Who's at Fault?

How did the economic meltdown start and who started it? Lawrence McDonald, author of 'A Colossal Failure of Common Sense,' explained it was the fault of our government and especially Bill Clinton.

As we learned in high school the Glass-Steagall Act of 1933 was the great depression post legislation preventing commercial banks from merging with investment banks. It was the guardian that prevented the cowboys associated with the investment firms from raiding the savings and deposits of the average banking customers. Some very smart folks back in the day of Franklin Roosevelt wanted to prevent investment people from getting their hands on an seemingly unlimited supply of money belonging to the everyday saver.

As the years passed bankers and investment firms considered Glass-Steagall as old-fashioned and depression 'era' thinking and wanted the law to be repealed.

In 1988 several attempts were made to circumvent, even abolish, the act. One group thought that mergers between investment firms and banks would strengthen the financial industry. The other side composed of smaller banks was afraid that elimination of Glass-Steagall would lead to the larger firms crushing their smaller cousins.

The bombshell that started it all happened in the spring of 1998 when Citicorp bought Travelers Insurance that also owned the investment bank Smith Barney. Congress attempted to stop the purchase but the banking lobby prevailed and on November 12, 1999 President Bill Clinton signed into law the new 'Financial Services Modernization Act' that effectively removed any barrier between banks and investment houses.

McDonald concludes that within a decade the act would be directly responsible for bringing the entire world to the brink of financial ruin.

And now you know.