Financial Reform 101 - Martha Carr

President Obama has put forth legislation to curtail some of the activities by Wall Street and the banking community that led to the Great Recession. The leading financial institutions have responded by hiring a boat-load of lobbyists to march down the halls of Congress and sway our elected representatives to let them continue to have their way unfettered.

While leading Republicans have stated they want to fiddle with it for awhile, while these same financial institutions go back to business as usual, leading conservative pundits have said they're actually for the bill. Things are so out of balance that many leading economists feel it's more important to put into place some safeguards, and tweak the details later.

It is a sign just how far down the rabbit hole we are that China has more laws in place currently to protect against banking or investment shenanigans than we do.

Ironically, China based their legislation on the U.S. Glass-Steagall Act of 1933 that created a wall between banks and brokers. That law was enacted after the banking collapse the previous year that was largely attributed to fraud and deceit in the years before the Great Depression. This should all be sounding eerily familiar.

However, in 1999, the Gramm-Leach-Bliley Act tore down the wall saying the industry was over-regulated and, thereby, thwarting free enterprise, and it became possible for banks to offer brokerage services and brokerage houses to offer banking services. At first, it seemed great allowing the average investor to buy stocks and bonds without having to pay a high brokerage fee. Of course, in hindsight, we can now see that the bill was going to come due and would be much, much higher.

Keep in mind that in all of this inter-mixing there was a hitch or two. The banking side of things was also attached in some ways to the FDIC, a federal body created in 1932 as a means to protect, which meant that taxpayers and a regulatory agency were now mixed into Wall Street's business plans. And, financial institutions were largely held by shareholders who wanted to see bottom lines grow, and as quickly as possible.

There were now two distinctly different business models in bed together and surprise, surprise, money trumped everything. Entire marketing departments sprang up overnight with the responsibility to find new, packaged investments that could be sold to investors, big and small. The only problem was going to be finding an endless supply of something new and shiny to get people to shove their money into, thereby creating billions in fees and revenue.

Eventually, mortgage-backed bundles securities were created. Any market can become saturated, requiring opening up a new market, akin to getting another country to suddenly start buying what a company has exhausted on the American public, or adding features that suddenly make it seem new to the same market. Think iPad.

As the mortgaged-backed securities began to fizzle, more and more lenders allowed people to borrow beyond their means, and for most of these loans, their practices were not illegal. In order to make these bundled securities palatable to investors, insurance companies like AIG backed them in case they failed. But many of these same insurance companies had invested heavily in the same shaky deals.

The dog was chasing its own tail. It was only a matter of time before there weren't even enough risky applicants for mortgages, and the investment pool dried up, bursting the bubble.

Just like in 1929 and 1933, the market started to level itself out with a normal correction only to find there wasn't actually anything of value backing up all of this hype. Everything collapsed like a balloon full of hot air in 2008 and the truth started to spill out of everywhere. Now, the financial and banking industries are balking at having a watered-down version of the same type of regulations put back in place. They're promising to behave and self-regulate the hen house and stating boldly that we can trust them. These are the same guys who were too big to fail and needed our money to fix their mistakes as they continued to pay themselves big bonuses.

Keep all of that in mind when you contact your congressperson, whose contact info can be found at https://writerep.house.gov/writerep/welcome.shtml, and let him or her know what you think of standing down and doing nothing.

Martha's column is distributed exclusively by Cagle Cartoons Inc., newspaper syndicate. E-mail Martha at: Martha@caglecartoons.com.