10 years after the repeal of the Glass-Steagall Act

Posted by AzBlueMeanie:

Josh Kalven posts this timely piece as Congress considers new regulations for Wall Street — let's begin with the repeal of the Gramm-Leach-Bliley Financial Services Modernization Act and return to the Glass-Steagall Act. (I have previously discussed this topic.) Ten Years After The Repeal Of Glass-Steagall:

This weeks mark ten years since the enactment of the Gramm-Leach-Bliley Financial Services Modernization Act. This piece of legislation repealed a Depression-era law known as Glass-Steagall, which segregated commercial and investment banks. By breaking down that wall, huge financial institutions were able to invest heavily in exotic "derivatives" that put the whole financial system — not just their investors — in peril.

We all know how that story ended.

Some in Congress saw it coming. At the time, Sen. Byron Dorgan (D-ND) warned, "I think we will in 10 years' time look back and say we should not have done this."  In a Washington Monthly op-ed, he foresaw a "financial conflagration" that would "make us nostalgic for the days of the $500 billion savings-and-loan collapse."

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It's also worth noting that some of President Obama's own economic advisers support restoring Glass-Steagall. Former Federal Reserve Paul Volcker, for example:

"There are deep-seated, almost unmanageable, conflicts of interest with normal banking relationships — individuals, businesses, investment management clients seeking credit, underwriting and unbiased advisory services," Volcker wrote in September congressional testimony. "I also think we have learned enough about the challenges and distractions for management posed by the risks and complexities of highly diversified activities."

Volcker's calls have gone unheeded, even by Obama, but Volcker recently picked up support from former Citigroup Chief Executive John Reed. In a letter to the New York Times, Reed supported Volcker's call to restore the Glass-Steagall protections.

This is one chorus than needs to grow much, much louder.

To learn more about the issue, check out the recent Frontline documentary "The Warning."

As Josh notes, the Obama administration's point man is not Paul Volcker (probably the smartest guy in the room), but Goldman Sachs alumni Larry Summers, Timothy Geithner, and many others. Time to make a team change, Mr. President.

The "malefactors of great wealth" as Teddy Roosevelt called them need to be constrained. No business should ever be too big to fail, or so big that it can control the government of the people of the United States.

Americans are looking to you, Mr. President, to demonstrate that you can be Franklin D. Roosevelt: Address announcing the second New Deal (October 31, 1936):

We had to struggle with the old enemies of peace–business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me–and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

Mr. President, you do not have the luxury of looking forward to your second administration, our circumstances require that you act now. You must demonstrate that you are the champion of working class Americans against the "malefactors of great wealth."