Full text of President Obama’s speech

Madame Speaker, Mr. Vice President, Members of Congress, and the First Lady of the United States:
I’ve come here tonight not only to address the distinguished men and women in this great chamber, but to speak frankly and directly to the men and women who sent us here.

I know that for many Americans watching right now, the state of our economy is a concern that rises above all others. And rightly so. If you haven’t been personally affected by this recession, you probably know someone who has – a friend; a neighbor; a member of your family. You don’t need to hear another list of statistics to know that our economy is in crisis, because you live it every day. It’s the worry you wake up with and the source of sleepless nights. It’s the job you thought you’d retire from but now have lost; the business you built your dreams upon that’s now hanging by a thread; the college acceptance letter your child had to put back in the envelope. The impact of this recession is real, and it is everywhere.

But while our economy may be weakened and our confidence shaken; though we are living through difficult and uncertain times, tonight I want every American to know this:

We will rebuild, we will recover, and the United States of America will emerge stronger than before.

The weight of this crisis will not determine the destiny of this nation. The answers to our problems don’t lie beyond our reach. They exist in our laboratories and universities; in our fields and our factories; in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth. Those qualities that have made America the greatest force of progress and prosperity in human history we still possess in ample measure. What is required now is for this country to pull together, confront boldly the challenges we face, and take responsibility for our future once more.

Now, if we’re honest with ourselves, we’ll admit that for too long, we have not always met these responsibilities – as a government or as a people. I say this not to lay blame or look backwards, but because it is only by understanding how we arrived at this moment that we’ll be able to lift ourselves out of this predicament.

The fact is, our economy did not fall into decline overnight. Nor did all of our problems begin when the housing market collapsed or the stock market sank. We have known for decades that our survival depends on finding new sources of energy. Yet we import more oil today than ever before. The cost of health care eats up more and more of our savings each year, yet we keep delaying reform. Our children will compete for jobs in a global economy that too many of our schools do not prepare them for. And though all these challenges went unsolved, we still managed to spend more money and pile up more debt, both as individuals and through our government, than ever before.

In other words, we have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election. A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day.

Well that day of reckoning has arrived, and the time to take charge of our future is here.

Now is the time to act boldly and wisely – to not only revive this economy, but to build a new foundation for lasting prosperity. Now is the time to jumpstart job creation, re-start lending, and invest in areas like energy, health care, and education that will grow our economy, even as we make hard choices to bring our deficit down. That is what my economic agenda is designed to do, and that’s what I’d like to talk to you about tonight.

It’s an agenda that begins with jobs.

As soon as I took office, I asked this Congress to send me a recovery plan by President’s Day that would put people back to work and put money in their pockets. Not because I believe in bigger government – I don’t. Not because I’m not mindful of the massive debt we’ve inherited – I am. I called for action because the failure to do so would have cost more jobs and caused more hardships. In fact, a failure to act would have worsened our long-term deficit by assuring weak economic growth for years. That’s why I pushed for quick action. And tonight, I am grateful that this Congress delivered, and pleased to say that the American Recovery and Reinvestment Act is now law.

Over the next two years, this plan will save or create 3.5 million jobs. More than 90% of these jobs will be in the private sector – jobs rebuilding our roads and bridges; constructing wind turbines and solar panels; laying broadband and expanding mass transit.

Because of this plan, there are teachers who can now keep their jobs and educate our kids. Health care professionals can continue caring for our sick. There are 57 police officers who are still on the streets of Minneapolis tonight because this plan prevented the layoffs their department was about to make.

Because of this plan, 95% of the working households in America will receive a tax cut – a tax cut that you will see in your paychecks beginning on April 1st.

Because of this plan, families who are struggling to pay tuition costs will receive a $2,500 tax credit for all four years of college. And Americans who have lost their jobs in this recession will be able to receive extended unemployment benefits and continued health care coverage to help them weather this storm.

I know there are some in this chamber and watching at home who are skeptical of whether this plan will work. I understand that skepticism. Here in Washington, we’ve all seen how quickly good intentions can turn into broken promises and wasteful spending. And with a plan of this scale comes enormous responsibility to get it right.

That is why I have asked Vice President Biden to lead a tough, unprecedented oversight effort – because nobody messes with Joe. I have told each member of my Cabinet as well as mayors and governors across the country that they will be held accountable by me and the American people for every dollar they spend. I have appointed a proven and aggressive Inspector General to ferret out any and all cases of waste and fraud. And we have created a new website called recovery.gov so that every American can find out how and where their money is being spent.

So the recovery plan we passed is the first step in getting our economy back on track. But it is just the first step. Because even if we manage this plan flawlessly, there will be no real recovery unless we clean up the credit crisis that has severely weakened our financial system.

I want to speak plainly and candidly about this issue tonight, because every American should know that it directly affects you and your family’s well-being. You should also know that the money you’ve deposited in banks across the country is safe; your insurance is secure; and you can rely on the continued operation of our financial system. That is not the source of concern.

The concern is that if we do not re-start lending in this country, our recovery will be choked off before it even begins.

You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education; how stores stock their shelves, farms buy equipment, and businesses make payroll.

But credit has stopped flowing the way it should. Too many bad loans from the housing crisis have made their way onto the books of too many banks. With so much debt and so little confidence, these banks are now fearful of lending out any more money to households, to businesses, or to each other. When there is no lending, families can’t afford to buy homes or cars. So businesses are forced to make layoffs. Our economy suffers even more, and credit dries up even further.

That is why this administration is moving swiftly and aggressively to break this destructive cycle, restore confidence, and re-start lending.

We will do so in several ways. First, we are creating a new lending fund that represents the largest effort ever to help provide auto loans, college loans, and small business loans to the consumers and entrepreneurs who keep this economy running.

Second, we have launched a housing plan that will help responsible families facing the threat of foreclosure lower their monthly payments and re-finance their mortgages. It’s a plan that won’t help speculators or that neighbor down the street who bought a house he could never hope to afford, but it will help millions of Americans who are struggling with declining home values – Americans who will now be able to take advantage of the lower interest rates that this plan has already helped bring about. In fact, the average family who re-finances today can save nearly $2000 per year on their mortgage.

Third, we will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. And when we learn that a major bank has serious problems, we will hold accountable those responsible, force the necessary adjustments, provide the support to clean up their balance sheets, and assure the continuity of a strong, viable institution that can serve our people and our economy.

I understand that on any given day, Wall Street may be more comforted by an approach that gives banks bailouts with no strings attached, and that holds nobody accountable for their reckless decisions. But such an approach won’t solve the problem. And our goal is to quicken the day when we re-start lending to the American people and American business and end this crisis once and for all.

I intend to hold these banks fully accountable for the assistance they receive, and this time, they will have to clearly demonstrate how taxpayer dollars result in more lending for the American taxpayer. This time, CEOs won’t be able to use taxpayer money to pad their paychecks or buy fancy drapes or disappear on a private jet. Those days are over.

Still, this plan will require significant resources from the federal government – and yes, probably more than we’ve already set aside. But while the cost of action will be great, I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade. That would be worse for our deficit, worse for business, worse for you, and worse for the next generation. And I refuse to let that happen.

I understand that when the last administration asked this Congress to provide assistance for struggling banks, Democrats and Republicans alike were infuriated by the mismanagement and results that followed. So were the American taxpayers. So was I.

So I know how unpopular it is to be seen as helping banks right now, especially when everyone is suffering in part from their bad decisions. I promise you – I get it.

But I also know that in a time of crisis, we cannot afford to govern out of anger, or yield to the politics of the moment. My job – our job – is to solve the problem. Our job is to govern with a sense of responsibility. I will not spend a single penny for the purpose of rewarding a single Wall Street executive, but I will do whatever it takes to help the small business that can’t pay its workers or the family that has saved and still can’t get a mortgage.

That’s what this is about. It’s not about helping banks – it’s about helping people. Because when credit is available again, that young family can finally buy a new home. And then some company will hire workers to build it. And then those workers will have money to spend, and if they can get a loan too, maybe they’ll finally buy that car, or open their own business. Investors will return to the market, and American families will see their retirement secured once more. Slowly, but surely, confidence will return, and our economy will recover.

So I ask this Congress to join me in doing whatever proves necessary. Because we cannot consign our nation to an open-ended recession. And to ensure that a crisis of this magnitude never happens again, I ask Congress to move quickly on legislation that will finally reform our outdated regulatory system. It is time to put in place tough, new common-sense rules of the road so that our financial market rewards drive and innovation, and punishes short-cuts and abuse.

The recovery plan and the financial stability plan are the immediate steps we’re taking to revive our economy in the short-term. But the only way to fully restore America’s economic strength is to make the long-term investments that will lead to new jobs, new industries, and a renewed ability to compete with the rest of the world. The only way this century will be another American century is if we confront at last the price of our dependence on oil and the high cost of health care; the schools that aren’t preparing our children and the mountain of debt they stand to inherit. That is our responsibility.

In the next few days, I will submit a budget to Congress. So often, we have come to view these documents as simply numbers on a page or laundry lists of programs. I see this document differently. I see it as a vision for America – as a blueprint for our future.

My budget does not attempt to solve every problem or address every issue. It reflects the stark reality of what we’ve inherited – a trillion dollar deficit, a financial crisis, and a costly recession.

Given these realities, everyone in this chamber – Democrats and Republicans – will have to sacrifice some worthy priorities for which there are no dollars. And that includes me.

But that does not mean we can afford to ignore our long-term challenges. I reject the view that says our problems will simply take care of themselves; that says government has no role in laying the foundation for our common prosperity.

For history tells a different story. History reminds us that at every moment of economic upheaval and transformation, this nation has responded with bold action and big ideas. In the midst of civil war, we laid railroad tracks from one coast to another that spurred commerce and industry. From the turmoil of the Industrial Revolution came a system of public high schools that prepared our citizens for a new age. In the wake of war and depression, the GI Bill sent a generation to college and created the largest middle-class in history. And a twilight struggle for freedom led to a nation of highways, an American on the moon, and an explosion of technology that still shapes our world.

In each case, government didn’t supplant private enterprise; it catalyzed private enterprise. It created the conditions for thousands of entrepreneurs and new businesses to adapt and to thrive.

We are a nation that has seen promise amid peril, and claimed opportunity from ordeal. Now we must be that nation again. That is why, even as it cuts back on the programs we don’t need, the budget I submit will invest in the three areas that are absolutely critical to our economic future: energy, health care, and education.

It begins with energy.

We know the country that harnesses the power of clean, renewable energy will lead the 21st century. And yet, it is China that has launched the largest effort in history to make their economy energy efficient. We invented solar technology, but we’ve fallen behind countries like Germany and Japan in producing it. New plug-in hybrids roll off our assembly lines, but they will run on batteries made in Korea.

Well I do not accept a future where the jobs and industries of tomorrow take root beyond our borders – and I know you don’t either. It is time for America to lead again.

Thanks to our recovery plan, we will double this nation’s supply of renewable energy in the next three years. We have also made the largest investment in basic research funding in American history – an investment that will spur not only new discoveries in energy, but breakthroughs in medicine, science, and technology.

We will soon lay down thousands of miles of power lines that can carry new energy to cities and towns across this country. And we will put Americans to work making our homes and buildings more efficient so that we can save billions of dollars on our energy bills.

But to truly transform our economy, protect our security, and save our planet from the ravages of climate change, we need to ultimately make clean, renewable energy the profitable kind of energy. So I ask this Congress to send me legislation that places a market-based cap on carbon pollution and drives the production of more renewable energy in America. And to support that innovation, we will invest fifteen billion dollars a year to develop technologies like wind power and solar power; advanced biofuels, clean coal, and more fuel-efficient cars and trucks built right here in America.

As for our auto industry, everyone recognizes that years of bad decision-making and a global recession have pushed our automakers to the brink. We should not, and will not, protect them from their own bad practices. But we are committed to the goal of a re-tooled, re-imagined auto industry that can compete and win. Millions of jobs depend on it. Scores of communities depend on it. And I believe the nation that invented the automobile cannot walk away from it.

None of this will come without cost, nor will it be easy. But this is America. We don’t do what’s easy. We do what is necessary to move this country forward.

For that same reason, we must also address the crushing cost of health care.

This is a cost that now causes a bankruptcy in America every thirty seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes. In the last eight years, premiums have grown four times faster than wages. And in each of these years, one million more Americans have lost their health insurance. It is one of the major reasons why small businesses close their doors and corporations ship jobs overseas. And it’s one of the largest and fastest-growing parts of our budget.

Given these facts, we can no longer afford to put health care reform on hold.

Already, we have done more to advance the cause of health care reform in the last thirty days than we have in the last decade. When it was days old, this Congress passed a law to provide and protect health insurance for eleven million American children whose parents work full-time. Our recovery plan will invest in electronic health records and new technology that will reduce errors, bring down costs, ensure privacy, and save lives. It will launch a new effort to conquer a disease that has touched the life of nearly every American by seeking a cure for cancer in our time. And it makes the largest investment ever in preventive care, because that is one of the best ways to keep our people healthy and our costs under control.

This budget builds on these reforms. It includes an historic commitment to comprehensive health care reform – a down-payment on the principle that we must have quality, affordable health care for every American. It’s a commitment that’s paid for in part by efficiencies in our system that are long overdue. And it’s a step we must take if we hope to bring down our deficit in the years to come.

Now, there will be many different opinions and ideas about how to achieve reform, and that is why I’m bringing together businesses and workers, doctors and health care providers, Democrats and Republicans to begin work on this issue next week.

I suffer no illusions that this will be an easy process. It will be hard. But I also know that nearly a century after Teddy Roosevelt first called for reform, the cost of our health care has weighed down our economy and the conscience of our nation long enough. So let there be no doubt: health care reform cannot wait, it must not wait, and it will not wait another year.

The third challenge we must address is the urgent need to expand the promise of education in America.

In a global economy where the most valuable skill you can sell is your knowledge, a good education is no longer just a pathway to opportunity – it is a pre-requisite.

Right now, three-quarters of the fastest-growing occupations require more than a high school diploma. And yet, just over half of our citizens have that level of education. We have one of the highest high school dropout rates of any industrialized nation. And half of the students who begin college never finish.

This is a prescription for economic decline, because we know the countries that out-teach us today will out-compete us tomorrow. That is why it will be the goal of this administration to ensure that every child has access to a complete and competitive education – from the day they are born to the day they begin a career.

Already, we have made an historic investment in education through the economic recovery plan. We have dramatically expanded early childhood education and will continue to improve its quality, because we know that the most formative learning comes in those first years of life. We have made college affordable for nearly seven million more students. And we have provided the resources necessary to prevent painful cuts and teacher layoffs that would set back our children’s progress.

But we know that our schools don’t just need more resources. They need more reform. That is why this budget creates new incentives for teacher performance; pathways for advancement, and rewards for success. We’ll invest in innovative programs that are already helping schools meet high standards and close achievement gaps. And we will expand our commitment to charter schools.

It is our responsibility as lawmakers and educators to make this system work. But it is the responsibility of every citizen to participate in it. And so tonight, I ask every American to commit to at least one year or more of higher education or career training. This can be community college or a four-year school; vocational training or an apprenticeship. But whatever the training may be, every American will need to get more than a high school diploma. And dropping out of high school is no longer an option. It’s not just quitting on yourself, it’s quitting on your country – and this country needs and values the talents of every American. That is why we will provide the support necessary for you to complete college and meet a new goal: by 2020, America will once again have the highest proportion of college graduates in the world.

I know that the price of tuition is higher than ever, which is why if you are willing to volunteer in your neighborhood or give back to your community or serve your country, we will make sure that you can afford a higher education. And to encourage a renewed spirit of national service for this and future generations, I ask this Congress to send me the bipartisan legislation that bears the name of Senator Orrin Hatch as well as an American who has never stopped asking what he can do for his country – Senator Edward Kennedy.

These education policies will open the doors of opportunity for our children. But it is up to us to ensure they walk through them. In the end, there is no program or policy that can substitute for a mother or father who will attend those parent/teacher conferences, or help with homework after dinner, or turn off the TV, put away the video games, and read to their child. I speak to you not just as a President, but as a father when I say that responsibility for our children’s education must begin at home.

There is, of course, another responsibility we have to our children. And that is the responsibility to ensure that we do not pass on to them a debt they cannot pay. With the deficit we inherited, the cost of the crisis we face, and the long-term challenges we must meet, it has never been more important to ensure that as our economy recovers, we do what it takes to bring this deficit down.

I’m proud that we passed the recovery plan free of earmarks, and I want to pass a budget next year that ensures that each dollar we spend reflects only our most important national priorities.

Yesterday, I held a fiscal summit where I pledged to cut the deficit in half by the end of my first term in office. My administration has also begun to go line by line through the federal budget in order to eliminate wasteful and ineffective programs. As you can imagine, this is a process that will take some time. But we’re starting with the biggest lines. We have already identified two trillion dollars in savings over the next decade.

In this budget, we will end education programs that don’t work and end direct payments to large agribusinesses that don’t need them. We’ll eliminate the no-bid contracts that have wasted billions in Iraq, and reform our defense budget so that we’re not paying for Cold War-era weapons systems we don’t use. We will root out the waste, fraud, and abuse in our Medicare program that doesn’t make our seniors any healthier, and we will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.

In order to save our children from a future of debt, we will also end the tax breaks for the wealthiest 2% of Americans. But let me perfectly clear, because I know you’ll hear the same old claims that rolling back these tax breaks means a massive tax increase on the American people: if your family earns less than $250,000 a year, you will not see your taxes increased a single dime. I repeat: not one single dime. In fact, the recovery plan provides a tax cut – that’s right, a tax cut – for 95% of working families. And these checks are on the way.

To preserve our long-term fiscal health, we must also address the growing costs in Medicare and Social Security. Comprehensive health care reform is the best way to strengthen Medicare for years to come. And we must also begin a conversation on how to do the same for Social Security, while creating tax-free universal savings accounts for all Americans.

Finally, because we’re also suffering from a deficit of trust, I am committed to restoring a sense of honesty and accountability to our budget. That is why this budget looks ahead ten years and accounts for spending that was left out under the old rules – and for the first time, that includes the full cost of fighting in Iraq and Afghanistan. For seven years, we have been a nation at war. No longer will we hide its price.

We are now carefully reviewing our policies in both wars, and I will soon announce a way forward in Iraq that leaves Iraq to its people and responsibly ends this war.

And with our friends and allies, we will forge a new and comprehensive strategy for Afghanistan and Pakistan to defeat al Qaeda and combat extremism. Because I will not allow terrorists to plot against the American people from safe havens half a world away.

As we meet here tonight, our men and women in uniform stand watch abroad and more are readying to deploy. To each and every one of them, and to the families who bear the quiet burden of their absence, Americans are united in sending one message: we honor your service, we are inspired by your sacrifice, and you have our unyielding support. To relieve the strain on our forces, my budget increases the number of our soldiers and Marines. And to keep our sacred trust with those who serve, we will raise their pay, and give our veterans the expanded health care and benefits that they have earned.

To overcome extremism, we must also be vigilant in upholding the values our troops defend – because there is no force in the world more powerful than the example of America. That is why I have ordered the closing of the detention center at Guantanamo Bay, and will seek swift and certain justice for captured terrorists – because living our values doesn’t make us weaker, it makes us safer and it makes us stronger. And that is why I can stand here tonight and say without exception or equivocation that the United States of America does not torture.

In words and deeds, we are showing the world that a new era of engagement has begun. For we know that America cannot meet the threats of this century alone, but the world cannot meet them without America. We cannot shun the negotiating table, nor ignore the foes or forces that could do us harm. We are instead called to move forward with the sense of confidence and candor that serious times demand.

To seek progress toward a secure and lasting peace between Israel and her neighbors, we have appointed an envoy to sustain our effort. To meet the challenges of the 21st century – from terrorism to nuclear proliferation; from pandemic disease to cyber threats to crushing poverty – we will strengthen old alliances, forge new ones, and use all elements of our national power.

And to respond to an economic crisis that is global in scope, we are working with the nations of the G-20 to restore confidence in our financial system, avoid the possibility of escalating protectionism, and spur demand for American goods in markets across the globe. For the world depends on us to have a strong economy, just as our economy depends on the strength of the world’s.

As we stand at this crossroads of history, the eyes of all people in all nations are once again upon us – watching to see what we do with this moment; waiting for us to lead.

Those of us gathered here tonight have been called to govern in extraordinary times. It is a tremendous burden, but also a great privilege – one that has been entrusted to few generations of Americans. For in our hands lies the ability to shape our world for good or for ill.

I know that it is easy to lose sight of this truth – to become cynical and doubtful; consumed with the petty and the trivial.

But in my life, I have also learned that hope is found in unlikely places; that inspiration often comes not from those with the most power or celebrity, but from the dreams and aspirations of Americans who are anything but ordinary.

I think about Leonard Abess, the bank president from Miami who reportedly cashed out of his company, took a $60 million bonus, and gave it out to all 399 people who worked for him, plus another 72 who used to work for him. He didn’t tell anyone, but when the local newspaper found out, he simply said, ”I knew some of these people since I was 7 years old. I didn’t feel right getting the money myself.”

I think about Greensburg, Kansas, a town that was completely destroyed by a tornado, but is being rebuilt by its residents as a global example of how clean energy can power an entire community – how it can bring jobs and businesses to a place where piles of bricks and rubble once lay. “The tragedy was terrible,” said one of the men who helped them rebuild. “But the folks here know that it also provided an incredible opportunity.”

And I think about Ty’Sheoma Bethea, the young girl from that school I visited in Dillon, South Carolina – a place where the ceilings leak, the paint peels off the walls, and they have to stop teaching six times a day because the train barrels by their classroom. She has been told that her school is hopeless, but the other day after class she went to the public library and typed up a letter to the people sitting in this room. She even asked her principal for the money to buy a stamp. The letter asks us for help, and says, “We are just students trying to become lawyers, doctors, congressmen like yourself and one day president, so we can make a change to not just the state of South Carolina but also the world. We are not quitters.”

We are not quitters.

These words and these stories tell us something about the spirit of the people who sent us here. They tell us that even in the most trying times, amid the most difficult circumstances, there is a generosity, a resilience, a decency, and a determination that perseveres; a willingness to take responsibility for our future and for posterity.

Their resolve must be our inspiration. Their concerns must be our cause. And we must show them and all our people that we are equal to the task before us.

I know that we haven’t agreed on every issue thus far, and there are surely times in the future when we will part ways. But I also know that every American who is sitting here tonight loves this country and wants it to succeed. That must be the starting point for every debate we have in the coming months, and where we return after those debates are done. That is the foundation on which the American people expect us to build common ground.

And if we do – if we come together and lift this nation from the depths of this crisis; if we put our people back to work and restart the engine of our prosperity; if we confront without fear the challenges of our time and summon that enduring spirit of an America that does not quit, then someday years from now our children can tell their children that this was the time when we performed, in the words that are carved into this very chamber, “something worthy to be remembered.” Thank you, God Bless you, and may God Bless the United States of America.

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Clinton, Rubin and Summers, Graham, Leach and Bliley – thank you

In the early 1900’s, commercial banks began to establish security affiliates that floated bond issues and underwrote corporate stock issues. (In underwriting, a bank guarantees to furnish a definite sum of money by a definite date to a business or government entity in return for an issue of bonds or stock.)

Then the stock market crashed.

In 1930 the Bank of the United States failed, reportedly because of activities of its security affiliates that created artificial conditions in the market, FDR closed the banks for four days, 4000 failed permanently, and Congress created the Glass-Steagall Act of 1932, then amended it in the Banking Act of 1933.

The act forced a separation of commercial and investment banks by preventing commercial banks from underwriting securities, with the exception of U.S. Treasury and federal agency securities, and municipal and state general obligation securities.

More specifically, the act authorizes Federal Reserve banks to use government obligations and commercial paper as collateral for their note issues, in order to encourage expansion of the currency. Banks can also offer advisory services regarding investments for their customers, as well as buy and sell securities for their customers. However, information gained from providing such services cannot be used by a bank when it acts as a lender.

Likewise, investment banks cannot engage in the business of receiving deposits.

A bank is defined as an institution organized under the laws of the United States, any state of the United States, the District of Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands, that both accepts demand deposits (deposits that the depositor may withdraw by check or similar means for payment to third parties or others) and is engaged in the business of making commercial loans (12 U.S.C.A. § 1841 (c)(1) [1988]).

Investment banking consists mostly of securities underwriting and related activities; making a market in securities; and setting up corporate mergers, acquisitions, and restructuring. Investment banking also includes services provided by brokers or dealers in transactions in the secondary market. A secondary market is one where securities are bought and sold subsequent to their original issuance.

It also created the Federal Deposit Insurance Corporation (FDIC) to protect depositors in the future.

The Act was passed because it was largely believed, after hearings in Congress, that commercial banks were being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks.

Enter the Clinton Era and the Graham-Leach-Bliley Act of 1999, the act which ultimately repealed the Glass-Steagull Act. The final bi-partisan version passed in the Senate 90-8-1 and in the House: 362-57-15. Without forcing a veto vote, this bipartisan, veto proof legislation was signed into law by President Bill Clinton on November 12, 1999, though most of his Democratic colleagues voted against it, initially (Senate 54-44, House 343-86).

The Graham-Leach-Bliley Act sought to “modernize” financial services–that is, end regulations that prevented the merger of banks, stock brokerage companies, and insurance companies. It nullified all prior acts that strictly regulated those who stored your money such as the Bank Holding Company Act that prohibited a bank from controlling a non-bank company which passed in 1956 and the 1982 amendment that further forbid banks from conducting general insurance underwriting or agency activities.

Why is this related to today? According to the Online Law Encylopedia,

The expansion of commercial banks into securities underwriting was substantial until the 1929 stock market crash and the subsequent Depression. In 1930 the Bank of the United States failed, reportedly because of activities of its security affiliates that created artificial conditions in the market.

As a result of the bank closings and already devastated economy, public confidence in the U.S. financial structure was low.

Is this sounding at all familiar? It should be.

The Glass-Steagull Act made all of that history, GLBA repealed it and history, my friends, is repeating itself.

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Fast forward to October 2011 – With unemployment remaining steadily at over 9 percent for the last several years, foreclosures at an all time high and banks squeezing the dimes out of people with fees for everything but walking in the door, groups around the country are occupying financial districts, parks, banks and anywhere they believe they will have an impact. In New York occupiers shut down the Brooklyn Bridge and in Chicago they have been camped out for a couple of weeks on a corner that conveniently houses the Board of Trade, the Federal Reserve Bank of Chicago and Bank of America down the street. A recent rally joined by four other groups including several labor unions, shut down Monroe Street between Michigan and Columbus — ironically on Columbus Day.

Sources GLBA, Glass-Steagull(1), Glass-Steagull(2)

So why are we asking the experts anything?

NABE, the National Association of Business Economists, today released the results of their annual member survey. Reuters reports they predicted “the recession-hit economy would begin to recover in the second half of this year, returning to a potential growth trend in 2010.”

I wondered who these people were, and if they were the same people that missed this economic problem altogether, and were wondering for a year or two if we “might” be in a recession.

I found another survey summary that led to the current question, the topic of this entry. What do you think? Here’s what NABE says of its members:

Substantial percentages of economists report little familiarity with complex instruments and other financial innovations. Despite the prevalence of NABE members holding advanced degrees in economics and other business-related disciplines, substantial percentages admitted to having little or no familiarity with the structure, activities, and risks associated with hedge funds (45%), private equity funds (40%), asset-backed securitization (48%), credit default swaps (CDS, 68%) and collateralized debt obligations (CDOs, 51%).

That was in August 2007, when they also thought:

The five-year housing outlook remains largely positive. A slight plurality (42%) of respondents expects U.S. home prices to be flat, on average, over the next five years. But respondents who expect home prices to rise on average over the next five years (41%) far outnumber those who expect prices to fall (16%). NABE members continue to place low odds (1 in 10) on a large drop in U.S. home prices similar to that experienced in Japan during the 1990s.

No comment.

A criminal conspiracy by any other name…

I stumbled today, on the stock broker fraud blog which apparently keeps track of all the dirt on Wall Street. After reading an article about former UBS Securities LLC Executive Director Mitchell Guttenberg, who was ordered to “forfeit $15.81 million in alleged illegal profits, as well as serve 78 months in prison” for an insider trading scheme, which also involved UBS stock analysts, a trader, a hedge fund manager, and other individuals, I wondered, why does the RICO Act not apply here?

According to this article, Guttenberg and the 12 other individuals, “mostly former employees at Morgan Stanley, Bank of America Corp, and Bear Stearns Co., Inc., were criminally charged for their involvement in the insider trading ring. Investigators say the participants tried to conceal their illegal actions by conducting meetings at restaurants, using disposable cellular phones, and coming up with coded text messages.”

Are they drug dealers or traders? To some people, money is a drug. In this case, it should be treated as such.

Were they throwaway phones, or were they stupid enough to use their own?

But it gets better.

Another article, concerning Auction-Rate- Securities, involved 12 states which banded together to form a “multi-state Task Force dedicated to finding out whether Wall Street investment firms had misled investors when persuading them to invest in the ARS market.”

I anxiously read on to see how much jail time these people would do, and discovered the answer was zero.

The punishment for this crime that involved 12 states? “11 major Wall Street investment banks have said they will buy back over $51 billion in ARS from charities, retail investors, and small companies.”

And the list of these companies, with their ARS hotlines?

Bank of America 1-866-638-4183
Deutsche Bank 1-866-926-1437
Citi 1-866-720-4802
JP Morgan 1-866-450-8470
Goldman Sachs 1-888-350-2857
Merrill Lynch 1-888-706-1381
UBS 1-800-253-1974
Morgan Stanley 1-800-566-2273
Wachovia 1-866-283-794

That was in November 2008. When did they get the first of the TARP money, and their bonuses, and their huge salaries?

Are they on the UBS list of unnamed offshore accounts?

And on the same site:

UBS Financial Services, Inc., UBS Securities, LLC, and Citigroup have reached finalized settlements with the Securities and Exchange Commission to pay tens of thousands of ARS investors almost $30 billion. The settlements will resolve SEC charges that the companies misled investors about the risks involved with auction rate securities.

The SEC’s complaint accused UBS and Citigroup of misleading customers by telling them ARS were liquid, safe investments and failing to warn them of the growing dangers when the market started to fail. When the ARS market froze in February, the SEC says both firms left tens of thousands of clients holding billions of dollars in illiquid ARS.

These finalized settlements will restore about $22.7 billion in liquidity to UBS clients who invested in ARS and some $7 billion to Citigroup investors. SEC Chairman Christopher Cox says investors will get back “100 cents on the dollar on their ARS investments.” Both firms will buy ARS from affected customers at PAR. Customers that sold their ARS under the par difference will be paid between par and the ARS sale price. This is the largest settlement in SEC history.

That was December 22, 2008……and the TARP money?

We as taxpayers, should demand equal protection under the law. They should be charged with the criminal conspiracy that this truly is and sent to prison – 20 years to life, with their assets seized and put into the TARP Rebate Fund.

No wonder they needed that TARP money to be spent so rapidly and with no accounting for where it went. No, it wasn’t spent on bonuses, IT WAS SPENT TO PAY BACK THE THOUSANDS OF PEOPLE THEY DEFRAUDED!!

And Geithner, the tax cheat, was in on that deal.

He should resign. They should all be investigated for criminal conspiracies, the whole financial sector, but most especially, the members of the Too-Big-to-Fail-Club.

They seem to be the worst offenders.

Addendum. I don’t know that this is where the money was spent, but if they didn’t loan it out, and they didn’t spend it on bonuses….well, it’s a good bet.

Follow the yellow gold road…..

What a couple of days it’s been in the financial world. Allen Stanford, scammer extraordinaire, whereabouts still unknown, is now known to have contributed large sums of money to congressional recipients, to vote against a financial services antifraud bill that would have linked the databases of state and federal banking, securities and insurance regulators. The bill died in the Senate.

Biggest recipients of his cash?

Sen. Bill Nelson, D-Fla. ($45,900); Sen. John McCain, R-Ariz. ($28,150); Sen. Chris Dodd, D-Conn. ($27,500); and Sen. John Cornyn, R-Texas ($19,700). Rep. Pete Sessions, R-Texas, also received $41,375.

The full list is here and here.

Barack Obama’s presidential campaign fund received only $4600 and it was immediately donated, yesterday, to a Chicago charity, according to the Chicago Tribune.

But the other big story is the deal Swiss UBS Bank made with the feds. Accused of assisting U.S. citizens avoid income taxes, UBS Bank has agreed to lift the veil of secrecy and identify “certain” clients. This could be 17,000 of their 20,000 clients whose combined deposits are worth $20 billion dollars.

In July 2008,Sen. Carl Levin (D-Mi) was calling for them to clean up their act. According to The Consumerist Levin told ABC News “UBS’s banking license should be revoked until the bank “cleans up its act.”” He listed the following as what the bank does to conceal its clients names and assets.

* Code Names for Clients
* Pay Phones, not Business Phones
* Foreign Area Codes
* Undeclared Accounts
* Encrypted Computers
* Transfer Companies to Cover Tracks
* Foreign Shell Companies
* Fake Charitable Trusts
* Straw Man Settlors
* Captive Trustees
* Anonymous Wire Transfers
* Disguised Business Trips
* Counter-Surveillance Training
* Foreign Credit Cards
* Hold Mail
* Shred Files

Prepared by the U.S. Senate Permanent Subcommittee on Investigations, July 2008.

For the record, Levin took no money from Stanford or his PAC. I’ll bet he even pays his taxes – all of them. Can he be Treasury Secretary?

Reuters reports the deal with UBS goes like this:

Swiss bank UBS AG has agreed to a deal with the U.S. Justice Department that would let the bank avoid tax-violation charges in exchange for identifying some of its U.S. account holders and paying $780 million in fines.

Here are the key terms of the deal:

– UBS, under orders by Swiss market regulators, is to give the United States identities and account information of “certain” U.S. customers. Details are to be filed under seal with U.S. federal court and turned over as soon as the court accepts the agreement.

– UBS agrees to pay $780 million in fines, interest and penalties. This includes $200 million to be paid to the U.S. Securities and Exchange Commission. The remainder is to be paid to the Justice Department over 18 months, with options to pay early or extend the terms up to four years.

– UBS acknowledges that it helped U.S. taxpayers open accounts that concealed their identities from the U.S. Internal Revenue Service. About 17,000 of 20,000 U.S. cross-border clients concealed their identities and the existence of their accounts, with $20 billion in assets, from the IRS, the Justice Department said.

Some of these clients are unindicted co-conspirators.

The business generated about $200 million a year in revenue for UBS from 2002 to 2007, it said.

– UBS agrees to quit providing cross-border banking services to U.S. clients with undeclared accounts.

– After 18 months, the U.S. government will recommend dismissal of charges against UBS providing it honors the terms of the agreement.

The Stanford saga, in the meantime, continues to rock the world of the wealthy.

Venezuela seized a local bank affiliated with the Stanford Group, after there was a rush to withdraw funds through online banking. According to Reuters,

Depositors withdrew cash using Internet banking services. The bank takes deposits and makes loans only in the OPEC nation’s local currency.

“Most depositors of Stanford Bank Venezuela are from the (highest) income classes. They move their funds on the Internet, and this allowed for a massive withdrawal that pushed the bank into a precarious state,” Finance Minister Ali Rodriguez told reporters.

“The authorities were forced to take the decision to intervene and there will be an immediate sale,” he added.

And in Antigua, the Associated Press reports that customers were turned away from the Stanford bank there, because its assets were frozen. Depositors were arriving by private jet to withdraw their cash and were panicking when they discovered they couldn’t. One man, who owned a software firm, complained that his life savings was in that bank.

Let me guess. There is no F.D.I.C. insurance in Antigua.

It would seem this is just the beginning (of the end?).

Wonder how many of our congresspeople have offshore accounts? We already know they have an aversion to paying taxes.

Wonder if Geithner has one?

But most of all, I wonder if anyone who is caught will go to jail, go directly to jail, not pass go, and not collect $200.

And second I would like to know, will their assets be seized?

If the answer to the second question is yes, I would recommend to the Treasury Department and President Obama, that the assets seized from anyone in the financial industry caught up in these, or any future messes uncovered by the IRS and the FBI, be dumped into an account called the TARP Rebate Fund, which recoups the cash for the taxpayers, from the cheats and thieves who bought us this mess in the first place. (Oh, did I say bought, I meant brought – Freudian slip). And any congresspeople who return campaign contributions from any of these cheats, should also be dumped into this fund.

As a matter of fact, start with Geithner‘s payments, Daschle‘s Kellefer‘s and Solis‘. It would be a good start.

And any congress person who is found to have an offshore account in the UBS debacle, should be bounced from their office, forbidden from holding any public office anywhere in the U.S. or its territories, and prosecuted to the fullest extent of the law.

These people all need to do serious jail time. Nothing like seized assets and jail time to straighten up a class of people.

Is there a law against “betraying the public trust?” Because if there isn’t there should be.

Sentence: 20 to life in a Supermax prison. Enjoy. You built it.

From Chicago – signs of the economic hard times

On Friday and Monday, my train was empty, as were others I checked with – all coming from different directions into Chicago’s Loop (financial center). Layoffs? Four-day work weeks?

Normally one cannot find a parking space ANYWHERE near Union Station (home of Metra and Amtrak) at any time of the day, even when gas prices were $4 a gallon and our (Metra’s) ridership was up. This week – park anywhere, not a problem.

Traffic has been a nightmare for a few years now. I can’t tell you how many times an ambulance can’t get down the street because of all the cars (and the stupid people driving them who won’t get out of the way). Last week? Ambulances were flying down the street with only a siren blaring – no horns honking at all. Clear passage.

That’s good for them, but to me, is not a sign of good economic times. Sorry, they are not all riding their bikes. Actually – haven’t seen many of them lately either.

The Edens expressway, which normally starts rush hour at about 6:30am (rush hour being a euphemism for an expressway that is a parking lot), is also traffic free. Yesterday at 7:30 am, it was 19 minutes from Dempster to the Circle interchange. Normally, at that hour, it would be at least 40 minutes. 19 minutes is how long it takes at 3 in the morning.

For those of you not familiar with Chicago, this expressway leads into the Loop, the heart of Chicago’s downtown where banks, the Board of Trade, the Chicago Mercantile Exchange, the Board of Options Exchange, and the Futures Market call home. It is also the seat of city government has congressional offices, the mayor is here, the Cook County Board, courts, lawyers, pick ’em, they’re here.

No traffic.

Not good.

Stimulus Update

So we will NOT get $15,000 if we buy a house, but WILL be able to write off the sales tax on a car.

E-Verify was removed from the bill so I guess we will be supporting the Latin American economies for another year, on our dime.

Obama wants to restructure the mortgages of people who don’t yet have a problem but could, which is good – an ounce of prevention is worth a pound of cure.

More details later. Gotta go.

Geithner’s non-plan stinks – he should still resign.

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