Flashback 1933

                                                   Flashback 1933

(characters names have been changed to protect identity, and similarities, is purely coincidental) 

The year is 1933, a few years into some of the worst times of the United States, The Great Depression.  Originating in the United States, it began with fallen stock prices, and eventually the stock market crash. Spreading across the globe, no country was safe from the astronomical unemployment rates and poverty.

Some short years before the crash, the economy was on a boom, from the widespread of electricity and electrical products, to Ford Motor Company's assembly line for auto production.  These years are when Wall Street got their heads filled with visions of big dollar bills dancing in their heads.  Credit terms eased, and pretty soon, anyone could buy stocks on margin.  Expecting their long-expectant ships to come in, everyday people were borrowing money from a broker, and buying into the market this way, through a type of marginal loan that would be payable immediately if stock prices fell below the loan amount.  

The money seemed such a sure thing, that American companies were buying stock in the market and banks were placing their customer's money in the market without their knowledge.

As a warning sign, on March 25, 1929, the market began to take a small dive.  Panic began to swell up on Wall Street.  Banks made announcements they would continue lending, so everyone breathed a sigh of relief, and continued buying the risky stocks.  On Thursday, October 24, 1929, the stocks began to tank.  Since most people bought their stocks marginally, they would have to immediately pay pay what was owed.  Fearing the worst, bankers reinvested their own money back into the market, and by the end of the day they had sold double their previous record of stocks!  October 29, 1929, this day is notably referred to as Black Tuesday.  This day, even the bankers would be selling.  The panic had caused over 16 million shares of stock to be sold, and collapsing the US economy.

The effects of the crash were felt for years.  In 1933, Senator Carter Glass and Henry S. Steagall drafted a new legislation that would prohibit commercial banks from engaging in investment business.  Nearly 11,000 banks failed, or had to merge, during the Great Depression, due to the risky investments.  The Glass-Steagall Act became a permanent  part of Franklin D. Roosevelt's "New Deal" in 1945, and established the Federal Deposit Insurance Corporation, along with strict banking reforms.  The Act was intended to keep banks from doing business on Wall Street.  Senator Glass believed bank involvement with the stock market was ruining the Federal Reserve and responsible for stock market speculation.  The Glass-Steagall Act, became law in 1933.

Fast forward to the year 1998.  Referred to as Gramm Leach Bliley, this will be known as the repeal of the Glass-Steagall Act.  This new legislation, will allow banks to merge with insurance companies and investment banks, and to take on all the risk they wished.  From Bank of America to JP Morgan, they must of been dancing in the streets, when they realized their lobbyists had pulled this one off!

The new act was drafted and passed by a Republican congress, but signed into legislation by Democratic president Bill Clinton.  

These new mega banks were now free to sell to consumers, all the risky mortgages they could pull off, and thanks to the new act, they could manipulate the structure of investments, to ensure they never have to clean up their own messes.  It's a win-win situation.  To put some extra icing on your garbage cupcake, Robert Rubin was Secretary of Treasury at the time, and had oversight of the Glass-Steagall regulations.  When the act was repealed, he resigned, and days later accepted his new position at Citi Bank, as executive committee member earning $40 million dollars a year.  That icing tasted terrible didn't it?

Looking to point a finger for the housing bubble and foreclosures, look no further than Wall Street and the BIG banking industry (oh and don't forget those people that are supposed to be representing us, but instead are making piles of money of bending our system for their benefit).  So remember, get up, stand up, but most importantly, do something!