Wall Street Journal Supports Break-Up Of Big Banks

Wall Street Journal Supports Break-Up Of Big Banks

Add the Wall Street Journal editorial board -- of all people -- to the growing ranks of those calling for a restoration of barriers between commercial and investment banking.

In an editorial today, the Journal's anti-regulation free marketeers threw their weight -- albeit in a back-handed way -- behind government limits on "risk-taking" by commercial banks.

The editorial was mostly an assault on Democratic proposals described as offering "unlimited taxpayer funds" to bail out "just about anyone... engaging in finance of one kind or another" in a way that "would entrench moral hazard (and cheaper funding costs for the likes of Goldman Sachs) even deeper into the financial system."

But the editorial concluded: "The other way to reduce moral hazard is to limit certain kinds of risk-taking by institutions that hold taxpayer-insured deposits, as suggested by former Federal Reserve Chairman Paul Volcker and Bank of England Chairman Mervyn King."

That was a reference to Volcker and King's idea to restore the separation between Wall Street investment banks and Main Street commercial banks. "This has its own problems. But unlike the emerging plans in Washington, it is credible and would give capitalism a fighting chance to survive regulatory reform."

Volcker, King, former Citigroup CEO John S. Reed, and Nobel laureate economist Joseph E. Stiglitz are four financial and economic luminaries advocating for at least a partial return to Glass-Steagall, a Depression-era law that banned commercial banks from underwriting stocks and bonds. It was repealed in 1999 at the urging of, among others, Larry Summers, President Barack Obama's chief economic adviser.

While progressive economists such as James K. Galbraith and Dean Baker support a return to at least some tenets of Glass-Steagall -- on the premise that banks with taxpayer-guaranteed deposits shouldn't be engaged in risky trading -- the Obama administration does not. The White House wants to regulate the behavior of these banks, rather than break them up.

For the Journal's editorial page to be taking a more pro-regulatory position on any issue than the Obama White House says a lot about our times.

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