Matt Taibbi's latest article in Rolling Stone was crushing: “Wall Street’s Big Win: Finance reform won’t stop the high-risk gambling that wrecked the economy – and Republicans aren’t the only ones to blame.” Taibbi proposes that the recent Wall Street “reform” fixed about 10% of the problem, and that it was designed primarily to cover up an uncomfortable political truth:
The huge profits that Wall Street earned in the past decade were driven in large part by a single, far-reaching scheme, one in which bankers, home lenders and other players exploited loopholes in the system to magically transform subprime home borrowers into AAA investments, sell them off to unsuspecting pension funds and foreign trade unions and other suckers, then multiply their score by leveraging their phony-baloney deals over and over.
It was pure financial alchemy – turning manure into gold, then spinning it Rumpelstiltskin-style into vast profits using complex, mostly unregulated new instruments that almost no one outside of a few experts in the field really understood. With the government borrowing mountains of Chinese and Saudi cash to fight two crazy wars, and the domestic manufacturing base mostly vanished overseas, this massive fraud for all intents and purposes was the American economy in the 2000s; we were a nation subsisting on an elaborate check-bouncing scheme.
And it was all made possible by two major deregulatory moves from the Clinton era: the Gramm-Leach-Bliley Act of 1999, which allowed investment banks, insurance companies and commercial banks to merge, and the Commodity Futures (and the)
Modernization Act of 2000, which exempted the entire derivatives market from federal regulation.
Together, these two laws transformed Wall Street into a giant casino, allowing commercial banks to act like high-risk hedge funds, with a whole new galaxy of derivative bets to lay action on. In fact, the laws made Wall Street even crazier than a casino, because in a casino you have to put up actual money to make bets. But thanks to deregulation, financial companies like AIG could bet billions, if not trillions, without having any money at all to back up their gambles.
Rightardia would also mention that the SEC changed the Reserve rules in 2004 that substantially reduced the reserve requirements for five big Wall Street investment banks. This was the coup de grâce to the US economy. When the mortgages started to fail, the banks had no reserves to cover the defaults. The US taxpayer was left holding the bag.
source: http://dangerousintersection.org/2010/08/12/matt-taibbi-what-wall-street-accomplished/
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