The Maddow show for 3-25 describes what could be the root cause of the current financial crisis:
MADDOW: For a country pretty much unanimously focused on a single subject, it`s amazing that stuff we are forgetting, they were just not factoring into the equation about why we ended up with this chicken fried, petrified, run-and-hide economy. Apparently, we are supposed to think that nobody could have seen this coming.
(BEGIN VIDEO CLIP)
RICHARD CHENEY, FMR. U.S. VICE PRESIDENT: I think some of the best financial minds in the country didn`t see it coming.
GEORGE W. BUSH, FMR. U.S. PRESIDENT: No, we didn`t see it coming.
SEN. JOHN MCCAIN, (R) ARIZONA: But I don`t really know of hardly anybody who exceptionally had said, "Wait a minute, this thing is getting completely out of hand."
(END VIDEO CLIP)
MADDOW: Who could have possibly seen this coming? Nobody could have seen it. It was totally unforeseeable force majeure.
(INAUDIBLE)
Join me now on a trip through the time machine, (INAUDIBLE), going back to 1999. All right, 10 years ago. The year the Gramm-Leach-Bliley Act was born. This bill was introduced by three Republicans: Gramm, Leach, Bliley, duh. And it removed a Great Depression era regulation that had said that banks, and investments banks and insurance companies all had to be separate.
Gramm-Leach-Bliley cleared the way for big financial companies to be all of those things wrapped into one. Big companies with huge internal incentives to take risks, companies that were so complicated they couldn`t really be regulated, and companies that were so big that the government felt that they could not be allowed to fail.
At the time, in 1999, when this was being debated, Democratic Senator Byron Dorgan from North Dakota saw it coming, like he should have a psychic show in Vegas-level saw it coming. On May 6th, 1999, on the Senate floor, Mr. Dorgan said, quote, "This bill will, in my judgment, raise the likelihood of future massive taxpayer bailouts." $1 trillion is massive, right?
Well, to the "New York Times" on November 5th, 1999, Senator Dorgan said, quote "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 lesson of the past, and that which is true in the 1930s is also true in 2010."
So here it is 2009, and I`m thinking -- dude, at the time we worried about Y2K.
Joining us now Cassandra, I mean, Democratic senator from North Dakota, Byron Dorgan.
Senator Dorgan, thank you so much for joining us.
SEN. BYRON DORGAN, (D) NORTH DAKOTA: Hi, Rachel. How are you?
MADDOW: Great. Thank you.
You`ve been getting accolades in the blog world and now on this show, for having been right in 1999 when you rang alarm bells over the deregulation. At that time, when you were saying, we are going to look back at this in 10 years and say this was a big mess, did you really foresee there would be a crisis this big?
DORGAN: Well, I`m not -- I`m not necessarily sure I saw this big a crisis. But I said at the time, the banks -- I said, if you want to gamble go to Las Vegas. I mean, this was not about a crystal ball. It was just common sense at that time.
You know, in the 1930s, we saw banks merge with, you know, real estate and security risks and the whole thing collapsed, `20s and `30s, and -- so, we put in place, I wasn`t here, but they put in place laws like Glass- Steagall to prevent all of that. And then, 1999, we were told, that`s so old fashioned. Let`s strip that away and allow big financial holding companies, one stop financial shopping.
And I thought it was nuts. I mean, how on earth could we forget the lessons that were so important that we learned so well and with such pain about seven decades prior?
MADDOW: Ten years ago, when Gramm-Leach-Bliley passed and gutted that important -- that essentially gutted Glass-Steagall, an important law that just described, Lawrence Summers was treasury secretary at the time. And he said when that deregulation bill passed, that it was historic legislation that would enable American companies to compete in the new economy.
DORGAN: Yes, well .
MADDOW: I have to ask you, if it sort of freaks you out that he`s now one of the main guys trying to get us of out of the mess that this deregulation caused?
DORGAN: Well, I sat across the table from him at the White House two days ago. You know, there is a culture. And the culture is that Wall Street knows best. You know, there were only eight of us in the United States Senate that voted no. This was a huge deal to repeal the protections that were put in place after the Great Depression, a huge deal. Eight of us voted no.
This allowed these huge financial holding companies, allowed to bring significant risk into the banks, and, you know, they just ran hog wild. And now, we`re in a situation in 2009 where we`ve seen this financial crisis and collapse, massive taxpayer bailouts. You know, now, the question is: How do we put this back together and get out of this deep hole?
MADDOW: That`s exactly right. And what`s coming next is the discussion of not just how to rescue us but how to put the financial system back together in a way that it doesn`t happen again and that these lessons are learned.
I was struck in looking at the "New York Times" coverage of Gramm- Leach-Bliley passing in 1999, Phil Gramm of Texas who wrote that bill said, "We have a new century coming, we have an opportunity to dominate that century the same way we dominated this century. Glass-Steagall came at a time when the thinking was that government was the answer. In this era of economic prosperity, we have decided that freedom is the answer."
That was what he said in 1999 when this passed. We know what the disastrous results of that were. Who is going to lead the cause, I think, of convincing the American people and really convincing Congress that we sort of need to believe sometimes that government is the answer? There is a philosophical status of this legislation .
DORGAN: Yes.
MADDOW: . as well as just a strategic one.
DORGAN: Well, and the other thing, immediately after this legislation passed, it stripped away all those protections and allowed all the big banks to marry up and decide that they loved each other and want to get together and merge, immediately after that, George W. Bush came to town as a new president and he hired regulators who were willing to boast about being willfully blind. They didn`t want to regulate. They said, you know what, it`s a new day. There`s a new sheriff in town, the sheriff is not interested in watching what you do.
And the result is, we saw, you know, all of these credit default swaps and CDOs, all these exotic financial instruments, these derivatives -- you know, in 1996, I wrote the cover story for "Washington Monthly" magazine on the subject of derivatives and pointed out there were tens of trillions of dollars of derivatives out there. The title of my cover story for the "Washington Monthly" magazine was, "Very Risky Business."
And I had four different bills to try to regulate derivatives and hedge funds. I hope now, perhaps most people will understand in the Congress and, I think, the American people understand, we need regulation. It`s not a four-letter word. We need effective regulation.
MADDOW: I have this kooky idea that people who were right when everybody else was wrong and we did the wrong thing -- I have this kooky idea that the people who are right are the ones who should be allowed to decide what happens next time. So, could you like sort of being in charge of figuring out what regulations we need the next time around just when this comes up in the Senate a couple of times ?
DORGAN: I`d be happy to.
MADDOW: All right.
DORGAN: I`d be happy to. But let me tell you what else we need, we need a select committee in the United States Senate with subpoena power that gives us the narrative of what happens so that everybody understands what happened. We need a financial crimes prosecution task force down at the Justice Department right now, working on these issues, and we need to restore a portion of the Glass-Steagall Act to say to banks: You`re over here and the riskier things are over here and we are not going to bring you together again -- never again.
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