Bravo, Ms. Warren. You have the right idea. I have almost no faith in your Senate (or the House for that matter) to approve such an bill, and even if they did there's no way Obama would sign it, but nice to see the thought. http://www.warren.senate.gov/?p=press_release&id=178 Senators Warren, McCain, Cantwell, and King Introduce 21st Century Glass-Steagall Act Jul 11, 2013 Text of the Legislation Fact Sheet Washington, DC - Senators Elizabeth Warren (D-MA), John McCain (R-AZ), Maria Cantwell (D-WA), and Angus King (I-ME) today will introduce the 21st Century Glass-Steagall Act, a modern version of the Banking Act of 1933 (Glass-Steagall) that reduces risk for the American taxpayer in the financial system and decreases the likelihood of future financial crises. The legislation introduced today would separate traditional banks that have savings and checking accounts and are insured by the Federal Deposit Insurance Corporation from riskier financial institutions that offer services such as investment banking, insurance, swaps dealing, and hedge fund and private equity activities. This bill would clarify regulatory interpretations of banking law provisions that undermined the protections under the original Glass-Steagall and would make "Too Big to Fail" institutions smaller and safer, minimizing the likelihood of a government bailout. "Since core provisions of the Glass-Steagall Act were repealed in 1999, shattering the wall dividing commercial banks and investment banks, a culture of dangerous greed and excessive risk-taking has taken root in the banking world," said Senator John McCain. "Big Wall Street institutions should be free to engage in transactions with significant risk, but not with federally insured deposits. If enacted, the 21st Century Glass-Steagall Act would not end Too-Big-to-Fail. But, it would rebuild the wall between commercial and investment banking that was in place for over 60 years, restore confidence in the system, and reduce risk for the American taxpayer." "Despite the progress we've made since 2008, the biggest banks continue to threaten the economy," said Senator Elizabeth Warren. "The four biggest banks are now 30% larger than they were just five years ago, and they have continued to engage in dangerous, high-risk practices that could once again put our economy at risk. The 21st Century Glass-Steagall Act will reestablish a wall between commercial and investment banking, make our financial system more stable and secure, and protect American families." "Too many Main Streets across America have paid the price for risky gambling on Wall Street," Senator Maria Cantwell said. "This bill would restore clear bright lines that separate risky activities from the traditional banking system. It's time to restore faith in our financial institutions by rebuilding the firewall that protected our economy for decades in the wake of the Great Depression. Restoring Glass-Steagall would focus our financial system where it belongs: getting capital into the hands of job creators and businesses on Main Streets across America." "As Maine families continue to feel the sting of the 2008 economic downturn, America's largest financial institutions continue to engage in risky banking and investment activities that threaten the health of our financial sector and our economy as a whole. While recent efforts at financial sector regulatory reform attempt to address the âtoo big to fail' phenomenon, Congress must take additional steps to see that American taxpayers aren't again faced with having to bail out big Wall Street institutions while Main Street suffers," Senator Angus King said. "While the 21st Century Glass-Steagall Act is not the silver bullet to end âtoo big to fail,' the legislation's re-establishment of clear separations between retail and investment banking, as well as its restrictions on banking activities, will limit government guarantees to insured depository institutions and provide strong protections against the spillover effects should a financial institution fail." The original Glass-Steagall legislation was introduced in response to the financial crash of 1929 and separated depository banks from investment banks. The idea was to divide the risky activities of investment banks from the core depository functions that consumers rely upon every day. Starting in the 1980s, regulators at the Federal Reserve and the Office of the Comptroller of the Currency reinterpreted longstanding legal terms in ways that slowly broke down the wall between investment and depository banking and weakened Glass-Steagall. In 1999, after 12 attempts at repeal, Congress passed the Gramm-Leach-Bliley Act to repeal the core provisions of Glass-Steagall.
Note to Ms Warren and McCain... While you're at it, why not get rid of community banking rules that force banks to make loans to people that can't afford them just because they are a minority? Its an urban myth that the financial crisis was largely due to the repeal of Glass-Stegall.
Where do you get off saying it's an urban myth? Are you saying the repeal of GS did not set up an epic collapse of financial markets?
it quite simply... because wall street no longer has partnership assets at stake... they will corzine the backstop over and over. You can't socialize the risk and not the profits when corzining is institutionalized. the traders go for bonuses... the managers go for bonuses... its just one big airport trade when someone else is backstopping your loses.
I agree with him. The financial crisis was the result of a real estate bubble. Mortgage lending is a core banking function. Institutions failed or had to be bailed out because they were overleveraged, largely to mortgage paper. If you want to go after the cause, look at the Community Reinvestment Act, FNM/FRE, incompetent Fed supervision of lending and mortgage fraud.
I kind of agree with him. While the repeal of GS certainly played a part, the collapse would have happened anyway. LEH, BSC, MER, GS, AIG, FNM, FRE, the automakers, the other insurers etc, none of these organizations were primarily, or even involved with commercial banking to my knowledge, yes some of the lenders were and are but how many of them? BAC, C, UBS and I'm sure there were more but how much different, if at all, would it have been with Glass-Steagal? It's not that I think GS is necessarily bad policy, I just don't think it would have prevented this collapse, nor do I think any amount of regulation will prevent crashes in the future. I think instead of prevention we should be concerned with what we do when they inevitably happen. Another thing I don't get is why people use commercial/investment bank hybrids while earning shit interest and having their funds used for speculation.. worst of both worlds.
Perhaps the best if not perfect solution would be some kind of capital controls at the national level, so that we could say to a flood of petro and sino dollars, "no thanks, we have enough for now."
I don't necessarily think a new GS is a bad idea however. Government deposit insurance gives banks an unfair funding advantage. If they have such insurance, they should be limited to a public utility type model, where they offer plain vanilla checking and savings, make home and business loans, and that's about it. If they want to play masters of the universe, let them do it with their own money. And make clear that they are on their own, no bailouts. The only way to insure there will be no bailouts is to limit their size. TBTF is too big, period. Even the best run mega bank, JPM, had a disastrous loss through muddled oversight and the asymmetrical risk/reward environment that bank traders live in. The idea that you have to be gargantuan to compete is questionable. The only metric that correlates with bank size is CEO comp.