- Introduction
Over the last couple of decades with the subsequent victory and dominance of neoliberalism in departments of economics and in the political arena with the rise of Thatcher and Raegan one can see clear trends in financialization. Due to the idea of “the privileged position of business” and social domination as in the active prioritization of capital over labour, because of the nature and structure of capitalism and investment, wherein all mainstream parties must recognize this and create a friendly business environment, it has created a structure in which politicians and capital are tightly knit together in a mutually beneficial relationship (Tatham and Peters 2016, 100-119). In the era of neo-liberalism, financialization is one of the fundamental underpinnings of it. This relationship of social domination extends to that of institutions (Fine and Saad-Filho 2017). In the last decade the US real economy has stagnated, while financial markets and profits have seen substantial increases. Wages have stagnated and growth in the real economy has stagnated (Foster and McChesney 2012, 1-4). Indeed, as a German economist noted:
“We have had [in England], ever since 1876, a chronic state of in all dominant branches of industry. Neither will the full crash come; nor will the period of longed-for prosperity to which we used to be entitled before and after it. A dull depression, a chronic glut of all markets for all trades, that is what we have been living in for nearly ten years. How is this?” – Frederick Engels
(Foster and McChesney 2012, 1).
That is an apt description of the contemporary US economy and the trends from the 1960s, although, Engels could not have predicted the modern 20th century developments and processes of financialization. However, today, one can see its markers, the historical and the empirical trends of financialization. Although, the term financialization is heavily contested among scholars and a term more often used by heterodox economists such as Foster and McChesney in contrast to that of orthodox economists.
Although with that said, this paper is interested in reviewing the internal politics of the US senate through a legislative history analysis of Gramm-Leach-Bliley Act (GLB Act), also known as the Financial Services Modernization Act of 1999 of the 106th congress. Subsequently repealing the Glass-Steagall Act of 1932, which included four provisions of the United States Banking Act of 1933. The main aim of Glass-Steagall, which takes its name from Senator Carter Glass and Representative Henry B. Steagall, was to separate investment and commercial banking from merging. However, the aim of the GLB Act was to deregulate and liberalize the financial sector and financial institutions. When commercial banks and investment banks merged the culture that came on top was the investment culture, which was one of the main leading causes of the Great Recession of 2007-2008 (Cassidy 2009). Thus, the thesis question is as follows:
What was the rationale, the arguments, the logic and ideological concerns and considerations of policy makers in the United States Senate Committee on Banking, Housing and Urban Development on the given legislation? And how could the previous decades of developments and general history of financialization
Indeed, it is then important to discuss the methodology by which the paper seeks to uncover this information and shed light upon it.
2.1 Methodology – part 1: Qualitative Content Analysis
The data that is pertinent to the paper is gathered through a qualitative content analysis of the U.S. Senate Committee hearing transcripts from the 24th and the 25th of February with the introduction of the legislation. Fundamentally, this a single case study that explains the history of the case (the legislation), while further delving into the content of the deliberation between policy-makers and their arguments. This paper is conducting a case study of legislation for a specific purpose. That is to analyze its content to identify how the era of financialization provided the motivation or a necessity for Gramm-Leach-Bliley. The paper is conducting a content analysis of the legislative history and process and legislation itself. In the theory section later, the paper will provide brief, clear, specific points about what financialization is. That is to show exactly what I am looking for in the case study. Thus, my methodology is twofold:
- The legislative history of The Gramm-Leach-Bliley Act of 1999
- The Qualitative Content Analysis of the U.S. Congress Committee Hearing
The qualitative content analysis is delving into a content analysis of one document that contains multiple sessions of Congressional hearings from the U.S. Senate committee on Banking, Housing and Urban Affairs. What are the benefits and negatives of doing a qualitative single case study? That benefits are that one can get a better understanding of the case and one can go deeper into it in contrast to a comparative study, although, you lose the ability to draw parallels and comparisons between cases. However, one can a much deeper understanding of a single case or in the case of this paper, the legislation and its history.
2.2 Methodology – part 2: Legislative History
The methodology of my paper is very similar to that of qualitative single case study as mentioned and it essentially describes what the paper is doing (Grønmo 2004, 175-180). However, this paper seeks to do a legislative history analysis and it does differ and some ways. Although, the methodology can essentially be a qualitative case study of one official U.S. document of the U.S. Senate Committee on Banking, housing and Urban affairs hearings from a two-day session from the 23rd, 24th, and 25th of February 1999. Firstly, I will be writing a legislative history, but that is the general term, the more specific term is Federal legislative history. Legislative history refers to the documents that are produced by Congress (in this case United States Congress) as a bill is introduced, studied, and debated. This paper will look at the introduction of Gramm-Leach-Bliley and the debates surrounding it. Then painting a descriptive narrative of the journey of the legislation through Congress (Smith 2005a). The data in this paper is collected documents of US Senate committee hearings, essentially a qualitative content analysis. Thus, the units in my data is the individual official legal documents and texts from the U.S Congress that contains the discussion and the deliberation from policymakers in the US senate committee hearings. However, the data the paper is dealing with is quite small (n=1). The reasoning for this will be made perfectly clear later, but it has to do with the legislative history of it. One can clearly see the arguments being made by policymakers. However, it includes multiple sessions and the main and key arguments from policy-makers as to why such a legislation should be implemented and why it is necessary. The main objective is to write a credible, objective, descriptive documentation of what the US government was doing in the late 1990s with the implementation of said legislation (Smith 2005a, Smith 2005b, Smith 2005c). The scope of this is the legislative process of passing Gramm-Leach-Bliley into US public law. The deliberation of policy-makers and their arguments about it is the scope of my research and paper, while later some of this is tried to be explained with financialization. The scope is set to one committee, the US Senate Committee for Banking, Housing and Urban Affairs, which the paper will take data from and analyse, specifically, the introduction of it and the argumentation. The House Judiciary was involved in the process as well and will be discussed but it dealt mainly with the practical judicial implementation and so on (Congress.gov 2019).
2.3 Referencing Style and Legislative Histories
It is of crucial importance that it is commonly understood that the referencing style of a legislative history, when referring to legal documents, U.S. Senate Committee hearings, transcripts and texts it will be in accordance with proper procedure. There is a separate bibliography, where each reference or source will look along the lines of this in:
Example given: “U.S. House. 104th Congress, 1st session (l995). “H.R. 3, A Bill to Control Crime.” Version: 1; Version Date: 2/9/93. (Full Text of Bills: Congressional Universe Online Service. Bethesda, MD: Congressional Information Service).”
In addition, the structure and organization of the bibliography in this regard will be after session due the year being contestant. While, in this paper for the sake of simplicity due to legal documents and texts being the same year, 1999, and the same Congress, 106th U.S. Congress, in the text it will be referenced by session, year (1999a, 1999b and so forth) and U.S. Congress (106tha, 106thb and so on). The paper falls in line with the proper methodological procedures of conducting a legislative history (Smith 2005a; Smith 2005b; Smith 2005c). It will be referenced like this in the text:
Example given: The key argument made by the elected officials in the committee was… (106th Congress, session 1, 1999, page 3-4).
Again, this falls in line with the proper reference methods of legislative histories, although the paper mainly will use Chicago style (author, year), but when presenting the empirical data, the former method will be used (Smith 2005b). Although, there are alternative referencing styles that are equally as legitimate, but for the purposes of this paper it is more than enough because the paper will be citing one official U.S. Senate committee hearing.
However, before we begin the legislative history it is necessary to understand what neoliberalism and financialization is.
3.1 Theory: Neoliberalism
As discussed, a bit earlier, the rise of neoliberalism came with economists such as Milton Friedman and in the political sphere it rose to dominance with politicians such as Margaret Thatcher and Ronald Raegan in the late 70s and the early 80s. The necessity for discussing neoliberalism and its rise is because one cannot understand financialization without first being able to understand neoliberalism. Neoliberalism among scholars is a contested term, and sometimes used by staunch defenders of capitalism to deflect any sort of blame and criticism (Cassidy 2009, 20-60; Glyn 2006, 15-30). Neoliberalism is the revival of Classical economics and application of Classical economics in a modern, macroeconomic context (Cassidy 2009, 90-110). However, neoliberalism is in some extent far more radical, but it is capitalism in its purest and rawest form. Milton Friedman gave rise to neoliberal economics and their goal was to destroy Keynes and Keynesian economics (Cassidy 2009, 30-45). Neoliberalism is fundamentally anti-state and quite fervently so. Intervention in the economy by the government and by state is unjust, because firstly, their idea is that the “plutocrats” deserve the capital they have accumulated (Skidelsky). Why? The free market does not discriminate, it is free game that anyone can play and succeed in. All market results according to the neoliberalism are fundamentally just, fair and adheres to their inner sense of social and economic justice (Skidelsky2009; Cassidy 2009; Keech 2013). What came to dominate the world of economics was the Chicago School of Economics, neoliberalism, neoclassical economics and monetarism (Glyn 2006). The government and the state will then do redistribution of wealth, if intervention, to the workers and to people who have it less well off, because the government is prone to rent-seeking and public choice theory according to the Classical economists and Neo-Marxian economists/heterodox economists (Foster and McCheesny 2012, 30-50). This to the classical economists is inherently unjust and unfair, because the workers at the bottom did not deserve the wealth that capital has accumulated. This, in the Classicals’ view, will hamper investment and it will interfere with the free markets, which is unnecessary, because the market will solve these problems. That is if their axiom of Say’s Law holds true, as in supply equals demand, however as critics rightly points out is that it is an unreasonable assumption. In addition to the fact that if Say’s Law holds true, then the last decade of economic history with regards to the liquidity trap could not happen (Sherman and Meeropol 2015, 20-35).
3.2 Theory: Financialization
It is important this paper defines key concepts and technical jargon that may or may not be familiar to the reader. Firstly, financialization, what is it? Defining financialization can be tricky. Heterodox economic scholars and some orthodox ones disagree on what financialization is. The reason for this is because of it is a relatively new field of research, as in the scope of articles around the topic span all the way back to 1970s, but the proliferation of articles studying it are few. Therefore, this essay has decided to use Foster and McChesney’s definition of financialization (2012). It explains thoroughly the process of financialization and as it relates to the US capitalist economy. Financialization is the process of financial institutions and financial markets hollowing out the real economy (Foster and McChesney 2012, 4-12). Financialization, in addition to this, is the idea that financial institutions and financial markets are self-regulating and that it does not needIndeed, capitalism necessitates annual and continuous growth and through finance this requirement is being fulfilled with financial instruments designed for investors to make a quick profit. What does this mean? Well, simply put, it means that the ever-increasing reliance of the US capitalist system upon financial markets and institution is key. Another scholar puts this into perspective with notion financialization is what underpins neoliberalism and grants it the right to live (Fine and Saad-Filho 2017). On this point, there seems to be an agreement among scholars such as Duménil and Lévy:
“Most, if not all, analysts on the left now agree that ‘neoliberalism’ is the ideological expression of the reassertion of the power of finance….(moreover)…although the return of finance to hegemony was accomplished in close connection with the internationalization of capital and the globalization of markets…it is finance that dictates its forms and contents in the new stage of internationalization.”
(Epstein 2005, 5).
Firstly, that is why it is necessary to explain financialization, because it is crucial to understand. Indeed, as one might deduce from the excerpt, the repeal of Bretton Woods is ideological in nature, and an ideological reassertion of monopoly-finance capitalism (Foster and McChesney 2012, 34-40). In addition, it is deeply rooted and connected within power relations between capital, finance and the state. However, the repeal of Bretton Woods is a major chess piece in the processes of financialization and following its logic it is natural to have such expectations from the repeal of Glass-Steagall through the Gramm-Leach-Bliley Act of 1999. One cannot rule out the power of ideology, but in addition one cannot rule out the corruption that happens in such relations without the sort of deals that one would associate with politics (Foster and McChesney 2012, 10-25; Peters and Tatham 2016, 100-120; Epstein 2005, 5-10). The power of ideology can be seen when Senior Milton Friedman had defined all market failures out of capitalism and through the fundamental axioms of classical economics stated that all markets including financial markets are self-regulating. Thus, all failures of capitalism are due to exogenous factors and variables. A far more radical approach than his predecessor Adam Smith, who warned of the dangers of financial institutions and markets, because of the incredible economic power that it holds (Cassidy 2009,30-55). Indeed, this paper will come back to the power of ideology later in the discussion of this paper’s empirical findings. However, as we have seen here, one of markers of financialization is the rise of neoliberalism in the 1980s in the United States with the rise of Milton Friedman building the ideological basis, which transferred onto the political arena through Ronald Reagan.
Why is this pertinent to the legislative history? Firstly, it is the power of ideology, and neoliberalism, which is underpinned by financialization and is an ideological expression of finance has taken root within the political arena. Thus, it is expected that policymakers will argue from a neoliberal paradigm of finance capitalism. Secondly,
However, now to move on to the legislative history. Firstly, a brief overview of the U.S. political system and the policy-making process. Following that the paper goes through the legislative history.
4.1 Legislative History: Brief Overview of Policy-Making Process
There are two important questions that needs to be answered and those are, firstly; what sort of political system is the U.S.? and secondly; what is the policy-making process in the U.S.? It is important to have a general overview of the U.S. as a political entity. Firstly, the United States of America divides its authority and power into smaller federal states (Federalist country), while the legislative-executive system is Presidential, and the chief judicial body is U.S. Supreme Court (O’Neill, Fields and Share 2015, 109-110). In addition, the legislative houses are known as U.S. Congress. The composition of Congress, which is the legislative branch, is bicameral. Simply put, it means that the U.S. Congress has two legislative chambers that are formally accepted to be equal in terms of legislative power and authority. Although, each chamber is assigned different tasks to be undertaken such as for example the U.S. Senate can convict and remove a president from office, but only the House of Representatives can impeach (ibid 2015, 109). The under house is the U.S. House of Representatives and the upper house is the U.S. Senate. The U.S. Senate has 100 members that are directly elected. Each state elects two senators (50 US federal states). The election cycle is that every two years one-third of the Senate is up election, which means each senator has a 6-year term. (ibid 2015, 109-110). However, in contrast the House of Representatives are elected through plurality, and it consists of 435 members or representatives. The number of representatives that each U.S. state can have is based upon the population of said state, but all states have at least 1 representative. Every 10 years, the United States Census Bureau tallies up the population of the United States. States can then gain or lose Representatives based upon the total population (ibid 2015, 100-120). However, the interesting part of the legislative process in the United States is that the U.S. Supreme Court have concrete review and the it can veto legislation from the House or Senate based upon if it is unconstitutional, and the U.S. President can also veto legislation that has passed both chambers.
Secondly, the policy-making process can be boiled down to, the legislation being introduced, then passing the Senate and the House, while afterwards some kinks and differences in the legislation are resolved and finally the legislation is on the President’s desk, where he can approve or disapprove of the legislation through a veto. In the case of GLB act of 1999 (Gramm-Leach-Bliley) it was introduced in the U.S. Senate by the committee on Banking, Housing and Urban Affairs and shortly afterwards U.S. Senate committee hearings where held (Congress.gov 2019).
4.2 Legislative History: The GLBA of 1999
What was the GLBA (Gramm-Leach-Bliley of 1999? The GLBA of 1999 was deregulating the financial sector, but it was also regulating the financial sector. To some that may seem paradoxical, but it is an apt description of what the GLBA of 1999 was. Commonly the GLBA or the Financial Services Modernization Act of 1999 consists of 3 major sections, and the entirety of the legislation repealed Glass-Steagall (Congress.gov 2019). Those are as following: The Financial Privacy Rule, The Safeguards Rule and Pretexting Provisions. Firstly, the Financial Privacy Rule is regulation upon the collection and disclosure of private financial information. Secondly, the Safeguards Rule is a requirement from the U.S. government that financial institutions such as Goldman Sachs must implement policies and safety programs to protect the information of private individual consumers. Thirdly, the Pretexting Provisions prohibits the practice of accessing an individual’s private financial information under false pretenses and it requires by U.S. law that financial institutions must give their consumers written privacy notices (Congress.gov 2019). Finally, and the most important piece of the puzzle, it repealed Glass-Steagall allowed financial institutions to emerge, meaning the line between investment banking and commercial banking was gone (Cassidy 2009, 160-200). Thus, it was a Financial Services Modernization Act, because it updated and gave security to individual consumers regarding privacy and identity theft and so on, but inevitably made the financial sector volatile. To elaborate further, the act has seven important components.
Firstly, it repeals portions of the Glass-Steagall Act of 1933. In addition, it repeals the Bank Holding Company Act of 1956 to facilitate affiliation among banks securities firms, and insurance companies. After the repeal it will allow financial conglomerates to cross-sell a variety of financial products to their customers. That is known as “One-stop shopping” (Wells and Jackson 1999, 3).
The legislation provides umbrella regulation. However, that is because of the resulting financial holding companies. The ones that have vested in the Federal Reserve. Indeed, it will also preserve the role of federal and/or state banks, securities and insurance regulators over their respective functions inside financial holding companies (Wells and Jackson 1999, 3-4). The legislation will allow national and state banks to create financial subsidiaries. These subsidiaries can then diversity into insurance sales and full-service securities activities, however, certain conditions must be meet, which are outlined. As mentioned, it also provides consumer safeguards. It grants more disclosure in the terms of conditions for consumer financial products for the privacy of private/nonpublic financial information and grant more protection against fraudulent access of such information as was discussed earlier. Nevertheless, the legislation includes an expansion of the Federal Home Loan Banks, meaning that the legislation allows for a proliferation of banks that can access the program.
In addition, to this, it deregulates smaller banks by changing how the CRA, Community Reinvestment Act, of 1977 is applied. Smaller banks no longer have the frequent examinations, where it requires banking organizations to be compliant to diversify, and mandates disclosure of CRA-related agreements between banks and non-governmental entities (“CRA sunshine”) and includes other improvements to subsequent regulation and regulatory standards (Congress.gov 2019; Wells and Jackson 1999, 3-5).
However, it is necessary to shed some light on the CRA in relation to the GLBA. As Jean Wells, specialist in economic policy, and William D. Jackson, specialist in financial institutions explains:
“Community Reinvestment Act. The Community Reinvestment Act provides that banks and thrifts must meet the credit needs of their entire communities. P.L. 106-102 affects that Act in several ways:
at the time an organization applies to establish a financial services holding company, its bank(s) must have at least a “Satisfactory” CRA rating as of its most recent CRA examination, and a bank or financial holding company cannot commence new activities authorized under the Act unless the bank or bank affiliate of the holding company has at least a “Satisfactory” CRA rating as of its most recent CRA examination,
small banks with less than $250 million in assets have the time between routine CRA examinations extended to 4 or 5 years depending on the rating on their most recent CRA exam, and
CRA agreements made between banking organizations and nonbank parties in connection with CRA have to be made public, and annual reports on uses of the money and other resources involved in the agreement are required (CRA “sunshine” provisions).
The Gramm-Leach-Bliley Act states that nothing in it is to be construed to repeal any provision of the Community Reinvestment Act of 1977.”
(Wells and Jackson 1999, 6).
Thus, one of the hypotheses can be that the arguments deployed in the original deliberation of the GLBA is that is necessary to have financial consumer protection legislation in this new and globalized world, therefore it is necessary to modernize and regulate the financial institutions in the U.S for it to be competitive with the rest of the world. Not an unreasonable or unfeasible assumption. In addition, that the legislation will have bipartisan support from the Democrats and the Republicans, and that their arguments will come from a monopoly-finance neoliberal capitalistic perspective and worldview (Foster and McChesney 2012, 23-36). Neoliberalism is underpinned by financialization, and neoliberalism is the ideology of financialization, of the reassertion of finance as Duménil and Lévy argued. In addition, this is the most comprehensive financial legislation since the end of the second world war, and its affects range from multi-national financial institutions to small commercial banks to the individual consumer (ibid 1999, 6-9; U.S. Congress, session 1, 1999, 1-3).
However, the perspective that the Gramm-Leach-Bliley Act of 1999 was to regulate the financial sector and financial institutions is true to a certain extent but is heavily misleading without knowing the history of the GLBA of 1999 and seen in accordance with previous Congressional activity. Furthermore, the motivations and the perceived necessity from policymakers in how they argued in Congress for the need for such legislation. Thus, there is need for a short explanation of the developments.
4.3 Legislative History: Policy-Making Process and the GLBA of 1999
As mentioned, the policy-making process can be boiled down to the introduction of a legislation, then said legislation passing both houses, the Senate and the House of Representatives, while in this process committees will discuss, deliberate and amend the legislation until it fits what policymakers can agree to. However, it is amended then on multiple occasions, although on the case of the GLBA, in terms of substance not much changed, but in terms of legality and wording it did for it to be deemed constitutional (Congress.gov 2019; Wells and Jackson 1999, 3-9). This work is generally and as was the case for the GLBA done by the Senate and House Judiciary Committees.
After about two decades (around 1979 – 1999) of consideration on what to do about the Glass-Steagall Act and affiliated issues, the U.S. Congress had finally come up with a satisfactory piece of legislation, the GLBA of 1999. The 106th U.S. Congress moved and acted rapidly on drafting new legislation. Congress completed action on what resulted in P.L. 106-102, the Gramm-Leach-Bliley Act and it completed it during the first session. In the 106th Congress, the Chairmen of the House and Senate Banking Committees, the Honorable Phil Gramm the then Republican Senator from Texas, both initiated early legislative actions. The Honorable Chairman Phil Gramm built upon previous work that was done prior to the new Congress, namely work that was done in the 105th Congress. This happened within weeks of the establishment of the 106th U.S. Congress. The Committees had marked up financial modernization legislation as a high priority and was at the time of the utmost importance at the time. On March 4, 1999, the U.S. Senate Banking, Housing and Urban Affairs Committee marked up a Committee Print. Essentially, the U.S. Congress published a publication with their legislative activity at the time, that was then introduced as S. 900. The Financial Services Modernization Act of 1999. The following week, the House Banking Committee approved H.R. 10, the Financial Services Act of 1999. That bill was referred to the House Commerce Committee. Additionally, in-between that time that H.R. 10 left the House Banking Committee and the House Commerce Committee acted, and essentially drafted their own legislation proposals. H.R. 10 is the Financial Services Act of 1999, proposed by Representative James Leach on 01.06.1999. Nevertheless, on May 6, 1999, the Senate passed an amended version of S. 900 by a vote of 54-44 in favor of the new legislation on the Senate floor. Shortly afterwards Senate action followed. The House Commerce Committee would then mark up H.R. 10 as amended on June 10, 1999. However, following this the House Rules Committee resolved differences between the two versions of H.R. 10. It was then sent to the House of Representatives floor. It was approved on July 1, 1999. H.R. 10 and S. 900, then held a Conference under the bill number S. 900. The Conference Report of November 2, 1999 was approved two days later, but it was first approved by the Senate and the House followed. On November 12, 1999, the President, Bill Clinton (Democrat Party), signed the bill into law (Congress.gov 2019; Wells and Jackson 1999, 6-9). However, let us now move on to the key findings as to what the motivations, arguments and concerns and considerations of the policymakers were.
4.4 Legislative History: The Key Findings and Arguments (700 words to show findings)
Firstly, the policymakers of interest in the committee who argued the case for the legislation were Senators Santorum, Sarbanes, Grams, Bryan, Hagel, Bennett, Crapo, Mack, Edwards, Johnson, Reed, Dodd and of course, the Honorable Chairman, Phil Gramm (106th Congress, session 1, 1999, 1-10). These had prepared statements and arguments in advance. The main motivation, concern and consideration of policymakers was to repeal Glass-Steagall and other affiliated issues and legislation such as the provisions of the United States Banking Act of 1933. This was stated outright by policymakers such as Phil Gramm in the opening introductions of the legislation (106th Congress, session 1, 1999, 10-25). This argument and sentiment was echoed by Robert E. Rubin, the then Secretary of the Treasury (ibid 1999, 3-5). In addition, he said: “…our objective has always been the same: To serve the interests of business, consumers and communities, while at the same time protecting the safety and soundness of the financial system.” Furthermore, it was argued that legislation was unnecessary, and it was legislation that was no longer relevant (Glass-Steagall), while using “Comparative Law” to draw parallels between the US and the UK. The argument was that the deregulation of financial markets is not a problem due to, to paraphrase, “markets having stabilized after a downturn” and “the effectiveness in liquidity flows (they point to the UK) without government constraints upon capital formation and in terms of investment will improve over time” (Grimm 2016 235-250). In addition to this, policymakers argued from previous history and the trends of the financial sector and financial institutions being stable, efficient and profitable (106th Congress, session 1, 1999, 32-50). The arguments that stood out the most and where echoed the most where, firstly, that of “regulation on financial institutions and markets are pointless, because it will automatically adjust (Say’s Law applied to financial markets)”, secondly, they argued and pointed towards the FIRE and said the U.S. are extremely competitive already on global scale, however, if we deregulate further then the U.S. will be more competitive, therefore the financial system will continue to be stable and experience continuous growth and expansion (ibid 1999, 3-25). Thirdly, this will trickle down and provide better services towards customers, however, keep in mind these “consumers” are not necessarily individuals, most often they are other financial institutions buying others’ financial instruments as investment (Cassidy 2009, 170-200; Foster and McChesney 2012, 34-54; ibid 1999, 30-35). However, the arguments about security for consumers and individuals came secondary, and the attention and the focus were upon: “how do we serve the interests of business the best?” As in policymakers felt, argued, and was motivated by a necessity to deregulate, because of the dominance of the final system at the time and they would ensure the continued domination of it with this legislation (106th Congress, session 1, 1999, 139-203; 294-335). However, as has been mentioned briefly, how does financialization connect to this?
5.1 Discussion & Analysis: Financialization, Neoliberalism and the GLBA of 1999
Firstly, it is interesting to mention and discuss the rise of neoliberalism in the late 1970s, the ideological expression of finance, coincides with Congress activity to repeal and deregulate the financial sectors and financial institutions. In addition, the bill had bipartisan support from both Democrats and Republicans, while the process of the legislation was extremely short for such a paradigm shifting piece of legislation, a couple of months, in the long lines and in terms of history this had been building up for decades (Congress.gov 2019; Wells and Jackson 1999, 3-9). However, how does this further connect to financialization?
The answer is FIRE. FIRE as in Share of GDP Going to Finance, Insurance and Real Estate (FIRE) as percentage of total goods-producing Industries Share. As Foster and McChesney notes, the FIRE portion of national income expanded from 35 percent of the goods-production share in in the early 1980s to over 90 percent in recent years. The economic booms of the 1980s and 1990s were fuelled by rapid expansion in the financial speculation sector by increased leveraged debt that came from the private sector (2012, 18). Again, this paints the same narrative of financialization, as in the centre gravity of the economy had fundamentally shifted in the US from production to speculative finance. The rapid expansion of FIRE in relation to goods production in the United States economy is a pure and raw manifestation of long-run financialization. Indeed, Foster and McChesney notes again:
“In the face of market saturation and vanishing profitable investment opportunities in the “real economy,” capital formation or real investment gave way before the increased speculative use of the economic surplus of society in pursuit of capital gains through asset inflation.”
(Foster and McChesney 2012, 18)
As Foster and McChesney explained and how policymakers in the U.S. Congress Senate committee argued, financialization and its developments were one of the main leading variables as to why they were as motivated as they were and felt it was a necessity to deregulate and enact this legislation. Indeed, it was also across partisan lines, which strongly suggests monopoly-finance neoliberal capitalism is the dominant way of doing economics (Foster and McChesney 2012, Cassidy 2009, Skidelsky 2009; profitable (106th Congress, session 1, 1999). It further strengthens and reasserts that neoliberalism is the ideology of finance, and in addition, that the neoliberal perspective or paradigm is taken as an axiom, assumed to be true, and then models and arguments are built upon that even among what would be considered left-wing policymakers in the U.S. such as the Democrats. Even if it is not explicitly stated by policymakers, but the arguments, the motivations, the concerns and considerations flow from it implicitly. In addition, the shift the came in the US from production to speculative finance as the center gravity of the economy, policymakers then were the most concerned about the interests of financial institutions. That is due to the “privileged position of business” and social domination as in the active prioritization of capital over labour, because of the nature and structure of capitalism and investment. It has created a structure in which politicians and capital, in this case financial institutions, are tightly knit together in a mutually beneficial relationship (Tatham and Peters 2016, 100-119). In the era of neo-liberalism, financialization is one of the fundamental underpinnings of it. This relationship of social domination extends to that of institutions (Fine and Saad-Filho 2017).
6.1 Conclusion
To conclude, this paper has gone through theories of financialization and neoliberalism. The paper has gone through and described a general overview of the U.S. political system, and the paper has in detail described what the legislation is. In addition, the paper has shown the legislative history of it prior to any action being taken in Congress on GLBA of 1999, and how the legislation rapidly went through Congress and was approved by both houses within a couple of months. The paper described and explained what the arguments of policymakers were at the time, their motivations, and even the necessity of enact the legislation. Financialization and its previous decades of developments explains why many policymakers were lured into a mood of confidence, where the financial sectors and institutions were doing better extremely well, particularly FIRE, and wanted more prosperity, more growth and more profit. Policymakers were arguing from that of a financialization neoliberal perspective and framework, as in the assumption of Say’s Law in financial markets were self-regulating and that it is overall good for everyone that the financial markets and institutions were doing well. The paper explains how financialization connects in terms of ideology, the previous decades of trends and how the effect of social domination has been extended to the financial sector as well.
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21st Century Poltical Science 