This weeks mark ten years since the enactment of the Gramm-Leach-Bliley Financial Services Modernization Act. This piece of legislation repealed a Depression-era law known as Glass-Steagall, which segregated commercial and investment banks. By breaking down that wall, ...
This weeks mark ten years since the enactment of the Gramm-Leach-Bliley Financial Services Modernization Act. This piece of legislation repealed a Depression-era law known as Glass-Steagall, which segregated commercial and investment banks. By breaking down that wall, huge financial institutions were able to invest heavily in exotic "derivatives" that put the whole financial system -- not just their investors -- in peril.
We all know how that story ended.
Some in Congress saw it coming. At the time, Sen. Byron Dorgan (D-ND) warned, "I think we will in 10 years' time look back and say we should not have done this." In a Washington Monthly op-ed, he foresaw a "financial conflagration" that would "make us nostalgic for the days of the $500 billion savings-and-loan collapse."
Dorgan wasn't alone. In fact, as we noted last year, nine members of Illinois' congressional delegation were among the 57 House members to vote against Gramm-Leach-Billey. Those still in office include Reps. Jan Schakowsky, Bobby Rush, Jesse Jackson Jr., Luis Gutierrez, and Jerry Costello. On this unfortunate anniversary, we once again give them a tip of the hat.
It's also worth noting that some of President Obama's own economic advisers support restoring Glass-Steagall. Former Federal Reserve Chairman Paul Volcker, for example:
"There are deep-seated, almost unmanageable, conflicts of interest with normal banking relationships -- individuals, businesses, investment management clients seeking credit, underwriting and unbiased advisory services," Volcker wrote in September congressional testimony. "I also think we have learned enough about the challenges and distractions for management posed by the risks and complexities of highly diversified activities."
Volcker's calls have gone unheeded, even by Obama, but Volcker recently picked up support from former Citigroup Chief Executive John Reed. In a letter to the New York Times, Reed supported Volcker's call to restore the Glass-Steagall protections.
This is one chorus than needs to grow much, much louder.
To learn more about the issue, check out the recent Frontline documentary "The Warning."