The Ghost of Glass-Steagall
10 years ago today, amid a flurry of de-regulation of the financial system, a bill repealing, Glass-Steagall, the depression-era bill that kept banks from growing too-big-to-fail, was signed into law by President Clinton. Earlier this week, a decade and a depression-scale disaster later, Senator Dodd released a discussion draft of his proposal to re-regulate the financial sector. To paint the scene of 10 years ago I turn to blogger Kevin Connor, who uncovered an amazing article in American Banker from 1999.
To mark the historic occasion, House Banking Committee Chairman Jim Leach played host to a group of his closest collaborators on the bill, including Federal Reserve Board Chairman Alan Greenspan, Treasury Secretary Lawrence H. Summers, . . . They joined staff members, lobbyists, and reporters in drinking champagne and devouring a large cake, which bore an epitaph for the Depression-era separation of commercial and investment banking that the bill undoes. It read: ” Glass-Steagall, R.I.P., 1933-1999.”
Many of the same people who are now creating proposals to reign in the financial industry were, 10 short years ago, the people eating cake as they destroyed the barn door of regulation and let the big banks run free. So it is critical that we take a close look at what is being proposed.
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The Dodd plan joins proposals from Rep. Barney Frank, Senator Sanders and the White House. Now that all of the pieces are on the board, lets play our game. Points are scored by the Dodd, Frank, and White House proposals for focusing on both creating a consumer protection agency to blow the whistle on banks who try to trick consumers, and for bringing previously unregulated activities into a regulatory framework. As for too-big-to-fail? The plans all give more power to various existing and new agencies to ramp up regulation with the size of giant financial firms.
The only proposal that actually calls for breaking up the big banks is the Sanders one. Short on specifics, the Sanders proposal directs the treasury secretary to identify who is too-big-to-fail within 90 days, and break them up within a year. Cool.
There are valuable ideas in these proposals, but what they all seek to do is address the symptoms of a larger problem. Regulating derivatives, creating ‘moral hazard’ for failing big banks, protecting consumers from predatory practices, and making the industry more transparent are all worthwhile and needed reforms. And none of them will prevent the kind of abuses that destroyed our economy from happening again.
With the exception of the Sanders proposal, we are talking about addressing symptoms of the problem and not the cause. The sheer size and power of the big dogs will make any reform that doesn’t cut them down to size hollow. They will wait until no one is looking, buy enough members of congress (and a big enough cake) and again crash through barn door and get fat grazing on the pastures of the American people.
Join the effort to break up the big banks today. This is only going to happen if we all get serious. Send your friends to breakupthebigbanks.com and sign up to take back our economy.
Thom Hartman is a big proponent of re enacting Glass-Steagall, if you haven’t listened to him or read any of his books I highly recommend checking him out.
It seems as if the hard work to create a middle class in this country has been destroyed over the last 30 years. We are back to the age of Robber Barons. In addition, we are back to the age of child/slave labor. Granted we don’t have that here but it hasn’t stopped corporations from having their products made in foreign countries that don’t have any worker rights, where they are paid unfair wages just so the elite can get wealthier. The destruction of unions goes hand in hand with the decrease in worker pay and the increase in bonuses these executives are getting off the sweat of the back off of their employees who will only get increases in their insurance premiums as a reward.