By Doug Miller

Didn’t see the Great Recession coming?

Then you weren’t reading the financial headlines in 1999, when Congress repealed the Glass-Steagall Act, which essentially was the federal government’s premier regulatory leash on the financial services industry. It mandated the separation of investment and commercial banking to keep average American account holders from falling prey to speculation and risky investments.

Don’t understand why the law was repealed?

Then you, along with most average Americans, are dangerously unaware of the mindset and dollar power of large banks. Arguing that modern financial services institutions had proven themselves to be responsible beyond regulatory question, banks and insurers spent hundreds of millions of dollars in 1998 alone lobbying for repeal of the law.

When Republicans and Democrats alike granted them their wish, large banks very quickly got into the business of underwriting and trading mortgage-backed securities and collateralized debt obligations, the very financial packages whose collapse led directly to the September 2008 market meltdown. The same banks even established the structured investment vehicles that eventually bought the securities.

Surprised now to find that the same banks — freshly bailed out by the federal government’s mega-billion-dollar Toxic Asset Relief Program(TARP) —  are offering financially strapped mortgage holders ‘relief’ in the form of even larger monthly payments and larger long-term debts?

Then you didn’t pay enough attention to the previous three paragraphs. USA Today reports that tens of thousands of cash-poor homeowners who have asked banks for mortgage relief under a $75 billion Obama administration initiative exit their negotiations with mortgagors with higher monthly payments.

The newspaper cites a recent report by banking regulators that, of loans modified during the period from Jan. 1, 2008 through March 31, 2009, 27 percent actually ended up with increased monthly payments; an additional 27.5 percent of holders of modified mortgages were left with the same monthly payment they had before they got ‘relief.’

Don’t see how that could happen?

Simple. Banks are rolling late fees, back taxes and other costs into the principal, leaving homeowners who were looking for lighter monthly payments with even heavier burdens. Financial research firm CreditSights notes that in about 90 percent of reworked mortgages, the principal balance was higher after modification.

Think that might signal a pathological business mindset?

Consider this: Citigroup — one of America’s largest banks, a big loser in the subprime mortgage debacle and a key player in the repeal of Glass-Steagall — saw its share price drop from a high of nearly $50 to a low of less than a dollar during the meanest period of the recession, despite having taken a large, long draught from the TARP spigot. It doesn’t advertise very well, of course, for a leading American financial giant to be reduced to a penny stock, so something had to be done. Humbled companies, penitent companies — companies truly concerned about regaining public trust and achieving long-term success — might consider rethinking an obviously failed approach in favor of a more customer-oriented model designed to build market share and strengthen core business value.

What did Citigroup do instead?

It convinced its shareholders to let it initiate a reverse stock split – a financial maneuver of form over substance that delivers a healthier-looking share price without actually forcing it to reconsider the fundamental way it does business. Got 10 shares at $1.50 apiece? Now you’ve got one share at $15, a much more respectable figure. Instead of engaging in some real soul-searching about the way it’s been doing business, one of America’s largest financial institutions opted for mathematical legerdemain. It took the easy way out.

Think government regulation of banks isn’t required?

Think again.

Doug Miller is a writer living in Westchester County, New York.