Who made this mess?

Matt Taibbi’s piece in this weeks Rolling Stone Magazine is a great analysis on how the US got into the mess it’s in. What are credit-default swaps and how do they help a few schmucks get filthy rich? Why are huge banks and insurance companies allowed to carry out their business with virtually no governmental oversight?
There’s no doubt the US economy, and the whole world’s for that matter, is in big trouble. Not much to debate on that. The question is how we got into this mess in the first place. Taibbi presents a convincing argument that specific political decisions (most under a Democratic clock) are responsible. It was all legal. AIG and Citibank were given free reign when Congress passed the Gramm-Leach-Bliley Act in 1999, which essentially began a cycle of massive deregulation of the finance industry. It laid the ground work for such dubious constructs as credit-default swaps (CDS). These god-awful things would simply have been illegal prior to the deregulation craze of the 90’s. Credit-default swaps essentially allow financial institutions (you can’t just call them banks anymore) to lend money without significant (or in some cases without any) cash reserves to back those loans. They are basically lending money they don’t have and raking in the interest.
It’s not a morality issue. You can’t expect bankers not to take advantage of the system if the government invites them to do it. It’s the US government making conscious decisions about deregulating the financial industry. Some argue that it’s all so difficult to understand. Is that an excuse for passing stupid laws? If a Congressman doesn’t understand a law he just signed, then he’s either negligent or corrupt. Both of which are reason enough to throw him out of office. Those congressmen who did actually understand what it meant to overturn the Glass-Steagall Act (a law from the thirties which prevented banks from selling insurance) should also be dethroned. Why weren’t they all thrown out of office? Was it all too complicated for the public to understand? Taibbi argues that the Democrats got behind deregulation because they were in search of a new, wealthy base for financing their elections.
So we had a situation of greedy Democrats looking for generous campaign contributors and happy, go-lucky Republicans always game on helping their rich friends get richer. They went about tearing down a system of checks and balances that had prevented banks from acting like madmen. Now we have the US folk bailing out AIG because their “too big to fail”. Here in Germany they’ve come up with great doublespeak, calling companies like AIG “system relevant”. People seem to be buying it. We can’t let ‘em fail or our whole system will collapse like a house of cards. If we don’t want the house to collapse on our heads then we better at least start dismantling it and start building a new one.

The Big Takeover
Matt Taibbi, Rolling Stone Magazine, March 19th, 2009
It's over — we're officially, royally fucked. No empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.
Read the rest...