BRAVE NEW WORLD
Friday, October 22, 1999 should go down in history as the day that big money in politics won its biggest victory ever. That was the day that White House and Senate negotiators worked out a final, late-night deal engineering the repeal of a critical Depression-era law, the Glass- Steagal Act, that for six decades has kept the banking, securities and insurance businesses separate from each other.
The ramifications of this change are huge. First, insurance companies, brokerage houses, banks and credit card companies will be allowed to merge, a process that has been already taking place in dribs and drabs through regulatory waivers, but now will be vastly accelerated. Glass-Steagal had forced commercial banks out of the hyper-risky business of stock speculation and set up the Federal Deposit Insurance Corporation (FDIC) to protect individuals from bank failures. Now, despite promises otherwise, the U.S. Treasury and the taxpayers will be in the position of bailing out speculators in the event that their risky plays in the securities business threaten the solvency of the soon-to-be-formed mega-banks.
Second, individuals will see their privacy compromised as these new mega-banks have been given the explicit power to sift through all their combined financial, credit and medical data. The new law puts the onus on consumers to request that their personal information be protected, rather than requiring that mega-banks get their permission first. Want a loan to buy a house or start a business? Now you might not get one because your mega-banker knows you're being treated for a medical condition.
Third, at the insistence of Senator Phil Gramm (R-TX), the chair of the Senate Banking Committee, the Community Reinvestment Act has been substantially weakened. Instead of requiring a community-lending compliance examination every 18 months, the new law allows smaller institutions up to five years between exams. Community groups warn that as a result many low-income borrowers will find it harder to get loans.
And, the least-remarked-upon result of the new law: political money will become concentrated to an unprecedented degree. From 1997 to present, contributions from the banking, insurance and securities industries in the form of PAC money, soft money and large individual donations ($200+) to federal candidates and party committees totaled more than $175 million, according to the Center for Responsive Politics. These three industries reported spending another $163 million on lobbying in 1997-98.
Key players in the final deal are also top recipients of campaign cash from the financial sector. Senator Gramm has raised $2.07 million from it from 1993-98; Senator Charles Schumer (D-NY), $1.71 million; Senator Chris Dodd (D-CT) $1.38 million.