When TARP happened in 2009 I was naively shocked by the utter corruption of both “parties”. I soon started learning more about finance and corruption, but I still haven’t figured out some of the reasons behind the crime.
This clip of a current hearing in the senate gave me a rare moment of clarity. The connection isn’t explained in the clip, but for some reason this discussion helped me to think backwards and infer the connection.
When Glass-Steagall was repealed in the ’90s, I didn’t see why it was so important for banks to engage in stock trading.
(1) Stock trading is a crime, and as such it’s inherently risky. A trader is supposed to absorb the loss when his bet fails, like any other bettor.
(2) Real banking, with real deposits and real loans and real interest, is a necessary part of a complex economy. Businesses and people need a reliable place to store savings and a strict place to get loans. Because banking is important, it was insured by FDIC, first developed in Oklahoma’s populist constitution. Like other insurers, FDIC placed firm restraints on the banks who wanted its service. If you want fire insurance you need to have fire extinguishers. If you want bankrun insurance you need to have bankrun extinguishers.
NOW I SEE:
Breaking Glass-Steagall mixed crime and necessary service into one securitized blob, which meant that CRIME IS NOW LEGAL AND THUS INSURABLE.
FDIC is no longer able to constrain its ratepayers. They are now free to bet the whole bank on losing propositions, and the government is required to make up the loss.
Polistra's Mill 