Yesterday, the decidedly odd couple of Senators John McCain (R-Ariz.) and Maria Cantwell (D-Wash.) teamed up to introduce legislation that would restore the Glass-Steagall Act (aka the Banking Act of 1933), which would force giant banking institutions to choose between operating as a commercial bank or an investment bank. For decades, Glass-Steagall imposed a firewall between the two, until it was repealed in 1999 by the Gramm-Leach-Bliley act.
Give McCain and Cantwell a big round of applause for their effort, because in Washington, this seemingly obvious response to the financial crisis is considered the domain of wild-eyed hippies (and Paul Volcker.) It is, after all, the sort of idea that would bring real pain to the banking industry, who'd much rather we quickly forget about the collapse of the economy last year and return to business as usual. The most cutting remark against McCain and Cantwell's efforts comes courtesy of Unnamed Treasury Official, who, as you might imagine, is some kind of awesome prick:
I think going back to Glass-Steagall would be like going back to the Walkman.
But hey, you'd go back to your Walkman too, if everytime you put your iPod on shuffle, it blew up the goddamned planet.
YouTube enabled wonks still recall, and celebrate the words of North Dakota Democratic Sen. Byron Dorgan, speaking prophetically about the end of Glass-Steagall amid the sound of profiteering way back in 1999:
DORGAN: I worry very much that the fusing together of the idea of banking, which requires not just safety and soundness to be successful, but the perception of safety and soundness...to merge it with inherently risky, speculative activity, is in my judgment unwise...There are some notions that represent transcendental truths, that are true over time. And one of those, in my judgment, I fervently believe, is that we are -- with this legislation -- we are moving towards greater risk. We are almost certainly moving toward substantial new concentrations and mergers in the financial services industry that is almost certainly not in the interest of consumers, and we are deliberately and certainly moving with this legislation, moving towards much greater risk in our financial services industries. And so, I come to the floor to say that I regret that I cannot support the legislation...I think we will, in ten years time, look back and say, "We should not have done that, because we forgot the lessons of the past."
Of course, Dorgan had this all wrong, because it only took nine years for the nightmare systemic risk scenario to be visited upon us. But McCain and Cantwell are, at least, taking the virtues of Glass-Steagall seriously. Their efforts match those in the House of Representatives, where a group of legislators, led by Representative Maurice Hinchey (D-N.Y.) have introduced parallel legislation. There, they have the support of Majority Leader Steny Hoyer (D-Mary.), who recently told Bloomberg News, "As someone who voted to repeal Glass-Steagall, maybe that was a mistake."
The movement's patron saint is Volcker, the former Fed chair, who recently offered up some grade-A snark when he told the Wall Street Journal's Future of Finance Initiative that the ATM was the only useful innovation that the banking industry had managed to come up with in the past quarter century.
Of course, seeing as how Tall Paul has been treated like the Invisible Man by this administration, one would have to imagine that the White House sees the matter differently. And sure enough, they do. As Newsweek reports: "Obama administration officials have dismissed the idea that the financial sector should or can be changed in more fundamental ways than they are now proposing. You can't turn back the clock, they say, and the new requirements they plan to impose on big banks to hold more capital in reserve, put up $150 billion for a rainy-day rescue fund, and disclose more of their risky trades should be enough to keep the financial sector from imploding again.
Candidate Obama, however, seems to have been able to give the matter some "attention."
"By the time the Glass-Steagall Act was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework," Mr. Obama said in a speech on the economy at Cooper Union in New York in March 2008. "Instead of establishing a 21st century regulatory framework, we simply dismantled the old one," thereby encouraging "a winner take all, anything goes environment that helped foster devastating dislocations in our economy."
Of course, that was before Obama's brain was overrun by a passel of scaly Rubinites, who, as the New York Times's Cyrus Sanati puts it, have managed to "soften his views a bit." Sanati identifies the chief culprit thusly: "The change of heart may have something to do with the fact that one of his senior economic advisers is [Larry] Summers." Cast your mind back to one paragraph ago, reflect upon the "$300 million lobbying effort" that Obama railed against, and then let's smash cut to Robert Scheer, writing for the Los Angeles Times in 1999, as history wound its way to Gramm-Leach-Bliley:
Only last week, as the bill was being pushed through a congressional conference committee, Treasury Secretary Lawrence H. Summers rushed back from a trip to China to huddle with lobbyists representing Citigroup, Goldman Sachs, Merrill Lynch and other financial giants. The meeting was closed to the media and public, but one participant told the New York Times that Summers lectured the lobbyists on how to spin this bill so it appears to be in the public interest. "He said it would be very unfortunate if any financial institution were to suggest that they do not see the broad public purpose of this legislation," the lobbyist reported.
Also last week, it was announced that Robert E. Rubin, the man who handpicked Summers to replace him as secretary of the Treasury, will take a position as co-chairman of Citigroup, which lobbied heavily for this legislation, as did Goldman Sachs, Rubin's company before joining the Clinton administration.
I guess the world looks a lot different when you are at Cooper Union, outside of the Machine That Softens Your Views With Lobbyists.
Paul Volcker Tells Wall Street, "Wake Up, Gentlemen" [Wall Street Pit]
Treasury Official: 'Going Back To Glass-Steagall Would Be Like Going Back To The Walkman' [Wonk Room]
Which Idiot Decided to Repeal Glass-Steagall? [The Seminal]
PREVIOUSLY, on the HUFFINGTON POST:
Rep. Maurice Hinchey: Bring Back the Glass-Steagall Act to Break Up the MegaBanks that Caused the Crisis
Glass-Steagall Act: The Senators And Economists Who Got It Right
Byron Dorgan's Financial Plan: Common Sense From The Senator Who Saw This Coming