In 1999, a bi-partisan effort led by the Democratic Clinton Administration and Republican leaders in Congress repealed the Glass–Steagall Act with the passage of the Gramm–Leach–Bliley Act. The Glass Steagall Act had prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and/or an insurance company, thereby blocking the creation of banking behemoths that were “too big to fail.” The 1999 repeal of Glass Steagall set up the financial system that was bound to collapse on itself eventually, and that moment came in 2008. Even former President Bill Clinton, usually not one to express humility, admitted his administration was partially to blame for the collapse because it strongly advocated this unnecessary deregulation that only helped make huge banks bigger and did nothing for the average customer.
Now, another bi-partisan bill, proposed by Senators John McCain and Maria Cantwell, is attempting to make amends, and reinstate the provisions from Glass-Steagall that blocked the creation of these all-in-one banks. Unlike in 1999, the leadership of both parties seems to be against this bi-partisan bill, presumably because it actually is a good piece of legislation. The very same people on the Banking Committee back then (I’m talking to you, Senator Frank) will do their best to make sure Cantwell-McCain does see the light of day now. Not surprisingly, the major banks are going through great lengths to convince those who wield power that the combination of commercial and investment banking somehow makes sense and to break the two up would somehow hurt the economy. This argument has more holes than a sponge.
This bill presents an excellent opportunity for Republicans. Fair or not, we got blamed for the financial collapse that resulted from the Glass–Steagall repeal. The bill was signed into law by a Democratic President but the consequences came at the end of an already unpopular Republican Administration. Even though this new bill has the support of progressives and moderates alike in the Democratic Party, their leadership will never go for it. Conservatives are also expressing the populist support for this bill.
Democratic campaign officials, meanwhile, have already shown us their strategy for the 2010 elections: tie Republicans to Wall Street. If we come out in support of this bill as a party, two things will happen. First, the argument that Republicans are looking out for the super-rich and not the common man will be null and void. Just as important, Democrats will be forced to go along and support Cantwell-McCain for fear of looking pro-mega banks themselves.
The bill is a win-win for whichever party gets to take the credit for it. As long as the bank lobby does not effectively kill it, it will eventually gain enough support on both sides to pass. It would thus be a very wise move on the part of our Republican Congressional leaders to champion the cause.
Last 5 posts by Abel S. Delgado
- Deeds Gets Dirty, Doesn’t Win Anyway - November 2nd, 2009
- Obama & The Berlin Wall - October 25th, 2009
- The Nobel Prom King - October 11th, 2009
- Bureaucratizing Interrogations a Horrible Idea - August 28th, 2009
- The Public Option on Life Support - August 17th, 2009
Glass-Stegal was NOT the cause of the financial crisis of 2008. Nothing good comes from huge government regulation, and in a free and open market, legislation such as this should be met with skeptesism because of unintended consequences. Rather, the real reason for the collapse was excessive regulation in regards to the inflation of the housing bubble and mortgage-backed securities. The big culprit here was the Community Reinvestment Act, not the repeal of Glass-Stegal. Even with the repeal of Glass-Stegal, the companies were not too big to fail, they were only touted as that so that Paulson and Bernake could give their Wall-street friends big government handouts. If those banks had failed, we would have still had a financial crisis (due to the housing bubble) but other institutions would have gobbled them up – as capitalism is supposed to do.
Abel,
Why isn’t there more support for the Cantwell-McCain bill?
This is something that really deserves grass roots support.
Sal,
You need to get the facts on the housing collapse and the Community Reinvestment Act (CRA). The CRA applied only to deposit taking institutions. Of the subprime and alt-A mortgages that feed the housing bubble and then caused the collapse far and away most were written by non-bank financial institutions that did not take deposits, and therefore were not subject to the CRA. Then Wall Street investment banks bought up those mortgages, sliced and diced ‘em, and sold ‘em as mortgage back securities (MBS). They wildly mispriced the risk on those MBS and were overleveraged. Bringing back Glass-Steagal would reign in Wall Street by reducing their ability to leverage up to the rediculous extent that they were. Glass-Steagal would have prevented the housing market collapse from becoming a credit crisis.