In the aftermath of the 1929 stock market crash and economic meltdown, Congress passed the Glass-Steagall Act, which was designed to prevent future financial crises by reforming the functions of the banking industry.
Under the Act, there would be two types of banks: one would be limited to commercial institutions for bank depositors, withdrawals, transfers and related transactions. The other type would deal exclusively with financial risk-taking investments in securities and bonds, where the banks could use our depositors’ money to produce profits for the bank’s owners.
As further protection against economic crises, Congress approved the Federal Deposit Insurance Corporation (FDIC). In 1934, FDIC offered $2,500 insurance.
In 1999, the Glass-Steagall Act was repealed, during Bill Clinton’s administration with his approval, allowing banks to make risk- taking investments anywhere they wished in the pursuit of profits.
Strong evidence is available that banks, relieved of restraints, made reckless investments that brought on the economic crisis of 2008.
Bankers Never Compensated Millions Who Lost Jobs
It is surprising that the banking industry was not pressured into providing an independent fund to help those who had lost their jobs and homes in the economic crisis. Instead, the banks were treated sympathetically, and huge bailouts were handed them almost overnight at secret meetings between government and financial officials.
The AFL-CIO should have been the logical organization to confront the bankers with a request to negotiate a settlement. But AFL-CIO President Richard Trumka, while he could make fiery speeches against the bankers, never had the heart to ask them for a face-to-face meeting to discuss compensation.
As a result, the banks are still in a position to gamble our money on high-risk investments that can cause the next economic crisis. The current discussion about applying tougher or fewer bank regulations won’t make much of a difference in the behavior of the banking industry.