932 election that swept Herbert Hoover and the Republican Party from power, Roosevelt and the Democrats in Congress passed the Glass-Steagall Act that prevented US commercial banks from doing investment-banking business. Repeal of Glass-Steagall, in 1999 when Democrat Bill Clinton was president, allowed commercial banks to enter the securities business and to compete with companies like Bear Stearns and Merrill Lynch (may they rest in peace)……..

The model proved hard to manage particularly when virtually every financial institution gave its officers stock options that encouraged the riskiest investment strategies like packaged consumer debts, mortgages, credit card advances, student loans, etc.. Overexpansion of real estate broke the investment bubble and put the entire US banking system in jeopardy.

Why doesn't Obama offer a version of tough FDR regulation? Why doesn't he tell the voters that this is a repeat of an earlier experience, that the government must seriously regulate and restrain the bankers to save the rest of us from their appetites? Perhaps it is because Obama has the same business advisor as Bill Clinton, the same seer who engineered the end of Glass-Steagall, Robert Rubin, once at Goldman Sachs, more recently of Citigroup.

The soul of the Obama campaign is wrapped in the invocation of change. I believe he means it but is held back in applying it to current policies by fear of getting too far ahead of the electorate. But the voters are ahead of him on this issue. They are frightened about losing their savings and their jobs. They want him to clean up the banks, to keep their savings safe, to restrain the gambling with other people's money. And restoration of some form of Glass-Steagall might even win Obama the election.


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