The Chickens Come Home to Roost

As major financial institutions fail and Wall Street reels, some in Congress are taking a second look at a 1999 banking law that then-Rep. Bernie Sanders opposed. "I believe this legislation will do more harm than good," Sanders warned in 1999. "It will lead to fewer banks and financial service providers; increased charges and fees for individual consumers and small businesses; diminished credit for rural America; and taxpayer exposure to potential losses should a financial conglomerate fail. It

As major financial institutions fail and Wall Street reels, some in Congress are taking a second look at a 1999 banking law that then-Rep. Bernie Sanders opposed. "I believe this legislation will do more harm than good," Sanders warned in 1999. "It will lead to fewer banks and financial service providers; increased charges and fees for individual consumers and small businesses; diminished credit for rural America; and taxpayer exposure to potential losses should a financial conglomerate fail. It will lead to more mega-mergers; and a small number of corporations dominating the financial service industry, and further concentration of economic power in our country."

Over Sanders' opposition, Congress passed the Financial Services Modernization Act of 1999, also know as the Gramm-Leach-Bliley Act. (Yes, that Gramm, the former Texas senator who gives Senator John McCain bad advise on the economy.) The law effectively set aside the Depression-era Glass-Steagall Act, which was enacted in the wake of the worst period in U.S economic history to keep commercial banks from owning investment banks and vice versa.

Senator Phil Gramm had a different view. "Ultimately," he said back then, "the final judge of the bill is history. Ultimately, as you look at the bill, you have to ask yourself, will people in the future be trying to repeal it? I think the answer will be no…[because] in this period of economic growth and prosperity, we believe freedom is the answer."

When Senator Gramm talked about freedom, he meant giving big banks the freedom to take on risky investments, freedom to make dicey loans, freedom to reward executives with hundreds of millions in compensation, freedom to charge exorbitant interest rates and fees, freedom to rack up tens of billions in bad debt, freedom to rip-off consumers, freedom to let the American taxpayer bail you out when you fail.

The 1999 law is one of the major reasons the economy is in the mess it is in today, a mess that is the result of a systematic effort by Republicans in Congress to deregulate the financial services industry; eliminate consumer protections; encourage predatory lending, and tear down the firewalls that had separated commercial banks from investment banks.

"History has judged," Sanders said. "We need to restore strong government oversight of the banking industry."