2008 Woodie Awards
America's current economic peril is the result of Wall Street's sins
By: Phil Schurrer
Issue date: 10/13/08 Section: Forum
The traditional seven deadly sins are lust, gluttony, greed, sloth, anger, envy and pride. The "modern" deadly sins, as suggested by the Vatican in 2008, are environmental pollution, genetic manipulation, obscene wealth, infliction of poverty, drug trafficking, morally debatable experiments and violation of human rights. Note that both lists include greed or obscene wealth.
The present economic difficulties have their roots in greed, as enabled by deregulation, and as exemplified by CEO compensation.
A partial history of bank deregulation in the modern era might begin with the 1968 Truth in Lending Act. Although intended to protect consumers from deceptive lending practices, it was assumed that more enlightened consumers would be more able to handle a less-regulated environment.
The Depository Institutions Deregulation and Monetary Control Act, passed in 1980, repealed the Fed's power to regulate the interest rates paid on savings accounts and allowed banks to merge.
The 1982 Garn-St.Germain Depository Institutions Act allowed adjustable-rate mortgages. The 1999 Gramm-Leach-Bliley Act allowed banks to enter the insurance and securities business.
Some have said that the Community Reinvestment Act, first passed in 1977, then amended several times since, has pushed banks and mortgage brokers into granting sub-prime loans to those who could not afford them.
Rising consumer debt, including the use of credit cards, also became common.
More competition and mergers in the banking industry followed. In addition, sub-prime mortgages became a standard "product" for many lenders. Since these were quickly sold to other entities, notably Fannie Mae and Freddie Mac, the original lender was not worried about the difficulties of collection.
The result for many financial institutions was an increase in profits. In turn, this led to an unprecedented increase in executive compensation. According to corporate proxy statements, in 2007:
The present economic difficulties have their roots in greed, as enabled by deregulation, and as exemplified by CEO compensation.
A partial history of bank deregulation in the modern era might begin with the 1968 Truth in Lending Act. Although intended to protect consumers from deceptive lending practices, it was assumed that more enlightened consumers would be more able to handle a less-regulated environment.
The Depository Institutions Deregulation and Monetary Control Act, passed in 1980, repealed the Fed's power to regulate the interest rates paid on savings accounts and allowed banks to merge.
The 1982 Garn-St.Germain Depository Institutions Act allowed adjustable-rate mortgages. The 1999 Gramm-Leach-Bliley Act allowed banks to enter the insurance and securities business.
Some have said that the Community Reinvestment Act, first passed in 1977, then amended several times since, has pushed banks and mortgage brokers into granting sub-prime loans to those who could not afford them.
Rising consumer debt, including the use of credit cards, also became common.
More competition and mergers in the banking industry followed. In addition, sub-prime mortgages became a standard "product" for many lenders. Since these were quickly sold to other entities, notably Fannie Mae and Freddie Mac, the original lender was not worried about the difficulties of collection.
The result for many financial institutions was an increase in profits. In turn, this led to an unprecedented increase in executive compensation. According to corporate proxy statements, in 2007:
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USA Akbar
posted 10/13/08 @ 10:16 AM EST
You forgot the salaries and bonuses of executives at Fannie and Freddie, along with the campaign contributions they gave to elected officials. You make no mention of the Community Reinvestment Act and that actions which have strengthened it over the years. (Continued…)
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