Lesson's Not Learned -- FDR had the solution. Can our Congress Remember?

Remember the great credit crunch of the 1980's? That was when we in the farm states got a really bad taste of our own Depression. It was called the Farm Crisis. The scars of that crisis still remain on our land ... on people's faces and along the roadsides where the empty barns and empty farmsteads still tell the story.

You may also remember the Great Depression? That was an even bigger credit crunch. Whether the depression or the 1980's credit crunch, both bear great lessons for Congress, the President and Treasury Secretary Paulson.

The lesson we were supposed to have learned as Franklin Delano Roosevelt (FDR) pulled our country out of the Great Depression has been described in detail by South Carolina candidate for Congress (1st CD) Linda Ketner on her website. Here's how she explains the problem ... a problem that is also happening now:

"To understand the cause of this problem, we have to go back to the years leading up to the Great Depression of 1929, when: There were no walls between banks and the stock market. Credit was cheap and people were allowed to borrow money from the banks and then risk it in the stock market – and they did. Everyday people were playing the stock market and even banks were doing it with depositors’ money. It was the roaring 20’s and people were getting rich right and left. Stocks began to fall in October ‘29, banks began to call in loans because the value of the stocks dropped and no longer covered the loan amount. People couldn’t make payments so they defaulted on the loans. Because banks had been borrowing money to invest as well, their portfolio plummeted. When people came to get their money out of the banks (i.e., when there was a run on the banks), they didn’t have the cash and closed. Does any of this sound familiar?

"In 1933, when Franklin Roosevelt was elected President, he said that in order to protect ourselves “against money lenders and unchecked and unregulated Wall Street gamblers” – and to prevent the possibility of another depression, we needed to supervise and separate:

1. Banks
2. Securities
   
3. Companies and Insurance Companies.

"The Glass Stegall Act was the response and there was a clear separation of: BANKS, which were to be the guardians of public money. Low risk. Low reward. Safe. Federally insured with taxpayers dollars. And banks could not risk other people’s money in the stock market.SECURITIES for those who wanted to speculate in the market, but could not do so with other people’s money. Glass Stegall said they needed transparency, anti-trust laws, and accounting standards so that a Depression would never happen again.INSURANCE companies were the third arm that Glass Stegall separated to make sure a bank failure, or stock drop, would never risk the public’s health and property.

"Does any of this sound familiar?

"Through Democrat and Republican administrations, these protections endured (despite chipping away which started in the 80’s), until 1999 when the walls, boundaries, and safeguards came down with the Gramm, Leach, Blilly or Banking Modernization Act. "Soon these institutions became self-regulating.

"Citibank bought Travelers Insurance and Smith Barney and became Citigroup. J.P. Morgan bought Chase Manhattan. BOA bought Merrill Lynch just recently and, because they were deregulated and self-regulated, there was no supervision of what they were doing. What they were doing was making wild loans to people who had no business getting credit - with depositors’ money. Subprime loans. All the time shielding from view the transaction trail by bundling loans and selling them off in pieces and parts to speculators.

"When the first round of subprime loans and mortgages – the high risk mortgages – adjusted, the trouble began. Defaults began. Some people didn’t understand the loan agreements they signed in the first place. Some people were borrowing cheap money and flipping houses as they watched the housing bubble grow bigger and bigger. Credit card companies were hiding extraordinary charges from view that made predatory lenders look like pikers."

"But the bubble burst, as bubbles always do, and the banks didn’t get paid on their loans, their investments have gone south, and they are filing for bankruptcy.This is obviously very serious. Just as in 1929, there is nothing really to stop the spiral downward except the response time and creative problem-solving of the government now."

Ketner continues, laying out a series of solutions -- some long term and some short term -- on her blog which can be found at Economy --- Linda Ketner for Congress.

Well, Roosevelt isn't here. We wish he were, but we are where we are with our leaders working hard to "stop the spiral downward" as they try to move fast and be creative to solve the problems we've got now. See our next blog for more on this continuing story. It seems that some members of Congress, lead by Rep. Eric Cantor (R VA7), are playing political games.