Tuesday, May 17, 2005

Forgetting the History of Economic Blunders

In the depression era, Congress responded to the economic collapse by forbidding financial institutions to engage in both wholesale and retail banking. This was to keep financial services conglomerates who offered insurance, brokerage, underwriting, credit cards, and retail banking services from forming. One of the problems during the onset of the depression was the speculative investments banks made that put retail bank deposits at risk.

Well, it seems Congress has forgotten the lesson. In 1999 they passed the Financial Services Modernization Act (FSMA), H.R.-10, which was also referred to as the Gramm-Leach-Bliley Act. It promised lower-priced financial services. Instead of that, we got higher prices. It also unraveled the protections of the 1933 Glass-Steagall Act that prevented retail banks from getting involved in investment banking.

Today Citigroup, a result of a merger between Citicorp and Travelers, offers brokerage services through Salomon Smith Barney, mutual funds through Primerica Financial (an MLM), property and casualty services through Travelers Property Casualty, real estate services through Citicorp Real Estate, and retirment products through Travelers Life and Annuity. This re-emergence of the conglomerate bank is threatening consumer privacy, since banks tend to have little respect for privacy. They share customer information across all these companies, and are aggressively lobbying against privacy laws. This information is the cornerstone of their marketing strategies. It also results in customers getting rejected for insurance, for example, because of information from an account in another part of the conglomerate.

These developments are bad for consumers. Actions these banks take can cause significant market swings in the economy and in the stock market. They don't seem to think it is necessary to lend responsibly, evidenced by their credit card practices, so there is no reason to think they will manage their other services responsibly. Thomas Jefferson once said, "The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens every accumulating." Credit cards are becoming a threat to our personal liberties.

Write your congressman and voice your opinion about banking deregulation and the assault on your privacy. You can write your congressman at the House and the Senate. When you feel you've been mistreated by a bank or credit card company, file a complaint with the Office of the Comptroller of the Currency. Things won't change if you don't fight back. The Senate Committee on Banking, Housing, and Urban Affairs is having a hearing today on credit card industry practices. See more information here and look for video here. One thing about these hearings I would like to note is that the credit card issuers are denying that "Universal Default" is practiced by their company. MBNAs Honorable Louis Freeh, Senior Vice Chairman and General Counsel has specifically and clearly denied that MBNA uses Universal Default yet there is this complaint on the consumer affairs website. Is there a penalty for perjury when testifying before congress?

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