The deregulation of the financial, insurance, and securities markets that was implemented in the late 1990s by the abolition of the Glass-Steagall Act and other Depression-era safeguards has removed Federal oversight of this sector and has resulted in many subsequent abuses of the fiduciary trust essential for public confidence. The most notorious example of past failure is the Enron bankruptcy, which resulted in losses of Billions of dollars for its investors, employees, and the public from its collapse. The financial manipulations and deceptive accounting practices now being uncovered in the Federal National Mortgage Corporation scandal also show the depth of the corrupt culture of deliberate mis-mangement and disdain for the public trust, even by Federal chartered institutions. The collapse of Allfirst Bank in Maryland and Pennsylvania almost a decade ago was caused by unsupervised in derivatives and other securities and resulted in losses of $700 million, much of which cost was passed on to the public which ultimately pays the bill for FDIC insurance covered bank failures.
Since then, the 2008 financial
meltdown requiring $700 Billion of bail-funding plus Trillions
of dollars in loans and loan guarantees by the Federal Reserve
Bank to domestic and foreign banks has occurred to prevent the
world financial system from collapse. The loss of eight
million jobs and the onset of an estimated ten million home
foreclosures with the country have destabilized the economies of
the United States and many other countries. To make matters
worse, sound corrective measures have not been implemented and
derivatives and other exotic financial instruments are still
being created. New
Glass-Stegall Act styled safeguards separating banking from
insurance and real estate activities have not been implemented
and more debt is continually being created in desperate efforts
to prevent the imminent default of several European countries. Future generations
will be saddled with the burden of ever increasing debt if
current policies are not reformed.
The Federal Reserve System also is not immune from well-earned
criticism: the Chairman's famous warning about "Irrational
Exuberance" speculation in the stock market almost a decade ago
was not followed up by the Federal Reserve's using its authority
to choke off stock market speculation by raising the margin rate
(minimum down payment percentage on stock purchases) from 50% to
90%. It also gave the Congress the green light to
pass the tax cuts for the wealthy that were implemented and now
have been extended by the current Administration despite the
incredible budget deficits that have resulted. At that
time, the Federal Reserve Bank warned its member banks to be
more cautious about their exposure (lending) to hedge funds,
which are private investment clubs not subject to Securities and
Exchange Commission regulation, reporting, and oversight.
Notably, it did not then call for a freeze on more lending or
for reporting the scope and amount of such loans to hedge funds
by its member banks. The consequences of these
Federal Reserve Bank's failures are now plain for all to
see: the ensuing stock market bubble and collapse which
cost 401K retirement plans to lose a fourth or more of their
value, the resulting flight of savings combined with
irresponsible mortgage lending into the housing market which has
resulted in the millions of home foreclosures, and the tripling
of the national debt in the past ten years, and dangerous
volatility in the world’s securities markets.
Unfortunately, the November 2010 elections did not result in meaningful economic reform. The Republicans in control of the House of Representatives refuse to recognize the disastrous adverse impact of continuing their ruinous monetary and fiscal dogmas. The fiscal fiction that budget cuts help to stimulate the economy and job growth is illogical: how could laid-off workers spend money they don’t have to provide the added demand needed to increase the sales of American businesses? The Republicans also failed to realize the increasing unemployment and those American jobs sent abroad also resulted in fewer income and other taxes collected from American workers. They have destroyed the domestic tax base with their unfair trade, budget cutting, and taxation policies. No wonder the former Vice-President said that "deficits don't matter"! The only solution is radical tax reform to increase government revenues. A gross receipts tax upon all corporations and financial documents transfer taxes are urgently needed to reduce the budget deficits of the Federal government and the states. At present, only half of the corporations in the United States pay any Federal or state income taxes.
The Federal Reserve has lost control over the money supply. It also has flooded the market with more dollars (i.e., "printing money" and lowered domestic interest rates to near zero. Because the Federal Reserve's governors are ideologically (i.e., Ayn Randist) adverse to "Credit-Allocation" and did not rein in the flow of speculative bank lending, they are primarily responsibility for the disastrous speculation in the securities and real estate markets. The world’s national economies have been destabilized are now danger of massive financial defaults as the result of ever-increasing onerous debt servicing costs placed on taxpayers and small businesses. Only a comprehensive overall of the world’s financial systems and government policies could rectify the perilous world financial situation and prevent total the looming economic collapse. (Also, please read the Budget, Deficit, and Taxation Issue paper).
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