Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Recalling Big Banks' Role in Telecom BustFrom Bob Feldman:As long-time readers of Dollars & Sense probably realize, some of the same Wall Street big banks whose financially reckless banking practices helped create the "Great Recession of 2008-2009" [or since the NBER just dated the start of the recession to 2007, and since it'll probably last past 2009, we should say "of 2007-2010"? —Eds.] also apparently played a role in creating the late 1990s telecom industry bust. For example, according to the 2004 book by Roger Lowenstein, Origins of the Crash: "Gary Winnick, the architect of Global Crossing, a transoceanic fiber developer, was the most brazen of the bandwidth barons and, indeed, operated on a grand scale reminiscent of the original robber barons... "Working from an opulent Beverly Hills headquarters, whose inner sanctum was modestly designed to resemble the Oval Office, Winnick borrowed billions... "...The telecoms had a prodigious appetite for loans; moreover, the boom coincided with the repeal of Glass-Steagall, which had separated underwriting from banking. Banks such as Chase Manhattan (soon to be J.P.Morgan Chase) were now thirsting to move into underwriting. With telecoms equally thirsting for cash, banks used loans as bait to get the inside track on underwriting assignments, the precise abuse that Glass-Steagall had been intended to prevent. As Julie Creswell later revealed in Fortune, Chase was a notorious offender. It not only cut its fees to worm its way into banking deals; it courted Winnick...by introducing him to David Rockefeller, Chase's former chairman...Rockefeller escorted Winnick...on a private tour of the Museum of Modern Art. By such means, Chase became Global's banker and, indeed, the telecom industry's commercial banker of choice. There is no evidence that the bank of David Rockefeller was overly concerned with whether demand for bandwidth was truly insatiable or—in the event it was not—with how its loans would be repaid...In 1999, Global showed earnings of $10 million—before, that is, Global's interest expense of $92 million. No banker—no genuine banker—would lend on the basis of such numbers, suggesting mightily that Chase and the rest were scrambling after fees—were, that is, risking their shareholders' capital in order to book short-term profits..." —b.f. Labels: banking system, Bob Feldman, Roger Lowenstein, telecom industry Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Was Wall Street's Banking Crisis Predictable?This is from former D&S collective member Bob Feldman:If you check out back issues of D&S and books like The Trouble With Capitalism: An Enquiry Into The Causes of Global Economic Failure by Henry Shutt, Origins of the Crash by Roger Lowenstein and American Theocracy by Kevin Phillips, you can see that Wall Street's banking crisis and crash of 2008 was a predictable one. Of course Clinton Administration Treasury Secretary, Robert Rubin (who's apparently been advising the 2008 Democratic Party presidential candidate on how to solve the current crisis), played a big role in pushing for more U.S. banking industry deregulation in the 1990s. As Roger Lowenstein observed in his 2004 book, Origins of the Crash: "In the spring of 1998, when...the Commodity Futures Trading Commission proposed a study...to revisit the question of whether to regulate derivatives, Greenspan, along with Rubin, quashed the idea... Coincidentally, under the recent bipartisan corporate welfare bailout plan that both the Republican and the Democratic presidential candidates endorsed, $25 billion of U.S. Treasury tax dollars is to be invested in Citicorp stock. And, coincidentally, the fourth-largest source of 2008 campaign contributions ($499,598) for even the Democratic Obama presidential campaign came from executives of Rubin's failing Citicorp firm. Labels: Bob Feldman, financial crisis, Henry Shutt, Kevin Phillips, Robert Rubin, Roger Lowenstein Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
