Cantwell, McCain team up to introduce bill that would restore Glass-Steagall Act
Washington's own Maria Cantwell and John McCain of Arizona - the 2008 Republican presidential nominee - are teaming up to introduce a bill that would restore the Depression-era Glass-Steagall Act, the two senators announced today.
Glass-Steagall (officially known as the Banking Act of 1933) created the Federal Deposit Insurance Commission and barred bank holding companies from doing business as commercial and investment banks under one roof.
This provision was regrettably repealed in 1999, over the objections of one Senator Byron Dorgan, who memorably stated at the time:
The other Senators were Democrats Barbara Boxer, Paul Wellstone (peace be upon his memory), Barbara Mikulski, Tom Harkin, Russ Feingold, Richard Bryan (who retired in 2001), and Republican Richard Shelby. A fellow Republican, Peter Fitzgerald, voted "present", while John McCain did not vote on the legislation at all.
Cantwell's seatmate, Patty Murray, voted in favor of Gramm Leach Bliley, which was signed into law by Bill Clinton on November 12th, 1999. (Cantwell was not in the U.S. Senate at the time; her predecessor, Slade Gorton, also voted yes along with Murray and every other senator from the Pacific Northwest).
The bill introduced by Cantwell and McCain has been titled the Banking Integrity Act of 2009. It would reinstate the provision of Glass-Steagall requiring the separation of investment banking from commercial banking.
"America can’t afford another financial crisis," Cantwell declared at a press conference announcing the bill. "With big banks using depositor money to gamble on Wall Street, it’s only a matter of time. Banks need to be lending to small businesses and homeowners, not fueling risky Wall Street investment schemes. We must return stability, security and confidence to commercial banking for the American public. The first step is this bill."
"I am pleased to be working with Senator Cantwell on this important issue," McCain said. "My reasons for joining this effort are simple: I want to ensure that we never stick the American taxpayer with another $700 billion – or even larger – tab to bailout the financial industry."
He added: "If big Wall Street institutions want to take part in risky transactions – fine. But we should not allow them to do so with federally insured deposits."
Specifically, the Banking Integrity Act of 2009 (which is likely to become more popularly known as Cantwell-McCain) would, according to the Senators:
We also heartily thank Congressman Maurice Hinchey and Jay Inslee for their work to restore Glass-Steagall in the House of Representatives. Hinchey is prime sponsoring a bill that closely resembles Cantwell-McCain in the House of Representatives. It is cosponsored by several Democrats, including Inslee, Jim McDermott, Peter DeFazio, Marcy Kaptur, John Conyers, and John Tierney.
"When I voted against the repeal of Glass-Steagall in 1999, I did so because I feared that consolidation in the financial industry could wreck the economy," Inslee said in a news release announcing his co-sponsorship. "That fear was substantially realized and today we should adopt one principle – never again."
White House Press Secretary Robert Gibbs was asked about the bill yesterday at the daily press briefing and wasn't very forthcoming about whether the administration will be supportive of the idea or not.
The ensuing, predictable ramifications had, ironically, already been predicted by that time by the Congressional Research Service, which warned in a 1987 report:
The aforementioned banks, by the way, are three of the five that control more than fifty percent America's bank owned assets and a whopping ninety five percent of the risk in the derivatives market. That risk amounts to about $600 trillion, according to Senators Cantwell and McCain.
The American people have no interest in bailing out Wall Street again. Megabanks have been getting a free ride at taxpayer expense.
Well, no more. Break 'em up!
Glass-Steagall (officially known as the Banking Act of 1933) created the Federal Deposit Insurance Commission and barred bank holding companies from doing business as commercial and investment banks under one roof.
This provision was regrettably repealed in 1999, over the objections of one Senator Byron Dorgan, who memorably stated at the time:
I think we will look back in ten years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010... I wasn't around during the 1930's or the debate over Glass-Steagall. But I was here in the early 1980s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundnessDorgan's shockingly prescient words remain as remarkable today as when they were first unearthed in the weeks following the collapse of investment banking house Lehman Brothers. Dorgan was one of only a handful of senators to vote against the repealing legislation, known as Gramm Leach Bliley (so named for its Republican proponents, who are no longer serving in Congress).
The other Senators were Democrats Barbara Boxer, Paul Wellstone (peace be upon his memory), Barbara Mikulski, Tom Harkin, Russ Feingold, Richard Bryan (who retired in 2001), and Republican Richard Shelby. A fellow Republican, Peter Fitzgerald, voted "present", while John McCain did not vote on the legislation at all.
Cantwell's seatmate, Patty Murray, voted in favor of Gramm Leach Bliley, which was signed into law by Bill Clinton on November 12th, 1999. (Cantwell was not in the U.S. Senate at the time; her predecessor, Slade Gorton, also voted yes along with Murray and every other senator from the Pacific Northwest).
The bill introduced by Cantwell and McCain has been titled the Banking Integrity Act of 2009. It would reinstate the provision of Glass-Steagall requiring the separation of investment banking from commercial banking.
"America can’t afford another financial crisis," Cantwell declared at a press conference announcing the bill. "With big banks using depositor money to gamble on Wall Street, it’s only a matter of time. Banks need to be lending to small businesses and homeowners, not fueling risky Wall Street investment schemes. We must return stability, security and confidence to commercial banking for the American public. The first step is this bill."
"I am pleased to be working with Senator Cantwell on this important issue," McCain said. "My reasons for joining this effort are simple: I want to ensure that we never stick the American taxpayer with another $700 billion – or even larger – tab to bailout the financial industry."
He added: "If big Wall Street institutions want to take part in risky transactions – fine. But we should not allow them to do so with federally insured deposits."
Specifically, the Banking Integrity Act of 2009 (which is likely to become more popularly known as Cantwell-McCain) would, according to the Senators:
...prohibit commercial banks from affiliating in any manner with investment banks and vice versa; prevent officers, directors, and employees of a commercial bank from serving as an officer, director, or employee of an investment bank and vice versa; prohibit commercial banks from engaging in all insurance activities; and establish one year from date of enactment as the deadline for financial houses to transition and separate their commercial and investment banking operations.This is a terrific proposal that we at the Northwest Progressive Institute are proud to support. We thank Senators Cantwell and McCain for showing real leadership by proposing and standing behind this idea.
We also heartily thank Congressman Maurice Hinchey and Jay Inslee for their work to restore Glass-Steagall in the House of Representatives. Hinchey is prime sponsoring a bill that closely resembles Cantwell-McCain in the House of Representatives. It is cosponsored by several Democrats, including Inslee, Jim McDermott, Peter DeFazio, Marcy Kaptur, John Conyers, and John Tierney.
"When I voted against the repeal of Glass-Steagall in 1999, I did so because I feared that consolidation in the financial industry could wreck the economy," Inslee said in a news release announcing his co-sponsorship. "That fear was substantially realized and today we should adopt one principle – never again."
White House Press Secretary Robert Gibbs was asked about the bill yesterday at the daily press briefing and wasn't very forthcoming about whether the administration will be supportive of the idea or not.
QUESTION: What does the President think of Senator McCain and Senator Cantwell's proposal to reinstate the Glass-Steagall Act to make sure there are no future bailouts?The passage of Gramm Leach Bliley in 1999, incidentally, was the twelfth serious attempt undertaken by members of Congress to roll back Glass Steagall. It was strongly supported by Bill Clinton's economic team, including then-Treasury Secretary Lawrence Summers, who now works for President Obama.
MR. GIBBS: Sure. I have not talked to him specifically. I don't - I have not seen what specifically of that they've proposed. I would say this: I think the President believes that what the House passed in terms of financial reform takes many of the necessary steps that the President sees are important for ensuring that the type of crisis that happened can't happen again, and that we can address in ways - potential catastrophes to our economy in a way that won't harm others, meaning through resolution authority that would allow us to deal with a problem - break things apart and deal with a problem without it infecting larger parts of the economy. And I think that's something the President hopes will pass the Senate and come to his desk soon.
The ensuing, predictable ramifications had, ironically, already been predicted by that time by the Congressional Research Service, which warned in a 1987 report:
Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to collapse as the result of securities losses.Congress now has the opportunity to rectify its mistake by restoring the Glass-Steagall Act. Yes, it will mean that megabanks like Bank of America, JPMorgan Chase, and Citigroup would have to split into smaller independent companies, but that would be a good thing. "Too big to fail" is too big.
The aforementioned banks, by the way, are three of the five that control more than fifty percent America's bank owned assets and a whopping ninety five percent of the risk in the derivatives market. That risk amounts to about $600 trillion, according to Senators Cantwell and McCain.
The American people have no interest in bailing out Wall Street again. Megabanks have been getting a free ride at taxpayer expense.
Well, no more. Break 'em up!
# Posted by Andrew : 7:01 PM
Comments:
I think you get "typo of the day" for this: "...requiring the desperation of investment banking from commercial banking."
I saw that it was "desperation" right after I published it, and made the correction, which resulted from selecting the wrong correct word in the spell checker.
"Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits."
Except that this isn't what's happened so far. The financial institutions that failed initially and helped start the problem were banks that did securities lending only and would never have been affected by Glass Steagall, like Bear Stearns. They banks that have failed recently have been banks that don't do securities lending, like every one outside the big five. Recently, in this recession, the big five have been making enormous profits on securities lending; it's been the losses in ordinary banking deposits and mortgage lending that have threatened them. That's why they keep declaring record profits while smaller banks report losses.
Canada has never had a Glass-Steagall Act, bans on banks doing both securities lending and other bank activities, or bans on branch banking, and they have had never had the type of banking crises that have been common and periodic here. Perhaps rather than concentrating restoring a law under which we also saw periodic banking crises, we should work on learning from the Canadian model?
John Thacker needs to do his homework. This important legislation is essential to restore confidence in the viability of the United States as a free-market leader. Leadership implies responsibility, first and foremost.
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