More Hope than Tragedy Awaits Us All if Glass-Steagall is Passed

Mine is signature 113,188 on this Petition to Reinstate the Glass-Steagall Act http://t.co/WfxCB9q1as via @moveon #GlassSteagall
— Sarah Reynolds (@Sarah__Reynolds) July 7, 2013

Background

Despite all the tragedy filling the airwaves these days, there is a glimmer of hope.  After many years of obvious deception, fraud, and blatant theft both by investment and commercial bankers, lawyers, and accountants, there could be a restoration of the banking sector to its original purpose and scale.

Paving the Way for Economic Crises

The Glass-Steagall Act was repealed in 1999 under pressure from Wall Streetbankers trafficking in bundled subprime mortgages, derivatives, collateralized debt obligations, credit default swaps and the like. Inventing evermore exotic investment vehicles, the money movers pumped up a global financial bubble that eventually burst.

Officially it was blandly named the Banking Act of 1933 but around the world it is better known as Glass-Steagall, the ground-breaking piece of legislation that prevented commercial banks which took deposits from embarking on risky trading activities.

Carter Glass and Henry Steagall were the revolutionaries of the time. The years after the Great Depression sparked a debate in the US about how to prevent such devastation hitting the economy again, after nearly 5,000 banks collapsed.

Glass-Steagall forced commercial and investment banks to separate. Commercial banks were not allowed to underwrite the sales of stocks and bonds, while investment banks could not take in deposits from customers.

It remained in place for half a century before it was repealed in 1999 through the Financial Services Modernisation Act, again better known by the names of the politicians who promoted the legislation – Gramm, Leach and Bliley.

Since 1999, banks have been allowed to use commercial deposits and assets as fuel for securities trading on the derivatives market. Because commercial and speculative assets are so heavily comingled, the government is forced to protect the assets of banks making risky bets through near perpetual bailouts and purchasing of toxic debt.  It was the derivatives bubble that blew up the system and bankrupted the US banks in the 2007-2008 crash. 

Restoring Proper Financial Regulation 

Glass-Steagall forces separation of commercial from investment banks, it ends Too Big To Fail, bars government bailouts, and will stop the onset of hyperinflation.

On Friday Sen. Tom Harkin (D-Ia.) introduced Senate Bill 985 (#SB985) to reinstate Glass Steagall. While the full text of the Harkin bill has not yet been posted by the Library of Congress, the fact that there is now a Senate bill to reinstate full separation of commercial banking from all other brokerage and speculative activities is a dramatic development. The fight for Glass Steagall has now moved to a new level.

This comes at a very precise and fortunate time.  Earlier this year, Rep. Marcy Kaptur, D-Ohio, introduced HR 129 to restore Glass-Steagall, saying, “The response of Congress to the 2008 financial crisis has been completely inadequate.”  Currently #HR129 – The Return to Prudent Banking Act– has 60 bipartisan co-sponsors in the House.  Four states have passed resolutions calling for reimplementation of Glass-Steagall, and a dozen other legislatures, including Virginia’s, are considering similar measures.


Specifically, the draft legislation has four components:

1. Commercial Banking institutions have one year to divest themselves of all non-commercial banking units, with no cross management or ownership between commercial and non-commercial units.

2. Commercial Banks are barred from using more than 2% of its capital for the creation, sale, or distribution of securities (certain bank-qualified securities are exempted)

3. Prevents Commercial Banks from loaning their commercial deposits into such vehicals as would support the creation and circulation of securities.

4. No securities of low or potentially low value can be placed by a bank into its insured commercial bank units. * Adds provision stating Glass-Steagall is the preeminant regulator of the banks, limiting banks from putting its depositors and shareholders at risk.

What is important about this legislation over all others is that there would be absolutely no room for loopholes.  There can be no accidental oversight or negligence.  Investment banking would be completely separated from commercial banking.   

This is NOT to be confused with the red herring that Obama supported earlier in his first term, known as the "Volcker rule" named after former Federal Reserve chairman Paul Volcker .  That was a more complicated piece of legislation meant to stall real effective rules.  There is a reason for that.  Obama has received millions of dollars from investment banks, just like Romney, Bush, and all other presidential candidates.  The banks always hedge their bets and play both sides against the other.  DO NOT BE DECEIVED THIS TIME!

Additional Commentary

If you need more details on the Glass-Steagall Act of 1933 and why it is important to restore, watch this video.  Max Keiser is an excellent financial news reporter that does not hold back any punches for any banker fraud and conspiracy.

And in case you need still more reason to support restoring Glass-Steagall, hear what Elizabeth Warren has to say about it.  Remember she was warning us all of the impending doom from 2005-2008 as the housing bubble and financial crisis was bubbling.

If you want to know more about who was responsible for repealing Glass-Steagall, watch this video and look to Alan Greenspan.