Getting Serious Now? Senators Warren, McCain, Cantwell, and King Introduce New Glass-Steagall Act

Sometimes Senators can move fast.

Earlier today, I reported on a confidential meeting yesterday where White House economic advisor and ex-Goldman executive Gary Cohn had dropped a bombshell by speaking in support of reverting to a version of the Glass-Steagall Act. It had once separated commercial banks from all other financial activities, but was repealed in 1999 – with terrible consequences that ended in the Financial Crisis.

The digital ink on that article wasn’t even dry when Senator Elizabeth Warren (D-Massachusetts), who’d been part of that meeting, announced today that she and three other senators – John McCain (R-Arizona), Maria Cantwell (D-Washington), and Angus King (I-Maine) – would re-introduce “the 21st Century Glass-Steagall Act.”

Senator Warren said in the statement that it would protect American taxpayers, help community banks and credit unions compete, and decrease the likelihood of future financial crises:

Reinstating Glass-Steagall has broad bipartisan support from the public and policymakers, including from President Trump, Treasury Secretary Steve Mnuchin, and National Economic Council Director Gary Cohn. Both the 2016 Democratic and Republican party platforms supported reinstating Glass-Steagall.

The legislation, first introduced in the 113th Congress [2013-2014] by Senators Warren, McCain, Cantwell and King, 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.

The 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.

Senator Warren added:

“Despite the progress since 2008, the biggest banks continue to threaten our economy. For 50 years, the original Glass-Steagall Act helped produce broad-based economic growth and avoid any major financial crisis.”

“The 21st Century Glass-Steagall Act will re-establish the wall between commercial and investment banking and make our financial system more stable and secure. Reinstating Glass-Steagall has broad bipartisan support, and it’s time to get it done.”

Senator McCain said:

“Since core provisions of the Glass-Steagall Act were repealed in 1999, a culture of excessive risk-taking has taken root in the banking world, placing the financial security of millions of hardworking American taxpayers at risk.”

“Even with the thousands of pages of misguided and burdensome regulations imposed by Dodd-Frank in the wake of the 2008 financial crisis, there are indications that this culture of risky behavior continues today.”

“That’s why I believe it is critical for Congress to reinstate the protections that separated main street banks and investment banks. Our 21st Century Glass-Steagall Act of 2017 would return banking ‘back to the basics’ and go far to restore Americans’ confidence in the banking system.”

Senator Cantwell said:

“It has been clear for 60 years that separating commercial and investment banking would protect consumers from having to pay for the debts of bad financial practices of Wall Street. We need to reinstate this sharp bright line.”

“Congress should take steps to see that taxpayers across Maine and America aren’t again faced with having to bail out big Wall Street institutions at the expense of Main Street.”

Senator King said:

“This bill will advance common-sense reforms that will provide strong protections for Americans against the spillover effects of another financial institution failure.”

The statement also added some historical perspective on how the repeal happened in two ways, to purloin a phrase from Hemmingway – gradually and then suddenly:

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.

I remain more doubtful than hopeful. Introducing legislation happens all the time. As Senator Warren pointed out, she had already introduced this act in prior years, and it went nowhere. Other efforts have also been made.

Just this year, Representative Marcy Kaptur (D-Ohio) along with Reps. Walter Jones (R-North Carolina), Tim Ryan (D-Ohio), and Tulsi Gabbard (D-Hawaii) re-introduced legislation to reinstate the Glass-Steagall Act. It too went nowhere.

Nevertheless, perhaps this time, the Senators will pick up enough momentum to get this act airborne.

So is there hope? Read… Ex-Goldman Trump Advisor Drops Glass-Steagall Bombshell

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  58 comments for “Getting Serious Now? Senators Warren, McCain, Cantwell, and King Introduce New Glass-Steagall Act

  1. Gorshen says:

    Whoa – John McCain, epitome of a swamp creature, a co-sponsor on this?

    I would love to think the Senator could leave a better legacy to the American people than the Keating Five scandal, toadying for Wall Street, and his endless neocon wars.

    • wkevinw says:

      One of the most disgusting images of government in my lifetime. Oh, many of the intellectual-yet-idiots were

      What should scare everybody is that the current mess is basically bipartisan. One party thinks up a bad decision and then gets bipartisan support. So much for bipartisan support as a good governing concept.

    • Frederick says:

      Wetstart MCCain must have an angle on this He’s a warmongering old fool and a total bought and paid for boot lickers Everybody knows that

    • TellTheTruth-2 says:

      Exactly .. my first thought was, What are they pulling to screw us now?” The answer was the depositors will get stuck with the bill.

  2. John Doyle says:

    If true, then good news! One of the cornerstones of ethical banking knocked down by neo-liberalism, its repeal was a profound betrayal by [GOP disguised as Dem] Clinton. He should have gone to JAIL for it!

    • Bruce Adlam says:

      i agree and its not only banking its also the massive share buy backs that has to stop.also tighter regulations on financial engineering Its all BS

    • Vegeholic says:

      Speaking of old Bill, I wonder if he would have the decency to stand up and say I was wrong to advocate for and sign the repeal. And furthermore I will join the effort to build a consensus for this reinstatement. I don’t think I will hold my breath waiting for such a statement, but who knows?

      • d says:

        Remember he vetoed it first time round and they overturned his veto with the second vote.

        Not being a petulant racist child like P 44 was he signed it second time round.

        If you are going to beat on clinton.

        Which is so easy.

        at least get the FACT’S in order

  3. Tom Kauser says:

    Banks agree to be broken up and business limited when Hank Paulson fly’s?
    Getting ducks in order just in case swans be laying goose eggs?

  4. Si says:

    “Fool me once shame on you…. fool me twice”

    The devil will be in the detail.

    Affordable Care Act anyone?

    This will be a sop to our financial owners no doubt.

    • James Levy says:

      The win-win on this is that the Warren Wing of the Dems will get some better, safer commercial banking institutions out of this and the Repubs will make sure that the Investment side will get the derivatives treatment, i.e. wild west of virtually zero regulation. The deep question is, will the government, tacitly or explicitly, guarantee the solvency of the Investment Banks in order to safeguard the Investor Class. If they do, then this means nothing, and might be worse than the current set-up. The devil, indeed, will be in the details.

      • Raymond Rogers says:

        It’s amazing how you portray clear lines between the angels and the devils based upon party lines. I got news for you, the Democrats care about the people just as much as any Republican. Most don’t give a crap. There are a few decent people in each, but most are worthless. The last report I saw, the dems had more personal wealth than the republicans. They have their hands just as deep, if not deeper than the republicans.

  5. Rossco says:

    Isn’t this just another way of Goldman et al avoiding Dodd Frank repeal and the Volcker rule ?

    • Si says:

      @Rossco – I don’t know, but there will be some huge benefit for the financial backers of congress.

      Everyone else will need to ‘assume the position’

    • Wolf Richter says:

      Sure. Under a Glass-Steagall type law, investment banks would no longer be banks. They’d be regulated by other, less cumbersome rules. But they would no longer sit on government-insured deposits. And they’d be smaller and would presumably be allowed to fail. That’s the idea at least.

      How well did that work in the past?

      During the early days of the Financial Crisis, Goldman was such an investment bank. And it was NOT allowed to fail. Instead, it was converted into a bank holding company and was bailed out.

      Lehman, another investment bank, was allowed to fail. (It did have a smallish commercial bank with FDIC insured deposits).

      One of the differences was that Goldman ruled (and still rules) the NY Fed (which executed the bank bailouts) and Goldman’s guy (Hank Paulson) headed the US Treasury Department.

      • JB says:

        1.) Regarding “Isn’t this just another way of Goldman et al avoiding Dodd Frank repeal and the Volcker rule comment” by Rossco :
        Why would Goldman want to avoid the repeal of Dodd Frank. ? The financial sector has eroded/delayed/changed much of its intended effects.
        2.) ALSO i don’t condone bailouts with public money , however wasn’t much of this money returned to the public coffers ?

        • Wolf Richter says:

          To your point #2: You’re referring to TARP which was the Congressional bailout package, administered by the Treasury (and overseen by Kashkari, who then ran unsuccessfully as Republican for Governor of California before moving on to become President of the Minneapolis Fed).

          TARP was peanuts compared to the mega-bailouts the Fed engineered. The amounts are still secret. The Fed acted as lender of last resort to banks and industrial companies, including GE (whose CEO Inmelt sat on the board of the NY Fed and was involved in handling the bailouts, including those of GE). It also pushed interest rates to zero, and thus the cost of funding for banks to near zero, allowing banks to make huge profits at the expense of depositors (among others).

          The Fed also took on a pile of toxic assets (possibly at face value), starting with those of Bear Stearns that JP Morgan handed to the Fed after the buyout.

          In 2009, the year the bailouts took place, Wall Street banks paid out record bonuses. That’s how well those Fed bailouts worked.

        • katesweat says:

          WaPo pointed out that reinstating Glass-Steagall would eliminate much of Goldman’s investment bank competition.

        • akiddy111 says:

          I think Immelt, Blankfein and Dimon wield too much power. They have all been in their CEO positions for 10 years or longer. I don’t even think that Immelt has returned any shareholder value since he took over at the beginning of this century.

          There is no way that their BOD’s could stand up to them at this point. It’s unhealthy.

        • Dan Romig says:

          Kashkari’s essay on Dimon’s Shareholder (Advocacy) Letter published Thursday, 6 April on Federal Reserve Bank of Minneapolis website:

      • Prince Renualt Gbanga says:

        Government Sachs has wanted out from under the Bank Holding Company rules for years now. Except that, the way the rules are written, it’s Hotel California. You can check into the Bank Holding Company classification but you “can never leave.”

        And so this new law fixes that problem for them. At least until the next GFC when they’ll switch right back.

  6. Patrick says:

    Gift Horse or Trojan Horse? I’m all for this but gotta wonder what the angle is here from the Dems. I don’t think there’s a chance in hell either political party dares to go against their banking masters – so maybe the Dems are using the old (Republican) ploy of promoting a noble bill will zero chance of being passed, just to prove the other side was full of shit all along. Either way, I’m all for exposing the political B/S on either side of the aisle.

    • Frederick says:

      You are obviously awake and well educated on these matters Patrick Couldn’t agree more It stinks to high heaven bro

  7. Flying Monkey says:

    The wild actions of the banks would also not have been possible if the FED were not manipulating interest rates. People starved for yield make bad and riskier investments.

    The introduction of this legislation is a good sign but a better sign would be to get the Fed out of the interest manipulation business too. The combination of the two are needed to cuase the meldown we had in 2008.

    The economy would be much more stable and have much lower inflation if fractional reserve lending (making money from air) were also abolished, although that probably will never happen.

    • Bruce Adlam says:

      I think the fed is good but because they affect the masses they need to be accountable elected just like the government.Its one thing to manipulate interest rates its quite another to print trillions in QE to the favored few,no matter how you look at it that is theft

      • John Doyle says:

        It’s not theft, the Fed didn’t use divert taxpayers money to the banks. It was all done off balance sheet.

        The Fed has only two jobs, to regulate interest rates and make for full employment. It doesn’t seem that’s all they do but you can’t really blame the Fed. Its just the carry boy for Treasury and above that the government.

        • TJ Martin says:

          Errrr … not quite John .. actually not even close [ in regards to both your comments ] Once again your perceptions with your being over ‘ there’ … do not match up with the reality on the ground over ‘ here ‘ … in the slightest .

        • John Doyle says:

          Sorry, TJ, not quite sure what you are referring to? Are you saying taxpayers were on the hook for the GFC bailout? That goes against what Herr Bernanke admitted on Sixty Minutes in 2009. I don’t have to live in America to know what went on.
          Sometimes outsiders have a clearer view than those with their noses being rubbed into the mess. You don’t have to agree with me, but it isn’t required that you do, and vice versa.

        • Robert says:

          If you are saying that a counterfeiter is not guilty of theft because his printing does not involve taxing anyone, you are misguided. He steals a bit of the value of everyone else’s money. One of the biggest exmples of hypocrisy is President Trump (among others) accusing China of currency manipulation. Imagine that you had purhased a billion dollars worth of 30-year T-Bonds in 1990, to discover the government had surreptitiously printed up an additional $20 trillion since. I think you would call them the currency manipulator par excellence.
          Virtually interest-free loans by the Fed to the very banks which own them (TARP) is indeed theft: in what was then one of the biggest scandals in American history, the Teapot Dome Scandal,
          Albert Fall (the only cabinet member to do time) was convicted of accepting a one million dollar interest-free loan from Sinclair Oil.
          Think about that.

        • John Doyle says:

          My reasoning is based on the notion that the bail out money was not owed or owned. Otherwise taking the gold out of the ground or cutting down a tree in the forest is theft.

        • Wolf Richter says:

          You’re wandering off into the Absurd.

      • Gershon says:

        You need to educate yourself, Bruce. The Fed is the worst swindle ever perpetrated on the American middle and working classes. Read “The Creature from Jekyll Island” for the story of how the oligarchy set up this private banking cartel to facilitate the concentration of all wealth and power into their own greedy hands. Mission accomplished….

      • Frederick says:

        Did I read that correctly ” I think the FED is good” ? Ugh No they are certainly not good for the average worker What they are good for is the bankers and the 1 percent Very good in fact

        • Kent says:

          Yes, but the bankers and 1% are our job creators. We need to give them as much as we can so they can invest in American industry and have that wealth trickle down to us. /sarc

  8. Aussie says:

    I support “Patrick” comment, this is just hot air, and “Si” hit the mark too, fool me twice….

  9. pete says:

    Unfortunately Wolf, it wasn’t the repeal of Glass Siegel , either in San Francisco nor New York , that created 50-60-90% leverage, that created liar loans, and that created liar—tripleAAA security certifications by Moody’s, etc. , it was the fannie mae and freddy mac types that demanded the govt put a ‘home in everybody’s pot’. Senator Warren may be blameless for the past, but she’s clueless today….PJS

    • TJ Martin says:

      Actually the blame falls first , foremost and firmly upon the so called math wizards from MIT and their mystical , wave of the magic wand formulas and theorems that even they couldn’t understand … ignorant of history and completely devoid of reality .. and then the bankers / lenders that fell for them …

      .. in conjunction with utterly stupid , deluded and clueless homebuyers convincing themselves and allowing themselves to be convinced that they somehow the deserved to buy homes well out of their budget

      Which is to say beyond the collateral damage .. there are no victims .. only perpetrators

      So once again …. look in the mirror first before pointing the finger at the perceived evil empire bankers who in fact simply conned and sold you exactly what you desired

      Book recommend ” Culture of Complaint ” by Robert Hughes ..

    • katesweat says:

      F&F have significant requirements – only conforming loans. The private lenders 1) realized how lucrative subprime loans can be 2) convinced themselves they could securitize the loans in a risk-proof way 3) found an enormous market for such securities because nothing else had much yield. To make more securities they needed to make more loans, and the quality of those loans got worse. F&F were actually losing share until they responded by loosening their requirements too a couple years before the crisis. The degradation in loan quality was driven by private demand for securities.

    • JZ says:

      If the system is complicated enough and many parties depend on it, it tends to stay.

      Pete you are corrcect in the liar loans, F&F. But the those are the 2nd part of the complication.

      The first part is GlassSteagle.
      It basically says, banks who make the loans can not securitize it and sell it to somebody else.
      Banks who do securitizations should not take deposit and make loans.

      If Glass was around, the structure is simpler. Those bad loans will hold the banks responsible for it so they will never make the loans. Without Glass, it started to CHURN.

    • Dan Romig says:

      In 1977, Congress passed the Community Reinvestment Act which was designed to reduce ‘redlining’ which was discriminatory credit practices against low-income neighborhoods.

      Clinton initially vetoed the GLB-Act in May of ’99, but had it rewritten to include many others pieces of pork. Upon signing the repeal of Glass-Steagall that November, Clinton stated, ” … establishes the principles that, as we expand the powers of banks, we will expand the reach of the Community Reinvestment Act.”

      John Carney published his analysis of the CRA and the housing meltdown in Business Insider on 27 June 2009:

      His conclusion is that the CRA led to lowering lending standards, and that banks were expected by regulators to relax income requirements. A huge driver of the demand for sub-prime loans was the demand for CRA bonds. “The CRA required lax lending standards that spread to the rest of the mortgage market. That fueled the mortgage boom and bust.” according to Mr. Carney.

      • michael elderberry says:

        75% of the mortgage money loaned out prior to the financial crisis was from loan originators…financial institutions…. NOT covered by the CRA.
        Real estate markets boomed around the world , even where there was no CRA , and cratered as bad or worse than in the USA.
        No more BS about how a bunch of poor people who got home loans crashed a 14 trillion dollar economy.
        The amount of money in just two programs..banksta bailout programs, TARP and TANF was enough to buy every loan originated under CRA and give the residences free to the “poor”.
        Additionally The fed gave the fat cats on wall street over 7 trillion dollars of virtually zero interest rate money as a bailout. Think about it…how many CRA loans would one have to make to equal 7 trillion dollars ?
        All the residential real estate in the USA was barely 25 trillion and near 40% of all those homes were held mortgage free by their owners.
        Besides greed, the causes of the financial crisis were… 1. years and years of Greenspan’s excessively low interest rates, 2. rating agencies lying, labeling AAA what should have been garbage, and
        3. extreme leverage, in wheeling and dealing of complex, highly leveraged and crazy derivatives based on collateralized debt obligations and synthetic credit default swaps.

        • Dianne Helm says:

          If taxpayers money spent without taxpayer knowledge would be returned to the coffers for the taxpayers benefit, we would all be as rich as Senators and Representatives. Period.
          This applies for the loans from Social Security to bank and company bailouts. All should have mandates to pay back to the taxpayer wirh interest the monies,”borrowed” not stolen from the working people. If Americans quit their jobs for 1 month, Washington would have no choice but to take norice. The only thing worse are the lies and the liars who tell them. There should be severe consequences to those taking monies and those Politcal parties doling them out.

  10. Gershon says:

    The banksters and their political puppets will fight Glass-Steagall tooth and nail.

  11. mvojy says:

    Nice! The federal government and taxpayers should never be on the hook for the risky trading of big financial firms that hold our life savings. It’s time for “Too Big to Be Bailed Out”.

  12. Gershon says:

    Looks to me like Wall Street’s political prostitutes in the Republicrat duopoly are trying to extract a bigger allowance from their bankster pimps. Once more payola starts flowing from the financiers, I suspect Congressional support for this bill will evaporate.

  13. Winston says:

    Wonderful. Odds of passing – zero.

    • Kent says:

      It’ll never make it out of committee to be voted on. Voting means accountability. And no one wants that.

    • Gershon says:

      Yep. This is purely the prostitutes shaking down the pimp. But the banksters are still the pimps & “our” congress-critters are still the hoes. This bill is going nowhere, by design.

  14. Markar says:

    Does this alleged epiphany on the part of these Senators roll back the infamous Cromnibus bill of 2015 that put taxpayers on the hook for the big banks’ bad derivative bets?

  15. Justme says:

    When and a bank gets split up, how does its capital gets allocated between the commercial bank and the investment bank? THAT is the sticky question.

    Also, I sense that Goldman Sachs has a plan with this: GS wants to hamstring JPM and Citibank from participating in the equity markets, and GS wants to engineer a crash where they get to buy a huge portion of the market for pennies on the dollar, possibly using funds that banks will now have to lend to them rather than invest for their own account.

    The question you all should be asking yourself is, “who put the GS into Glass Steagall?”

  16. NotSoSure says:

    If hope is the only strategy, then you know the whole thing is toast.

    Reintroducing Glass Steagal at this point is akin to taking cigarettes away from someone who already has an advanced stage lung cancer.

  17. civil gypsy says:

    1. Steve Keen pointed out in one of his videos earlier this year that there is a strong positive correlation (0.82), between the Rate of Refinancing and Prices.

    2. Harry Dent pointed out in his book from earlier this decade the Peak Leisure spending tops out at age 54.

    2 doesnt happen unless you’re doing 1, over and over again.

    My theory is that 1 has hit a wall because 2 is now at Peak Boomer (1962).

    Banks and govt are now moving very, very fast, ’cause asset prices will tumble if refinancing (and living off the skim), is no longer viable, and they want to be positioned accordingly.

  18. d says:

    Be nice to see it happen.

    As GOP are in control and the repeal of glass was GOP legislation.

    It dosent look like anything more than demorat smoke, again.

  19. Dianne Helm says:

    If it wasn’t for taxpayer money spent without taxpayer knowledge, we would all be rich like Senators and Representatives who tell us what we need and don’t need.
    What we need is the bailout money repaid back to the coffers from which it was taken. What we don’t need are lies, and the liars who tell them.

  20. Willy2 says:

    – And how many loopholes will such an Act have ? Would a new Act have any “teeth” ?
    – I remember one US Insurance company called AIG. They issued/wrote all those toxic “Credit Default Swaps”. Issueing those CDSs weren’t allowed in the US. So, AIG issued those CDSs from their british subsiduary. And the rest is history.

    • Willy2 says:

      – I just also remembered that the Trump administration wants to cut the budget(s) for a number of goverment departments. I consider that also to be a threat to enforcing a new Glass Steagal Act.

  21. T. Janssen says:

    This should have been done the years ago.

Comments are closed.