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Editorial November 3, 2011  RSS feed

EDITORIAL

Get a job! Get married! Buy a house! This was the economic engine that drove the middle class of the U.S. for decades.

Somehow, sand got tossed into the engine, and the country is now stuck on the side of the economic road. Everybody has an opinion on how it happened—and a scapegoat for letting things get this way.

Was it elected officials in Washington? Was it large corporations who wanted to produce a product cheaper by outsourcing to third world countries? Was it Wall Street that made buying and selling stock a casino game?

Or was it the banks that went crazy after the restraints of the Glass-Steagall Act were done away with during the Clinton Administration?

The Glass-Steagall Act passed in 1933 during the Great Depression, when a quarter of the formerly working population was unemployed. Over 11,000 banks had failed or had to merge; there were runs on other banks by panicked people. The governors of several states had closed their states’ bank and in March of that year, President Franklin Roosevelt closed all the banks in the country for a week.

Congressional hearings found that presumed leaders of American enterprise–the bankers and brokers–were guilty of disreputable and seemingly dishonest dealings and gross misuses of the public’s trust.

The Glass-Steagall Act erected a wall between commercial banking and investment banking. In effect, the law keeps banks from doing business on Wall Street and vice versa. It separated commercial banks, those that held the deposits of everyday citizens, from investment banks that engaged in risky profit-making strategies. This separation protected depositors’ savings from the possible excesses of the investment banks, and it worked well for 65 years.

But provisions of the act were repealed in 1999, and it took less than ten years for this nation to sink into a quicksand now known as the Great Recession.

Following the repeal, America entered an unprecedented housing boom. The thinking was that everyone should own a home whether or not they could afford one. Loans were offered by banks a dime a dozen, real estate values skyrocketed and things seemed to be going great for everyone.

Then the bill came, and as it turned out, no one had the cash to pay it. The housing bubble burst, and the American economy—with no manufacturing sector and countless jobs outsourced—came crashing down. Unemployment is rampant and jobs for the middle class are scarce.

Mortgage rates are dramatically low, but suddenly, the banks have clammed up on giving loans. Yet the prices of houses are still high, wages are getting lower and the longsuffering middle class still can’t afford a home of their own.

Get a job! Get married! Buy a house! Too bad that these three goals which are part of “the American dream” are out of reach for so many people now. More and more, the American dream looks to be exactly that: something that one can only experience when they sleep.