James Gilleran Quotes
Our goal is to allow thrifts [certain banks] to operate with a wide breadth of freedom from regulatory intrusion.
He was speaking for the Bush Administration. He was another regulation-opposed appointee of the George W. Bush Administration. He killed many regulations that had been developed to better regulate the banks and the mortgage industry to stop many of the obvious abuses of the industry. With few regulations in place, despite warnings such as {638024}, what had been greedy and dangerous practices of a minority of the industry became the vast majority when the bubble burst in the Meltdown. Note the rhetorical device of using “regulatory intrusion” rather than “regulation” or “more regulation”. This reflected an extreme conservative view that all regulation is bad – an “intrusion”, while most conservatives want a reasonable degree of regulation and not the elimination of all regulation.
James E. Gilleran, Administrator, U. S. Office of Thrift Supervision, Superintendent of Banks for the State of California, President and Chief Executive Officer of the Federal Home Loan Bank of Seattle, Speech, 2004
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This was yet another warning about an area that became a major factor 4 years later in the Meltdown of 2008 and the Great Recession. The George W. Bush administration, however, rejected proposals to prevent more mortgage abuses by regulating the banks and mortgage brokerage industry more.
At this time it was 6 years after the Home Financing Crisis and the Meltdown of 2008 and despite tens of thousands of law violations by the bank, the Justice Department was finally finishing their investigations and requiring some penalties. Other negotiations with other banks were in progress, but no bank executives were going to jail for the millions they handled fraudulently, whereas a burglar who stole household goods would do jail time.
He was replying to Senator Grassley--{637990}. This quotation is one of the saddest admissions in American law enforcement and corporate regulatory history. A small group of very wealthy men, working for huge financial corporations caused the worst financial crisis since the Great Depression. The Government regulators were reined in by the Bush Presidential administration and were none to competent anyway. The Clinton Administration repealed the Glass Stiegel Act allowing banks to gamble with customer’s The Congress made matters worse by kowtowing to the housing and real estate special interests and overheating the housing market. But with all that some of the many of the financial executives committed crimes ranging from financial fraud to forgery of court documents. But they had put the country into such a poor economic state, that the Obama administration feared that prosecution of some of the leading financial executive criminals would spook the financial markets and cause an even greater economic situation. At least the Attorney General admitted the truth of Senator Grassley’s suspicion--{637990}.
Barry Bonds was a star professional baseball player whose accomplishments were aided by taking illegal drugs. He lied about his use of drugs, and the Department made a very large effort over years to finally prosecute him. However during that time there were almost no prosecutions of the thousands of bankers and financiers who had lied, cheated, forged legal documents and in the process almost permanently ruined the American economy—the Great Recession of 2008. The Justice Department claimed that white collar cases are very complex and take longer to prepare prosecutions. Critics claimed that there are so many law breakers, that the government does not want to prosecute all the felons, but just go after a few, and this is easier if time has gone by and public anger has receded or been forgotten.
In the Great Recession thousands of bank executives of the banks that received government bailouts committed fraud and perjury providing false information under oath and foreclosing on mortgages illegally. There were so many bank felons that the Justice Department decided not to prosecute any of them and let the Banks pay relatively small fines instead. Then the banks paid the crooked employees bonuses. Paul was one of the few members of Congress who favored prosecution of all the guilty bankers regardless of the number.
In the Savings & Loan crises there were under 1000 bankers and others who had committed crimes, In the Meltdown of 2008, there were tens of thousands of criminals. Almost everyone connected with home mortgages broke the law, and all of the major banks in America had officers at the highest levels who committed perjury and fraud regarding foreclosure of mortgages. The biggest fish were involved as well as many thousands of others. Wall Street and the financial industry spend many millions in lobbying and campaign donations to be sure that there would be very few prosecutions and even then no major financial leaders would be called to account in a criminal court. The FBI had identified MILLIONS of cases of perjury and fraud in bank forclosures alone.
He was referring to Fannie Mae, the government-created. private mortage guarantee company. It was heavily regulated, and in general it met the regulatory requirements. However, the requirements were insufficient, and in the 2008 Meltdown and the Great Recession that followed, Fannie Mae itself was in such bad financial condition, that the Federal Government had bail them out or have the entire home mortgage industry fall apart.
The result was regulation of the banks and the creation of the SEC to regulate the stock market, However, over the years, the regulations were not able to keep up with the sophisticated development of new forms of investments and financial instruments and the financial industry were able to speculate with other people’s money in ways that FDR and his reformers never imagined. Finally, even the regulation that did exist was weakened by the policies of the George W. Bush administration and the combination brought about the Great Recession of 2008 where the profits from excess speculation were privatized and the losses, socialized with the taxpayer and the American worker bearing the brunt while most of the speculators were bailed out and made more money than ever. The Obama administration tried to reform the situation, but was unable to put an end to the legal speculation with other people’s money or of having institutions that were “too big to fail.”
Actually a few minor characters were prosecuted for financial crimes committed during that period but none were prosecuted whose behavior caused or accelerated the meltdown, and no bank officers were prosecuted despite the FBI reporting that hundreds of thousands of Mortgage Foreclosure involved perjury by bank officers in a pattern that was used by most of the large major banks. The Obama administration was in the dilemma of either choosing one or two bank officers of whom to make an example or if all those who had committed serious crimes were prosecutors, it would involve thousands of the officers of almost every major bank and tens of thousands of officials and mortgage related firms. These were among the wealthiest and most influential people in the country, and there would be few left to build the American Banking System back up when that was one of our most important national priorities. They were also amongst the largest political contributors to both political parties. So the government bailed the bankers out financially, allowed them to maintain million dollar of more salaries and bonuses, and gave the entire batch of people who broke the law a de facto immunity from criminal prosecution. A further complicating factor was that many of the most egregious, greedy, and publicly harmful were not illegal as a result of much change in the law as a part of financial deregulation or were new schemes that the financial industry had successfully lobbied to prevent regulation as with Derivatives.
Moody’s and Standard & Poors, the 2 largest credit rating agencies, gave A ratings to securities that had packaged terrible F-rated, toxic, subprime mortgages, and gotten the credit ratings agencies to rate them as A on the theory that the risk was diversified. Each new security like this that a bank put out was submitted informally to one of the credit rating agencies to “discuss”. If the agency “concluded” that they could give it an A rating, they received a very large fee. If not, the bank would not officially submit the security and not pay anything. That almost never happened with these packages of subprime mortgages.
Born thought that her agency was responsible for regulating the new esoteric financial products—derivatives including credit default swaps—for otherwise there would be no regulation at all of financial products that could dwarf the stock and bond market. Summers persuaded her to back off. When the Meltdown of 2008 hit, the huge derivative exposure of the large banks and some insurance companies was so great that it was one of the major causes for the meltdown of the entire banking system. Summers, normally a great economist not only called this one wrong, but later, along with most other government and private economists ignored a very explicit warning—See {637168}, {637986}, and {620038}.
The Senator asked Justice Department officials if the reason that there had been no prosecutions of any major financial figures associated with the Meltdown of 2008 and the Great Recession is that they were “too big to jail.” This appears to be the first public official to use this phrase. See {637991} for the Attorney General’s sad but truthful reply.
Greenspan was not the amoral fool that this quotation makes him seem. Despite the fact that he was the most important financial officer of the country, he had an ideological faith that a free market was self-corrective in a democracy. The financial industry would police itself he believed. He also trusted the self interest of the financial corporations to restrain them from getting too greedy -- {637989}. He and many others were wrong and most Americans paid the price.
This was a very important quotation because Cox was a strong advocate of deregulation and voluntary regulation, and that is why he was appointed to head the SEC by George W. Bush. He was the leading Republican expert on Regulation of the Stock Markets and sale of public securities. However when the Meltdown of 2008 hit, it was clear to all but the extreme ideologues that some Federal regulation was necessary. Nonetheless, it took several years to reform the regulations for the financial industry with the Banks and Wall Street fighting it all the way and by that time the Republican Party had been so dominated by ideological conservatives that the views of Cox and others no longer had much influence. They fought the Dodd-Frank reforms to go preserve self regulation to a great extent.
This warning was a decade before the Meltdown of 2008, but was not heeded by any of the politicians. As a result a number of the companies that made all those risky decisions assumed that if something went terribly wrong the government would not let them fail. Unfortunately, they were right and the taxpayers spent billions to prevent companies from failing. After the meltdown all the politicians vowed to end the too big to fail concept, but while some improvements were made, the Congress could not come to agreement, and the markets and a number of companies think that they are still too big to fail. This is particularly true for Defense Contractors where the government has and probably will in the future, protect irresponsible companies from failure if they are the only company that makes needed weapons and other equipment.
in the Meltdown of 2008 Gramm was one of the most ideological deregulators in Congress. As the Meltdown of 2008 hit, he immediately made this statement when few people even knew the extent of what had happened, much less why it happened. Gramm’s instant absolution of deregulation as one of the causes is a classic case of denial. There were few economic issues of controversy that did not contribute to the totality of causes. And a few years later Gramm was one of the very few ideologues who still believed that deregulation did not have a role in the Meltdown and the Great Recession that followed. For a contrast from the expert in his own party, see {638023}.
