mirror of
https://github.com/nhammer514/textfiles-politics.git
synced 2024-12-29 09:16:21 -05:00
177 lines
10 KiB
Plaintext
177 lines
10 KiB
Plaintext
</p>
|
|
|
|
<p> The Next Banking Crisis:
|
|
=========================================
|
|
The Issue Whose Name They Dare Not Speak.
|
|
========================================= </p>
|
|
|
|
<p> Late in June, [the Bush] Administration unleashed a bill that
|
|
would gut the Community Reinvestment Act (which requires banks to
|
|
make loans in their own neighborhoods, including low-income
|
|
areas), ease restrictions on loans to a bank's own officers and
|
|
directors and postpone the effective date of some tighter
|
|
regulations contained in last year's banking law.
|
|
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
|
|
This proposal is only the latest in a series of deregulatory
|
|
gestures by the Administration and the Fed. [whose] gifts to the
|
|
financial industry -- [recently] forty-five actions, taken rather
|
|
quietly since December [..] mandate looser capital requirements,
|
|
lighter supervision and gimmicky accounting. Their collective
|
|
effect is to make the banking industry look healthier than it
|
|
really is and to permit riskier behavior in the future. These
|
|
moves defer tomorrow's disasters
|
|
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
|
|
The CBO estimates that the repeated delays in shutting down
|
|
insolvent institutions from 1980 to 1991 added $66 billion to the
|
|
cost of the S&L bailout -- enough to fund the Aid to Families with
|
|
Dependent Children program for three years, or AIDS research for 50 </p>
|
|
|
|
<p> The Next Banking Crisis:
|
|
=========================================
|
|
The Issue Whose Name They Dare Not Speak.
|
|
=========================================
|
|
By Doug Henwood, _The Nation_, July 20/27, 1992
|
|
(See below for more about _The Nation_) </p>
|
|
|
|
<p>Transcribed by Joseph Woodard </p>
|
|
|
|
<p>Whatever happened to the financial crisis? Only a year ago, it seemed
|
|
the credit system was imploding, and ever-more-extravagant bailouts
|
|
appeared inevitable. Now, the Resolution Trust Corporation (R.T.C.),
|
|
liquidator of failed savings and loans, is winding down operations;
|
|
banks and surviving thrifts seem generally profitable; and the seizure
|
|
of failing institutions has all but ceased. Surely the weak, possibly
|
|
failing, economic recovery we've seen since late last year can't be
|
|
solely responsible for this apparent reversal of fortune. </p>
|
|
|
|
<p>No, finance owes its recovery mainly to an indulgent government, whose
|
|
normal generosity has been deepened by election year concerns. The
|
|
Bush Administration wants to bury the problem, Congress is happy to go
|
|
along and the media aren't asking any unpleasant questions. Clinton
|
|
raises the issue with his typical technocratic dullness, and Perot
|
|
with his usual empty fury -- but neither has made that big a deal of
|
|
the timely disappearance of the financial crisis. That's odd,
|
|
considering that, as Bush campaign officials told Lynda Edwards of
|
|
_The Village Voice_, people in their focus groups are obsessed with
|
|
the savings and loan bailout and wonder why the press isn't covering
|
|
it. </p>
|
|
|
|
<p>One reason the banking mess has receded from view is that the Federal
|
|
Reserve -- which no doubt prefers that the financial system never be
|
|
an electoral issue at all -- has been easing policy gradually but
|
|
steadily since March 1989. The federal funds rate (the interest rate
|
|
banks charge one another for overnight loans), the most sensitive
|
|
indicator of the central bank's policy, has fallen in thirty-two of
|
|
the past forty months, pushing short-term interest rates to their
|
|
lowest levels since 1963. </p>
|
|
|
|
<p>Although the economy has barely responded to this treatment -- no
|
|
modern slump has proved so resistant to lowered rates -- it has helped
|
|
refloat the banking system in at least two ways. First, banks haven't
|
|
really shared the Fed's generosity with their customers. Rates charged
|
|
for loans haven't declined anywhere near as much as those paid on
|
|
deposits, boosting bank profits. And second, long-term rates haven't
|
|
declined nearly as much as short-term rates. Leaving aside two brief
|
|
spikes in the 1950s, the gap between long- and short-term rates is the
|
|
widest it's been since the dislocations of the 1930s and 1940s. This
|
|
also fattens the banks, which have been buying government bonds
|
|
(rather than making loans) and pocketing the large spread between what
|
|
they pay their depositors and what they can get from Uncle Sam. Should
|
|
the relation between long-term and short-term rates return to normal,
|
|
the banks would take a quick turn for the worse. </p>
|
|
|
|
<p>Fed chairman Alan Greenspan isn't the banks' only friend. The other is
|
|
the man who has said he will do anything to get re-elected, George
|
|
Bush. Late in June, his Administration unleashed a bill that would gut
|
|
the Community Reinvestment Act (which requires banks to make loans in
|
|
their own neighborhoods, including low-income areas), ease
|
|
restrictions on loans to a bank's own officers and directors and
|
|
postpone the effective date of some tighter regulations contained in
|
|
last year's banking law. </p>
|
|
|
|
<p>This proposal is only the latest in a series of deregulatory gestures
|
|
by the Administration and the Fed. The Durham, North Carolina-based
|
|
Financial Democracy Campaign recently issued a five-page list of such
|
|
gifts to the financial industry -- forty-five actions, taken rather
|
|
quietly since December, that mandate looser capital requirements,
|
|
lighter supervision and gimmicky accounting. Their collective effect
|
|
is to make the banking industry look healthier than it really is and
|
|
to permit riskier behavior in the future. </p>
|
|
|
|
<p>These moves defer tomorrow's disasters, shoring up shaky banks (more
|
|
than 1,000 are on the F.D.l.C.'s problem list); yesterday's disasters
|
|
are being dealt with separately. The government has virtually stopped
|
|
seizing failed banks and thrifts; the liquidators can only move in
|
|
when ordered to by Administration agencies (the Office of Thrift
|
|
Supervision and the Comptroller of the Currency, both fiefdoms within
|
|
Nicholas Brady's Treasury Department), and such orders aren't being
|
|
given. This is good news for the liquidators, since their insurance
|
|
funds are broke, and Congress is reluctant to vote them more money --
|
|
at least not in an election year. </p>
|
|
|
|
<p>If you listen to the R.T.C., its work is nearly done. Even though it
|
|
has run through only half its budget, the corporation is shutting
|
|
offices and reducing staff. Among the staff being reduced, as Susan
|
|
Schmidt has been reporting in _The Washington Post_, are lawyers with
|
|
the professional liability section, who are supposed to be going after
|
|
the executives and board members who ran the thrift industry into the
|
|
ground. With a three-year statute of limitations (running from the
|
|
moment institutions are seized), the division needs more staff, not
|
|
less -- but the R.T.C. is dismissing experienced lawyers and replacing
|
|
them with novices. No one can prove anything yet, of course, but the
|
|
likely targets of such liability investigations, aside from bankers,
|
|
would be realtors, accountants, lawyers, doctors and others who are
|
|
likely to be generous campaign contributors to both parties. </p>
|
|
|
|
<p>Insofar as there's a strategy behind this delay in dealing with the
|
|
banking problem (aside from political expediency), it's one of
|
|
"forbearance" -- the hope that the problem will just go away with time
|
|
and economic growth. But the economy is hardly growing, and insolvency
|
|
isn't one of the diseases that time can cure. The Congressional Budget
|
|
Office estimates that the repeated delays in shutting down insolvent
|
|
institutions from 1980 to 1991 added $66 billion to the cost of the
|
|
S&L bailout -- enough to fund the Aid to Families with Dependent
|
|
Children program for three years, or AIDS research for fifty. </p>
|
|
|
|
<p>Students of the S&L disaster are reminded of 1988, when the same trio
|
|
of co-conspirators -- the executive and legislative branches, assisted
|
|
by a lazy or complicit media -- ignored the disaster until after the
|
|
election. In early 1989, the thrift crisis was suddenly "discovered,"
|
|
only to disappear again in accordance with the quadrennial cycle. </p>
|
|
|
|
<p>But the problems won't just go away. Bank and thrift balance sheets
|
|
are contaminated with billions of dollars of loans that went to build
|
|
pointless shopping centers and see-through office buildings. Salomon
|
|
Brothers estimates that it will take a national average of twelve
|
|
years to fill up existing empty commercial real estate -- ten years in
|
|
Los Angeles, twenty-six years in Boston, forty-six years in New York
|
|
City and fifty-six years in San Antonio, the national champ. </p>
|
|
|
|
<p>Aside from increasing the ultimate cost of the financial rescue, the
|
|
conspiracy of silence has largely prevented any serious discussion of
|
|
why the financial meltdown happened or how we might make the best of
|
|
the situation. The government is spending hundreds of billions of
|
|
public dollars to restore business as usual. Instead, failed
|
|
institutions could be transformed to publicly or cooperatively owned
|
|
local development banks, and the government's vast inventory of
|
|
near-worthless real estate could be turned over to community groups,
|
|
local governments or nonprofit associations for creative use. But some
|
|
things are too important to be discussed openly, especially during
|
|
election season. </p>
|
|
|
|
<p>**************************************************************
|
|
Doug Henwood is Editor of _Left Business Observer_ (see below)
|
|
************************************************************** </p>
|
|
|
|
<p>
|
|
|
|
##################################################################
|
|
Reprinted with permission - granted by The Nation magazine/The Nation
|
|
Company, Inc. Copyright 1992
|
|
##################################################################
|
|
Subscriptions to _The Nation_ -- published since 1865 and the oldest
|
|
weekly magazine in America -- are $32 per year (47 issues):
|
|
The Nation // Dept MAP // 72 Fifth Ave. // New York, NY 10011
|
|
Or a half-year subscription (24 issues) is $22.
|
|
|