Will History Repeat Itself?

The Renewable energy industry is fairly new. Solar panels, wind turbines and geothermal have been around for a long time. Hydroelectric energy is one of the most solid and dependable forms of energy on the planet. I could devote an article to clean energy every day and I would only scratch the surface. But the survival of our industry depends on a plethora of variables that will need to align for things to move as quickly and as smoothly as we need them to.

Today I want to talk about financing, or lack thereof, in the United States and consequently the world. Our banking industry is broken and fixing it will take some muscle. The people with the resources to help get financing back on course are still on the wrong track; pushing for fewer regulations. The housing market was decimated by them. Now the lending process is dysfunctional at best. History will repeat itself if we don’t pay attention. The answers to today’s problems have parallels in the past.

In the 19th and early 20th centuries, bankers and brokers were sometimes indistinguishable. Then, after 1929, in the Great Depression, Congress examined the mixing of the "commercial" and "investment" banking industries that occurred in the 1920s. Hearings revealed conflicts of interest and fraud in some banking institutions' securities activities. A formidable barrier to the mixing of these activities was then set up by the Glass-Steagall Act in 1933.

The Banking Act of 1933 enacted June 16, 1933, was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and introduced banking reforms, some of which were designed to control speculation. It is most commonly known as the Glass-Steagall Act, after its legislative sponsors, Senator Carter Glass (D-Va.) and Representative Henry B. Steagall (D-Ala.). Some provisions of the Act, such as Regulation Q, which allowed the Federal Reserve to regulate interest rates in savings accounts, were repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980. Provisions that prohibit a bank holding company from owning other financial companies were repealed on November 12, 1999, by the Gramm-Leach-Bliley Act, named after its co-sponsors Phil Gramm (R-Texas), Rep. Jim Leach (R-Iowa), and Rep. Thomas J. Bliley, Jr. (R-Va.).

The Gramm-Leach-Bliley Act effectively removed the separation between investment banking, which issued securities, and commercial banks, which accepted deposits. The deregulation also removed conflict of interest prohibitions between investment bankers serving as officers of commercial banks. This repeal directly contributed to the severity of the financial crisis of 2007-2011 by allowing Wall Street investment banking firms to use depositors' money held in commercial banks.

But the repeal of Glass-Steagall did not take place without plenty of warnings. Sen. Byron Dorgan (D-ND), as you will see in the following video, was practically waving his arms in the air. But no one listened and President Clinton signed the legislation into law on November 12, 1999. Needless to say, champagne flowed on Wall Street. The vault was once again open.

The Bush administration didn't do much better. During the Clinton-Bush years the banking industry got more and more bold, once complacency set in and competition over who could make more money was in full swing. Some didn’t even care if it their actions were legal or not. Ponzi schemes operated with impunity.

Finally the system crashed and everyone rushed to explain why it happened.

It’s four years later the hangover lingers even though some reform was put into place. The Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law by President Obama on July 21, 2010. But many think it’s not enough. That includes me. Even the bankers are cautiously sitting on the side lines trying to make their profits from fees. That is not what capitalism is supposed to look like. Lending has to flow again. Dodd-Frank is not enough and the Consumer Protection Financial Bureau is yet to perform as a viable entity as planned by Elizabeth Warren, the architect and first choice of the President to head the group. But Republicans in the Senate and Congress said no to his choice and Obama caved.

Repairing in our system of lending is paramount if we are going to restore confidence. We can do so through regulation and enforcement. The economy is starting to show signs of recovery. But we need lending to increase. Commercial and residential lending is the backbone of our society. Let’s get involved in the process so we can look at Washington with pride once again.

By George Lopez