Robert Reich on why both Democrats and Republicans won't control the Street with Glass-Steagall

Why Democrats Can't Be Trusted to Control Wall Street

By Robert Reich, Robert Reich's Blog

24 May 13

 ho needs Republicans when Wall Street has the Democrats? With the help of congressional Democrats, the Street is rolling back financial reforms enacted after its near meltdown.

According to the New York Times, a bill that's already moved through the House Financial Services Committee, allowing more of the very kind of derivatives trading (bets on bets) that got the Street into trouble, was drafted by Citigroup - whose recommended language was copied nearly word for word in 70 lines of the 85-line bill.

Where were House Democrats? Right behind it. Rep. Sean Patrick Maloney, Democrat of New York, a major recipient of the Street's political largesse, co-sponsored it. Most of the Democrats on the Committee, also receiving generous donations from the big banks, voted for it. Rep. Jim Himes, another proponent of the bill and a former banker at Goldman Sachs, now leads the Democrat's fund-raising effort in the House.

Bob Rubin - co-chair of Goldman before he joined the Clinton White House, and chair of Citigroup's management committee after he left it - is still influential in the Party, and his protégés are all over the Obama administration. I like Bob personally but I battled his Street-centric views the whole time I served, and soon after I left the administration he persuaded Clinton to support a repeal of the Glass-Steagall Act.

Jack Lew, Obama's current Treasury Secretary, was chief operating officer of Citigroup's Alternative Investments unit, a proprietary trading group, from 2006 to 2008, before he joined the Obama administration. Peter Orszag, Obama's Director of the Office of Management and Budget, left the Obama Administration to become Citigroup's vice chairman of corporate and investment banking, and chairman of the financial strategy and solutions group.

All these men are honorable. None has broken any law. But they and their ilk in congress - the Democrats who are now rolling back Dodd-Frank - don't seem to appreciate the extent to which Wall Street has harmed, and continues to harm, America.

It's not entirely coincidental that the Obama Administration never put tough conditions on banks receiving bailout money, never prosecuted a single top Wall Street executive for the excesses that led to the near meltdown, and still refuses to support a tiny tax on financial transactions that would bring in tens of billions of dollars as well as discourage program trading.

Democrats can't be trusted to control Wall Street. If there were ever an issue ripe for a third party, the Street would be it.

Nation Farmers Union on Glass-Steagall

Glass-Steagall: An Idea Worth Reconsidering

FOR IMMEDIATE RELEASE May 20, 2013 Contact: Melisa Augusto, 202-314-3191 maugusto@nfudc.org Dan McEvily, 202-314-3104 dmcevily@nfudc.org WASHINGTON (May 20, 2013) – National Farmers Union (NFU) President Roger Johnson commends Sen. Tom Harkin (D-Iowa) and Rep. Marcy Kaptur (D-Ohio) for introducing legislation to reinstate the Glass-Steagall Act, which would help protect the U.S. economy from widespread collapse. Sen. Harkin’s bill was dropped in the Senate on May 13th – the 80th anniversary of the original enactment of Glass-Steagall. “Congress must learn from the past in order to prevent future financial crises,” said Johnson. “The Federal Government, in its deregulatory zeal of the 1990s, repealed important laws like Glass-Steagall that separated commercial banking from investment banking. Doing so helped to set up the Great Recession.”   Glass-Steagall, or the Banking Act of 1933, prevented affiliations between banking and investment firms that could collapse simultaneously in a crisis. The Gramm-Leach-Bliley Act of 1999 repealed these provisions. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 made some improvements, but stopped short of the safeguards provided by Glass-Steagall.   “Sen. Harkin and Rep. Kaptur deserve great thanks for bringing these reforms back to the table and I urge all members of Congress to support prudent financial protections.”   National Farmers Union has been working since 1902 to protect and enhance the economic well-being and quality of life for family farmers, ranchers and rural communities through advocating grassroots-driven policy positions adopted by its membership. -30-

Rachel and Me

Had a chat with Rachel Maddow the other night, or at least I tried to.

The topic was economics, which she doesn’t do enough of, and I was on some sort of a panel. I suppose that’s why I was on: My friend and I have a website called Glass-SteagallNow.com. I need to spend more time updating it, because Glass-Steagall could solve the nation’s, and indeed the world’s, economic problems.

There were several economists and big shots on the program, all answering Rachel’s questions about their cockamamie theories about why we were in such a mess and how it was this group’s fault or that group’s fault. I raised my hand several times to get Rachel’s attention, but she just kept calling on the others. It was like I wasn’t even there.

If you don’t know, and you probably don’t, Glass-Steagall is the common name for the Banking Act of 1933. Named after its chief sponsors, Henry Steagall and Carter Glass, it was passed into law as soon as Roosevelt got into office, and stopped the crazy Wall Street speculators who caused the crash and depression of the 30’s. Just like now, you see, there was no real reason for the depression, other than banks that gambled with their depositor’s money, and, just like now, lost it all. Glass-Steagall said that if you took deposits, you were a regular or commercial bank. You had to be conservative and safe with their money, or you went out of business. And, if you behaved yourself, the deposits could be government insured, by a brand new thing called the FDIC.

But if you were the ‘other’ kind of bank, the ones that gambled on risky investments to make huge returns (or mammoth losses), you were an investment bank, and the people who gave you money knew what they were getting into. And no insurance, thank you very much.  Rich people liked to invest with investment banks, ‘cause they had the extra cash to lose, and could reap big benefits if they were careful. Because they knew the risks, investment banks were kept pretty small—rich people didn’t get to be rich by being stupid.

I was assuming that Rachel wanted me to explain how this all worked great until the larger banks, having already screwed the public in a number of ways (health maintenance organizations, airlines, savings & loans, energy, education loans, others) began to systematically undermine the banking system. They messed with Glass-Steagall in the 80’s (now known as the Savings & Loan scandal), but, undeterred by that fiasco continued to whittle away at the 56-page law that had kept banking system safe and reliable for 66 years. Investment banks were where the big profits were, if they could just combine with commercial banks and get their greedy little hands on all that cash they would have it made. Mountains and mountains of insured cash. Then, in 1999, with Bill Clinton’s Wall Street cronies in charge of the Treasury, and the Republicans in charge of the congress, they finally ‘shattered’ Glass-Steagall and opened the floodgates for major craziness.

They turned their attention to the real estate market—huge, safe, reliable and so vulnerable for exploitation. The banks immediately went to work getting their hands on these huge amounts of money that they could use to that make more money. And as long as the banking and real estate systems worked in cahoots they could make lots and lots and lots of money. All they really needed to do was to make sure that the real estate business just kept getting bigger and bigger and bigger. Everybody needs a house! Everybody needs a loan!

I really wanted to explain to Rachel that that’s not how the real estate business works. Real estate is based on something real and tangible. It grows at a steady regular, conservative pace. And if it doesn’t then it creates a bubble and when there’s a bubble then all hell breaks loose. And this bubble just grew and grew and grew for seven or eight years! Houses cost more and more and there was so much money and people would use their house as an ATM and everybody got a loan if they wanted one. And even if you didn't!

Until 2007 when everybody realized the houses weren’t worth what they were paying for them and suddenly the bubble burst.

I kept holding my hand up hoping that Rachel would call on me so that I could explain that all of these guys just had more and more complicated and unnecessary changes that need to be made when really the only problem was that Glass-Steagall shouldn't have been repealed in 1999.

I was getting very, very angry.  “Glass-Steagall”, “Glass-Steagall”, “Glass-Steagall” was all I wanted to say. But she wouldn't call on me.  Rachel, please!

Finally reaching extreme heights of anger, I sat up in my bed and looked around.

I turned off the TV and went back to sleep.

They’ll never get it, I remember thinking.

Couple articles from Larouche sources:

NEWS COVERAGE OF HARKIN'S INTRODUCTION OF S 985, CITING LAROUCHE,SPREADS WIDELY

May 19 (LPAC)--News coverage of Senator Tom Harkin's introduction of Senate Bill 985, calling for the reinstatement of Glass-Steagall, introduced on May 16, the 80th anniversary of the passage of the original FDR Glass-Steagall law, has been posted on numerous websites across the country during the past 48 hours.

        The Project Avalon Forum reproduces in full the LPAC press release on Harkin's introduction of the bill, and has the YouTube version of the May 17 LPAC TV news coverage of the Harkin bill, with Leandra Bernstein, so that all one has to do is click on the arrow that activates the show. The News.Silobuster.com website also has a similar link to the LPAC show.

        The Exchange Gold for Cash.com website features the May 17 LPAC press release in full.

        The very good story that appeared in the May 17 Examiner, "Bankster Alert: Tom Harkin Introduces Glass-Steagall Bill in Senate," which article directly states "Lyndon LaRouche, an economist and former presidential candidate applauded Harkin on Thursday [May 16]," and otherwise uses information extensively from LPAC's press releases on the fight for Glass-Steagall, is reproduced in full on the Topix.com and the Ed Steer websites.

        These postings are updated with what Lyndon LaRouche, talking about the Harkin bill, told associates on May 18, "I imagine there's a certain amount of optimism that has been stirred up by these developments... This is going to be an epidemic. Unless something changes, there can be very radical changes very suddenly." [ref]

ARTICLE ASSERTS "MIDDLE CLASS HAS TO BECOME OBSESSED" WITH PASSAGE OF GLASS-STEAGALL

May 17 (LPAC)--Under the title, "Until We Restore Glass-Steagall, More Big Bank Bailouts Are Inevitable," the May 18 Eclecta Blog, which describes itself as "Progressive News and Commentary," promotes the urgent adoption of Glass-Steagall, which cause, it says, must become an "obsession" of the population.

        The article states, "Attorney General Eric Holder made actually some news this week: ... he told the House Judiciary committee that big banks are not too big to jail. He was willing to criminally prosecute the nation's largest banks, though he hasn't done so since the financial crisis.

        "`Let me be very, very, very clear banks are not too big to jail,' Holder added.

        "This is a small relief because the fact remains that the big banks are bigger than ever,...

        "Since the 1930s, Glass-Steagall prevented another depression by separating investment and commercial banks by law. In 1999, conservatives passed and Bill Clinton signed a repeal of this crucial New Deal reform. You know what happened less than a decade later.

        "Not restoring Glass-Steagall after the financial crisis is like sending the Space Shuttle up with the same flawed O-rings the Challenger had.

        After it dismisses the Brown-Vitter bill, the article asserts, "This is an issue the middle class has to become obsessed with and not just because the big banks are getting an $83 billion implied taxpayer subsidy, and not because another crisis will lead to trillions more in debt that the right will use to justify gutting our social safety net. The fact that we cannot fix this glaring injustice, this obvious flaw in our economy, is the worst symptom of a sick political system."