The Savage Truth on Money by Terry Savage

"Those who cannot remember the past are condemned to repeat it."

That profound statement was made more than 100 years ago, in 1905, by philosopher George Santayana. It has never been more true than in the financial and economic headlines of today.

If you don't learn from history, it could be costly to your financial future.

Even if you only vaguely remember your high school history, you must feel a nagging sense of deja vu as Congress debates restoring the banking regulations once known as the Glass-Steagall Act, which was passed in 1933, in the midst of the Great Depression. In that era, replete with bank failures, the act created the Federal Deposit Insurance Corp., designed to restore confidence in the financial industry.

Glass-Steagall also created clear rules around what a bank that accepted public deposits could — and couldn't — do with the money. It separated "investment banks" from "commercial banks." Thus, investment banks like Goldman Sachs and Lehman Brothers could only act as brokers and traders, not as insured deposit-takers.

The rules blurred over the years as banks became large businesses. In 1999, Congress formally repealed Glass-Steagall when it passed the Graham-Leach-Bliley Act, which opened the door for financial companies to wheel and deal in the markets. But after the failure of Lehman in September 2008, many of the remaining "investment banks" rushed to convert to regular bank charters, so they could access the government bailout money.

The explanation above may seem like a mere history lesson. But it has huge implications. Today, Congress — both political parties — is at it again. They're proposing huge changes in the financial markets system. And just as in 1999, many of these proposals lack even basic insight into the far-reaching consequences.

But why should that be a surprise, when politicians' foresight is limited to the next election cycle?

Here's a look at some of the economic pitfalls that defy the lessons of history:

Taxing banks. It's tempting to jump on the bank-tax bandwagon. That's because it's absolutely disgusting that banks pay huge salaries and bonuses to their employees, while the taxpayers who bailed them out are still standing in unemployment lines, and nearly half a million more people apply for jobless benefits each week.

But the proposed tax on banks would simply drive them offshore, where they could escape regulation around lending practices. There is absolutely no reason a bank must be headquartered in New York.

And for those banks that chose to remain based in the United States, the global economy would not be possible without allowing them to access international markets.

Glass-Steagall worked for more than 50 years. That might be a good place to start if you wanted to create, and tweak, a law for today.

Bashing China. It's undeniable that Chinese companies pay their workers less, and thus offer products in the United States that cost less — even considering transportation costs. And they have fixed their exchange rates to keep prices affordable for Americans. The benefits for consumers are lower-cost imports. The huge drawback is the loss of American jobs to Chinese workers.

But creating a trade war with China is not the answer. Every dollar we send there to pay for our purchases is a dollar they can, and do, reinvest by purchasing our Treasury bills, notes and bonds. In other words, they are financing the deficits we are running to "stimulate" our economy. If they didn't lend us money at low interest rates, we'd have to scramble to borrow money. And just like payday loans, we'd pay a lot more interest.

In 1930, there was a similar concern about cheap foreign imports taking away American jobs. Congress passed the Smoot-Hawley tariff, which raised duties on more than 20,000 imported goods. Other countries retaliated, causing a drop in world trade and deepening the global recession. We should learn from that history before picking a fight with our trading partners.

Dumping Fed chairman. There's not much to like personally about Ben Bernanke. But would you rather have Alan Greenspan back in charge of the money? He's the guy who couldn't see the bubble, and in fact kept pumping more air into the balloon. He even encouraged homeowners to take out those adjustable-rate mortgages (which triggered an angry column here a decade ago).

The Fed has an impossible job — keep the value of our money constant, and promote full employment through a growing economy. It's a tough enough job in any case, but to allow Congress to politicize it would be an even greater mistake.

If you want a lesson from history, just look at our growing budget deficits, as elected officials push off today's problems until tomorrow (after the next election). That's why we now have a national debt of more than $12 trillion, and counting.

If politicians can't learn from America's financial and economic history, the voters should teach them a lesson. And that's The Savage Truth.

Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5's 4:30 p.m. newscast, and can be reached at www.terrysavage.com. She is the author of the new book, "The New Savage Number: How Much Money Do You Really Need to Retire?" To find out more about Terry Savage and read her past columns, visit the Creators Syndicate Web page at www.creators.com.

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