Democrats and Republicans agree: Reinstate Glass-Steagall

[think]

Democrats and Republicans agree: Reinstate Glass-Steagall

Elaine Kamarck | July 24, 2016 11:03pm

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Both party platforms this year call for reinstating a version of Glass-Steagall. Glass-Steagall is a depression-era law that separated commercial and investment banking activity. It was effectively repealed in 1999, under President Bill Clinton and replaced by the Gramm Leach-Bilely Act. When the Great Recession hit in 2008 and revealed the casino-like operations of many on Wall Street, attention turned to the wisdom—or lack thereof—of repealing Glass-Steagall. Not surprisingly, it became a rallying cry on the left and on the right for those who thought Wall Street had become too powerful and too reckless.

A year ago, Hillary Clinton gave a very powerful economic speech in which she called for an end to “short-termism” on Wall Street and for tougher controls against big banks. But that aspect of the speech was largely ignored and given the fact that she represented New York State in the Senate and had many contributors from the world of finance, Bernie Sanders was able to make her out as a puppet of Wall Street. At that time she did not endorse reinstatement of Glass-Steagall, arguing that there were other ways to get to the same results. And there is a legitimate debate over the wisdom of reinstating Glass-Steagall instead of enforcing other rules on the books, such as those in the Dodd-Frank bill. Nonetheless, as the political year went on reinstatement of Glass-Steagall assumed a symbolic significance...


Read more:
http://www.brookings.edu/blogs/fixgov/posts/2016/07/24-national-conventions-republican-and-democratic-platforms-kamarck

[Wounded Bear]

1. I try not to get lost in the labels, oddly enough...

I want to bring back what Glass-Steagal did, which was disallow banks to use private and commercial deposits-checking and savings-in high risk investment schemes. It's primary purpose is actually to protect FDIC. In typical neo-liberal 'logic' it was thought that hey, FDIC protects the depositors, why should the banks be restricted? Well, the banks need to be restricted because like any insurance program, one huge disaster at an inopportune time can bankrupt the program and leave the people that are supposedly protected stranded with no protection.

Remember, part of the 2008 bailout was money to expand and bolster FDIC. We need the protection of FDIC, AND we need the protection of restricting how banks can invest depositors funds to limit risk of another meltdown. With those protections in place, at least if there is another downturn, and there will be of course, regular depositors and banks will be protected.

[think]

2. Agree and very well stated. Considering the too big to fail banks are now even larger than they were

before the crash it would seem imperative that we pass Glass Steagall.

Hillary's economic adviser, Nobel Laureate Joseph Stiglitz was against repealing Glass Steagall when it was done in the 90's. Here are some of his thoughts on why Glass Steagall is needed still:

CAPITALIST FOOLS

BY JOSEPH E. STIGLITZ - JANUARY 2009

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No. 2: Tearing Down the Walls

The deregulation philosophy would pay unwelcome dividends for years to come. In November 1999, Congress repealed the Glass-Steagall Act—the culmination of a $300 million lobbying effort by the banking and financial-services industries, and spearheaded in Congress by Senator Phil Gramm. Glass-Steagall had long separated commercial banks (which lend money) and investment banks (which organize the sale of bonds and equities); it had been enacted in the aftermath of the Great Depression and was meant to curb the excesses of that era, including grave conflicts of interest. For instance, without separation, if a company whose shares had been issued by an investment bank, with its strong endorsement, got into trouble, wouldn’t its commercial arm, if it had one, feel pressure to lend it money, perhaps unwisely? An ensuing spiral of bad judgment is not hard to foresee. I had opposed repeal of Glass-Steagall. The proponents said, in effect, Trust us: we will create Chinese walls to make sure that the problems of the past do not recur. As an economist, I certainly possessed a healthy degree of trust, trust in the power of economic incentives to bend human behavior toward self-interest—toward short-term self-interest, at any rate, rather than Tocqueville’s “self interest rightly understood.”

The most important consequence of the repeal of Glass-Steagall was indirect—it lay in the way repeal changed an entire culture. Commercial banks are not supposed to be high-risk ventures; they are supposed to manage other people’s money very conservatively. It is with this understanding that the government agrees to pick up the tab should they fail. Investment banks, on the other hand, have traditionally managed rich people’s money—people who can take bigger risks in order to get bigger returns. When repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top. There was a demand for the kind of high returns that could be obtained only through high leverage and big risktaking....

Read more:
http://www.vanityfair.com/news/2009/01/stiglitz200901-2

[MohRokTah]

3. IT would be wiser to design a new act for the 21st century.

We need a law that takes into account technological advances.

When trading houses will spend millions upon millions laying fiber across the Atlantic all just to shave a single millisecond off network traffic latency in order to have a transaction occur literally 1/1000th of a second faster, Glass-Steagall seems hopelessly outdated.

[think]

4. Agree. And Elizabeth Warren is working hard to make that happen:

SUPPORT THE 21ST CENTURY GLASS STEAGALL ACT

Congress passed the Glass Steagall Act in 1933 to separate risky investment banking from ordinary commercial banking. And for half a century, the banking system was stable and our middle class grew stronger.

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Our new 21st Century Glass Steagall Act once again separates traditional banks from riskier financial services. And since banking has become much more complicated since the first bill was written in 1933, we’ve updated the law to include new activities and leave no room for regulatory interpretations that water down the rules.

The bill will give a five year transition period for financial institutions to split their business practices into distinct entities – shrinking their size, taking an important step toward ending “Too Big to Fail” once and for all, and minimizing the risk of future bailouts...

Read more:
http://my.elizabethwarren.com/page/s/glass-steagall