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Tuesday, 24 June 2014 07:43

Elizabeth Warren Champions Bill to Restore Glass-Steagall Act and Rein in Wall Street

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ewarrenporch(Photo: mdfriendofHillary)

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Nearly a year ago (on July 11, 2013), Sen. Elizabeth Warren (D-MA) introduced the 21st Century Glass-Steagall Act of 2013, which is described on her Senate website as: 

A bill to reduce risks to the financial system by limiting banks' ability to engage in certain risky activities and limiting conflicts of interest, to reinstate certain Glass-Steagall Act protections that were repealed by the Gramm-Leach-Bliley Act, and for other purposes.

The purpose of the bill is to restore economic stability to the United States by once again limiting the expansion of banking into high-risk activity and financial areas that create a conflict of interest, as indicated in the bill itself:

(1) to reduce risks to the financial system by limiting banks' ability to engage in activities other than socially valuable core banking activities;

(2) to protect taxpayers and reduce moral hazard by removing explicit and implicit government guarantees for high-risk activities outside of the core business of banking; and

(3) to eliminate conflicts of interest that arise from banks engaging in activities from which their profits are earned at the expense of their customers or clients.

However, it is nearly a year since Warren (with nine Senate cosponsors and a companion bill in the House) introduced the bill, and it is currently languishing in the Senate Committee on Banking, Housing, and Urban Affairs.

In a June 13th media alert (via email), Public Citizen pointed out that the Glass-Steagall act protected this nation from egregious financial shenanigans - such as the economic meltdown of 2008 - for a half a century:

Unless you got stinking rich in the run-up to the Great Recession, there’s nothing good you can say about the way Washington tore down the regulatory firewall between commercial and investment banking. The idea to dismantle the Glass-Steagall Act of 1933, which protected our economy so well for 50 years, was a disaster waiting to happen from the start. Had that key financial regulation been left intact, Americans wouldn’t have suffered such enormous loss and hardship to satisfy Wall Street’s insatiable greed.

Monday, June 16, mark[ed] the 81st anniversary of the passage of the original Glass-Steagall law. We need to renew its principles to protect consumers from suffering the consequences when tricky, high-risk financial instruments like derivatives that banksters engineer to increase their profits and personal fortunes go bad.

The 21st Century Glass-Steagall Act (S. 1282) sponsored by U.S. Sen. Elizabeth Warren (D-Mass.) is designed to restore the essentials of the original law separating the banking business of high-flying speculators from other banking practices to protect Main Street. Public Citizen and Americans for Financial Reform, a coalition of more than 200 organizations on whose executive committee Public Citizen sits, are leading the call to the U.S. Senate to support this critical financial reform.

Those who remember know that the repeal of Glass-Steagall occurred, with the support of the Clinton administration, in 1999.  The most pernicious impact of the elimination of the law was the removal of restrictions that separated commercial and investment banking, but doors of increased high-risk financial behavior and conflicts of interest between financial institutions and clients were also opened wide.

Warren, as reported in Mother Jones in November 2013, believes that the much-touted Dodd-Frank financial reform law is largely ineffective and, thus, stronger legislation is needed:

Warren warned that Dodd-Frank hasn't solved "too big to fail"- the idea that certain financial institutions are so central to the operation of the economy that if, like AIG in 2008, their balance sheets collapse, the US government must step in to keep them solvent and prevent a system-wide collapse. According to Warren, the problem has actually gotten worse since the recession began. Bank consolidation is even more pronounced five years post-crash. "Today, the four biggest banks are 30 percent larger than they were five years ago," she said. "And the five largest banks now hold more than half of the total banking assets in the country."

Instead of relying on regulators to write strict rules, Warren pushed the 21st Century Glass-Steagall Act, a bill she's introduced alongside Sen. John McCain (R-Ariz.) and other senators that would force commercial financial institutions to wall off standard bank deposits from the riskier activities of investment banking, such as the swaps that sunk the economy in '08.

"The new Glass-Steagall Act would attack both 'too big' and 'to fail,'" Warren said Tuesday. "It would reduce failures of the big banks by making banking boring, protecting deposits, and providing stability to the system even in bad times. And it would reduce 'too big' by dismantling the behemoths, so that big banks would still be big—but not too big to fail or, for that matter, too big to manage, too big to regulate, too big for trial, or too big for jail."

Dodd-Frank left the "too big" portion largely untouched...

Warren argues that the Dodd-Frank law does not include an effective oversight vehicle to ensure that regulations are being enforced - and thus fails to meet its goals.

As reported in Mother Jones, Warren, as is her style, calls the failure of Congress to enact accountable financial laws a gross injustice to working people and a ticking time bomb:

"We should not accept a financial system that allows the biggest banks to emerge from a crisis in record-setting shape while working Americans continue to struggle," Warren said. "And we should not accept a regulatory system that is so besieged by lobbyists for the big banks that it takes years to deliver rules and then the rules that are delivered are often watered-down and ineffective. What we need is a system that puts an end to the boom and bust cycle. A system that recognizes we don't grow this country from the financial sector - we grow this country from the middle class."

It is an election year, and those in Congress are lining up for Wall Street contributions. Warren, no doubt, knows that cracking down on Wall Street at a time when the financial industry is handing out campaign dollars in supersize quantities does not bode well for getting the 21st Century Glass-Steagall Act of 2013 out of committee, let alone passed in the Senate.

Warren, however, has in a relatively short period of time in the Senate distinguished herself by knowing the difference between advocating just action that benefits the nation as a whole and falling prey to the DC cynicism and avarice of dancing to the tune of campaign contributors. 

Unlike others politicians who spout populist rhetoric, Warren is not only speaking to the 99%; she is advocating on behalf of them.  In this case, she has had enough of seeing the middle class, working class and poor become victims of financial institutions and, in reality, left to their own devices by the very agencies that should be regulating them.

Yet, a spokesperson for Public Citizen admitted to BuzzFlash at Truthout that the 21st Century Glass-Steagall Act of 2013 is staying put in committee this year. An effective prescription for financial chicanery among the masters of the universe remains locked up in the medicine cabinet.

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