After the great depresssion at the beginning of the previous centry, the american banking system put into force quite a few strict measures. Rather than call it strict, I would call them appropriate. The banking sytem and the financial health of a country are very dependant on one another. The principal act that put into force all these regulations was the Glass-Steagal act of 1933.
Then came 1999, when legislators met to repeal this act. Treasury secretary Lawrence Summers called it a history act which will better enable american companies to compete in the new economy. The original Glass-Steagal act brought about the separation between bankers and brokers. And that is the way it should be.
But there were people who did not like this. And rightly so. I am visualizing the then Senator from Dakota (Dem), Byron L Dorgan, sitting smugly and saying “I told you so !!!”.
“‘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 1930’s is true in 2010,” said Senator Byron L. Dorgan, Democrat of North Dakota. ”I wasn’t around during the 1930’s or the debate over Glass-Steagall. But I was here in the early 1980’s 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 of soundness.”
Another senator Paul Wellstone, Democrat of Minnesota, said that Congress had ”seemed determined to unlearn the lessons from our past mistakes.”
So it was not something that happened now, that broke the system. It has been happening for some time now. Overconfidence and greed, has been pushing Wall street to persuade Congress, since 1999.
Source: NYTimes Nov 3, 1999 – [pdf]