Predator Banks Enter Brave New World of Epic Scams and Public Hasn’t Got a Clue
Lynn Stuart Parramore
Feb. 15, 2013
Wall Street is using loopholes in financial legislation to seize control of entire industrial chains.
Wall Street watchers have been concerned for some time about the monopolizing trend among big banks. One of the most alarming developments in recent years is a buying spree in which megabanks have been gobbling up physical assets.
Matt Taibbi of Rolling Stone has delved into this story in his characteristically colorful way, shining a light on how this particular activity took off, namely through an overlooked provision in the Gramm-Leach-Bliley Act, also known as the Financial Services Modernization Act of 1999. This arcane-sounding piece of Clinton-era legislation ranks high on the list of Very Bad Ideas coming out of Washington since the 1980s. It essentially overturned Depression-era regulations that had kept the banking sector under control and opened the door for commercial banks, investment banks and insurance companies to merge their businesses.
The fine print of the bill also allowed commercial banks to dive into any activity that is “complementary to a financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally.”
So what exactly classifies as “complementary” to financial activity? When the idea came up in Congress in 1999, JPMorgan’s Michael Patterson said it was something like American Express owning a lifestyle magazine that complemented its business. No biggie.