GLOBALIZATION AND ITS DISCONTENTS ★^1085Many stock frauds stemmed from the repeal in 1999 of the Glass- Steagall
Act, a New Deal measure that separated commercial banks, which accept depos-
its and make loans, from investment banks, which invest in stocks and real
estate and take larger risks. The repeal made possible the emergence of “super-
banks” that combined these two functions. Phil Gramm, the Texas congress-
man who wrote the repeal bill, which Clinton signed, explained his thinking
in this way: “ Glass- Steagall came at a time when the thinking was that govern-
ment was the answer. In this era of economic prosperity, we have decided that
freedom is the answer.”
But banks took their new freedom as an invitation to engage in all sorts
of misdeeds, knowing that they had become so big that if anything happened,
the federal government would have no choice but to rescue them. Banks
poured money into risky mortgages. When the housing bubble collapsed in
2007–2008, the banks suffered losses that threatened to bring down the entire
financial system. The Bush and Obama administrations felt they had no choice
but to expend hundreds of billions of dollars of taxpayer money to save the
banks from their own misconduct.
Rising Inequality
The boom that began in 1995 benefited nearly all Americans. For the first time
since the early 1970s, average real wages and family incomes began to grow sig-
nificantly. Economic expansion at a time of low unemployment brought rapid
increases in wages for families at all income levels. It aided low- skilled work-
ers, especially non- whites, who had been left out of previous periods of growth.
Yet, despite these gains, in the last two decades of the twentieth century, the
poor and the middle class became worse off while the rich became significantly
richer. The wealth of the richest Americans exploded during the 1990s. Sales of
luxury goods like yachts and mansions boomed. Bill Gates, head of Microsoft
and the country’s richest person, owned as much wealth as the bottom 40 per-
cent of the American population put together.
Dot- com millionaires and well- paid computer designers and programmers
received much publicity. But companies continued to shift manufacturing jobs
overseas. Thanks to NAFTA, a thriving industrial zone emerged just across the
southern border of the United States, where American manufacturers built plants
to take advantage of cheap labor and weak environmental and safety regulations.
Business, moreover, increasingly relied for profits on financial operations rather
than making things. The financial sector of the economy accounted for around
10 percent of total profits in 1950; by 2000 the figure was up to 40 percent. Com-
panies like Ford and General Electric made more money from interest on loans to
customers and other financial operations than from selling their products.
What forces drove the economic resurgence of the 1990s?