How many times have we become irritated at someone with a haughty grin who blurts out, “I told you so?” We wonder if they were just lucky or if they were bright and informed. One such case comes to mind while reflecting about the present attempts to correct, by law, the blunders of so many professionals in banking and finance who are responsible for the crisis of 2008.
A recent meeting convened by the leadership of “Occupy Wall Street” makes it clear that resistance to adequate reform is formidable enough to stall progress. Amidst this debate an almost lone figure speaks out as if he were a ghost. Sen. Byron Dorgan of North Dakota had the courage to make a prophecy on the Senate floor in 1999 that his fellow members were making a huge mistake for which they would be sorry. “I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930s is true in 2010. I wasn’t around during the 1930s or the debate over Glass-Steagall. But I was here in the early 1980s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and soundness.”
Dorgan’s prophecy of doom was incredibly accurate. Almost to the year, his warning became a reality. By a vote of 90 to 8, the Senate passed the legislation repealing the Glass-Steagall Act that opened the floodgates of rampant speculation. The House followed with a 302 to 57 vote. Dorgan had little joy in saying, “I told you so.” The size and power of investment banks, then and now, presents a real threat to the free market. Dorgan’s solution was “Abolish too big to fail. ... If you’re too big to fail, you’re too big. Too big to fail is what I call no fault capitalism.”
Congress then passed the Dodd-Frank bill in 2010 with the intention to correct several Wall Street practices that contributed to the latest financial crisis. There are those who are of the opinion that the Dodd-Frank law is not strong enough because the so-called Vocker Rule, which protects from risky and speculative investment trading, is said to be too weakly secured.
Occupy Wall Street and an allied group, Occupy the SEC (Securities and Exchange Commission), have enlisted the talents of many professional financial experts to make the much-needed changes to rein in Wall Street. Occupy the SEC has put together a statement of 325 pages to present to that commission which represents their ideas about what is needed. This select aggregate of financial specialists includes traders, quantitative analysts, compliance officers and risk analysts. They are convinced that, “The system is broken. Just as turkeys will not vote for Thanksgiving or Christmas, these institutions will not reform themselves.”
Dorgan’s ultimate hope is that, at some point in time, enough courageous and wise members of Congress will emerge to restore the full strength of the original Glass-Steagall Act. His estimate of the bankers who brought on this crisis is far from flattering! “We essentially have had modern day bank robbers — except that they wore gray suits and not masks — and there’s been no accounting for it.”
Dorgan, the visionary prophet, might not live to see his reforms take place. He might leave Congress in the unenviable position of again saying, “I told you so.”
Allan Powell is a professor emeritus of philosophy at Hagerstown Community College.