Anniversary of Glass-Steagall Repeal: Lessons About Maniacal Deregulation

[Better Believe It]

Nov. 11, 2009

Thursday Anniversary of Glass-Steagall Repeal: Lessons About Maniacal Deregulation, Political Power of Mega-Financial Institutions

Statement of Robert Weissman, President, Public Citizen

Thursday marks the 10-year anniversary of the passage of the repeal of the 1933 Glass-Steagall Act and related legislation. It is an anniversary worth noting for what it teaches us about forestalling financial crises, the consequences of maniacal deregulation and the out-of-control political power of the mega-financial institutions.

What lessons should be learned from the 10-year debacle?

First, Glass-Steagall’s key insight was in the need to treat regulation from an industry structure point of view. Glass-Steagall’s authors did not set out to establish a regulatory system to oversee companies that combined commercial banking and investment banking. They simply banned the combination of these enterprises. Cleaning up the current mess, we need strategies that focus on industry structure, as well as more traditional regulation.

Second, we need to return to Glass-Steagall’s more particular understanding: Depository institutions backed by federal insurance protection cannot be involved in the risky, speculative betting of the investment banking world. We need not just to reinstate Glass-Steagall, but to infuse its underlying principles throughout the financial regulatory scheme. Commercial banks should not be in the business of speculation. They have a job to do in providing credit to the real economy. They should do that. Their job is not to engage in betting on derivatives and other exotic financial instruments.

Third, giant financial institutions exercise too much political power, and for that reason alone must be broken up.

Fourth, we need broad reform in the area of money and politics. We need public financing of congressional elections, even stronger lobbyist reforms and tight restrictions to close the revolving door through which individuals spin as they travel between positions in government and industry.

###

[Captain Hilts]

1. Great that Obama rewarded Jim Leach with an appointment! Lack of oversight is the problem. nt

[cark]

5. Lack of oversight the probem

Here is an article I read this morning supporting your point that regulation was the problem not structure. I think I would still support a reinstatement of G-S as a way to reduce the threat of 'too big to fail'.

http://www.forbes.com/2009/11/11/glass-steagall-banking-business-wall-street-regulation.html?feed=rss_news

Too bad the financial crisis wasn't the result of Glass-Steagall's repeal. None of the companies that imploded in the last two years would have benefited from what Gramm Leach Bliley allowed: securities underwriting and trading and deposit-taking under one roof.

Lehman Brothers ( LEHMQ - news - people ) and Bear Stearns were relatively smaller investment banks that hadn't taking on big banking operations. Washington Mutual and IndyMac were nationally chartered thrifts that were not in the securities business. Fannie Mae ( FNM - news - people ) and Freddie Mac ( FRE - news - people ) were loan packagers that enjoyed the implicit backing of the federal government. American International Group ( AIG - news - people ) was an insurance company.

[Captain Hilts]

6. Thanks for this. I still support reinstatement, but the COMPLETE cessation of oversight

under the Bush Admin provided a tipping point.

There are a lot of lessons to be learned here.

[Better Believe It]

8. The two de-regulation bills passed in 1999 and 2000 set-up this crisis .... and it's not over yet

[RC]

2. One of the things that needs to be done is to eliminate person-hood for businesses.

The Unites States is the only country that has person-hood for businesses. How many real people have the financial resources of a legal fiction?

[WCGreen]

9. Well, stick around for spring when Roberts et al decided that

very question when it comes to corporations being allowed to contribute as an individual.

[ipaint]

3. #4 is exactly why Health Insurance Reform will be dead on arrival. n/t

[OHdem10]

4. Duer's should join Paul Volker and other serious economists

and PUSH for return of Glass-Steagall, if not the entire act,
PUSH for Separation of Investment Banks from Commerical Banks.
Protect Taxpayers and prevent their funds being used by the
Hedgers, etc. to gamble away and therefore repeating the another
meltdown).

This is an important issue and Administration will have to be
pushed along with Congress to go against Wall Street.

[Captain Hilts]

7. Yes, I agree. nt

[AllentownJake]

10. Too bad by the President's appointments

He has given tacit approval to this action taken 10 years ago.