Now the exact date of when the great recession or the financial crisis of the late 2000’s began is a huge debate among economists everywhere. But what if they’re off, not by a few months, or a year or so. What if they’re off by about, nine years? Humor me on this, here are my findings and my idea:
During the second term of President Franklin Roosevelt, and more specifically in 1933, a law was introduced called The Banking Act of 1933 more commonly known as the Glass-Steagall Act(GSA). This law did much in the way of economic reform, one of its greatest impacts was its creation of the Federal Deposit Insurance Corporation what we all like to call the FDIC. But that’s not all this bill did. It created a separation of sorts between commercial banks and securities firms. In simple terms, in separated wall-street from main-street. During the time this law was in place the private sector grew, minimum wage exploded, and it led to the largest period of economic growth in United States History. So what’s the problem?
The problem begins in late 1999. A bill is introduced called Financial Services Modernization Act of 1999 better know as the Gramm-Leach-Bliley Act this act was to repeal sections 22 and 30 of the GSA. So again, why is this a problem? Well, we all know wall-street is where the money is at, not main-street. So when the bill was passed, in a bipartisan effort I might add, (a final senate vote of 90-8 and a final house vote of 362-57) and signed by President Clinton we set the stage for the crisis, how so? Well by eliminating the separation it allowed wall-street investment banks to buy out the every day banks that most Americans used. This is how we get the problem of ‘too big to fail’ it’s also when we begin to see banks invest in subprime mortgages.
We all know how this ended, in 2007 the bubble popped, and the economy didn’t grind to a halt, it crashed. How do we fix it? Simple, reinstate sections 22 & 30 of the GSA. Not only is it easy, it’s been tried by both major party’s including a bipartisan effort in 2009 with Senators John McCain (R-AZ) and Maria Catwell (D-WA). I’m not saying this will fix the economy in the blink of an eye, nothing will do that. But perhaps this can not only help get us back to the unprecedented growth we were experiencing. But perhaps it can prevent this from happening again.