DEPRESSING: 1929 and 2008 have more in common than just soup kitchens (Andrew Mills/Star-Ledger)
“Those who cannot remember the past are condemned to repeat it,” was not written by George Santayana with Wall St. in mind, but a quick look at the parallels of the last two major economic crises will see it has strong relevance.
Five days before Black Tuesday, Oct. 29, 1929, six big bankers gathered at the Morgan Bank on Wall Street, ostensibly to “save” the flailing markets and the trusts they created to stuff bad bets into, but really to save themselves in a bailout funded on the backs of their customers.
It didn’t work: The stock market lost 83 percent of its value in the following years, the economy got crushed, and unemployment soared to 25 percent.
Now, the big banks (including the ones that survived those times, institutions we know now as JPMorgan Chase and Citigroup) didn’t extract bailout money directly from their customers, but instead got trillions of dollars of subsidies from the Treasury Department and Federal Reserve.
And that didn’t work, either: They profited, the economy got crushed, and unemployment plus underemployment is now around 17 percent.
A closer look reveals more parallels.
Then: Charles Mitchell, head of National City Bank (which ultimately morphed into Citigroup) was a Class A New York Fed director before and after the 1929 crash, with an inside seat to ensure the flow of cheap money to the biggest banks, while smaller ones crumbled.
Now: Jamie Dimon, head of JPMorgan Chase, is a Class A New York Fed director before and after the 2008 crisis, with an inside seat to ensure the flow of cheap money to the biggest banks, while smaller ones keep going bust.
Then: Al Wiggins, head of Chase, profited by shorting his own stock even as he gathered with the other major bankers to assure investors things were fine, as each banker plopped $25 million of his bank’s (read: customers’) money toward buying stocks and plumping up their trusts.
Now: Lloyd Blankfein, head of Goldman Sachs, profited as his firm shorted mortgage positions, even as they dumped related securities into their customers’ laps, assuring them their investments were fine.
Then: The nation’s biggest bankers, including bank mogul Jack Morgan, faced in 1933 the Pecora Commission that investigated their pre-crash actions. None were indicted for fraud.
Now: The nation’s biggest bankers assembled in front of Sen. Carl Levin’s Permanent Subcommittee of Investigation in April 2010, and before that the Financial Crisis Inquiry Commission on Jan. 13, 2010. None were indicted for fraud.
Then: The Glass-Steagall Act passed in 1933 to break up banks into commercial (customer-oriented) and investment (securities creation and trading) arms to keep banks from speculating with the public’s deposits and bringing down the economy.
Now: The Dodd-Frank Act passed in 2010. It did not break the banks, (the biggest of which are bigger now than they were before the 2008 crisis) or their ability to do things like ding customers for stupid fees to make up for bad bets elsewhere in their institution.
Nomi Prins is an author, former managing director at Goldman Sachs and senior fellow at Demos. Her new book is “Black Tuesday.”