I can already hear the sloshing sounds of money.
An amazing thing happened at the Republican Convention when some unexpected language showed up in the official 66-page Republican Platform 2016, a document that a delegate from Texas enthusiastically called, “the most conservative platform in modern history.”
And therein is this sentence:
We support reinstating the Glass-Steagall Act of 1933 which prohibits commercial banks from engaging in high-risk investment.
It’s followed by this bit of wisdom: “Sensible regulations can be compatible with a vibrant economy….” By extension, reinstating the Glass-Steagall Act would be that “sensible regulation.”
Upon hearing about this, Wall Street executives and just about everyone else at JPMorgan, Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and a slew of others, plus central bankers in the US and abroad, especially those that cut their teeth at Goldman Sachs, plus Treasury officials and revolving-door beneficiaries, they all ran to their respective johns and vomited.
Reinstating the Glass-Steagall Act would mean separating federally insured deposit-taking banks from everything else and limiting their activities to classic banking. Once implemented, it would bring about a form of financial sanity and decades of financial stability among banks. Hedge funds like Goldman Sachs would presumably be allowed to collapse under their risks and go bankrupt without bailout, handing juicy losses to stockholders, bondholders, counterparties, and others, including possibly even executive pension plans.
This was a lesson learned during the Great Depression. Separating those risks from banks, and keeping banks smallish, worked for decades until a Republican Congress and President Clinton conspired to abolish the act. It took banks only eight years of gorging on risks and merging with hedge funds and cheating and running wild and thinking they were gods, before the financial system began to crack in 2007.
Nothing was learned from the Financial Crisis. Risks are now much bigger than ever before, and more concentrated, and banks are now officially too big to fail and too big to jail, and everyone knows it.
But if Republicans are for reinstating the Glass Steagall Act, why hasn’t it happened yet? They’ve run Congress for years, and not even as much as a distant rumble has come forth about reinstating Glass-Steagall.
Besides, they’re not the only ones.
Turns out, on June 25, similar language showed up in the draft of the Democratic Platform, under the evil heading “Wall Street Reform,” and it reappeared in the July 1 version of the draft in slightly watered-down form (emphasis added):
Democrats will not hesitate to use and expand existing authorities as well as empower regulators to downsize or break apart financial institutions when necessary to protect the public and safeguard financial stability, including new authorities to go after risky shadow-banking activities. Banks should not be able to gamble with taxpayers’ deposits or pose an undue risk to Main Street. Democrats support a variety of ways to stop this from happening, including an updated and modernized version of Glass-Steagall and breaking up too-big-to-fail financial institutions that pose a systemic risk to the stability of our economy.
This was Bernie’s doing. He pushed Hillary Clinton into what must be for her – who’s made a fortune off Wall Street – a very unsavory direction. Now it’s in the Democratic platform, to be adopted at the convention in Philadelphia next week.
This official bipartisan hostility toward the biggest risk takers on Wall Street is a sign of just how aggrieved Americans have become with this endlessly powerful financial construct that keeps bleeding those very Americans. But so far, Congress has been all too eager to please and aggrandize this construct at every twist and turn.
Congress still doesn’t have to act on these platforms, and neither candidate has to even pay lip service to them, but now it’s in black-and-white for all to see, and it’s picking up momentum.
What has changed? There’s an election coming up. And that means money. The problem is, Wall Street has been stingy.
So both parties suddenly agree: Wall Street has to be dealt with harshly. Or rather, our politicians are pulling out all stops to extract maximum campaign contributions from Wall Street and its employees and power brokers, because in the end politics is all about money, and now that Wall Street is seriously scared, they’re going to pull out their wallet after they’re done vomiting and pay dearly to make this mess go away.
And Congress will get no closer to reinstating Glass-Steagall and crack down on the financial construct of Wall Street than it is cracking down on the worst abuses of another sector, a sector that too is booming, and it too is a costly boom. Read… This is What’s Cannibalizing the US Economy
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I immensely appreciate it. Click on the beer mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.