On November 8, 1999, a few months before the NASDAQ index peaked at 5132.52, The American Banker ran several short items in its “Washington People” column. The lead piece reported that House Banking Committee Chairman Jim Leach had hosted a party to commemorate passage of a key “financial reform bill.” This was a reference to the Gramm-Leach-Bliley Act–the one that allowed for the financial deregulation that helped produce the current meltdown.
In attendance at the party were a group of Leach’s “closest collaborators on the bill, including Federal Reserve Board Chairman Alan Greenspan [and] Treasury Secretary Lawrence H. Summers,” said the item. “They joined staff members, lobbyists, and reporters in drinking champagne and devouring a large cake, which bore an epitaph for the Depression-era separation of commercial and investment banking that the bill undoes. It read: Glass-Steagall, R.I.P., 1933-1999.”
A second item in “Washington People” reported on the appointment of the new chief of a panel that helped members of congress understand financial matters and policy. Maurice R. “Hank” Greenberg was named chairman of the Congressional Economic Leadership Institute last week,” it read. “The institute educates lawmakers and their staff members on economic issues including taxes, trade, and financial services.”
Greenberg, of course, was the chairman and chief executive officer of American International Group (AIG)–the company that taxpayers just bailed out to the tune of $85 billion. It would be great to know what advice Greenberg offered during his tenure at the Institute.
Also, check out Howard Kurtz’s column today in the Washington Post. “The shaky house of financial cards that has come tumbling down was erected largely in public view: overextended investment banks, risky practices by Fannie Mae and Freddie Mac, exotic mortgage instruments that became part of a shadow banking system,” he writes. “But while these were conveyed in incremental stories–and a few whistle-blowing columns–the business press never conveyed a real sense of alarm until institutions began to collapse.”
But mainstream newspapers didn’t do a great job either, especially editorial pages. From Denver to Durham, the vast majority of local papers were at least guardedly in favor of the Gramm-Leach-Bliley Act, and some offered exuberant support. Here’s the Chicago Tribune on October 26, 1999:
Like many frail old things, Glass-Steagall by century’s end had lost much of its power to prevent relentless change… A law fashioned in the depth of the 20th century’s greatest economic depression is a poor vehicle on which to build a reliable, innovative and trustworthy financial system for a 21st century world where the click of a mouse whisks billions in “cash” across continents.