The deregulation of the financial, insurance, and securities markets that was implemented in the late 1990s by the abolition of the Glass-Steagall Act and other Depression-era safeguards has removed Federal oversight of this sector and has resulted in many subsequent abuses of the fiduciary trust essential for public confidence. The most notorious example of past failure is the Enron bankruptcy, which resulted in losses of Billions of dollars for its investors, employees, and the public from its collapse. The financial manipulations and deceptive accounting practices that were uncovered in the Federal National Mortgage Corporation scandal also showed the depth of the corrupt culture of deliberate mismanagement and disdain for the public trust, even by Federal chartered institutions. The collapse of Allfirst Bank in Maryland and Pennsylvania over a decade ago was caused by unsupervised in derivatives and other securities and resulted in losses of $700 million, much of which cost was passed on to the public which, ultimately pays the bill for FDIC insurance covered bank failures.
Since then, the 2008 financial meltdown requiring $700 Billion of bail-funding plus Trillions of dollars in loans and loan guarantees by the Federal Reserve Bank to domestic and foreign banks had occurred to prevent the world financial system from collapse. The loss of eight million jobs and the onset of an estimated ten million home foreclosures with the country destabilized the economies of the United States and many other countries. To make matters worse, sound corrective measures still have not been implemented and derivatives and other exotic financial instruments are still being created. New Glass-Stegall Act styled safeguards separating banking from insurance and real estate activities have not been implemented and more debt is still being continually created in desperate efforts to prevent the imminent default of several European countries. Future generations will be saddled with the burden of ever increasing debt if current policies are not reformed.
The Federal Reserve System also is not immune from well-earned criticism: a former Chairman's famous warning about "Irrational Exuberance" speculation in the stock market almost a decade ago was not followed up by the Federal Reserve's using its authority to choke off stock market speculation by raising the margin rate (minimum down payment percentage on stock purchases) from 50% to 90%. It also gave the Congress the green light to pass the tax cuts for the wealthy that were implemented and now have been extended by the current Administration despite the incredible budget deficits resulted and will continue with another $1.5 Trillion estimate during the next decade. At that time, the Federal Reserve Bank warned its member banks to be more cautious about their exposure (lending) to hedge funds, which are private investment clubs not subject to Securities and Exchange Commission regulation, reporting, and oversight. Notably, it did not then call for a freeze on more lending or for reporting the scope and amount of such loans to hedge funds by its member banks. To compound the risk, the Federal Reserve gave Federal bank charters to the same firms involved in unregulated financial speculation. This enabled them to obtain additional funds without congressional approval. The total of worldwide derivatives then (in 2014) outstanding was estimated to over $600 Trillion, or then about ten times the total world nation's Gross Domestic Products, (GDPs) of $60 Trillion . Almost half of that total, or about $300 Trillion, was held by American banks, about twenty times the US annual non-bank 2014 GDP of about $15 Trillion. The consequences of these Federal Reserve Bank's failures are now plain for all to see: the ensuing stock market bubble and collapse which then cost 401K retirement plans to lose a fourth or more of their value, the resulting flight of savings combined with irresponsible mortgage lending into the housing market which has resulted in the millions of home foreclosures, and the quadrupling of the national debt in the past twelve years, with the continuing dangerous volatility in the world's securities markets.
Unfortunately, national elections since the 2008 Meltdown did not result in meaningful economic reform. The Republicans in control of the House of Representatives still refuse to recognize the disastrous adverse impact of continuing their ruinous monetary and fiscal dogmas. The fiscal fiction that budget cuts help to stimulate the economy and job growth is illogical: how could laid-off workers spend money they don't have to provide the added demand needed to increase the sales of American businesses? The Republicans also failed to realize the increasing unemployment and those American jobs sent abroad also resulted in fewer income and other taxes collected from American workers, Now, the current Administration wants to have the new Trans Pacific Partnership (TPP) Trade Treaty revised, which hopefully would lessen American workers job losses from even more lower wage Asian countries. Both parties were then responsible for the devastation of the domestic tax base with their previous unfair trade, budget cutting, and taxation policies. No wonder a former Vice-President said that "deficits don't matter"! Only after the harm had been done is there some effort to mitigate future losses. The only solution is radical tax reform to increase government revenues. A gross receipts tax upon all corporations and financial documents transfer taxes are urgently needed to reduce the budget deficits of the Federal government and the states. At present, only half of the corporations in the United States pay any Federal or state income taxes. If corporations are now "citizens", they must be taxed as citizens on their gross receipts (sales), the same as individuals are on the "sale" of our labor, with the only deduction allowed being payroll expenditures that are subsequently taxed as their employees’ incomes. If corporations’ sales contribute 30% to the nation's GDP, they should pay a minimum of 30% of the taxes collected.
The Federal Reserve has lost control over the money supply. It also has flooded the market with more dollars (i.e., "printing money" and lowered domestic interest rates to near zero. Because the Federal Reserve's governors are ideologically (i.e., Ayn Randist) adverse to "Credit-Allocation" and did not rein in the flow of speculative bank lending, they were and still are primarily responsibility for the disastrous speculation in the securities and real estate markets. The so called "Quantitative Easing", which is also known as "bond buying", was merely a subterfuge to disguise legalized counterfeiting by the Federal Reserve Bank. The world's national economies have been destabilized and are now still in danger of massive financial defaults as the result of ever-increasing onerous debt servicing costs placed on taxpayers and small businesses. The past and current ongoing protests and increasingly violent riots against austerity in Europe are a omen of what is very likely to occur if reforms are not implemented in. the USA. The Occupy Movements in late 2011.1 were serious but subsequently ignored warnings to the Establishment about the suffering of the generations of younger adults. Only a comprehensive overall of the world's financial systems and government policies could rectify the perilously increasing world debt driven financial situation and prevent the inevitable economic collapse. (Also, please read the Budget, Deficit, and Taxation Issue paper).
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