Deja Vu

Rest Assured

Tags:

Barack Obama,

FDIC,

finance,

Wall Street

2010: Before a crowd of about seven hundred at New York’s Cooper Union, President Obama outlined his straightforward plan for financial reform, evoking reluctance to past reforms.

To those of you who are in the financial sector, let me say this, we will not always see eye to eye. We will not always agree. But that doesn’t mean that we’ve got to choose between two extremes. We do not have to choose between markets that are unfettered by even modest protections against crisis, or markets that are stymied by onerous rules that suppress enterprise and innovation. That is a false choice. And we need no more proof than the crisis that we’ve just been through.

You see, there has always been a tension between the desire to allow markets to function without interference and the absolute necessity of rules to prevent markets from falling out of kilter. But managing that tension, one that we’ve debated since the founding of this nation, is what has allowed our country to keep up with a changing world. For in taking up this debate, in figuring out how to apply well-worn principles with each new age, we ensure that we don’t tip too far one way or the other—that our democracy remains as dynamic and our economy remains as dynamic as it has in the past. So, yes, this debate can be contentious. It can be heated. But in the end it serves only to make our country stronger. It has allowed us to adapt and to thrive.

And I read a report recently that I think fairly illustrates this point. It’s from Time magazine. I’m going to quote: “Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed…would rivet upon their institutions what they considered a monstrous system…such a system, they felt, would not only rob them of their pride of profession but would reduce all U.S. banking to its lowest level.” That appeared in Time magazine in June of 1933. [laughter and applause] The system that caused so much consternation, so much concern was the Federal Deposit Insurance Corporation, also known as the FDIC, an institution that has successfully secured the deposits of generations of Americans.

1933: The current insured amount guaranteed by the FDIC is $250,000, and since the creation of the FDIC, no depositors have ever lost any of their insured money. The Glass-Stegall Act, legislation which created to FDIC in 1933, was repealed in 1999, and this has sometimes been blamed for a portion of the financial crisis of 2008. The Time article that Obama referred to in his speech disagreed with the passing of the act for the most part, an act which not one member of the Senate voted against.

Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed by both houses of Congress would rivet upon their institutions what they considered a monstrous system of guaranteeing bank deposits. Such a system, they felt, would not only rob them of their pride of profession but would reduce all U. S. banking to its lowest level. They saw their deposits which they had spent a lifetime to build up and protect with their good names confiscated by the Government to pay for the mistakes and dishonesty of every small-town bankster…

Bank-deposit guarantee schemes have been tried in Nebraska, Oklahoma, Kansas, Mississippi, Texas, North Dakota, South Dakota, and Washington. They have invariably ended in failure and loss, if not in outright scandal and default. They have weakened the moral fiber of bankers and served chiefly as a temptation to bad banking. Honest banking has been penalized for dishonest banking.

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